[GRAPHIC OMITTED: 7 SQUARE BULLETS CENTERED UNDER SOLID
BLACK BAR]
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LB SERIES FUND, INC.
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[ART OF SHIP'S WHEEL.
reads:
CHOICE [DIAMOND] PROTECTION [DIAMOND] ACCUMULATION]
Semiannual Report
for Variable Products
June 30, 1998
[LUTHERAN BROTHERHOOD LOGO OMITTED]
LUTHERAN BROTHERHOOOD
[GRAHIC OMITTED: PHOTO OF ROLF F. BJELLAND]
Our Message to You
June 30, 1998
Dear Contract Owner:
This Semiannual Report for the LB Series Fund, Inc.--which is the
underlying investment vehicle for all variable annuity and variable life
insurance contracts issued by Lutheran Brotherhood and Lutheran
Brotherhood Variable Insurance Products Company--covers the six-month
period ended June 30, 1998. The report includes a summary of the economic
and market conditions that influenced investment performance during that
time, as well as reviews from the managers of individual portfolios
describing the tactics they used in this environment. You'll also find
separate financial statements for each portfolio, as well as separate
lists of portfolio holdings.
In the past six months investors have reaped continued rewards from both
stocks and bonds. Fed by a nearly perfect economic and market climate in
the U.S., stock returns have been impressive--especially after several
years of exceptional gains. For the 36 months ended June 30, 1998, the
Standard & Poor's 500 Index has produced a total return of 120%--the best
three-year run since the 1950s. Although returns for bonds during the
reporting period were closer to their historic norms, bond prices rallied
enough to push the yield for 30-year U.S. Treasury securities down to
5.58%--the lowest level since these bonds were introduced in 1977.
Lutheran Brotherhood members often ask me what they should do now that
stock and bond prices are at record high levels. Many wonder whether they
should continue putting money into stocks, whose record valuations make
them vulnerable to periodic weakness, or seek the more stable returns of
bonds and cash. In recent years, as in longer periods, stock investors
have been well compensated for staying invested through times of market
volatility. I believe patient investors will continue to enjoy solid
returns in the future.
Of course, your personal decision to invest more in stocks depends on your
individual objectives, time frame and tolerance for risk. If you have less
time to invest, and short-term market fluctuations make you nervous, ask
your Lutheran Brotherhood Securities Corp. (LBSC) registered
representative to help you find an investment allocation that matches your
particular goals. This discussion can also be helpful if you have a longer
time frame--since the large changes in securities values in recent years
may have significantly altered the original asset allocation of your
portfolio.
We're also pleased to present the first review of the Mid Cap Growth
Portfolio, which was launched on January 30 of this year. This new
investment portfolio, which focuses on the stocks of medium-sized U.S.
companies, has been very well received by Lutheran Brotherhood members,
amassing more than $60 million in assets during its first five months of
operation. If you'd like to know more about the Mid Cap Growth Portfolio
and how it might play a role in your overall investment diversification,
contact your LBSC registered representative.
As we noted in our last report, Lutheran Brotherhood has created a
program called AssetMatchSM that can help you and your LBSC registered
representative determine a balance of investments that suits your
financial goals, time frame, and tolerance for risk. You can receive more
information about AssetMatch, or the content of this report, by contacting
your LBSC registered representative or by calling us toll free at
1-800-423-7056.
Sincerely,
/S/ ROLF F. BJELLAND
Rolf F. Bjelland
President and Chairman
LB Series Fund, Inc.
Economic and Market Overview June 30, 1998
To the surprise of many investors, stock and bond prices continued to
rally in the first half of 1998. Economic growth remained strong during
this time, and inflation and interest rates were low. With investors
unsure whether this nourishing environment would continue, financial
markets experienced frequent short-term fluctuations. Even so, the
Standard & Poor's 500 Index earned a six-month total return of
17.64%--three times the historic average on an annualized basis. The
Lehman Brothers Aggregate Bond Index returned 3.93% over this time.
A Robust Environment
Although investors had feared that economic problems in Asia would slow
growth in the U.S., the gross domestic product (GDP), which measures the
total value of U.S. goods and services, continued to strengthen.
Following an annualized rate of 3.7% in the fourth quarter of 1997, GDP
growth was 5.4% in the first quarter of 1998--one of the highest rates
in 15 years. This stronger growth was fueled partly by strong personal
spending and record increases in inventory growth. Lower-priced imports-
- -combined with strong pricing competition, further productivity gains,
and falling oil prices--helped drive the annual rate of inflation, based
on the consumer price index (CPI), from 1.7% in the fourth quarter of
1997 to 1.4% in the first quarter of 1998.
This robust environment drove stock prices sharply higher. Although the
growth rate in U.S. corporate earnings weakened, earnings did, in fact,
continue to grow and exceed expectations. Stocks also benefited as the
International Monetary Fund (IMF) helped stabilize some economies in
Asia and corporate consolidations and stock buyback programs further
reduced the supply of shares. Bond prices also rallied as the prospect
of slower growth and reduced trade with Asia curbed inflation fears and
kept the Federal Reserve from raising interest rates. A "flight to
quality" by foreign investors that boosted demand for U.S. bonds, plus
news of the first federal budget surplus since 1969, provided further
support for bonds.
During the second quarter, it became clear that Asia's problems would
take longer to resolve than first thought. There were also signs that
the trouble abroad, added to other factors, was slowing growth and
causing further erosion in earnings. Stock prices advanced modestly
under these conditions, and bond prices rallied further.
Overseas, stock prices were also up strongly for the period, with the
Morgan Stanley Capital International Europe, Australasia, Far East
(EAFE) Index earning a total return of 16.08% in the six months ended
June 30, 1998. Stocks in Europe were largely responsible for the
advance, as strengthening economies boosted earnings expectations and
demand for stocks grew. After rallying in February and March, Asian
stocks beat a hasty retreat.
Large-Company Stocks, Treasuries Outperform
With further concerns about corporate earnings, investors favored the
more conservative stocks of large companies over those of medium- and
small-sized firms. Besides earnings that tend to be more stable, large-
company stocks benefited from strong demand by foreign investors seeking
familiar names. By historic norms, however, returns for medium-sized
firms were also significantly better than average--with the Standard &
Poor's 400 Mid-Cap Index returning 10.7% during the six-month period.
Small-company stocks managed a respectable gain, with the Russell 2000
Index returning 5.27%.
Treasury bonds continued to outpace corporate bonds during the period,
as new concern about future growth weakened demand for corporates. At
the same time, low interest rates encouraged large supplies of new
corporate issues. Treasuries, by contrast, enjoyed strong demand from
investors here and abroad, as the federal budget surplus simultaneously
signaled smaller supplies.
A Short-Term Squeeze
The recent slowdown in corporate earnings growth appears to be a short-
term profit squeeze resulting partly from significant one-time charges
taken by some prominent U.S. firms and from rising wage costs that
companies can't offset with higher prices. Nonetheless, productivity
remains strong and costs are even falling in some sectors. Many
companies, in fact, are reporting positive second-quarter earnings
surprises.
Although U.S. exports to Asia represent only 5% of domestic goods and
services, fewer exports could extend the earnings squeeze if combined
with a period of slower growth that would be typical in such a long-
lived economic expansion. Because current stock prices assume continued
strength in earnings, even modest earnings disappointments could prompt
additional market fluctuations in what should be a long-term upward
trend.
With more modest growth, inflation and interest rates should remain low.
Because the bond market has already anticipated the potential for slower
growth, bonds will probably trade in a narrow range in the second half
of 1998.
Opportunity Growth Portfolio Review
[GRAPHIC OMITTED: PHOTO OF RICHARD T. WHITNEY]
T. Rowe Price Associates of Baltimore, MD, assumed the role of
investment subadvisor for the Opportunity Growth Portfolio on May 1,
1998, in accordance with an agreement approved by contract owners in
April. Richard T. Whitney is a managing director and portfolio manager
of T. Rowe Price Associates, the investment subadviser for the
Opportunity Growth Portfolio. Rich has worked at T. Rowe Price since
1985 and heads the firm's investment advisory committee. Rich is a
Chartered Financial Analyst.
Small-company stocks lagged shares of large- and medium-sized companies
as economic uncertainty drew investors to larger firms with good
liquidity and reliable earnings. Small-cap stocks were also hampered as
supplies of new issues far outpaced investor demand.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term Securities 2.2%
Common Stocks 97.8%
The difference in performance was particularly noticeable for stocks
with market capitalizations under $250 million, where the Opportunity
Growth Portfolio had an above-average exposure. Market capitalization,
which categorizes companies by size, is calculated by multiplying a
company's outstanding common stock shares by the price per share.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
Top 10 Holdings % of Portfolio
- ----------------------------------------------------------------------
PMT Services, Inc. 0.9%
Kendle International Inc. 0.6%
Total Renal Care Holdings, Inc. 0.6%
CBT Group PLC 0.6%
Metamor Worldwide, Inc. 0.6%
Steiner Leisure Limited 0.6%
Saville Systems Ireland plc 0.6%
CIBER, Inc. 0.6%
Lincare Holdings, Inc. 0.6%
Aspen Technology, Inc. 0.5%
Footnote reads:
These holdings represent 6.2% of the Portfolio's total investments.
Although we continued to restructure the Portfolio to give greater
emphasis to stocks at the higher end of the market capitalization range,
the Portfolio underperformed its market benchmark for the period. For
the six months ended June 30, 1998, the Portfolio had a total return of
- -0.89% (based on NAV). Over the same time, the Russell 2000 Index
returned 5.27%, slightly lagging its long-term historical average.
Steps to Reduce Volatility
The continued restructuring of the Portfolio during the period was part
of an overall effort to reduce volatility and increase relative return.
When the period began, the Portfolio had a weighted average market
capitalization of about $904 million. By selling some positions with
capitalizations of $200 million or less, and buying stocks with
capitalizations of $500 million or more, we increased the average
capitalization to $1.4 billion by the end of the period. We believe this
strategy should help limit the volatility of Portfolio returns over
time, with little loss in long-term growth potential.
We further enhanced the Portfolio's stability by adding consumer growth
stocks, which benefited from the highest levels of consumer confidence
in decades. We also increased holdings in the very dynamic sector of
media and communications. The Portfolio continues to focus on stocks of
growth-oriented companies with bright earnings outlooks, while de-
emphasizing cyclical issues.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Computer Software 15.9%
Business Services 10.2%
Bank & Finance 8.8%
Retail 6.9%
Hospital Supplies & Management 6.1%
Medicine & Communications 4.7%
Pharmaceuticals 3.7%
Telecommunications Equipment 3.6%
Electronic Components 3.1%
Miscellaneous Consumer Products 2.7%
Footnote reads:
These sectors represent 65.7% of the Portfolio's
total investments.
During the period, the Portfolio benefited from strong gains by many
individual issues. Stocks that performed well included Bed, Bath &
Beyond and Dollar Tree Stores in the retail sector; CBT Group, Legato
Systems and Synopsys in the computer software sector; Metris Companies
in the bank and finance sector; and Concord EFS in the business services
sector. Returns from these shares helped offset lagging performances
by holdings like Cannondale, a manufacturer of bicycles and related
sporting equipment, and EVI Weatherford, an oil services company.
Investment Objective:
To seek long-term growth of capital by investing primarily in common
stocks of small companies.
INSET BOX READS:
Portfolio Facts
Inception Date: 1/18/96
Total Assets
(in millions): $391.7
Attractive Values
We continue to believe that small-company stocks offer attractive values
relative to larger companies. Over the first half of 1998, 56% of stocks
in the Opportunity Growth Portfolio received upward revisions in
earnings expectations from Wall Street analysts, versus 42% for the
large companies of the Standard & Poor's 500 Index. When values are at
these levels, it has historically been beneficial to buy positions in
the small-cap arena. Today, however, some sort of market catalyst will
probably be needed for small-cap stocks to once again outperform other
sectors of the market for an extended period. The current slowdown in
earnings of larger firms could be such a catalyst, causing investors to
focus on smaller companies that can muster stronger earnings growth.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 1/31/96]
Performance Through June 30, 1998
Growth Of $10,000 Invested Since 1/31/96
Opportunity Russell Consumer
Month End Growth 2000 Price
Date Portfolio Index Index
- -----------------------------------------------------------------
1996 10,000 10,000 10,000
1996 10,416 10,312 10,032
1996 10,722 10,525 10,084
1996 11,944 11,089 10,123
1996 12,716 11,525 10,142
1996 11,871 11,052 10,149
1996 10,855 10,087 10,168
1996 11,499 10,673 10,188
1996 12,342 11,090 10,220
1996 11,364 10,920 10,253
1996 10,954 11,369 10,272
1996 11,302 11,667 10,272
1997 11,528 11,901 10,304
1997 10,533 11,613 10,337
1997 9,415 11,065 10,363
1997 9,009 11,095 10,376
1997 10,338 12,329 10,369
1997 10,887 12,858 10,382
1997 11,454 13,456 10,395
1997 11,721 13,764 10,415
1997 13,018 14,772 10,440
1997 12,246 14,123 10,466
1997 11,776 14,032 10,460
1997 11,407 14,277 10,447
1998 11,063 14,052 10,466
1998 11,739 15,090 10,486
1998 12,175 15,712 10,505
1998 12,216 15,798 10,525
1998 11,219 14,947 10,544
1998 11,305 14,978 10,557
INSET LEGEND READS:
Opportunity
Growth
Portfolio
$11,305
Russell 2000
Index
$14,978
Consumer
Price Index
$10,557
INSET BOX ON CHART READS:
Opportunity Growth
Portfolio
Annualized Total Returns*
- ------------------------------------
Since Inception
1/18/96 7.43%
1 Year 3.84%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
In the meantime, we'll continue to look for stocks with the potential
for outstanding appreciation over time. As before, we'll keep the
Portfolio broadly diversified, making the most of opportunities as we
uncover them, while working to minimize the effects of volatility from
individual issues.
Mid Cap Growth Portfolio Review
[GRAPHIC OMITTED: PHOTO OF BRIAN L. THORKELSON]
Brian L. Thorkelson is a Chartered Financial Analyst and portfolio
manager for the Mid Cap Growth Portfolio. He joined Lutheran Brotherhood
in 1987, working for five years as a bond trader and another five years
as an equity analyst for several Lutheran Brotherhood portfolios.
As the prospect of slower growth drove investors to larger companies
with reliable earnings in the first half of 1998, stocks of medium-sized
firms outperformed stocks of small-sized firms while underperforming
shares of large companies. Much of this underperformance came in May and
June, when earnings concerns deepened. During this time, we continued to
add high-quality stocks with reasonable valuations to the Mid Cap Growth
Portfolio.
Like most new mutual fund portfolios, we occasionally held large cash
reserves as we waited to add positions appropriate to the Portfolio's
size. Because stocks advanced strongly in the last six months, this cash
position caused the Portfolio to slightly underperform its market
benchmark. Compared to historic mid-cap averages, however, the
Portfolio's return was quite strong.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
Top 10 Holdings % of Portfolio
- ----------------------------------------------------------------------
Sterling Commerce, Inc. 0.9%
HBO & Company 0.8%
BMC Software, Inc. 0.8%
Watson Pharmaceuticals, Inc. 0.7%
Keane, Inc. 0.7%
Jacor Communications, Inc. 0.7%
Onmicare, Inc. 0.7%
SunGard Data Systems Inc. 0.7%
USA Waste Services, Inc. 0.6%
STERIS Corporation 0.6%
Footnote reads:
These holdings represent 7.2% of the Portfolio's total investments.
In the five months between the Portfolio's inception on January 30,
1998, and the end of the reporting period on June 30, 1998, it produced
a total return of 9.68% (based on NAV). Over the same time, the Standard
& Poor's 400 Mid-Cap Index had a return of 10.7%.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Common Stocks 90.2%
Short-Term Securities 9.8%
Retail, Telecommunications Shares Boost Returns
During the five-month period, the Portfolio enjoyed strong gains from
many individual issues. Investments in retail stocks performed
especially well, benefiting from robust consumer spending and low-cost
Asian imports. Telecommunications and computer software stocks further
enhanced returns. Stocks that underperformed came mostly from the basic
materials and capital goods sectors, which were vulnerable to concerns
about slowing growth rates, and from the energy sector, which was hit by
falling oil prices.
With the prices for medium-sized stocks somewhat volatile in the face of
the Asian crisis, we tried to stabilize Portfolio returns by emphasizing
companies that focus on domestic sales. In building the Portfolio, we
gave special attention to consumer growth stocks, including drug and
health care stocks that can benefit from long-term consumer demographic
trends. We also favored technology stocks, which should also enjoy
strong growth over time. Financial stocks, which tend to thrive when
interest rates are low, were also emphasized during the period.
Our most recent acquisitions include Sylvan Learning Systems, Stride
Rite, America Online, Viking Office Products, and AutoZone.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Bank & Finance 10.1%
Services 8.3%
Retail 7.8%
Computer Software 7.6%
Drugs & Healthcare 6.7%
Electronics 5.0%
Computers & Office Equipment 4.7%
Oil & Oil Service 4.5%
Healthcare Management 3.7%
Telephone & Telecommunications 2.4%
Footnote reads:
These sectors represent 60.8% of the Portfolio's
total investments.
Investment Objective:
To seek long-term growth of capital by investing in common stocks of
medium-sized companies.
INSET BOX READS:
Portfolio Facts
Inception Date: 1/30/98
Total Assets
(in millions): $61.3
Less Exposure to Asia
Stocks of medium-sized firms tend to have less exposure to the economic
troubles in Asia than the stocks of large, multinational firms. With
prices that are more attractive than those for shares of larger
companies, stocks of medium-sized firms could outperform if investors
become more confident about future economic growth. In the months ahead,
we plan to remain focused on investments with strong growth potential--
especially in the retail, health care, and technology sectors--while
maintaining a broadly diversified mix of high-quality issues.
INSET BOX READS:
Mid Cap Growth
Portfolio
Total Return*
Period Ending 6/30/98
- ------------------------------------
Since Inception
1/30/98 9.68%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
The Mid Cap Growth Portfolio was introduced on January 30, 1998.
Given its brief performance history, the growth of a
$10,000 investment in the Portfolio is not illustrated in this report.
World Growth Portfolio Review
[GRAPHIC OMITTED: PHOTO OF MARTIN G. WADE]
Martin G. Wade is president of Rowe Price-Fleming International, the
investment subadvisor for the World Growth Portfolio. He leads a team of
six portfolio managers who have managed the assets of the World Growth
Portfolio since its inception. Martin has been working in research and
investment management since 1968 and has been with Rowe Price-Fleming
since 1979.
Early in 1998, when Asia's economic problems seemed to be stabilizing,
stocks in the region rebounded from their steep slide at the end of
1997. Once it became clear that Asia's troubles were far from resolved,
and Japan entered an economic recession, Asian stocks again quickly
retreated. Over the same period, stocks in Europe moved sharply higher.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term Securities 5.4%
Preferred Stocks 0.8%
Common Stocks & Warrants 93.8%
We continued to hold a smaller portion of Asian stocks in the World
Growth Portfolio than those represented in its market benchmark, the
Morgan Stanley Capital International Europe, Australasia, Far East
(EAFE) Index, and a larger portion in European stocks. This helped the
Portfolio earn a total return of 14.02% (based on NAV) for the six
months ended June 30, 1998.
[GRAPHIC OMITTED: TOP 10 COUNTRIES]
Top 10 Countries
- ----------------------------------------
United Kingdom 17.3%
Japan 14.9%
Netherlands 11.7%
France 10.8%
Germany 7.6%
Switzerland 6.8%
Italy 5.1%
Sweden 3.7%
Spain 2.9%
Belgium 2.4%
Footnote reads:
These holdings represent 83.2%
of the Portfolio's total investments.
Although the Portfolio benefited from an overweighting in France and the
Netherlands, both strong performers during the period, underweightings
in the sharply advancing markets of Germany, Spain, and Portugal curbed
returns. This, plus an overweighting in the lesser-performing markets of
Latin America, caused the Portfolio to slightly lag the EAFE Index,
which had a return of 16.08% for the six-month period.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Country Portfolio
- ------------------------------------------------------------------
National Westminster Bank United Kingdom 2.5%
Royal Dutch Petroleum Netherlands 2.3%
SmithKline Beecham plc United Kingdom 2.1%
Nestle Switzerland 2.0%
Wolters Kluwer Netherlands 1.8%
ING Groep NV Netherlands 1.7%
Kredietbank Belgium 1.6%
Glaxo Wellcome United Kingdom 1.5%
Eaux Cie Generale France 1.4%
Telecomunicacoes
Brasilias ADR (USD) Brazil 1.3%
Footnote reads:
These holdings represent 18.2% of the Portfolio's total investments.
Trimming Asian Investments
At the start of 1998, Japanese stocks accounted for about 19% of
Portfolio assets, versus 25% of the EAFE Index. Over the next six
months, we continued to trim that portion of the Portfolio. By the end
of June, with a further price decline, Japanese stocks represented about
15% of the Portfolio, versus about 21% of the Index. With price declines
in stocks of emerging Asian markets, and sales of investments in
Malaysia, Singapore, and Hong Kong, this group accounted for about 2% of
the Portfolio at the end of the period, compared with 5.3% of the Index.
We used proceeds from the sale of these Asian holdings to add European
stocks. Among these were shares of French, Italian, and German banks,
including Credit Commercial de France, Banca di Roma, Societe Generale,
and Dresdner Bank. We also purchased shares of Royal Philips
Electronics, a major electronics firm in the Netherlands.
European Rally Could Slow
Having advanced strongly in the first half of 1998, with gains of 40% in
some markets, we believe European stocks should advance more modestly in
the second half of the year. Over the long-term, however, positive
economic and corporate conditions in the region should help stocks there
make further gains.
Investment Objective:
To seek long-term capital growth by investing primarily in common
stocks issued by established companies outside the United States.**
INSET BOX READS:
Portfolio Facts
Inception Date: 1/18/96
Total Assets
(in millions): $349.6
The outlook in Japan is less certain. While government plans to
restructure the country's economy are encouraging, positive results
could remain elusive. With earnings of Japanese companies likely to
disappoint in coming months, especially with discouraging outlooks for
other parts of Asia, we expect to continue trimming the Portfolio's
position in Asia. We will probably remain overweighted in the emerging
markets of Latin America, however, where the economic and political
climate is more positive. Stock prices in Latin America are now quite
attractive, and we are hopeful that these markets will separate
themselves from the shadow of Asia and perform strongly for the rest of
this year.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 1/31/96]
Performance Through June 30, 1998
Growth of $10,000 Invested Since 1/31/96
World MSCI Consumer
Month End Growth EAFE Price
Date Portfolio Index Index
- -----------------------------------------------------------------------
1996 10,000 10,000 10,000
1996 9,974 10,036 10,032
1996 10,098 10,252 10,084
1996 10,355 10,552 10,123
1996 10,336 10,360 10,142
1996 10,468 10,421 10,149
1996 10,137 10,119 10,168
1996 10,290 10,143 10,188
1996 10,534 10,415 10,220
1996 10,481 10,311 10,253
1996 10,965 10,723 10,272
1996 11,025 10,588 10,272
1997 10,871 10,220 10,304
1997 10,983 10,389 10,337
1997 10,967 10,430 10,363
1997 11,035 10,487 10,376
1997 11,738 11,172 10,369
1997 12,239 11,791 10,382
1997 12,568 11,985 10,395
1997 11,433 11,092 10,415
1997 12,195 11,715 10,440
1997 11,306 10,816 10,466
1997 11,276 10,708 10,460
1997 11,335 10,805 10,447
1998 11,737 11,302 10,466
1998 12,423 12,030 10,486
1998 12,851 12,402 10,505
1998 12,952 12,503 10,525
1998 12,928 12,445 10,544
1998 12,924 12,542 10,557
INSET LEGEND READS:
World
Growth
Portfolio
$12,924
MSCI EAFI
Index
$12,542
Consumer
Price Index
$10,557
INSET BOX ON CHART READS:
World
Growth Portfolio
Annualized Total Returns*
- ------------------------------------
Since inception
1/18/96 11.09%
1 Year 5.60%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Growth Portfolio Review
[GRAPHIC OMITTED: PHOTO OF SCOTT A. VERGIN]
Scott A. Vergin is a Chartered Financial Analyst and portfolio manager
for the Growth Portfolio. He began managing the Portfolio in November
1994, and has managed securities at Lutheran Brotherhood since 1983.
Stock prices advanced strongly in the first half of 1998, despite
increasing investor nervousness about corporate earnings. Most of the
gains occurred in the first quarter, when growth strengthened and the
economic crisis in Asia was stabilizing. As in 1997, concerns about
earnings led investors to an ever-narrower group of large-company stocks
whose earnings growth is considered more reliable. With investments in
many of these issues, the Growth Portfolio performed well in this
environment.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Common Stocks 94.4%
Short-Term Securities 5.3%
Preferred Stocks 0.2%
Corporate Bonds 0.1%
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
Top 10 Holdings % of Portfolio
- ----------------------------------------------------------------------
Cisco Systems, Inc. 1.8%
General Electric Co. 1.7%
Microsoft Corp. 1.6%
Merck and Co. Inc. 1.4%
American International Group Inc. 1.3%
Coca-Cola Co. 1.3%
Procter & Gamble Company 1.2%
American Express Co. 1.1%
Bristol Myers Squibb Co. 1.1%
Wal-Mart Stores Inc. 1.1%
Footnote reads:
These holdings represent 13.6% of the Portfolio's total investments.
For the six months ended June 30, 1998, the Portfolio earned a total
return of 16.71% (based on NAV). Over the same period, the Standard &
Poor's 500 Index returned 17.64%.
Large Holdings Play Lead Role
Throughout the reporting period, we continued to de-emphasize stocks of
companies whose sales depend on trade with Asia. Technology and consumer
growth stocks remained a large part of the Portfolio and performed well
during the period. We also kept sizable positions in financial stocks,
which contributed positively to returns. Specific stock selection
further boosted returns--with strong performances by large holdings like
Cisco Systems, American International Group, Microsoft, Coca-Cola,
Bristol Myers Squibb, and Wal-Mart Stores. Other retail holdings, such
as Home Depot, Dayton Hudson, and Circuit City Stores also contributed
as consumer spending remained particularly strong. These returns far
offset disappointing performances by the Portfolio's position in energy
stocks, which were hurt by further declines in oil prices.
During the period we reduced investments in stocks of basic industry and
capital goods firms, which we felt were particularly vulnerable to the
problems in Asia. This allowed us to increase investments in the
strongly performing retail sector. We also added stocks of firms such as
Centex, a national homebuilder, which could benefit as low interest
rates spurred further growth in housing sales.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Bank & Finance 18.1%
Drugs & Health Care 10.6%
Retail 8.3%
Computer Software 6.2%
Computer & Office Equipment 6.0%
Oil & Oil Service 6.0%
Telephone & Telecommunications 4.7%
Food & Beverage 3.6%
Household Products 3.4%
Telecommunications Equipment 3.0%
Footnote reads:
These sectors represent 69.9% of the Portfolio's total investments.
Stock Selection to Remain Important
We believe that individual stock selection will remain key to returns in
the second half of 1998. Recent market activity has demonstrated that
investors are relatively unforgiving when companies report earnings
disappointments and are likely to continue favoring stocks with the most
reliable earnings prospects.
Investment Objective:
To seek long-term growth of capital by investing primarily in common
stocks of established corporations.
INSET BOX READS:
Portfolio Facts
Inception Date: 1/9/87
Total Assets
(in millions): $2,995.4
In this climate we will continue to invest in quality companies that
demonstrate potential for positive earnings surprises. If the economies
of Asia improve, we may look for opportunities among the economically
sensitive "cyclical" sectors, where prices have become more attractive.
In the meantime, we'll remain committed to domestically-focused
companies with strong outlooks for long-term growth, such as firms in
the health care sector.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 6/30/88]
Performance Through June 30, 1998
Growth of $10,000 Invested Since 6/30/88]
Month End Growth S&P Consumer
Date Portfolio 500 Index Price Index
- ----------------------------------------------------------------------
1988 10,000 10,000 10,000
1988 9,824 9,975 10,042
1988 9,514 9,622 10,085
1988 9,770 10,035 10,153
1988 9,822 10,326 10,186
1988 9,635 10,161 10,195
1988 9,859 10,341 10,212
1989 10,486 11,108 10,263
1989 10,287 10,814 10,305
1989 10,550 11,072 10,364
1989 11,076 11,661 10,432
1989 11,506 12,109 10,492
1989 11,308 12,050 10,517
1989 12,269 13,150 10,542
1989 12,755 13,393 10,559
1989 12,823 13,340 10,593
1989 12,176 13,041 10,644
1989 12,441 13,293 10,669
1989 12,478 13,613 10,686
1990 11,508 12,712 10,797
1990 11,774 12,853 10,847
1990 12,161 13,202 10,907
1990 11,982 12,886 10,924
1990 13,257 14,116 10,949
1990 13,355 14,031 11,008
1990 13,085 13,996 11,051
1990 12,004 12,718 11,153
1990 11,244 12,102 11,246
1990 11,221 12,063 11,314
1990 11,913 12,828 11,339
1990 12,233 13,186 11,339
1991 13,020 13,774 11,407
1991 13,978 14,735 11,424
1991 14,347 15,097 11,441
1991 14,347 15,147 11,458
1991 15,115 15,778 11,492
1991 14,349 15,063 11,525
1991 15,133 15,783 11,542
1991 15,675 16,138 11,576
1991 15,538 15,870 11,627
1991 15,886 16,103 11,644
1991 15,352 15,434 11,678
1991 17,290 17,201 11,686
1992 17,255 16,899 11,703
1992 17,420 17,097 11,746
1992 16,990 16,765 11,805
1992 17,055 17,278 11,822
1992 17,198 17,337 11,839
1992 16,814 17,083 11,881
1992 17,373 17,803 11,907
1992 17,009 17,420 11,941
1992 17,244 17,623 11,975
1992 17,688 17,705 12,017
1992 18,577 18,282 12,034
1992 18,696 18,511 12,025
1993 19,019 18,682 12,085
1993 18,969 18,916 12,127
1993 19,496 19,317 12,169
1993 19,139 18,872 12,203
1993 19,633 19,345 12,220
1993 19,651 19,409 12,237
1993 19,596 19,351 12,237
1993 20,316 20,067 12,271
1993 20,503 19,912 12,297
1993 20,684 20,344 12,347
1993 20,128 20,129 12,356
1993 20,585 20,380 12,356
1994 21,232 21,088 12,390
1994 20,658 20,495 12,432
1994 19,655 19,606 12,475
1994 19,629 19,874 12,492
1994 19,654 20,166 12,500
1994 18,984 19,672 12,542
1994 19,437 20,339 12,576
1994 20,321 21,159 12,627
1994 19,991 20,638 12,661
1994 20,274 21,119 12,670
1994 19,477 20,336 12,686
1994 19,625 20,635 12,686
1995 20,058 21,186 12,737
1995 20,847 21,995 12,788
1995 21,441 22,652 12,831
1995 22,062 23,330 12,873
1995 22,744 24,228 12,898
1995 23,739 24,792 12,924
1995 25,011 25,633 12,924
1995 25,088 25,684 12,958
1995 25,872 26,765 12,983
1995 25,944 26,688 13,025
1995 26,894 27,838 13,017
1995 26,939 28,375 13,008
1996 27,592 29,360 13,085
1996 28,168 29,613 13,127
1996 28,266 29,903 13,195
1996 29,277 30,357 13,246
1996 29,922 31,107 13,271
1996 29,532 31,228 13,280
1996 28,260 29,861 13,305
1996 29,371 30,482 13,331
1996 31,157 32,192 13,373
1996 31,690 33,099 13,415
1996 33,704 35,589 13,441
1996 32,977 34,884 13,441
1997 35,157 37,085 13,483
1997 34,714 37,356 13,525
1997 33,080 35,817 13,559
1997 34,618 37,969 13,576
1997 37,072 40,251 13,568
1997 38,650 42,059 13,585
1997 42,071 45,406 13,602
1997 40,399 42,855 13,627
1997 42,635 45,216 13,661
1997 41,217 43,724 13,695
1997 42,332 45,731 13,686
1997 42,929 46,517 13,670
1998 43,229 47,052 13,695
1998 46,278 50,426 13,720
1998 48,612 53,013 13,746
1998 49,448 53,553 13,771
1998 48,251 52,600 13,797
1998 50,100 54,741 13,814
INSET LEGEND READS:
Growth
Portfolio
$50,100
S&P 500
Index
$54,741
Consumer
Price Index
$13,814
INSET BOX ON CHART READS:
Growth Portfolio
Annualized Total Returns*
- -----------------------------
10 Years 17.48%
5 Years 20.57%
1 Year 29.63%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
High Yield Portfolio Review
[GRAPHIC OMITTED: PHOTO OF THOMAS N. HAAG]
Thomas N. Haag is a Chartered Financial Analyst and portfolio manager
for the High Yield Portfolio. He is an assistant vice president of
Lutheran Brotherhood and has managed the Portfolio since January 1992.
Tom has been with Lutheran Brotherhood since 1986.
Corporate bond prices, like prices for stocks, remained volatile in the
first half of 1998. Prices for corporates were strong through March,
leveled off in April, and then weakened in May and June, as the Asian
economic crisis worsened and supplies of new issues remained strong.
Although corporate prices ended the period higher than where they began,
the spreads between yields for corporates and Treasuries reached their
widest levels in two years. The total returns for high-yield issues were
stronger than those for Treasuries and other corporates, largely because
of the extra income that high-yield issues offer. For the six months
ended June 30, 1998, the High Yield Portfolio earned a total return of
4.64% (based on NAV). That compares with a return of 4.50% for the
Lehman Brothers High-Yield Index.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Corporate Bonds 85.4%
Short-Term Securites 1.4%
Non-Convertible Preferred Stocks 6.9%
Common Stocks & Warrants 3.5%
Convertible Preferred Stocks 2.8%
[GRAPHIC BAR CHART OMITTED: MOODY'S BOND QUALITY RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Aaa 0.0%
Aa 0.0%
A 0.4%
Baa 1.2%
Ba 21.9%
B 56.1%
Caa 11.0%
Ca 1.1%
C 0.0%
D 0.1%
Not Rated 8.2%
Investment Strategy
The large supply of new issues included many bonds in the media/tele-
communications sector, where the Portfolio has been heavily invested for
some time. This added to the extra volatility that the sector often
faces. During the period, we continued our strategy of selling selected
media/telecom-munications holdings as their prices strengthened and
buying others as their prices weakened. The Portfolio had a slightly
higher weighting in these issues when the period ended than it did when
the period began. Conversely, we reduced the Portfolio's weighting in
issues of financial firms slightly during this time, believing that many
bonds in this sector had become over-priced.
With investors increasingly nervous about earnings, we continued to add
bonds with higher credit ratings and shorter maturities. During the
period, we increased the Portfolio's weighting in bonds with a Moody's
quality rating of "Ba" or better from 15.2% to 23.4% and reduced the
portfolio's average maturity.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Telecommunications 19.2%
Broadcasting 11.3%
Bank & Finance 6.4%
Oil & Gas 4.5%
Leisure & Entertainment 3.8%
Hospital Management 3.1%
Food & Beverage 2.9%
Textiles & Apparel 2.5%
Transportation 2.5%
Electric Utilities 2.4%
Footnote reads:
These sectors represent 58.6% of the Portfolio's
total investments.
Further Choppiness Ahead
Prices for high-yield bonds, like those for stocks, will likely remain
volatile in coming months until concerns about corporate earnings and
the Asian economic crisis subside. However, the high-yield market should
continue to perform well against other fixed-income securities, given a
relatively strong economic climate and coupon yields that remain
attractive against current rates of inflation.
Investment Objective:
To seek high current income and growth of capital by investing primarily
in high-yielding ("junk") corporate bonds.***
INSET BOX READS:
Portfolio Facts
Inception Date: 11/2/87
Total Assets
(in millions): $1,510.3
With supplies of new issues likely to remain heavy, we expect to
maintain a relatively conservative investment strategy that focuses on
higher-quality high-yield issues and somewhat shorter maturities. We
continue to believe that the media/telecommunications sector will
benefit from long-term trends like industry deregulation and expect to
keep large positions in that sector.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 6/30/88]
Performance Through June 30, 1998
Growth of $10,000 Invested Since 6/30/88
Lehman Consumer
Month End High Yield High Yield Price
Date Portfolio Index Index
----------------------------------------------------------------------
1988 10,000 10,000 10,000
1988 10,051 10,066 10,042
1988 10,047 10,051 10,085
1988 10,147 10,178 10,153
1988 10,258 10,301 10,186
1988 10,247 10,361 10,195
1988 10,389 10,410 10,212
1989 10,632 10,593 10,263
1989 10,704 10,617 10,305
1989 10,632 10,534 10,364
1989 10,578 10,578 10,432
1989 10,863 10,783 10,492
1989 11,154 10,917 10,517
1989 11,132 10,903 10,542
1989 11,232 10,940 10,559
1989 11,031 10,756 10,593
1989 10,735 10,501 10,644
1989 10,766 10,480 10,669
1989 10,714 10,497 10,686
1990 10,508 10,271 10,797
1990 10,317 10,060 10,847
1990 10,402 10,323 10,907
1990 10,412 10,306 10,924
1990 10,739 10,505 10,949
1990 10,896 10,759 11,008
1990 11,084 11,048 11,051
1990 10,755 10,420 11,153
1990 10,310 9,659 11,246
1990 9,992 9,152 11,314
1990 10,163 9,437 11,339
1990 10,316 9,490 11,339
1991 10,422 9,751 11,407
1991 11,110 10,818 11,424
1991 11,595 11,455 11,441
1991 11,989 11,925 11,458
1991 12,122 11,946 11,492
1991 12,448 12,300 11,525
1991 12,778 12,694 11,542
1991 12,984 12,986 11,576
1991 13,199 13,166 11,627
1991 13,670 13,606 11,644
1991 13,878 13,676 11,678
1991 13,960 13,873 11,686
1992 14,535 14,362 11,703
1992 14,941 14,717 11,746
1992 15,201 14,899 11,805
1992 15,338 14,956 11,822
1992 15,599 15,166 11,839
1992 15,691 15,309 11,881
1992 16,011 15,540 11,907
1992 16,244 15,744 11,941
1992 16,434 15,904 11,975
1992 16,111 15,680 12,017
1992 16,410 15,878 12,034
1992 16,763 16,059 12,025
1993 17,438 16,526 12,085
1993 17,721 16,817 12,127
1993 18,105 17,034 12,169
1993 18,214 17,182 12,203
1993 18,537 17,386 12,220
1993 19,166 17,752 12,237
1993 19,356 17,924 12,237
1993 19,511 18,074 12,271
1993 19,511 18,121 12,297
1993 20,175 18,487 12,347
1993 20,257 18,576 12,356
1993 20,604 18,806 12,356
1994 21,241 19,215 12,390
1994 21,164 19,165 12,432
1994 20,361 18,440 12,475
1994 20,099 18,315 12,492
1994 20,201 18,324 12,500
1994 20,286 18,381 12,542
1994 20,138 18,537 12,576
1994 20,294 18,669 12,627
1994 20,190 18,670 12,661
1994 20,248 18,715 12,670
1994 19,815 18,479 12,686
1994 19,698 18,616 12,686
1995 19,762 18,869 12,737
1995 20,534 19,517 12,788
1995 20,738 19,727 12,831
1995 21,248 20,228 12,873
1995 21,701 20,795 12,898
1995 21,806 20,934 12,924
1995 22,498 21,198 12,924
1995 22,594 21,264 12,958
1995 22,808 21,525 12,983
1995 22,915 21,659 13,025
1995 23,182 21,849 13,017
1995 23,559 22,192 13,008
1996 24,107 22,583 13,085
1996 24,717 22,601 13,127
1996 24,483 22,585 13,195
1996 24,648 22,635 13,246
1996 24,924 22,771 13,271
1996 24,724 22,960 13,280
1996 24,548 23,065 13,305
1996 24,943 23,314 13,331
1996 25,796 23,876 13,373
1996 25,725 24,060 13,415
1996 25,992 24,534 13,441
1996 26,280 24,711 13,441
1997 26,595 24,953 13,483
1997 26,984 25,345 13,525
1997 26,124 24,967 13,559
1997 26,128 25,229 13,576
1997 27,129 25,769 13,568
1997 27,907 26,127 13,585
1997 28,866 26,846 13,602
1997 28,961 26,784 13,627
1997 29,862 27,314 13,661
1997 29,597 27,339 13,695
1997 29,692 27,601 13,686
1997 29,984 27,844 13,670
1998 30,617 28,345 13,695
1998 31,045 28,513 13,720
1998 31,453 28,781 13,746
1998 31,331 28,893 13,771
1998 31,222 28,994 13,797
1998 31,375 29,098 13,814
INSET LEGEND READS:
High Yield
Portfolio
$31,375
Lehman
High Yield
Index
$29,098
Consumer
Price Index
$13,814
INSET BOX ON CHART READS:
High Yield Portfolio
Annualized Total Returns*
- --------------------------
10 Years 12.11%
5 Years 10.35%
1 Year 12.43%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Income Portfolio Review
[GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN]
Charles E. Heeren is a Chartered Financial Analyst and portfolio manager
for the Income Portfolio. He is a vice president of Lutheran Brotherhood
and has managed the Portfolio since its inception in January 1987. Chuck
has been with Lutheran Brotherhood since 1976.
The positive economic climate of the past six months benefited certain
bonds in the Income Portfolio that are particularly sensitive to
corporate earnings both here and abroad. At the same time, a decline in
inflation produced strong returns for the Portfolio's bond holdings with
longer maturities. As a result, the Portfolio performed well during the
reporting period, outpacing its market benchmark. For the six months
ended June 30, 1998, the Portfolio earned a total return of 4.53%
(based on NAV). Over the same time, the Lehman Aggregate Bond Index
returned 3.93%.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Corporate Bonds 49.4%
Foreign Government Bonds 2.5%
Asset-Backed Securities 12.5%
Mortgage-Backed Securities 11.4%
U.S. Government 15.7%
Common Stocks 0.2%
Preferred Stocks 1.3%
Short-Term Securities 7.0%
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Security Portfolio
- -------------------------------------------------------------------------
U.S. Treasury Bond, 7.25%, 8/15/2022 U.S. Government 6.9%
Government National Mortgage Association Mortgage-Backed 3.7%
U.S. Treasury Note, 7.875%, 11/15/2004 U.S. Government 3.7%
Federal National Mortgage Association Mortgage-Backed 3.6%
Federal Home Loan Mortgage Corp.,
Gold Pass Through Mortgage-Backed 2.3%
Deutsche Floorplan Receivables
Master Trust, Series 1994-1-A Asset-Backed 2.0%
World Omni Auto Lease Trust Asset-Backed 1.8%
U.S. Treasury Bond, 8.75%, 8/15/2020 U.S. Government 1.7%
Koch Industries, Inc. Commercial Paper 1.6%
World Financial Network Credit Card
Master Trust, Series 1996-B Asset-Backed 1.6%
Footnote reads:
These holdings represent 28.9% of the Portfolio's total investments.
Help From High-Yield Corporates, "Yankees," Convertibles
At the end of 1997, before the period began, we invested a small portion
of the Portfolio's assets in lower-rated, higher-yielding corporate
bonds. Besides supporting the Portfolio's income as interest rates fell,
these bonds provided strong price gains in the early months of 1998--
when stronger economic growth improved the credit ratings of many
issuers. During this time, the Portfolio also enjoyed strong price gains
from dollar-denominated "Yankee" bonds issued in U.S. dollars in the
United States by foreign companies and governments. As the economic
crisis in Asia seemed to stabilize in February and March, these Yankee
bonds rebounded strongly from their late 1997 price declines. As the
stock market advanced, the Portfolio's small position in bonds that can
be converted into equities further enhanced performance.
[GRAPHIC BAR CHART OMITTED: MOODY'S BOND QUALITY RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Government/Aaa 45.8%
Aa 6.2%
A 19.7%
Baa 12.6%
Ba 13.9%
B 1.8%
Caa 0.0%
Ca 0.0%
C 0.0%
Investments in these issues are part of a larger strategy to find bonds
that represented good value. In holding higher-yielding corporate bonds,
we were able to emphasize issues that we felt were underpriced in the
market. The Portfolio's holdings in this sector include bonds of utility
companies, cable television and broadcasting companies, energy companies
and health care firms, all with improving credit fundamentals.
To balance the increased risk that high-yield bonds carry, we traded
some of the Portfolio's asset-backed securities and higher-quality
corporate bonds for U.S. Treasury securities. An outperformance by
Treasury bonds for the period further enhanced the Portfolio's returns.
Later in the period, when corporate prices were becoming more
attractive, we added investments in high-quality issues with longer
maturities.
Investment Objective:
To seek a high level of income while preserving principal by investing
primarily in intermediate and long-term bonds.
INSET BOX READS:
Portfolio Facts
Inception Date: 1/9/87
Total Assets
(in millions): $957.6
Quality Key in Uncertain Times
By the end of the period, we had significantly increased the credit
quality of the Portfolio's investments and moved the weighting in
corporate bonds closer to that of its benchmark index. If higher
interest rates or a further worsening of Asia's problems threaten U.S.
economic growth, we may trade additional corporate positions for U.S.
Treasuries. With interest rates at low levels, however, the extra yield
that corporates offer will remain important to Portfolio returns.
In a climate of economic uncertainty, individual bond selection will
also become increasingly important. With this in mind, we will continue
to look for corporate debt of issuers with stable earnings streams,
giving greater attention to bonds of retail, electric utility and health
care firms.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 6/30/88]
Performance Through June 30, 1998
Growth of $10,000 Invested Since 6/30/88
Lehman
Month End Income Aggregate Customer
Date Portfolio Bond Index Price Index
- -----------------------------------------------------------------
1988 10,000 10,000 10,000
1988 9,946 9,947 10,042
1988 9,967 9,973 10,085
1988 10,237 10,199 10,153
1988 10,467 10,391 10,186
1988 10,340 10,264 10,195
1988 10,406 10,276 10,212
1989 10,563 10,423 10,263
1989 10,412 10,348 10,305
1989 10,472 10,393 10,364
1989 10,676 10,610 10,432
1989 10,907 10,889 10,492
1989 11,252 11,220 10,517
1989 11,446 11,459 10,542
1989 11,342 11,290 10,559
1989 11,355 11,347 10,593
1989 11,523 11,626 10,644
1989 11,649 11,737 10,669
1989 11,678 11,768 10,686
1990 11,541 11,628 10,797
1990 11,595 11,666 10,847
1990 11,634 11,674 10,907
1990 11,483 11,566 10,924
1990 11,834 11,909 10,949
1990 12,017 12,101 11,008
1990 12,163 12,267 11,051
1990 11,966 12,103 11,153
1990 11,891 12,204 11,246
1990 12,003 12,359 11,314
1990 12,285 12,624 11,339
1990 12,486 12,821 11,339
1991 12,633 12,980 11,407
1991 12,937 13,091 11,424
1991 13,094 13,181 11,441
1991 13,281 13,323 11,458
1991 13,435 13,400 11,492
1991 13,455 13,394 11,525
1991 13,632 13,580 11,542
1991 13,946 13,873 11,576
1991 14,248 14,155 11,627
1991 14,402 14,312 11,644
1991 14,502 14,444 11,678
1991 14,953 14,873 11,686
1992 14,898 14,670 11,703
1992 14,996 14,766 11,746
1992 15,005 14,683 11,805
1992 15,057 14,789 11,822
1992 15,345 15,068 11,839
1992 15,558 15,276 11,881
1992 15,920 15,588 11,907
1992 16,077 15,745 11,941
1992 16,268 15,933 11,975
1992 16,006 15,721 12,017
1992 16,068 15,724 12,034
1992 16,332 15,974 12,025
1993 16,672 16,281 12,085
1993 17,021 16,566 12,127
1993 17,122 16,635 12,169
1993 17,248 16,752 12,203
1993 17,279 16,773 12,220
1993 17,636 17,077 12,237
1993 17,793 17,174 12,237
1993 18,114 17,475 12,271
1993 18,169 17,522 12,297
1993 18,331 17,587 12,347
1993 18,135 17,437 12,356
1993 18,237 17,531 12,356
1994 18,506 17,768 12,390
1994 18,106 17,459 12,432
1994 17,510 17,028 12,475
1994 17,322 16,892 12,492
1994 17,355 16,890 12,500
1994 17,228 16,853 12,542
1994 17,600 17,188 12,576
1994 17,644 17,209 12,627
1994 17,334 16,956 12,661
1994 17,270 16,940 12,670
1994 17,274 16,903 12,686
1994 17,383 17,020 12,686
1995 17,698 17,357 12,737
1995 18,103 17,770 12,788
1995 18,205 17,878 12,831
1995 18,517 18,129 12,873
1995 19,319 18,830 12,898
1995 19,478 18,968 12,924
1995 19,366 18,926 12,924
1995 19,609 19,155 12,958
1995 19,797 19,341 12,983
1995 20,103 19,592 13,025
1995 20,416 19,886 13,017
1995 20,747 20,164 13,008
1996 20,866 20,298 13,085
1996 20,427 19,944 13,127
1996 20,225 19,805 13,195
1996 20,100 19,694 13,246
1996 20,088 19,654 13,271
1996 20,338 19,918 13,280
1996 20,379 19,972 13,305
1996 20,304 19,938 13,331
1996 20,700 20,285 13,373
1996 21,180 20,735 13,415
1996 21,618 21,089 13,441
1996 21,420 20,893 13,441
1997 21,487 20,958 13,483
1997 21,589 21,010 13,525
1997 21,271 20,777 13,559
1997 21,520 21,089 13,576
1997 21,746 21,289 13,568
1997 22,061 21,543 13,585
1997 22,713 22,124 13,602
1997 22,473 21,936 13,627
1997 22,834 22,261 13,661
1997 23,017 22,584 13,695
1997 23,120 22,688 13,686
1997 23,294 22,917 13,670
1998 23,608 23,210 13,695
1998 23,647 23,191 13,720
1998 23,783 23,270 13,746
1998 23,915 23,391 13,771
1998 24,123 23,613 13,797
1998 24,350 23,814 13,814
INSET LEGEND READS:
Income
Portfolio
$24,350
Lehman
Aggregate
Bond Index
$23,814
Consumer
Price Index
$13,814
INSET BOX ON CHART READS:
Income Portfolio
Annualized Total Returns*
- ---------------------------
10 Years 9.30%
5 Years 6.66%
1 Year 10.38%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Money Market Portfolio Review
[GRAPHIC OMITTED: PHOTO OF GAIL R. ONAN]
Gail R. Onan is portfolio manager for the Money Market Portfolio. She
has managed the Portfolio since January 1994 and has been with Lutheran
Brotherhood since 1969.
Investor hesitation, spurred by caution regarding economic growth and
interest rates, caused money market yields to trade in a narrow range
during the first half of 1998. After ending 1997 with an average yield
of 5.12%, money market instruments in the IBC Donoghue's All-Taxable
Index rose to 5.23% early in 1998, as the market absorbed large issues
of new short-term corporate debt. However, by the end of April, as
economic problems in Asia encouraged the Federal Reserve to take a
neutral stance toward interest rates and some large institutional
investors thought the Fed might even cut rates, the average yield for
the Index fell below 5.00%.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Commercial Paper 81.6%
Certificates of Deposit 4.4%
Medium Term Notes 1.5%
Variable Rate Notes 7.0%
Bank Notes 4.5%
Banker Acceptances 1.0%
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Industry Portfolio
- ----------------------------------------------------------------------------
[S] [C] [C]
Prudential Funding Corp. Insurance 4.6%
PNC Bank, NA Banking 4.6%
Leland Stanford Junior University Education 4.5%
Block Financial Corp. Services 4.3%
Amoco Oil Co. U.S. Municipal 4.1%
Associates Corp. of North America Finance-Consumer 4.0%
IBM Credit Corp. Computer & Office Equipment 3.7%
General Electric Capital Corp. Finance-Commercial 3.7%
Chevron Transport Corp. Industrial 3.7%
CIT Group Holdings, Inc. Finance-Commercial 3.3%
Footnote reads:
These holdings represent 40.5% of the Portfolio's total investments.
Once it was clear that rising wages and continued economic strength
would prevent a Fed rate cut, money market yields edged slightly higher.
This left the Index with an average yield of 5.04% at the end of June.
By changing the mix of investments and maturities in the Money Market
Portfolio to make the most of these fluctuations, we helped the
Portfolio earn a total return of 2.67% (based on NAV) for the six months
ended June 30, 1998.
Moving Maturities
As we adjusted the Portfolio's average investment maturity to the
changing outlook for yields, we focused on longer-term issues when
yields were more attractive and shorter-term issues when it looked like
yields might rise. At the start of the period, the Portfolio had a
weighted average maturity of 47 days, versus an average 54 days for the
Donoghue Index. When large supplies of new issues pushed money market
yields higher, we made the most of this trend by adding longer
maturities. At the same time, we added short-term issues to maintain
good liquidity for the Portfolio, creating a "modified barbell" approach
to its maturity structure.
As it became clear that the Fed would not raise interest rates, the
spreads between yields for shorter- and long-term issues narrowed. With
yields for longer-term securities less attractive than they had been, we
gave greater attention to shorter-term issues. As a result, we were able
to move quickly into higher-yielding issues once market yield trends
reversed and began to increase. At the end of June, the Portfolio had a
weighted average maturity of 54 days, versus 58 days for the Index.
[GRAPHIC OMITTED: MONEY MARKET PORTFOLIO]
Money Market Portfolio
Annualized Total Returns*
Period Ending 6/30/98
- ------------------------------------
10 Years 5.62%
5 Years 4.89%
1 Year 5.51%
Seven-Day Yields+
- ------------------------------------
Current 5.23%
Effective 5.37%
As in previous periods, we looked for special yield opportunities in
individual investments. We continued to add yield with taxable municipal
paper issued by state and local governments for commercial projects that
had credit enhancements from major corporations and banks. We also added
yield through a small allocation to U.S. dollar-denominated securities
issued by top-tier banks and businesses in Europe.
Investment Objective:
To seek current income with stability of principal by investing in high
quality, short-term debt securities.****
INSET BOX READS:
Portfolio Facts
Inception Date: 1/9/87
Total Assets
(in millions): $134.7
Narrow Trading Range to Continue
With a tight labor market keeping upward pressure on wages and
inflation, we do not expect the Fed to cut interest rates any time soon.
A hike in rates also seems unlikely, given the chance for a near-term
slowdown in U.S. economic growth. As a result, we expect money market
yields to remain in a relatively narrow range in the second half of
1998.
In this environment, we plan to keep the Portfolio's average investment
maturity short relative to the Donoghue Index. This should let us move
more quickly into higher-yielding instruments if market rates should
rise. Meanwhile, we'll continue to look for special individual
investment opportunities that can enhance the Portfolio's yield.
Notes to Portfolio Management Reviews
* The annualized total returns for the Portfolio reflect changes in
share prices, the reinvestment of all dividends and capital gains,
and the effects of compounding for the periods indicated. (The Mid
Cap Growth Portfolio's total return is cumulative.) Returns have not
been adjusted for charges associated with the variable life
insurance and variable annuity contracts that invest in the
portfolios. (For additional information on the charges, costs and
benefits associated with the contracts, refer to the contract
prospectus or contact your LBSC registered representative.) Since
performance varies, the annualized total returns, which assume a
steady rate of growth, differ from the Portfolios' actual total
returns for the years indicated. All returns represent past
performance. The value of an investment fluctuates so that shares,
when redeemed, may be worth more or less than the original
investment.
** International investing has special risks, including currency
fluctuation and political volatility.
*** High-yield bonds carry greater volatility and risk than investment-
grade bonds.
**** Investments in the Money Market Portfolio are neither guaranteed
nor insured by the U.S. Government and there is no assurance that
the Portfolio will maintain a stable net asset value.
+ Seven-day yields of the LB Money Market Portfolio refer to the
income generated by an investment in the Portfolio over a specified
seven-day period. Effective yields reflect the reinvestment of
income. Yields are subject to daily fluctuation and should not be
considered an indication of future results.
This report must be preceded or accompanied by a current prospectus.
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Shares Value
------------ ------------
<S> <C> <C>
COMMON STOCKS - 97.8% (a)
Aerospace & Defense - 1.8%
45,100 Aar Corp. $ 1,333,269
41,400 Avondale Industries, Inc. 1,142,381
46,500 Orbital Sciences Corp. 1,737,938 (b)
24,600 Precision Castparts Corp. 1,313,025 (c)
28,900 REMEC, Inc. 328,738 (b)
33,000 Triumph Group, Inc. 1,386,000 (b)
--------------
7,241,351
--------------
Airlines - 0.6%
50,900 COMAIR Holdings Inc. 1,571,538
38,100 Mesaba Holdings, Inc. 876,300
--------------
2,447,838
--------------
Automotive - 2.1%
32,000 Central Parking Corp. 1,488,000
11,800 Dura Automotive Systems, Inc. 379,075 (b)
95,200 Gentex Corp. 1,725,500 (b,c)
38,900 Group 1 Automotive, Inc. 622,400 (b)
45,900 O'Reilly Automotive, Inc. 1,652,400 (b)
32,800 Tower Automotive, Inc. 1,406,300 (b)
46,400 Travis Boats & Motors, Inc. 1,136,800 (b)
--------------
8,410,475
--------------
Bank & Finance - 8.8%
28,500 Affiliated Managers Group, Inc. 1,058,063 (b)
55,200 Americredit Corp. 1,969,950 (b)
52,800 Amerin Corp. 1,541,100 (b)
30,700 Annaly Mortgage
Management, Inc. 278,219
14,500 Astoria Financial Corp. 775,750
43,400 Bay View Capital Corp. 1,377,950
45,300 City National Corp. 1,673,269
21,500 CMAC Investment Corp. 1,322,250
25,200 Commerce Bankcorp, Inc. 1,474,200
60,100 Community First
Bank Shares, Inc. 1,573,869
22,700 Executive Risk, Inc. 1,674,125
27,500 E.W. Blanch Holdings, Inc. 1,010,625
16,200 FIRSTPLUS Financial
Group, Inc. 583,200 (b)
30,000 Fremont General Corp. 1,625,625
29,800 HealthCare Financial
Partners, Inc. 1,827,113 (b)
46,100 Imperial Bancorp 1,383,000
77,300 Imperial Credit Commercial
Mortgage Investment Corp. 1,009,731
52,030 Imperial Credit Industries 1,222,705 (b)
26,100 Legg Mason, Inc. 1,502,381
15,600 Metris Companies, Inc. 994,500
20,400 New Century Financial Corp. 204,000 (b)
87,000 North Fork Bancorporation, Inc. 2,126,063 (c)
41,200 Pioneer Group, Inc. 1,084,075
54,700 PLC Capital Trust II 2,006,806
56,200 Silicon Valley Bancshares 2,000,369
25,400 Webster Financial Corp. 844,550
14,600 Zions Bancorporation 775,625
--------------
34,919,113
--------------
Biotechnology - 1.5%
23,600 Affymetrix, Inc. 567,875 (b)
17,500 Biogen, Inc. 857,500 (b)
52,400 Covance, Inc. 1,179,000 (b)
8,300 Medco Research, Inc. 211,650 (b)
103,600 NBTY, Inc. 1,903,650 (b)
35,880 Serologicals Corp. 1,157,130 (b)
--------------
5,876,805
--------------
Building &
Construction - 1.4%
81,600 American Homestar Corp. 1,953,300 (b)
42,204 Fairfield Communities, Inc. 809,789 (b)
43,300 Global Industries Ltd. 730,688 (b)
21,400 NCI Building Systems, Inc. 1,235,850 (b)
20,200 Simpson Manufacturing Co., Inc. 780,225 (b)
--------------
5,509,852
--------------
Business Services - 10.2%
22,400 ABR Information Services, Inc. 532,000 (b)
31,900 AccuStaff, Inc. 996,875 (b)
50,000 AMRESCO, Inc. 1,456,250
23,735 Aztec Consulting, Inc. 180,979 (b)
1,600 Billing Concepts Corp. 24,800 (b)
34,400 Carriage Services, Inc. 864,300 (b)
247,250 Complete Management, Inc. 973,547 (b)
70,050 Concord EFS, Inc. 1,830,056 (b)
21,100 Consolidated Graphics, Inc. 1,244,900 (b)
21,500 Cort Business Services Corp. 677,250 (b)
51,300 Eltron International, Inc. 1,410,750 (b)
14,400 Fastenal Co. 668,700
17,800 G & K Services, Inc. 776,525
42,500 HA LO Industries, Inc. 1,322,813 (b)
48,300 Innovative Valve
Technologies, Inc. 356,213 (b)
34,500 Knoll, Inc. 1,017,750 (b)
47,100 Merrill Corp. 1,039,144
66,900 META Group, Inc. 1,480,163 (b)
67,600 Metamor Worldwide, Inc. 2,378,675 (b)
84,330 National Computer Systems, Inc. 2,023,920
11,867 Navigant International, Inc. 100,870 (b)
53,000 NCO Group, Inc. 1,166,000 (b)
86,200 Paging Network, Inc. 1,206,800 (b)
133,200 PMT Services, Inc. 3,388,275 (b)
23,600 Pre-Paid Legal Services, Inc. 744,875 (b)
111,300 Professional Staff plc, ADR $ 1,530,375 (b)
65,300 Rent - Way, Inc. 1,991,650 (b)
46,000 Romac International, Inc. 1,397,250 (b)
37,800 Service Experts, Inc. 1,304,100 (b)
17,400 StaffMark, Inc. 637,275 (b)
77,100 Steiner Leisure Ltd. 2,332,275 (b)
20,700 Strayer Education, Inc. 750,375
40,700 Superior Services, Inc. 1,223,544 (b)
48,700 Tetra Tech, Inc. 1,180,975 (b)
15,823 Workflow Management, Inc. 127,573 (b)
--------------
40,337,822
--------------
Chemicals - 0.4%
67,200 Sybron Corp. 1,696,800 (b)
--------------
Computer Equipment - 1.2%
25,900 Pinnacle Systems, Inc. 838,513 (b)
43,600 Security Dynamics
Technologies, Inc. 806,600 (b)
44,300 Symbol Technologies, Inc. 1,672,325
40,800 Technology Solutions Co. 1,292,850 (b)
--------------
4,610,288
--------------
Computer Software - 15.9%
5,700 Advent Software, Inc. 239,400 (b)
33,600 Affiliated Computer Services 1,293,600 (b)
34,700 Analysis International Corp. 984,613
22,800 Arbor Software Corp. 716,775 (b)
42,400 Aspen Technology, Inc. 2,141,200 (b)
29,800 Autodesk, Inc. 1,151,025
64,200 AXENT Technologies, Inc. 1,966,125 (b)
26,800 Bisys (The) Group, Inc. 1,098,800 (b)
51,800 Cadence Design Systems, Inc. 1,618,750 (b)
26,000 Cambridge Technology
Partners, Inc. 1,420,250 (b)
45,400 CBT Group Public Limited
Company, ADR 2,428,900 (b)
57,800 CIBER, Inc. 2,196,400 (b)
31,200 Citrix Systems, Inc. 2,133,300 (b)
43,400 Cognos, Inc. 1,156,203 (b)
65,000 Computer Management Sciences 1,543,750 (b)
39,200 Cotelligent Group, Inc. 916,300 (b)
59,200 Datastream Systems, Inc. 1,128,500 (b)
21,400 Documentum, Inc. 1,027,200 (b)
28,900 DST Systems, Inc. 1,618,400 (b)
31,500 Electronic Arts, Inc. 1,701,000 (b)
25,000 Engineering Animation, Inc. 1,525,000 (b)
60,000 E*TRADE Group, Inc. 1,376,250 (b)
54,000 Harbinger Corp. 1,306,125 (b)
36,000 HBO & Co. 1,269,000
30,900 Hyperion Software Corp. 880,650 (b)
45,100 IDX Systems Corp. 2,077,419 (b)
15,000 International Network Services 615,000 (b)
28,100 JDA Software Group, Inc. 1,229,375 (b)
30,000 Keane, Inc. 1,680,000 (b)
42,800 Legato Systems, Inc. 1,669,200 (b)
6,700 Lexmark Int'l Group, Inc. 408,700
41,000 National Data Corp. 1,793,750
45,000 National Instruments Corp. 1,608,750 (b)
27,750 Network Associates, Inc. 1,328,531 (b)
36,500 QRS Corp. 1,373,313 (b)
44,000 Saville Systems Ireland plc, ADR 2,205,500 (b)
8,200 Sterling Commerce, Inc. 397,700 (b)
73,700 Summit Design, Inc. 1,082,469 (b)
54,200 Sykes Enterprises, Inc. 1,087,388 (b)
40,500 Symantec Corp. 1,058,063 (b)
28,500 Synopsys, Inc. 1,303,875 (b)
43,000 Systems & Computer
Technology Corp. 1,161,000 (b)
32,500 Transaction Systems Architects 1,251,250 (b)
57,800 Vanstar Corp. 841,713 (b)
27,000 Veritas Software Corp. 1,117,125 (b)
25,800 Visio Corp. 1,231,950 (b)
31,300 Zebra Technologies Corp. 1,338,075 (b)
--------------
62,697,662
--------------
Cosmetics - 0.2%
48,500 French Fragrances, Inc. 757,813 (b)
--------------
Distribution Services - 2.4%
20,100 AmeriSource Health Corp. 1,320,319 (b)
3,800 Aviation Sales Company 150,575 (b)
32,310 Central Garden & Pet Company 1,005,649 (b)
39,400 Danka Business Systems
plc, ADR 465,413
58,800 MSC Industrial Direct Co., Inc.,
Class A 1,675,800 (b)
39,400 Richfood Holdings, Inc. 815,088
17,600 Tech Data Corp. 754,600 (b)
29,500 U.S. Foodservice 1,034,344 (b)
29,669 U.S. Office Products Company 578,546 (b)
42,800 Watsco, Inc. 1,506,025
--------------
9,306,359
--------------
Education - 1.0%
39,015 Apollo Group, Inc. 1,289,933 (b)
26,600 ITT Educational Services, Inc. 857,850 (b)
23,100 Learning Tree International, Inc. 464,888 (b)
13,186 School Specialty Inc. 215,921 (b)
38,450 Sylvan Learning Systems, Inc. 1,259,238 (b)
--------------
4,087,830
--------------
Electrical Equipment - 0.5%
46,900 Advanced Lighting Technologies 1,090,425 (b)
52,300 Berg Electronics Corporation 1,023,119 (b)
--------------
2,113,544
--------------
Electronic Components - 3.1%
34,800 Artesyn Technologies, Inc. 556,800 (b)
37,900 ATMI, Inc. 568,500 (b)
45,350 Burr-Brown Corp. 952,350 (b)
17,200 Cybex Computer Products Corp. 395,600 (b)
28,300 Dallas Semiconductor Corp. 877,300
35,200 Etec Systems, Inc. 1,238,600 (b)
33,200 Lattice Semiconductor Corp. 943,088 (b)
38,900 Microchip Technology, Inc. 1,016,263 (b)
39,000 Photronic, Inc. 860,438 (b)
12,200 Plexus Corp. 242,475 (b)
28,900 QLogic Corp. 1,031,369 (b)
42,400 Sanmina Corp. 1,839,100 (b)
30,100 Semtech Corp 532,394 (b)
30,000 Smart Modular Technologies, Inc. 438,750 (b)
23,700 Veeco Instruments, Inc. 589,538 (b)
--------------
12,082,565
--------------
Electronic Systems - 2.4%
25,500 Black Box Corp. 846,281 (b)
38,300 IFR Systems, Inc. 689,400 (c)
117,000 International Manufacturing
Services, Inc. 789,750 (b)
29,600 KLA Instruments Corp. 819,550 (b)
52,200 Kulicke & Soffa Industries, Inc. 887,400 (b)
22,800 Novellus Systems, Inc. 813,675 (b)
69,100 Sawtek, Inc. 1,019,225 (b)
64,500 Thermo Optek Corp. 955,406 (b)
48,500 Tollgrade Communications, Inc. 1,248,875 (b)
19,700 Uniphase Corp. 1,236,791 (b)
--------------
9,306,353
--------------
Energy Services - 1.8%
29,200 BJ Services Co. 848,625 (b)
18,500 EVI Inc. 686,813 (b)
43,400 Gulf Island Fabrication, Inc. 813,750 (b)
73,300 Newpark Resources, Inc. 815,463 (b)
56,000 Oceaneering International, Inc. 994,000 (b)
18,100 Offshore Logistics, Inc. 321,275 (b)
31,600 Pool Energy Services Co. 466,100 (b)
38,900 R&B Falcon Corp. 880,113 (b)
19,900 Smith Int'l, Inc. 692,769 (b)
52,500 UTI Energy Corp. 675,938 (b)
--------------
7,194,846
--------------
Entertainment & Leisure - 1.7%
18,800 Brinker International, Inc. 361,900 (b)
1,300 GC Companies, Inc. 67,438 (b)
33,600 Imax Corp. 766,500 (b)
41,400 J & J Snack Foods Corp. 864,225 (b)
21,500 Luby's Cafeterias, Inc. 377,594
26,050 Promus Hotel Corp. 1,002,925 (b)
26,200 SFX Entertainment, Inc. 1,201,925 (b)
84,800 Signature Resorts, Inc. 1,399,200 (b)
19,100 Sonic Corp. 427,363 (b)
13,100 Steinway Musical
Instruments, Inc. 422,475 (b)
--------------
6,891,545
--------------
Exploration &
Production - 1.2%
82,000 Forcenergy, Inc. 1,460,625
32,400 Noble Affiliates, Inc. 1,231,200
61,120 Swift Energy Co. 974,100 (b)
62,500 Vintage Petroleum, Inc. 1,179,688
--------------
4,845,613
--------------
Food Processing - 0.6%
13,500 Earthgrains Company 754,313
37,270 Smithfield Foods, Inc. 1,136,735 (b)
9,100 Twinlab Corp. 397,556 (b)
--------------
2,288,604
--------------
Healthcare Services - 2.3%
33,900 Access Health, Inc. 864,450 (b)
47,300 Concentra Managed Care, Inc. 1,229,800 (b)
17,400 Healthcare Recoveries, Inc. 343,650 (b)
19,000 Henry Schein, Inc. 876,375 (b)
17,000 Horizon Health Corp. 297,500 (b)
38,300 Inhale Therapeutic Systems 947,925 (b)
14,900 Novoste Corp. 328,731 (b)
46,700 Orthodontic Centers of
America, Inc. 977,781 (b)
67,400 PhyMatrix Corp. 593,963 (b)
72,000 Total Renal Care Holdings, Inc. 2,484,000 (b)
--------------
8,944,175
--------------
Hospital Supplies &
Management - 6.1%
19,800 Acuson Corp. 360,113 (b,c)
95,100 ADAC Labs, Inc. 2,139,750
60,600 Airgas, Inc. 871,125 (b)
46,600 American Oncology
Resources, Inc. 569,394 (b)
71,000 BMC Industries, Inc. 621,250
34,300 DENTSPLY International, Inc. 857,500
33,800 First Health Group Corp. 963,300 (b)
49,400 Genesis Health Ventures, Inc. 1,235,000 (b)
29,000 Integrated Health Services, Inc. 1,087,500
51,800 Lincare Holdings, Inc. 2,178,838 (b)
44,100 Mentor Corp. 1,069,425
46,300 National Surgery Centers, Inc. 1,345,594 (b)
78,900 NovaCare, Inc. 927,075 (b)
32,000 Omnicare, Inc. 1,220,000
10,700 Patterson Dental Co. 391,888 (b)
32,400 Pediatrix Medical Group, Inc. 1,204,875 (b)
83,400 PSS World Medical, Inc. 1,219,725 (b)
26,800 Quorum Health Group, Inc. 710,200 (b)
28,200 Renal Care Group, Inc. 1,242,563 (b)
19,100 STERIS Corp. 1,214,641 (b)
21,500 Trex Medical Corp. 354,750 (b)
30,000 Universal Health Services, Inc. 1,751,250 (b)
20,600 Veterinary Centers of
America, Inc. 387,538 (b)
--------------
23,923,294
--------------
Information
Processing - 0.8%
41,400 Data Processing Resources Corp. 1,285,988 (b)
43,000 Paymentech, Inc. 884,188 (b)
28,100 SCI Systems, Inc. 1,057,263 (b)
--------------
3,227,439
--------------
Machinery - 1.1%
17,400 Aptargroup, Inc. 1,082,063
46,300 Donaldson Company, Inc. 1,093,838
5,300 DT Industries, Inc. 128,525
107,800 Hypercom Corporation 1,078,000 (b)
37,700 Roper Industries, Inc. 984,913
--------------
4,367,339
--------------
Media &
Communications - 4.7%
29,100 ACNielsen Corp. 734,775 (b)
1,000 American Tower Corp. 24,938
41,800 Chancellor Media Corp. 2,075,631 (b)
58,300 CKS Group, Inc. 1,049,400 (b)
8,400 Cox Radio, Inc., Class A 363,300 (b)
23,600 CSG System International, Inc. 1,106,250 (b)
24,100 Emmis Broadcasting Corp.,
Class A 1,152,281 (b)
35,900 Harte-Hanks, Inc. 926,669
20,000 Heftel Broadcasting Corp. 895,000 (b)
29,700 Jacor Communications, Inc. 1,752,300 (b)
49,700 Level One Communications, Inc. 1,167,950 (b)
58,805 Outdoor Systems, Inc. 1,646,540 (b)
58,000 STARTEC Global
Communications Corp. 667,000 (b)
19,900 TCA Cable TV, Inc. 1,194,000
20,400 United Video Satellite
Group, Inc. 808,350 (b)
22,400 Univision Communications, Inc. 834,400 (b)
12,200 World Color Press, Inc. 427,000 (b)
13,900 Young Broadcasting Corp.,
Class A 903,500 (b)
64,600 Zomax Optical Media, Inc. 993,225 (b)
--------------
18,722,509
--------------
Mining & Metals - 1.1%
113,000 Cambior, Inc. 663,875
88,100 Dayton Mining Corp. 60,569 (b)
23,600 Dayton Superior Corp., Class A 424,800 (b)
32,700 Reliance Steel & Aluminum Co. 1,263,038
61,400 RMI Titanium Company 1,396,850
46,400 Steel Dynamics, Inc. 643,800 (b)
--------------
4,452,932
--------------
Miscellaneous Consumer
Products - 2.7%
42,100 Blyth Industries, Inc. 1,399,825 (b)
33,290 Equity Corporation International 798,960 (b)
15,800 Fossil, Inc. 393,025 (b)
50,800 Jones Apparel Group, Inc. 1,857,375 (b)
54,800 Nautica Enterprises, Inc. 1,469,325 (b)
14,300 Pillowtex Corp. 573,788
43,200 Tefron Ltd. 950,400 (b)
42,600 The North Face, Inc. 1,022,400 (b)
28,700 Wesley Jessen VisionCare, Inc. 663,688 (b)
65,100 Wolverine World Wide, Inc. 1,411,856
--------------
10,540,642
--------------
Office Automation - 0.7%
33,700 Technitrol, Inc. 1,345,894
57,800 Transition Systems, Inc. 614,125 (b)
27,500 XcelleNet, Inc. 617,031 (b)
--------------
2,577,050
--------------
Oil & Oil Services (d)
8,800 Eagle Geophysical, Inc. 92,400 (b)
--------------
Pharmaceuticals - 3.7%
158,800 Atrix Laboratories, Inc. 2,123,950 (b)
19,000 Barr Laboratories, Inc. 755,250 (b)
10,300 Express Scripts, Inc. 830,438 (b)
15,500 IDEXX Laboratories, Inc. 385,563 (b)
83,300 Kendle International, Inc. 2,519,825 (b)
48,200 Miravant Medical Technologies 1,064,919 (b)
45,000 PAREXEL Int'l Corp. 1,636,875 (b)
130,700 PharMerica, Inc. 1,576,569 (b)
15,800 Sofamor Danek Group, Inc. 1,367,688 (b)
38,940 Theragenics Corp. 1,014,874 (b)
28,000 Watson Pharmaceuticals, Inc. 1,307,250 (b)
--------------
14,583,201
--------------
Pollution Control - 0.7%
70,700 Allied Waste Industries, Inc. 1,696,800 (b)
157,300 Recycling Industries, Inc. 924,138 (b)
--------------
2,620,938
--------------
Real Estate Investment
Trust - 0.4%
38,700 Apartment Investment &
Management Co. 1,528,650
--------------
Restaurants - 1.5%
39,700 Applebee's International, Inc. 888,288
32,700 CKE Restaurants, Inc. 1,348,875
50,700 Dave & Busters, Inc. 1,261,163 (b)
41,620 Landry's Seafood Restaurant, Inc. 753,062 (b)
9,000 Logan's Roadhouse, Inc. 186,750 (b)
37,400 Outback Steakhouse, Inc. 1,458,600 (b)
--------------
5,896,738
--------------
Retail - 6.9%
22,700 Barnes and Noble, Inc. 849,831 (b)
37,100 Bed, Bath & Beyond, Inc. 1,922,244 (b)
42,000 Borders Group, Inc. 1,554,000 (b)
53,100 Cannondale Corp. 710,213 (b)
20,600 CDW Computer Centers, Inc. 1,030,000 (b)
18,500 CompUSA, Inc. 334,156 (b)
34,600 Day Runner, Inc. 871,488 (b)
39,600 Dollar Tree Stores, Inc. 1,608,750 (b)
27,370 Fred Meyer, Inc. 1,163,225 (b)
33,800 General Nutrition Companies 1,052,025 (b)
14,500 Guitar Center, Inc. 436,813 (b)
32,900 Insight Enterprise, Inc. 1,316,000 (b)
14,600 Kenneth Cole Productions, Inc. 377,775 (b)
32,000 Lands' End, Inc. 1,012,000 (b)
42,000 Men's (The) Wearhouse, Inc. 1,386,000 (b)
33,600 Neiman Marcus Group, Inc. 1,459,500
29,550 Pacific Sunwear of California 1,034,250 (b)
51,000 Renters Choice, Inc. 1,447,125 (b)
33,000 Ross Stores, Inc. 1,419,000
4,400 Scherer (R.P.) Corp. 389,950 (b)
48,900 SLI, Inc. 1,277,513 (b)
72,400 Stein Mart, Inc. 977,400 (b)
49,500 Viking Office Products, Inc. 1,553,063 (b)
13,700 Whole Foods Market, Inc. 828,850 (b)
42,500 Williams-Sonoma, Inc. 1,352,031 (b)
--------------
27,363,202
--------------
Telecommunications
Equipment - 3.6%
43,200 Aspect Telecommunications
Corp. 1,182,600 (b)
29,500 Coherent Communications
Systems 1,380,969 (b)
40,600 Dialogic Corp. 1,207,850 (b)
40,300 Gilat Satellite Networks Ltd. 1,347,531 (b)
30,400 Inter-Tel, Inc. 486,400
30,500 MRV Communications, Inc. 632,875 (b)
21,700 Pacific Gateway Exchange, Inc. 869,356 (b)
50,600 P-Com, Inc. 463,306 (b)
30,900 Premisys Communications, Inc. 768,638 (b)
51,100 Proxim, Inc. 849,538 (b)
60,637 Qwest Communications
Int'l, Inc. 2,114,715 (b)
26,100 Tekelec 1,167,975 (b)
39,300 Transaction Network
Services, Inc. 827,756 (b)
39,600 USA Networks, Inc. 994,950 (b)
--------------
14,294,459
--------------
Telephone Services - 0.5%
33,900 COMSAT Corp. 959,794
20,200 Comverse Technology, Inc. 1,047,875 (b)
--------------
2,007,669
--------------
Transportation
Services - 2.2%
46,700 BE Aerospace, Inc. 1,360,138 (b)
44,200 Coach USA, Inc. 2,016,625 (b)
27,980 Expeditors Int'l of Washington 1,231,120
51,700 Heartland Express, Inc. 1,046,925 (b)
69,800 Swift Transportation Co., Inc. 1,382,913 (b)
13,200 Teekay Shipping Corp. 330,825
41,700 USFreightways Corp. 1,369,584
--------------
8,738,130
--------------
Total Common Stocks
(cost $385,563,663) 386,503,811
--------------
Principal
Amount
--------------
SHORT-TERM
SECURITIES - 2.2% (a)
Commercial Paper
$8,500,000 Sheffield Receivables Corp.,
6.5%, due 7/1/1998
(at amortized cost) 8,500,000
--------------
Total Investments
(cost $394,063,663) $395,003,811 (e)
==============
Notes to Portfolio of Investments:
(a) The categories of investments are shown as a percentage of total
investments of the Opportunity Growth Portfolio.
(b) Currently non-income producing.
(c) Includes stock rights that automatically traded with the stock and
had no separate value at June 30, 1998.
(d) Category is less than 0.05% of the Opportunity Growth Portfolio's
total investments.
(e) At June 30, 1998, the aggregate cost of securities for federal
income tax purposes was $394,063,663 and the net unrealized
depreciation of investments based on that cost was $940,148 which
is comprised of $33,990,412 aggregate gross unrealized appreciation
and $33,050,264 aggregate gross unrealized depreciation.
(f) Miscellaneous Footnotes:
(ADR) - American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
MID CAP GROWTH PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Shares Value
------------ ------------
<S> <C> <C>
COMMON STOCKS - 90.2% (a)
Aerospace - 0.3%
3,490 Sunstrand Corp. $199,803
--------------
Airlines - 1.6%
5,900 ASA Holdings, Inc. 292,788
9,300 COMAIR Holdings Inc. 287,138
4,950 Expeditors Int'l of Washington 217,800
8,750 Southwest Airlines Co. 259,219
--------------
1,056,945
--------------
Automotive - 1.6%
10,490 AutoZone, Inc. 335,024 (b)
3,690 Borg-Warner Automotive, Inc. 177,351
4,690 Lear Corp. 240,656 (b)
8,860 Superior Industries
International, Inc. 249,741
--------------
1,002,772
--------------
Automotive Parts - 0.3%
3,880 Tower Automotive, Inc. 166,355 (b)
--------------
Bank & Finance - 10.1%
3,850 Associates First Capital Corp. 295,969
1,630 Bankers Trust NY Corp. 189,182
6,400 Charter One Financial, Inc. 215,600
5,810 City National Corp. 214,607
3,710 Crestar Financial Corp. 202,427
3,920 Donaldson, Lufkin &
Jenrette, Inc. 199,185
11,040 EVEREN Capital Corp. 309,120
4,530 Finova Group, Inc. 256,511
6,300 First American Corp. 303,188
4,330 FIRSTPLUS Financial
Group, Inc. 155,880 (b)
5,700 Franklin Resources, Inc. 307,800
1,870 Golden West Financial Corp. 198,804
3,310 MGIC Investment Corp. 188,877
7,550 Mutual Risk Management Ltd. 275,103
4,700 Northern Trust Corp. 358,375
5,250 PaineWebber Group, Inc. 225,094
2,350 PMI Group 172,431
8,170 Provident Companies, Inc. 281,865
8,320 Sirrom Capital Corp. 216,320
2,990 State Street Corp. 207,805
3,740 Summit Bancorp 177,650
4,790 SunAmerica, Inc. 275,126
7,690 TCF Financial Corp. 226,855
4,310 Travelers Group, Inc. 261,294
6,730 Travelers Property
Casualty Corp. 288,549
3,210 Union Planters Corp. 188,788
5,700 Zions Bancorporation 302,813
--------------
6,495,218
--------------
Broadcasting - 2.3%
5,860 CBS Corp. 186,055
5,070 Chancellor Media Corp. 251,757 (b)
3,220 Clear Channel
Communications, Inc. 351,383 (b)
7,670 Jacor Communications, Inc. 452,530 (b)
7,700 Sinclair Broadcast Group, Inc. 221,375
--------------
1,463,100
--------------
Building Products &
Materials - 0.9%
5,530 Fastenal Co. 256,799
12,360 Leggett & Platt, Inc. 309,000
--------------
565,799
--------------
Chemicals - 1.0%
7,080 Crompton & Knowles Corp. 178,328
5,590 Cytec Industries, Inc. 247,358 (b)
9,240 Wellman, Inc. 209,633
--------------
635,319
--------------
Computer Software - 7.6%
3,000 America Online, Inc. 318,000
5,030 Autodesk, Inc. 194,284
9,730 BMC Software, Inc. 505,352 (b)
7,070 Cadence Design Systems, Inc. 220,938 (b)
6,900 Compuware Corp. 352,763 (b)
4,920 Documentum, Inc. 236,160 (b)
14,700 HBO & Co. 518,175
8,300 Keane, Inc. 464,800 (b)
1,980 Microsoft Corp. 214,583 (b)
7,315 Network Associates, Inc. 350,206 (b)
9,200 Parametric Technology Corp. 249,550 (b)
10,970 Platinum Technology, Inc. 313,331 (b)
5,160 Saville Systems Ireland plc,
Sponsored ADR 258,645 (b)
4,440 Shared Medical Systems Corp. 326,063
4,370 Symantec Corp. 114,166 (b)
4,800 Synopsys, Inc. 219,600 (b)
--------------
4,856,616
--------------
Computers & Office
Equipment - 4.7%
5,400 Cambridge Technology
Partners, Inc. 294,975 (b)
10,180 Cerner Corp. 288,221 (b)
5,630 CHS Electronics, Inc. 100,636 (b)
3,260 Cisco Systems, Inc. 300,124 (b)
6,440 EMC Corp. 288,593 (b)
11,490 FORE Systems, Inc. 304,485 (b)
3,590 Gateway 2000, Inc. 181,744 (b)
6,940 Herman Miller, Inc. 168,729
9,580 Hon Industries, Inc. 325,720
4,800 Sun Microsystems, Inc. 208,500 (b)
9,420 Systems & Computer
Technology Corp. 254,340 (b)
5,480 Tech Data Corp. 234,955 (b)
2,800 Verio, Inc. 69,650 (b)
--------------
3,020,672
--------------
Conglomerates - 0.6%
2,780 Dover Corp. 95,215
4,840 Tyco International Ltd. 304,920
--------------
400,135
--------------
Construction & Home
Building - 1.1%
7,100 Centex Corp. 268,025
9,880 Clayton Homes 187,720
8,100 Kaufman & Broad Home Corp. 257,175
--------------
712,920
--------------
Containers & Packaging - 0.4%
6,270 Owens-Illinois, Inc. 280,583 (b)
--------------
Drugs & Health Care - 6.7%
5,610 Barr Laboratories, Inc. 222,998 (b)
7,550 BE Aerospace, Inc. 219,894 (b)
2,010 Cardinal Health, Inc. 188,438
4,860 Centocor, Inc. 176,175 (b)
5,870 Elan Corp. plc, ADS 377,514 (b)
4,100 Forest Laboratories, Inc. 141,963 (b)
7,340 Genzyme Corp. 187,629 (b)
5,090 Gilead Sciences, Inc. 163,198 (b)
13,280 Luxottica Group S.P.A., ADR 205,840 (b)
3,620 McKesson Corp. 294,125
9,300 Rexall Sundown, Inc. 327,825 (b)
8,610 Rite Aid Corp. 323,413
4,820 Sola Int'l, Inc. 157,554 (b)
6,280 STERIS Corp. 399,369 (b)
6,560 St. Jude Medical, Inc. 241,490 (b)
9,650 Sybron Corp. 243,663 (b)
9,970 Watson Pharmaceuticals, Inc. 465,474 (b)
--------------
4,336,562
--------------
Electric Utilities - 0.4%
4,680 AES (The) Corp. 245,993 (b)
--------------
Electrical Equipment - 0.8%
2,690 Applied Materials, Inc. 79,355 (b)
2,570 KLA Instruments Corp. 71,157 (b)
2,290 Novellus Systems, Inc. 81,724 (b)
3,200 Symbol Technologies, Inc. 120,800
6,200 Thermo Instrument Systems, Inc. 162,750 (b)
--------------
515,786
--------------
Electronics - 5.0%
2,920 Altera Corp. 86,323 (b)
6,560 American Power
Conversion Corp. 196,800 (b)
7,540 Analog Devices, Inc. 185,201 (b)
10,050 Berg Electronics Corporation 196,603 (b)
6,800 Interim Services, Inc. 218,450 (b)
1,280 Linear Technology Corp. 77,200
4,020 Maxim Integrated Products, Inc. 127,384 (b)
7,360 Microchip Technology, Inc. 192,280 (b)
9,000 Oak Industries, Inc. 318,375 (b)
4,660 PMC - Sierra, Inc. 218,438 (b)
5,980 Sanmina Corp. 259,383 (b)
5,770 Solectron Corp. 242,701 (b)
4,470 Uniphase Corp. 280,632 (b)
8,370 Vitesse Semiconductor Corp. 258,424 (b)
3,860 Waters Corp. 227,499 (b)
3,630 Xilinx, Inc. 123,420 (b)
--------------
3,209,113
--------------
Food & Beverage - 1.7%
8,200 Coca-Cola Enterprises, Inc. 321,850
13,530 Flowers Industries, Inc. 276,519
5,250 Suiza Foods Corp. 313,359 (b)
5,840 U.S. Foodservice 204,765 (b)
--------------
1,116,493
--------------
Healthcare
Management - 3.7%
10,870 HEALTHSOUTH Rehabilitation
Corp. 290,093 (b)
18,660 Mariner Health Group, Inc. 310,223 (b)
11,660 Omnicare, Inc. 444,538
10,730 Orthodontic Centers of
America, Inc. 224,659 (b)
11,940 Oxford Health Plans, Inc. 182,831 (b)
3,020 PacifiCare Health Systems, Inc. 266,893 (b)
10,660 Total Renal Care Holdings, Inc. 367,770 (b)
7,070 Trigon Healthcare, Inc. 255,846 (b)
--------------
2,342,853
--------------
Hospital Management - 1.0%
11,090 Health Management
Associates, Inc. 370,822 (b)
4,920 Quorum Health Group, Inc. 130,380 (b)
1,940 Universal Health Services, Inc. 113,248 (b)
--------------
614,450
--------------
Household Products - 1.3%
3,170 Colgate Palmolive Co. 278,960
8,570 Dial Corp. 222,284
6,720 Newell Company 334,740
--------------
835,984
--------------
Insurance - 1.1%
6,680 Nationwide Financial Services 340,680
6,555 Old Republic Int'l Corp. 192,143
5,310 PLC Capital Trust II 194,811
--------------
727,634
--------------
Leisure &
Entertainment - 1.8%
7,120 Bally Total Fitness Holding 256,320 (b)
7,720 CapStar Hotel Co. 216,160 (b)
5,750 Carnival Cruise Lines, Inc. 227,844
7,370 Harley Davidson, Inc. 285,588 (c)
11,150 Host Marriott Corp. 198,609 (b)
--------------
1,184,521
--------------
Machinery &
Equipment - 1.7%
5,060 Black & Decker Corp. 308,660
5,030 Crane Company 244,269
4,630 Harsco Corp. 212,112
11,470 MSC Industrial Direct
Co., Inc., Class A 326,895 (b)
--------------
1,091,936
--------------
Media - 1.1%
13,790 Outdoor Systems, Inc. 386,120 (b)
7,490 Tele-Communications, Inc.,
Liberty Media Group,
Series A 290,706 (b)
--------------
676,826
--------------
Mining & Metals - 0.8%
4,130 Carpenter Technology Corp. 207,533
7,370 Mueller Industries, Inc. 273,611 (b)
--------------
481,144
--------------
Oil & Oil Service - 4.5%
6,730 Apache Corp. 211,995
4,980 BJ Services Co. 144,731 (b)
2,670 Camco International, Inc. 207,926
3,040 Cooper Cameron Corp. 155,040 (b)
8,740 Devon Energy Corp. 305,354
4,100 Diamond Offshore Drilling, Inc. 164,000
6,630 ENSCO International, Inc. 115,196
4,840 EVI Inc. 179,685 (b)
8,460 Global Marine, Inc. 158,096 (b)
6,460 Noble Drilling Corp. 155,444 (b)
6,540 R&B Falcon Corp. 147,968 (b)
3,490 Smith Int'l, Inc. 121,496 (b)
6,980 Sun Company, Inc. 270,911
6,250 Tosco Corp. 183,594
4,360 Transocean Offshore, Inc. 194,020
5,700 USX-Marathon Group 195,581
--------------
2,911,037
--------------
Pollution Control - 0.8%
5,000 Allied Waste Industries, Inc. 120,000 (b)
8,200 USA Waste Services, Inc. 404,875 (b)
--------------
524,875
--------------
Publishing & Printing - 0.5%
8,570 World Color Press, Inc. 299,950 (b)
--------------
Railroads - 0.2%
3,030 CSX Corp. 137,865
--------------
Real Estate Investment
Trust - 0.4%
3,950 AMBAC, Inc. 231,075
--------------
Restaurants - 0.9%
6,660 Papa John's International, Inc. 262,654 (b)
5,600 Starbucks Corp. 299,250 (b)
--------------
561,904
--------------
Retail - 7.8%
4,150 Bed, Bath & Beyond, Inc. 215,022 (b)
8,010 Borders Group, Inc. 296,370 (b)
6,000 Circuit City Stores, Inc. 281,250
5,000 Consolidated Stores Corp. 181,250 (b)
7,010 Dollar General Corp. 277,333
6,900 Dollar Tree Stores, Inc. 280,313 (b)
4,320 Fred Meyer, Inc. 183,600 (b)
5,750 General Nutrition Companies 178,969 (b)
4,580 Kohl's Corp. 237,588 (b)
11,600 Long Drug Stores, Inc. 334,950
8,865 Men's (The) Wearhouse, Inc. 292,545 (b)
6,920 Office Depot, Inc. 218,413 (b)
13,240 OfficeMax, Inc. 218,460 (b)
9,050 Proffitt's, Inc. 365,394 (b)
6,100 Restoration Hardware, Inc. 153,263 (b)
5,690 Ross Stores, Inc. 244,670
6,600 Safeway, Inc. 268,538 (b)
3,890 Stage Store, Inc. 176,023 (b)
9,480 Viking Office Products, Inc. 297,435 (b)
9,370 Zale Corp. 298,083 (b)
--------------
4,999,469
--------------
Services - 8.3%
8,590 AccuStaff, Inc. 268,438 (b)
10,590 American Management
Systems, Inc. 317,038 (b)
10,440 Apollo Group, Inc. 345,173 (b)
9,390 Equifax, Inc. 340,974
8,520 Fiserv, Inc. 361,834 (b)
15,100 Getty Images, Inc. 335,975 (b)
4,760 Interpublic Group of Cos., Inc. 288,873
10,400 ITT Educational Services, Inc. 335,400 (b)
4,740 Omnicom Group, Inc. 236,408
7,530 Paychex, Inc. 306,377
5,410 Robert Half Int'l, Inc. 302,284 (b)
11,120 Romac International, Inc. 337,770 (b)
11,250 Sterling Commerce, Inc. 545,625 (b)
9,080 Stewart Enterprises, Inc. 241,755
11,430 SunGard Data Systems, Inc. 438,626 (b)
8,600 Sylvan Learning Systems, Inc. 281,650 (b)
--------------
5,284,200
--------------
Telecommunications
Equipment - 2.3%
8,330 Advanced Fibre
Communications 333,721 (b)
6,040 Ascend Communications, Inc. 299,358 (b)
7,620 Aspect Telecommunications
Corp. 208,598 (b)
4,260 CIENA Corp. 296,603 (b)
1,900 L-3 Communications Holdings 62,106 (b)
4,070 Tellabs, Inc. 291,514 (b)
--------------
1,491,900
--------------
Telephone &
Telecommunications - 2.4%
7,020 Cincinnati Bell, Inc. 200,949
5,290 McLeod, Inc. 205,649 (b)
6,000 MGC Communications, Inc. 91,500 (b)
4,970 Pacific Gateway Exchange, Inc. 199,111 (b)
11,140 US LEC Corp. 232,548 (b)
11,270 Vanguard Cellular Systems, Inc. 212,721 (b)
5,700 Western Wireless Corp 113,644 (b)
6,230 WorldCom, Inc. 301,741 (b)
--------------
1,557,863
--------------
Textiles & Apparel - 1.8%
8,140 Jones Apparel Group, Inc. 297,619 (b)
21,000 Stride Rite Corp. 316,313 (c)
4,360 Tommy Hilfiger Corp. 272,500
6,510 Warnaco Group, Inc. 276,268
--------------
1,162,700
--------------
Trucking - 0.7%
7,160 USFreightways Corp. 235,160
7,120 Wabash National Corp. 183,340
--------------
418,500
--------------
Total Common Stocks
(cost $56,838,006) 57,816,870
--------------
Principal
Amount
--------------
SHORT-TERM
SECURITIES - 9.8% (a)
U.S. Government Agency
$6,300,000 Federal National Mortgage
Association, Discount Notes,
5.4%, due 7/1/1998
(at amortized cost) 6,300,000
--------------
Total Investments
(cost $63,138,006) $64,116,870 (d)
==============
Notes to Portfolio of Investments:
(a) The categories of investments are shown as a percentage of total
investments of the Mid Cap Growth Portfolio.
(b) Currently non-income producing.
(c) Includes stock rights that automatically traded with the stock and
had no separate value at June 30, 1998.
(d) At June 30, 1998, the aggregate cost of securities for federal
income tax purposes was $63,138,006 and the net unrealized
depreciation of investments based on that cost was $978,864 which
is comprised of $3,475,600 aggregate gross unrealized appreciation
and $2,496,736 aggregate gross unrealized depreciation.
(e) Miscellaneous Footnotes:
(ADS) - American Depository Shares
(ADR) - American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
WORLD GROWTH PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Shares Value
------------ ------------
<S> <C> <C>
ARGENTINA - 0.8% (a)
COMMON STOCKS
12,470 Banco de Galicia Buenos Aires
'B' ADR (USD) $227,578
10,799 Banco Frances del Rio de la
Plata ADR (USD) 247,702
72,535 Naviera Perez 'B' 364,179
16,490 Telefonica de Argentina
ADR (USD) 534,894
43,736 YPF Sociedad Anonima
ADR (USD) 1,314,814
--------------
Total Argentina 2,689,167
--------------
AUSTRALIA - 2.1% (a)
COMMON STOCKS
34,000 AMP Limited 398,894
96,740 Australia Gas & Light 606,518
22,000 Brambles Industries Ltd. 432,774
58,931 Broken Hill Proprietary 499,336
11,000 Colonial Limited 2,526
102,000 Colonial Ltd. 308,984
59,887 Commonwealth Bank
of Australia 700,374
180,000 Goodman Fielder Ltd. 262,577
170,000 John Fairfax Holdings Ltd. 296,216
19,779 Lend Lease Corp. 400,871
22,868 National Australia Bank Ltd. 302,360
92,401 News Corp. 755,977
78,000 Publishing & Broadcasting 336,508
177,398 Telstra Corp. Ltd. 455,896
95,019 Westpac Banking 580,983
67,000 Woodside Petroleum 335,217
--------------
6,676,011
--------------
PREFERRED STOCKS
76,056 News Corp. 540,102
--------------
Total Australia 7,216,113
--------------
BELGIUM - 2.4% (a)
COMMON STOCKS
2,693 Credit Communal
Holding/Dexia 405,507
2,381 Generale de Banque S.A. 1,768,624
81 Generale de Banque S.A.,
VVPR (reduced tax) Strips 2
61,100 Kredietbank 5,470,906
104 UCB 539,855
--------------
Total Belgium 8,184,894
--------------
BRAZIL - 1.9% (a)
COMMON STOCKS
1,030 Brazil Fund (USD) 18,669
23,712 Centrais Eletricas Brasileiras
S.A. ADR (USD) 349,752
2,371 Centrais G Eradoras Sul Do
Bras Sponsored ADR 16,302
10,360 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR (USD) 234,395
392 Companhia Energetica
Brasilia (USD) 12,336
25,513 Companhia Energetica Minas
Gerais ADR (USD) 803,664
2,800 Companhia Siderurgica
Nacional (ADR) 68,600
42,500 Telecomunicacoes Brasilias
ADR (USD) 4,640,469
15,000 Unibanco - Uniao de Bancos
Brasileiros S.A. 442,500
--------------
Total Brazil 6,586,687
--------------
CANADA - 0.2% (a)
COMMON STOCKS
16,090 Alcan Aluminum 438,455
5,900 Royal Bank of Canada 357,436
--------------
Total Canada 795,891
--------------
CHILE - 0.1% (a)
COMMON STOCKS
8,522 Chilectra ADR (USD) 184,288
7,608 Enersis S.A. ADR (USD) 185,921
--------------
Total Chile 370,209
--------------
CHINA - 0.2% (a)
COMMON STOCKS
41,360 Huaneng Power International
'N' ADR (USD) 555,775 (c)
--------------
CZECH REPUBLIC (b)
COMMON STOCKS
7,000 SPT Telecom 96,790
--------------
DENMARK - 0.3% (a)
COMMON STOCKS
4,054 Den Danske Bank 486,869
807 Tele Danmark 'B' 77,534
4,510 Unidanmark 'A' 405,733
--------------
Total Denmark 970,136
--------------
FINLAND - 0.5% (a)
COMMON STOCKS
21,670 Nokia Oyj 1,595,286
--------------
FRANCE - 10.8% (a)
COMMON STOCKS
2,005 Accor 561,136
12,259 Alcatel Alsthom 2,496,126
16,950 AXA 1,906,479
2,570 Canal Plus 480,358
1,561 Carrefour 987,615
10,250 Cie de St. Gobain 1,900,566
12,414 Credit Commercial de France 1,045,160
1,539 Credit Local de France 207,213
2,513 Credit Local de France -
Dexia France 338,353
23,217 Eaux Cie Generale 4,957,763
6,530 Groupe Danone 1,800,538
2,820 GTM Entrepose 292,929
4,983 Lafarge Coppee 515,139
5,500 Lapeyre 512,182
2,319 Legrand 613,725
1,094 L'Oreal 608,552
1,877 Pathe S.A. 367,905
4,931 Pinault Printemps Redoute 4,127,042
587 Primagaz 51,557
16,059 Sanofi 1,888,607
25,980 Schneider S.A. 2,071,713
6,663 Societe Generale 1,385,347
10,605 Societe Nationale Elf Aquitaine 1,491,018
11,628 Sodexho 2,198,390
9,930 Television Francaise 1,539,013
27,309 Total 'B' 3,550,437
--------------
Total France 37,894,863
--------------
GERMANY - 7.6% (a)
COMMON STOCKS
5,830 Allianz AG 1,944,465
28,122 Bayer 1,456,428
22,272 Bayerische Hypotheken - und
Wechse - Bank 1,412,801
17,022 Bayerische Vereinsbank AG 1,444,102
6,720 Bilfinger & Berger Bau AG 230,465
400 Buderas 199,640
10,380 Commerzbank AG 395,412
27,131 Deutsche Bank AG 2,295,706
48,748 Deutsche Telekom 1,335,302
22,117 Dresdner Bank AG 1,195,712
17,778 Dresdner Bank AG Warrants
Expiring 4/30/2002 463,315 (c)
39,317 Gehe AG 2,109,246
9,000 Hoechst AG 452,882
520 Hornbach Baumarkt 25,575
23,640 Mannesmann AG 2,431,573
4,716 Rhoen Klinikum 466,775
4,810 SAP AG 2,920,486
9,593 Siemens AG 585,915
34,915 Veba AG 2,349,350
649 Volkswagen 627,246
--------------
24,342,396
--------------
PREFERRED STOCKS
1,200 Fielmann 41,953
1,450 Fresenius AG 274,973
2,490 Hornbach Holdings AG 227,813
2,294 SAP AG 1,558,208
--------------
2,102,947
--------------
Total Germany 26,445,343
--------------
HONG KONG - 0.9% (a)
COMMON STOCKS
54,000 Hang Seng Bank Ltd. 305,266
153,000 Henderson Land
Development Ltd. 504,537
321,000 Hong Kong and China
Gas Co. Ltd. 364,584
283,600 Hong Kong
Telecommunications Ltd. 532,574
272,000 Hutchison Whampoa 1,435,829
--------------
Total Hong Kong 3,142,790
--------------
INDIA - 0.1% (a)
COMMON STOCKS
27,000 Mahanager Telephone
Nigam Ltd. 282,825 (c)
--------------
ITALY - 5.1% (a)
COMMON STOCKS
36,560 Assicurazioni Generali 1,189,345
52,000 Banca Commerciale Italiana 311,107
762,000 Banca di Roma 1,586,830 (c)
466,177 Credito Italiano 2,441,411
334,491 Ente Nazionale Idrocarburi 2,193,229
65,160 IMI SpA 1,026,864
9,074 Industrie Natuzzi SpA
ADR (USD) 235,924
236,000 Istituto Nazionale Delle
Assicurazioni 670,775
71,600 Italgas 291,760
35,729 Mediolanum SpA 1,134,158
17,600 Rinascente 175,331
450,400 Telecom Italia Mobile 2,755,508
502,903 Telecom Italia SpA 3,703,664
--------------
Total Italy 17,715,906
--------------
JAPAN - 14.9% (a)
COMMON STOCKS
5,340 Advantest Corp. 288,106
42,000 Alps Electric 501,193
73,000 Amada 356,368
147,000 Canon 3,348,883
45,000 Citizen Watch Co. 372,640
71,000 Dai Nippon Screen
Manufacturing Co. Ltd. 291,661
13,000 Daifuku 48,608
61,000 Daiichi Pharmaceutical 807,333
73,000 Daiwa House 646,742
140 DDI Corp. 489,043
205 East Japan Railway 966,659
15,900 Fanuc 551,964
30,000 Fujitsu Limited 316,772
170,000 Hitachi 1,112,678
95,000 Hitachi Zosen 153,902
8,000 Honda Motor Co. 285,818
25,000 Inax 86,244
38,000 Ito-Yokado 1,794,605
63,000 Kao Corp. 975,049
44,000 Kokuyo 747,812
76,000 Komatsu 370,464
31,000 Komori 590,764
88,000 Kuraray 750,358
34,000 Kyocera 1,667,173
56,000 Makita 647,602
104,000 Marui 1,556,954
140,000 Matsushita Electric Industrial 2,257,901
92,000 Mitsubishi 572,214
446,000 Mitsubishi Heavy Industries 1,690,200
207,000 Mitsui Fudosan 1,640,790
42,000 Murata Manufacturing 1,366,891
269,000 NEC 2,515,491
144,000 Nippon Denso 2,395,313
106 Nippon Telegraph & Telecom 881,608
154,000 Nomura Securities 1,798,727
26,000 Pioneer Electronic 498,300
4,000 Sangetsu Co. Ltd. 51,783
98,000 Sankyo Co. 2,239,676
10,400 Sega Enterprises 180,140
107,000 Sekisui Chemical 549,432
65,000 Sekisui House 505,352
11,000 Seven-Eleven Japan 657,120
26,000 Sharp Corp. 211,355
73,300 Shin-Etsu Chemical 1,272,293
49,000 Shiseido Co. Ltd. 558,501
35,400 Sony 3,059,449
152,000 Sumitomo 733,232
217,000 Sumitomo Electric 2,201,859
36,000 Sumitomo Forestry 202,821
31,000 TDK 2,298,040
32,000 Tokio Marine & Fire Insurance 330,021
16,900 Tokyo Electronics 519,455
31,800 Tokyo Steel Manufacturing 164,209
68,000 Toppan Printing 729,818
34,000 Uny Co. 553,265
400 Yurtec 2,395
--------------
Total Japan 52,363,046
--------------
MEXICO - 1.4% (a)
COMMON STOCKS
75,000 Cementos de Mexico
ADR (USD) 553,125
47,850 Cemex 'B' 211,146
1,435 Cemex S.A. de C.V. 5,382
4,183 Cifra SA de CV 61,176
74,660 Gruma 'B' 162,689 (c)
11,447 Gruma S.A. GDR (USD) 100,877
700 Grupo Financiero Banamex
Accival 'L' 1,130
108,680 Grupo Financiero Banamex 'B' 211,663
140,062 Grupo Industrial Maseca 'B' 86,355
13,500 Grupo Televisa GDR (USD) 507,938 (c)
110,408 Kimberly-Clark Mexico 'A' 390,123
22,020 Panamerican Beverages 'A'
ADR (USD) 692,255
32,435 Telefonos de Mexico 'L'
ADR (USD) 1,558,907
20,700 TV Azteca S.A. ADR (USD) 223,819
--------------
Total Mexico 4,766,585
--------------
NETHERLANDS - 11.7% (a)
COMMON STOCKS
75,136 ABN Amro Holdings N.V. 1,759,426
2,290 Akzo Nobel 509,427
37,210 ASM Lithography
Holdings N.V. 1,101,976 (c)
10,749 Baan Co. N.V. 384,277 (c)
162,000 CLP Holdings Ltd. 738,074
26,559 CSM 1,276,504
185,199 Elsevier 2,797,004
35,885 Fortis Amev N.V. 2,102,523
10,231 Gucci Group N.V. (USD) 542,243
91,632 ING Groep N.V. 6,004,370
20,765 ING Groep N.V.,
Stock Warrants 383,071 (c)
30,874 Koninklijke Ahold NV 991,795
18,700 Koninklijke Numico N.V. 585,999
8,490 Koninklijke PTT Nederland 327,028
31,415 Polygram 1,604,170
144,018 Royal Dutch Petroleum 7,991,750
17,290 Royal Phillips Electronics N.V. 1,454,478
4,000 ST Microelectronics 283,507
8,490 TNT Post Group NV 217,184 (c)
46,920 Unilever NV 3,725,440
45,317 Wolters Kluwer 6,224,330
--------------
Total Netherlands 41,004,576
--------------
NEW ZEALAND - 0.2% (a)
COMMON STOCKS
63,530 Fletcher Challenge Building 79,339
64,191 Fletcher Challenge Energy 153,648
36,000 Telecom Corporation of
New Zealand Ltd. 77,178
87,000 Telecom Corp. of New Zealand 359,447
--------------
Total New Zealand 669,612
--------------
NORWAY - 1.6% (a)
COMMON STOCKS
5,570 Bergesen 'A' 106,102
52,114 Norsk Hydro 2,294,797
135,420 Orkla ASA 3,153,822
6,910 Saga Petroleum 'B' 97,819
--------------
Total Norway 5,652,540
--------------
PANAMA (b)
COMMON STOCKS
1,676 Banco Latinoamericano de
Exportaciones S.A. 'E' 51,537
--------------
PERU - 0.1% (a)
COMMON STOCKS
6,281 Credicorp Ltd. 92,252
6,361 Telefonica del Peru S.A.
ADR (USD) 130,003
--------------
Total Peru 222,255
--------------
PORTUGAL - 0.5% (a)
COMMON STOCKS
35,545 Jeronimo Martins 1,708,702
--------------
RUSSIA - 0.1% (a)
COMMON STOCKS
13,070 Gazprom ADR (USD) 144,750
1,880 Lukoil Holding AB 62,040
--------------
Total Russia 206,790
--------------
SINGAPORE - 0.1% (a)
COMMON STOCKS
39,352 Singapore Press Holdings Ltd. 263,904
154,000 Singapore
Telecommunications Ltd. 219,347
--------------
Total Singapore 483,251
--------------
SOUTH KOREA - 0.1% (a)
COMMON STOCKS
53,991 Korea Equity Fund (USD) 344,193
--------------
SPAIN - 2.9% (a)
COMMON STOCKS
12,260 Banco Bilbao Vizcaya S.A. 629,189
9,235 Banco Popular Espanol S.A. 787,700
85,384 Banco Santander 2,185,407
32,608 Corporacion Bancaria de
Espana S.A. 731,474
46,304 Endesa S.A. 1,013,041
9,366 Gas Natural SDG, S.A. 676,722
59,060 Iberdrola 958,979
13,325 Repsol S.A. 734,244
50,654 Telefonica de Espana 2,341,942
--------------
Total Spain 10,058,698
--------------
SWEDEN - 3.7% (a)
COMMON STOCKS
57,930 ABB AB 820,723
158,010 Astra AB 3,149,898
32,540 Atlas Copco 'B' 887,343
93,825 Electrolux AB 1,611,588
7,770 Esselte 'B' 180,222
6,582 Granges AB 120,483
45,550 Hennes & Mauritz AB 2,906,839
280,871 Nordbanken Holding AB 2,060,049
4,860 Sandvik 'A' 134,357
29,620 Sandvik 'B' 813,287
2,720 Scribona 'B' 32,738
--------------
Total Sweden 12,717,527
--------------
SWITZERLAND - 6.8% (a)
COMMON STOCKS
1,060 ABB AG 1,567,985
4,317 Adecco S.A. 1,949,962
9,750 Credit Suisse Group 2,173,034
3,185 Nestle 6,827,254
2,448 Novartis AG 4,080,269
294 Roche Holdings 2,891,851
10,928 UBS AG 4,070,126
--------------
Total Switzerland 23,560,481
--------------
THAILAND - 0.1% (a)
COMMON STOCKS
240,000 Thai Farmers Bank
Public Co. Ltd. 211,848
--------------
UNITED KINGDOM - 17.3% (a)
COMMON STOCKS
117,000 Abbey National 2,080,530
362,000 Asda Group 1,243,618
91,764 BG plc 530,902
89,000 British Petroleum 1,298,793
245,000 Cable & Wireless 2,978,077
159,225 Cadbury Schweppes 2,465,833
257,800 Caradon plc 792,026
62,000 Centrica plc 104,815 (c)
190,000 Compass Group PLC 2,185,804
114,000 David S. Smith 367,367
79,000 Electrocomponents 619,960
26,000 GKN PLC 331,452
177,500 Glaxo Wellcome 5,331,728
11,000 Heywood Williams Group 47,753
58,000 John Laing 'A' 383,497
261,000 Kingfisher plc 4,205,390
489,000 National Westminster Bank 8,744,540
167,000 Rank Group plc 917,383
437,000 Reed International plc 3,954,751
84,000 Rolls Royce 347,131
122,000 RTZ 1,374,998
204,000 Safeway plc 1,336,929
635,000 Shell Transport & Trading 4,474,295
594,400 SmithKline Beecham plc 7,259,916
191,000 Tesco 1,865,639
515,700 Tomkins 2,800,612
186,000 United News & Media 2,602,528
--------------
Total United Kingdom 60,646,267
--------------
VENEZUELA - 0.1% (a)
COMMON STOCKS
8,372 Compania Anonima Nacional
Telefonos de Venezuela
ADR (USD) 209,300
--------------
Principal
Amount
------------
SHORT-TERM
SECURITIES - 5.4% (a)
Commercial Paper
$7,700,000 General Electric Co
6.5% due 7/1/1998 7,700,000
11,000,000 Sheffield Receivables Corp
6.5% due 7/1/1998 11,000,000
--------------
Total Short-Term Securities
(at amortized cost) 18,700,000
--------------
Total Investments $348,119,883 (e)
==============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the World Growth Portfolio.
(b) The market value of the denoted categories of investments
represent less then 0.1% of the total investments of the World Growth
Portfolio.
(c) Currently non-income producing.
(d) Security Classification:
<CAPTION>
% of
Cost Value Portfolio
<S> -------------- -------------- --------------
Common Stocks & <C> <C> <C>
& Warrants $274,281,455 $326,776,834 93.8%
Preferred Stocks 1,796,425 2,643,049 0.8%
Short-Term 18,700,000 18,700,000 5.4%
-------------- -------------- --------------
Total Investments $294,777,880 $348,119,883 100.0%
============== ============== ==============
(e) At June 30, 1998, the aggregate cost of securities for federal
income tax purposes was $294,777,880 and the net unrealized
appreciation of investments based on that cost was $53,342,003 which
is comprised of $75,837,403 aggregate gross unrealized appreciation
and $22,495,400 aggregate gross unrealized depreciation.
(f) Miscellaneous Footnotes:
(ADR) - American Depository Receipts
(GDR) - Global Depository Receipts
(USD) - Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
GROWTH PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Shares Value
-------------- --------------
<S> <C> <C>
COMMON STOCKS - 94.4% (a)
Aerospace - 0.4%
82,000 Boeing Co. $3,654,125
150,500 Sunstrand Corp. 8,616,125
--------------
12,270,250
--------------
Airlines - 1.0%
75,000 Delta Air Lines, Inc. 9,693,750
373,500 Southwest Airlines Co. 11,064,938
128,400 US Airways Group, Inc. 10,175,700 (b)
--------------
30,934,388
--------------
Appliances &
Furnishings - 0.1%
350,000 Sunbeam Corp. 3,631,250
--------------
Automotive - 1.8%
236,300 Chrysler Corp. 13,321,413
158,400 General Motors Corp. 10,583,100
175,000 Goodyear Tire &
Rubber Co. (The) 11,276,563
180,300 Magna International, Inc. 12,373,088
150,300 Tower Automotive, Inc. 6,444,113 (b)
--------------
53,998,277
--------------
Bank & Finance - 18.1%
142,500 Ace Ltd. 5,557,500
156,900 Allstate Corp. 14,366,156
300,000 American Express Co. 34,200,000
275,000 American International
Group, Inc. 40,150,000
55,200 Annuity and Life Re (holdings) 1,221,300 (b)
190,000 Associates First Capital Corp. 14,606,250
226,000 Bank Boston Corp. 12,571,250
325,000 Bank of New York Co., Inc. 19,723,438
320,000 BankAmerica Corp. 27,660,000
120,000 Bankers Trust NY Corp. 13,927,500
125,000 Bear Stearns Cos., Inc. 7,109,375
415,000 Chase Manhattan Corp. 31,332,500
200,000 Citicorp 29,850,000
222,000 Crestar Financial Corp. 12,112,875
204,523 Equity Office Properties Trust 5,803,340
428,800 Federal Home Loan
Mortgage Corp. 20,180,400
440,300 Federal National Mortgage
Association 26,748,225
258,400 First Chicago NBD Corp. 22,900,700
199,100 Green Tree Financial Corp. 8,523,969
350,000 Hibernia Corp., Class A 7,065,625
471,000 Household International, Inc. 23,432,250
230,400 Keycorp 8,208,000
246,800 Lehman Brothers Holdings, Inc. 19,142,425
345,000 MBNA Corp. 11,385,000
135,300 Mellon Bank Corp. 9,420,263
140,000 Merrill Lynch & Co., Inc. 12,915,000
355,318 NationsBank Corp. 27,181,827
195,300 PaineWebber Group, Inc. 8,373,488
135,660 Provident Bankshares
Corporation 4,001,970
236,900 Summit Bancorp 11,252,750
148,300 SunAmerica, Inc. 8,517,981
131,300 Travelers Property
Casualty Corp. 5,629,488
356,400 U.S. Bancorp 15,325,200
60,000 Wells Fargo & Co. 22,140,000
--------------
542,536,045
--------------
Broadcasting - 1.6%
446,200 CBS Corp. 14,166,850
143,200 Citadel Communications Corp. 2,291,200
207,900 Cumulus Media, Inc., Class A 3,027,544 (b)
320,000 Tele-Communications, Inc.,
Liberty Media Group,
Series A 12,420,000 (b)
388,000 Tele-Communications, Inc.,
TCI Group, Series A 14,913,750 (b)
106,200 TV Azteca, S.A. de C.V., ADR 1,148,288
--------------
47,967,632
--------------
Building Materials - 0.4%
200,000 Masco Corp. 12,100,000
--------------
Chemicals - 1.7%
260,900 Air Products & Chemicals, Inc. 10,436,000
148,200 Avery Dennison Corp. 7,965,750
240,000 E.I. Dupont de Nemours and Co. 17,910,000
260,000 Monsanto Co. 14,527,500
--------------
50,839,250
--------------
Computer Software - 6.2%
112,100 Adobe Systems, Inc. 4,757,244
168,400 America Online, Inc. 17,850,400
21,700 Autodesk, Inc. 838,163
372,200 BMC Software, Inc. 19,331,138 (b)
88,700 Cerner Corp. 2,511,319 (b)
410,650 Computer Associates
International, Inc. 22,816,741
150,000 Compuware Corp. 7,668,750 (b)
406,900 HBO & Co. 14,343,225
64,600 HNC Software, Inc. 2,636,488 (b)
150,000 J.D. Edwards & Company 6,440,625 (b)
450,000 Microsoft Corp. 48,768,750 (b)
171,300 Network Associates, Inc. 8,200,988 (b)
230,300 Parametric Technology Corp. 6,246,888 (b)
175,000 PeopleSoft, Inc. 8,225,000 (b)
127,000 Platinum Technology, Inc. 3,627,438 (b)
74,000 Symantec Corp. 1,933,250 (b)
207,200 Synopsys, Inc. 9,479,400 (b)
--------------
185,675,807
--------------
Computers & Office
Equipment - 6.0%
329,400 Bay Networks, Inc. 10,623,150 (b)
124,000 Cambridge Technology
Partners, Inc. 6,773,500 (b)
600,000 Cisco Systems, Inc. 55,237,500 (b)
366,300 Compaq Computer Corp. 10,393,763
108,600 Dell Computer Corp. 10,079,438 (b)
249,100 FORE Systems, Inc. 6,601,150 (b)
216,900 Hewlett Packard Co. 12,986,888
250,000 International Business Machines 28,703,125
87,500 Pitney Bowes, Inc. 4,210,938
130,300 SCI Systems, Inc. 4,902,538 (b)
317,800 Seagate Technology, Inc. 7,567,613 (b)
311,200 Sun Microsystems, Inc. 13,517,750 (b)
86,500 Xerox Corp. 8,790,563
--------------
180,387,916
--------------
Conglomerates - 2.4%
463,800 AlliedSignal, Inc. 20,581,125
100,000 Dover Corp. 3,425,000
347,900 Thermo Electron Corp. 11,893,831 (b)
441,500 Tyco International Ltd. 27,814,500
300,000 U.S. Industries, Inc. 7,425,000
--------------
71,139,456
--------------
Construction & Home
Building - 0.2%
125,000 Centex Corp. 4,718,750
--------------
Drugs & Health Care - 10.6%
495,800 Abbott Laboratories 20,265,825
450,000 American Home Products Corp. 23,287,500
186,000 Amgen, Inc. 12,159,750
200,000 Arterial Vascular Engineering 7,150,000 (b)
270,000 Becton, Dickinson & Co. 20,958,750
163,800 Biochem Pharma, Inc. 4,340,700 (b)
293,500 Bristol-Myers Squibb Co. 33,734,156
73,100 Cardinal Health, Inc. 6,853,125
201,500 Centocor, Inc. 7,304,375 (b)
84,700 Cephalon, Inc. 667,013 (b)
3,845 Clinichem Development, Inc. 22,109 (b)
297,000 Eli Lilly & Co. 19,620,563
141,400 Guidant Corporation 10,083,588
265,000 Johnson & Johnson 19,543,750
312,800 Merck & Co., Inc. 41,837,000
291,000 Pfizer, Inc. 31,628,063
200,000 Schering-Plough Corp. 18,325,000
130,000 Smithkline Beecham plc., ADR 7,865,000
400,000 Warner-Lambert Co. 27,750,000
130,500 Zeneca Group plc, ADR 5,725,688
--------------
319,121,955
--------------
Electrical Equipment - 2.8%
190,300 Emerson Electric Company 11,489,363
560,000 General Electric Co. 50,960,000
187,200 Honeywell, Inc. 15,642,900
128,700 Symbol Technologies, Inc. 4,858,425
--------------
82,950,688
--------------
Electronics - 2.3%
209,100 Altera Corp. 6,181,519 (b)
189,200 Applied Materials, Inc. 5,581,400 (b)
420,000 Intel Corp. 31,132,500
191,400 LSI Logic Corp. 4,414,163 (b)
20,000 MIPS Technologies, Inc. 268,750 (b)
205,000 Texas Instruments, Inc. 11,954,063
116,600 Uniphase Corp. 7,320,294 (b)
93,100 Xilinx, Inc. 3,165,400 (b)
--------------
70,018,089
--------------
Food & Beverage - 3.6%
450,300 Coca-Cola Co. 38,500,650
112,700 Dean Foods Co. 6,191,456
184,700 Flowers Industries, Inc. 3,774,806
115,600 General Mills, Inc. 7,904,150
150,000 Panamerican Beverages, Inc.,
Class A 4,715,625
584,700 PepsiCo, Inc. 24,082,331
358,300 Sara Lee Corp. 20,042,406
37,300 Suiza Foods Corp. 2,226,344 (b)
--------------
107,437,768
--------------
Healthcare
Management - 0.9%
192,100 Capital Senior Living Corp. 2,305,200 (b)
330,000 HEALTHSOUTH
Rehabilitation Corp. 8,806,875 (b)
253,600 Humana, Inc. 7,909,150 (b)
237,400 Tenet Healthcare Corporation 7,418,750 (b)
23,300 Total Renal Care Holdings, Inc. 803,850 (b)
--------------
27,243,825
--------------
Household Products - 3.4%
61,300 Avon Products, Inc. 4,750,750
170,200 Clorox Co. 16,232,825
180,000 Colgate Palmolive Co. 15,840,000
443,900 Gillette Co. 25,163,581
128,500 Kimberly-Clark Corp. 5,894,938
385,600 Procter & Gamble Co. 35,113,700
--------------
102,995,794
--------------
Leisure &
Entertainment - 1.8%
92,000 American Skiing Company 1,196,000 (b)
105,000 Disney (Walt) Co. 11,031,563
233,200 Harley Davidson, Inc. 9,036,500 (c)
101,400 Premier Parks, Inc. 6,755,775 (b)
198,450 Signature Resorts, Inc. 3,200,006 (b)
70,600 Starwood Hotels and Resorts 3,410,863
223,100 Time Warner, Inc. 19,061,106
--------------
53,691,813
--------------
Machinery &
Equipment - 0.5%
153,400 Deere & Co. 8,111,025
200,000 Parker-Hannifin Corp. 7,625,000
--------------
15,736,025
--------------
Mining & Metals - 0.6%
120,000 Aluminum Co. of America 7,912,500
525,000 Homestake Mining Co. 5,446,875
102,200 Nucor Corp. 4,701,200
--------------
18,060,575
--------------
Oil & Oil Service - 6.0%
169,600 Apache Corp. 5,342,400
191,900 British Petroleum Co. plc, ADS 16,935,175
250,800 Chevron Corp. 20,832,075
178,800 EVI Inc. 6,637,950 (b)
464,100 Halliburton Co. 20,681,456
338,000 Mobil Corp. 25,899,250
106,700 Oryx Energy Co. 2,360,738 (b)
105,500 Santa Fe International Corp. 3,191,375
166,800 Smith Int'l, Inc. 5,806,725 (b)
84,200 Sun Company, Inc. 3,268,013
276,800 Tesoro Petroleum Corp. 4,394,200 (b)
193,100 Texaco, Inc. 11,525,656
209,900 Total SA, ADR 13,722,213
228,700 Transocean Offshore, Inc. 10,177,150
340,900 USX-Marathon Group 11,697,131
140,200 Valero Energy Corp. 4,661,650
226,800 Varco International, Inc. 4,493,475 (b)
318,300 YPF Sociedad Anonima, ADR 9,568,894
--------------
181,195,526
--------------
Paper & Forest
Products - 0.4%
147,700 Fort James Corp. 6,572,650
92,700 Weyerhaeuser Co. 4,281,581
--------------
10,854,231
--------------
Pollution Control - 0.8%
173,100 Browning-Ferris Industries, Inc. 6,015,225
230,400 Republic Services, Inc., Class A 5,529,600 (b)
227,400 USA Waste Services, Inc. 11,227,875 (b)
--------------
22,772,700
--------------
Publishing &
Printing - 1.2%
94,200 Gannett Co., Inc. 6,694,088
72,800 McGraw-Hill, Inc. 5,937,750
105,100 New York Times Co. 8,329,175
115,200 Scripps (E.W.) Company 6,314,400
143,100 Times (The) Mirror Company 8,997,413
--------------
36,272,826
--------------
Railroads - 0.3%
85,000 Burlington Northern Santa Fe 8,345,938
--------------
Real Estate Investment
Trust - 0.6%
138,700 Arden Realty, Inc. 3,588,863
46,400 Glenborough Realty Trust, Inc. 1,223,800
166,200 Glimcher Realty Trust 3,230,513
95,500 Kilroy Realty Corp. 2,387,500
147,600 Prentiss Properties Trust 3,588,525
165,000 Simon Debartolo Group, Inc. 5,362,500
--------------
19,381,701
--------------
Restaurants - 0.6%
184,800 Boston Chicken, Inc. 294,525 (b)
263,100 Landry's Seafood
Restaurant, Inc. 4,760,466 (b)
182,000 McDonald's Corp. 12,558,000
--------------
17,612,991
--------------
Retail - 8.3%
147,000 Barnes and Noble, Inc. 5,503,313 (b)
218,600 Borders Group, Inc. 8,088,200 (b)
345,000 Circuit City Stores, Inc. 16,171,875
162,100 Costco Companies, Inc. 10,222,431 (b)
686,200 CVS Corp. 26,718,913
199,900 Dayton Hudson Corp. 9,695,150
282,200 Eagle Hardware & Garden, Inc. 6,525,875 (b)
293,100 Federated Department Stores 15,772,444 (b)
408,900 Fred Meyer, Inc. 17,378,250 (b)
161,700 General Nutrition Companies 5,032,913 (b)
335,000 Home Depot, Inc. 27,825,938
377,200 Kroger Co. 16,172,450 (b)
147,600 Limited, Inc. 4,889,250
270,800 OfficeMax, Inc. 4,468,200 (b)
115,200 Pier 1 Imports, Inc. 2,750,400
135,400 Polo Ralph Lauren Corp. 3,791,200 (b)
269,600 Proffitt's, Inc. 10,885,100 (b)
600,000 Safeway, Inc. 24,412,500 (b)
535,000 Wal-Mart Stores, Inc. 32,501,250
--------------
248,805,652
--------------
Services - 1.9%
254,000 AccuStaff, Inc. 7,937,500 (b)
554,000 Cendant Corporation 11,564,750 (b)
70,000 CSG System International, Inc. 3,281,250 (b)
259,300 First Data Corp. 8,637,931
125,000 Service Corp. International 5,359,375
274,500 Sterling Commerce, Inc. 13,313,250 (b)
204,100 Young & Rubicam, Inc. 6,531,200 (b)
--------------
56,625,256
--------------
Telecommunications
Equipment - 3.0%
123,100 Comverse Technology, Inc. 6,385,813 (b)
211,200 Ericsson (L.M.)
Telecommunications, ADR 6,045,600
132,900 General Instrument Corp. 3,613,219 (b)
321,900 Loral Space and
Communications 9,093,675
325,000 Lucent Technologies, Inc. 27,035,938
95,900 MasTec, Inc. 2,289,613 (b)
159,000 Motorola, Inc. 8,357,438
400,000 Tellabs, Inc. 28,650,000 (b)
--------------
91,471,296
--------------
Telephone &
Telecommunications - 4.7%
400,000 Ameritech Corp. 17,950,000
404,600 Bell Atlantic Corp. 18,459,875
80,500 GTE Corp. 4,477,813
106,000 ICG Communications, Inc. 3,875,625 (b)
100,000 MCI Communications Corp. 5,812,500
327,500 MobileMedia Corp., Class A 32,750 (b)
302,500 Paging Network, Inc. 4,235,000 (b)
252,800 Premiere Technologies, Inc. 2,097,450 (b)
429,000 SBC Communications, Inc. 17,160,000
210,000 Sprint Corp. 14,805,000
80,000 Telecomunicacoes Brasileiras,
ADR 8,735,000
367,600 Teleport Communications
Group, Inc. 19,942,300 (b)
503,200 WorldCom, Inc. 24,373,726 (b)
--------------
141,957,039
--------------
Textiles & Apparel - 0.1%
36,800 NIKE, Inc., Class B 1,791,700
--------------
Trucking - 0.1%
127,600 USFreightways Corp. 4,190,863
--------------
Total Common Stock
(cost $2,382,299,352) 2,834,733,272
--------------
PREFERRED
STOCK - 0.2% (a)
86,800 EchoStar Communications
Corp., Convertible Preferred
Stock, Series C
(cost $4,339,500) 5,208,000
--------------
Principal
Amount
-----------
CORPORATE
BONDS - 0.1% (a)
$6,250,000 Broadband Technologies, Inc.,
Convertible Subordinated
Notes, 5.0%, due 5/15/2001
(cost $6,253,932) 4,187,500
--------------
SHORT-TERM
SECURITIES - 5.3% (a)
Commercial Paper
20,000,000 Centerior Fuel Corp., 5.75%,
due 7/15/1998 19,955,278
12,650,000 CIT Group Holdings, Inc.,
6.35%, due 7/1/1998 12,650,000
2,000,000 Coca-Cola, 5.5%, due
7/2/1998$ 1,999,694
10,000,000 Commercial Credit Co., 5.56%,
due 7/30/1998 9,955,211
10,000,000 CXC, Inc., 5.52%, due
7/21/1998 9,969,333
10,000,000 Den Norske Stats Olejeselskap,
5.53%, due 7/7/1998 9,990,783
23,800,000 Koch Industries, Inc., 6.3%,
due 7/1/1998 23,800,000
20,000,000 New Center Asset Trust, 6.45%,
due 7/1/1998 20,000,000
9,800,000 Prudential Funding Corp.,
due 6.42%, due 7/1/1998 9,800,000
27,400,000 Shell Oil Co., 6.2%, due
7/1/1998 27,400,000
9,493,000 Toys 'R' Us, Inc., 5.6%,
due 7/8/1998 9,482,663
2,294,000 Triple A One Funding Corp.,
5.65%, due 7/8/1998 2,291,120
1,131,000 Triple A One Funding Corp.,
5.65%, due 7/21/1998 1,127,450
--------------
Total Short-Term Securities
(at amortized cost) 158,421,532
--------------
Total Investments
(cost $2,551,314,316) $3,002,550,304 (e)
==============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Growth Portfolio.
(b) Currently non-income producing.
(c) Includes stock rights that automatically traded with the stock and
had no separate value at June 30, 1998.
(d) At June 30, 1998, Common Stocks valued at $26,025,731 were held
in escrow to cover call options written as follows:
<CAPTION>
Number
of Exercise Expiration
Type Contracts Price Date Value
- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Adobe Systems 253 $ 40 7/24/1998 $75,900
America Online 238 110 7/24/1998 71,400
Amgen, Inc. 200 70 7/24/1998 22,500
Cisco Systems 473 90 7/24/1998 183,288
Home Depot 947 40 7/24/1998 437,987
MCI
Communications 1,000 55 7/24/1998 337,500
Microsoft Corp. 285 110 7/24/1998 74,813
---------- ----------
3,396 $1,203,388
========== ==========
(e) At June 30, 1998, the aggregate cost of securities for federal
income tax purposes was $2,551,314,316 and the net unrealized
appreciation of investments based on that cost was $451,235,988
which is comprised of $521,330,176 aggregate gross unrealized
appreciation and $70,094,188 aggregate gross unrealized
depreciation.
(f) Miscellaneous Footnotes:
(ADS) - American Depository Shares
(ADR) - American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
HIGH-YIELD PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 85.4% (a)
Aerospace - 0.9%
$6,535,000 Alliant Techsystems, Inc., Sr. Subordinated Notes 11.75% 3/1/2003 $7,114,981
6,050,000 BE Aerospace, Inc., Sr. Subordinated Notes 8.0% 3/1/2008 6,065,125
-------------
13,180,106
-------------
Airlines - 1.2%
6,000,000 Continental Airlines, Inc., Sr. Notes 9.5% 12/15/2001 6,405,000
3,000,000 Northwest Airlines, Inc., Notes 8.375% 3/15/2004 3,101,613
4,500,000 Northwest Airlines, Inc., Sr. Notes 7.625% 3/15/2005 4,500,000
3,000,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 3,453,192
-------------
17,459,805
-------------
Automotive - 0.2%
3,050,000 Delco Remy International, Inc., Sr. Notes 8.625% 12/15/2007 3,103,375
-------------
Bank & Finance - 6.4%
5,550,000 AmeriCredit Corp., Sr. Notes 9.25% 2/1/2004 5,716,500
3,550,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 3,603,250
6,600,000 Dollar Financial Group, Inc., Sr. Notes, Series A 10.875% 11/15/2003 7,128,000
5,800,000 Emergent Group, Inc., Sr. Notes 10.75% 9/15/2004 4,263,000
11,850,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 13,538,625
3,896,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B 11.25% 5/15/2003 4,641,110
9,100,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 8,963,500
4,250,000 Metris Companies Inc., Sr. Notes 10.0% 11/1/2004 4,462,500
4,800,000 Riggs Capital Trust II, Trust Preferred Securities 8.875% 3/15/2027 5,435,458
7,000,000 SIG Capital Trust I, Bond 9.5% 8/15/2027 7,210,000
8,530,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 9,638,900
3,000,000 Veritas Capital Trust, Trust Preferred Securities 10.0% 1/1/2028 3,150,000
5,070,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 5,336,175
7,500,000 Williams Scotsman, Inc., Sr. Notes 9.875% 6/1/2007 7,837,500
4,800,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 5,220,000
-------------
96,144,518
-------------
Broadcasting - 11.3%
6,300,000 Adelphia Communications Corp., Sr. Debentures 11.875% 9/15/2004 6,977,250
3,073,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 691,425
2,142,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 546,210
3,600,000 Australis Holdings Pty Ltd., Sr. Discount Notes Zero Coupon 11/1/2002 810,000
24,594,230 Australis Media Ltd., Sr. Discount Notes Zero Coupon 5/15/2003 1,844,567
5,500,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 5,596,250
6,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2006 1,530,000
3,000,000 CSC Holdings, Inc., Sr. Notes 7.875% 12/15/2007 3,172,500
3,000,000 Cumulus Media, Inc., Sr. Subordinated Notes 10.375% 7/1/2008 3,060,000
6,000,000 Diamond Cable Communications plc, Sr. Discount Notes Zero Coupon 12/15/2005 4,980,000
1,850,000 Diamond Cable Co., Sr. Discount Notes Zero Coupon 9/30/2004 1,757,500
13,000,000 DIVA Systems Corp., Bonds Zero Coupon 3/1/2008 6,045,000
2,400,000 Echostar DBS Corp., Sr. Secured Notes 12.5% 7/1/2002 2,682,000
6,000,000 EchoStar Satellite Broadcasting Corp., Sr. Secured
Discount Notes Zero Coupon 3/15/2004 5,535,000
6,450,000 Falcon Holding Group, L.P., Sr. Discount Debentures Zero Coupon 4/15/2010 4,208,625
10,800,000 Groupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 12,042,000
10,200,000 Intermedia Capital Partners, Sr. Notes 11.25% 8/1/2006 11,628,000
6,900,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 6,141,000
7,300,000 Jacor Communications, Inc., Convertible Preferred Zero Coupon 2/9/2018 3,202,875
5,140,000 Jones Intercable, Inc., Sr. Notes 9.625% 3/15/2002 5,564,050
4,200,000 NTL, Inc., Sr. Notes, Series B 10.0% 2/15/2007 4,515,000
6,000,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 6,660,000
19,000,000 Orion Network Systems, Inc., Sr. Notes 11.25% 1/15/2007 21,470,000
7,050,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 7,561,125
3,000,000 Rogers Cantel Inc., Debentures 9.375% 6/1/2008 3,127,500
819,869 Scott Cable Communications, Jr. Subordinated Notes,
Payment-In-Kind 16.0% 7/18/2002 303,352
8,400,000 SFX Broadcasting, Inc., Sr. Subordinated Notes, Series B 10.75% 5/15/2006 9,324,000
3,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes 8.75% 12/15/2007 3,105,000
3,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes 9.0% 7/15/2007 3,135,000
4,800,000 Supercanal Holding S.A 11.5% 5/15/2005 4,632,000
7,100,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 4,375,375
2,500,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series D 14.0% 5/15/2006 1,540,625
12,000,000 United International Holdings, Inc., Sr. Notes, Series B 10.75% 2/15/2008 7,440,000
4,900,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 1,053,500
4,200,000 Young Broadcasting Corp., Sr. Subordinated Notes 11.75% 11/15/2004 4,662,000
-------------
170,918,729
-------------
Building Products & Materials - 1.6%
4,200,000 American Standard Cos Inc., Notes 7.375% 4/15/2005 4,190,773
6,600,000 American Standard Cos, Inc., Sr. Notes 7.375% 2/1/2008 6,492,750
5,500,000 Atrium Companies, Inc., Sr. Subordinated Notes 10.5% 11/15/2006 5,830,000
6,000,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 6,900,000
-------------
23,413,523
-------------
Chemicals - 0.9%
3,050,000 General Chemical Corp., Sr. Subordinated Notes 9.25% 8/15/2003 3,141,500
4,500,000 Huntsman Polymers Corp., Sr. Notes 11.75% 12/1/2004 4,927,500
4,800,000 Sovereign Specialty Chemicals, Sr. Subordinated B Notes 9.5% 8/1/2007 4,920,000
-------------
12,989,000
-------------
Computers & Office Equipment - 2.4%
5,500,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 5,555,000
5,000,000 Exodus Communications Inc., Sr. Notes 11.25% 7/1/2008 5,037,500
3,000,000 MCMS, Inc., Subordinated Notes Zero Coupon 3/1/2008 2,790,000
4,800,000 Samsung Electronics America, Notes 9.75% 5/1/2003 4,512,000
6,000,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 6,952,500
3,600,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 4,077,000
4,500,000 Wam!Net, Inc., Units Zero Coupon 3/1/2005 2,857,500
5,800,000 Zilog, Inc., Sr. Notes 9.5% 3/1/2005 4,147,000
-------------
35,928,500
-------------
Conglomerates - 0.3%
4,250,000 Eagle-Picher Acquisition, Inc., Sr. Subordinated Notes 9.375% 3/1/2008 4,313,750
-------------
Construction & Home Building - 2.0%
4,000,000 MasTec, Inc., Sr Subordinated Notes 7.75% 2/1/2008 3,840,000
6,000,000 M.D.C. Holdings, Inc., Sr. Notes 8.375% 2/1/2008 6,000,000
9,600,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 10,368,000
3,350,000 Ryland (The) Group, Inc., Sr. Subordinated Notes 10.5% 7/15/2002 3,500,750
5,400,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 6,183,000
-------------
29,891,750
-------------
Containers & Packaging - 1.7%
3,000,000 Fonda Group, Inc., Sr. Subordinated Notes, Series B 9.5% 3/1/2007 2,910,000
3,600,000 Graham Packaging Company, Sr. Subordinated Notes Zero Coupon 1/15/2008 3,618,000
4,750,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 4,963,750
6,250,000 SF Holdings Group, Inc., Units Zero Coupon 3/15/2008 3,375,000
2,866,000 Silgan Holdings, Inc., Subordinated Debentures,
Payment-In-Kind 13.25% 7/15/2006 3,195,590
3,700,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 11.375% 5/15/2007 3,982,125
3,100,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 10.25% 5/15/2002 3,231,750
-------------
25,276,215
-------------
Cosmetics & Toiletries - 0.5%
1,800,000 Revlon Consumer Products Corp., Sr. Notes 8.125% 2/1/2006 1,800,000
5,800,000 Revlon Consumer Products Corp., Sr. Notes 8.625% 2/1/2008 5,836,250
-------------
7,636,250
-------------
Drugs & Health Care - 0.9%
4,800,000 Global Health Sciences, Inc., Sr. Notes 11.0% 5/1/2008 4,764,000
4,100,000 ICN Pharmaceuticals, Inc., Sr. Notes 9.25% 8/15/2005 4,335,750
3,550,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 3,851,750
-------------
12,951,500
-------------
Electric Utilities - 2.4%
2,400,000 AES Corp., Sr. Subordinated Notes 8.5% 11/1/2007 2,436,000
1,500,000 CMS Energy Corp., Sr. Notes 7.625% 11/15/2004 1,501,098
6,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 6,167,034
2,400,000 CMS Energy, Sr Unsecured Notes 7.0% 1/15/2005 2,331,694
4,800,000 ESI Tractebel Acquisition Corp, Series A 7.99% 12/30/2011 4,883,971
3,550,000 Midland Cogen Venture Fund II, Secured Lease
Obligation Bonds, Series A 11.75% 7/23/2005 4,269,823
3,000,000 Midland Cogen Venture Fund II, Subordinated
Secured Lease Obligation Bonds 13.25% 7/23/2006 3,845,316
2,400,000 Niagara Mohawk Power Corp., Sr. E Notes 7.375% 7/1/2003 2,418,000
3,600,000 Niagara Mohawk Power Corp., Sr. G Notes 7.75% 10/1/2008 3,712,500
6,600,000 Niagara Mohawk Power Corp., Sr. H Notes Zero Coupon 7/1/2010 4,554,000
-------------
36,119,436
-------------
Electrical Equipment - 1.3%
4,900,000 EV International, Inc., Sr. Subordinated Notes, Series A 11.0% 3/15/2007 4,483,500
3,600,000 Fisher Scientific Int'l Inc., Sr. Subordinated Notes 9.0% 2/1/2008 3,591,000
3,000,000 Jordan Telecommunication Products, Sr. Notes 9.875% 8/1/2007 3,075,000
4,200,000 Protection One Alarm Monitoring, Inc., Convertible Sr.
Subordinated Notes 6.75% 9/15/2003 4,903,500
3,120,000 Protection One Alarm Monitoring, Inc., Sr. Subordinated
Discount Notes Zero Coupon 6/30/2005 3,525,600
-------------
19,578,600
-------------
Food & Beverage - 2.9%
4,800,000 Ameriserve Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 4,824,000
4,200,000 Cott Corp., Sr. Notes 8.5% 5/1/2007 4,074,000
7,200,000 Gorges/Quik-to-Fix Foods, Sr. Subordinated Notes, Series B 11.5% 12/1/2006 7,164,000
8,000,000 Grupo Azucarero Mexico, Sr. Notes 11.5% 1/15/2005 6,870,000
7,300,000 Imperial Holly Corp., Sr. Subordinated Notes 9.75% 12/15/2007 7,354,750
3,000,000 Packaged Ice, Inc., Sr. Notes 9.75% 2/1/2005 3,060,000
6,000,000 Smithfield Foods, Inc., Sr. Subordinated Notes 7.625% 2/15/2008 6,090,000
3,600,000 Southern Foods Group, L.P., Sr. Subordinated Notes 9.875% 9/1/2007 3,771,000
-------------
43,207,750
-------------
Hospital Management - 3.1%
6,500,000 Health Insurance Plan, Revenue Bonds, Series C 11.25% 7/1/2010 6,913,335
5,100,000 Healthsouth Rehab Corp., Sr. Subordinated Notes 9.5% 4/1/2001 5,304,000
7,900,000 Integrated Health Svcs, Inc., Sr Subordinated Notes, Series A 9.25% 1/15/2008 8,216,000
6,000,000 MedPartners, Inc., Sr. Notes 7.375% 10/1/2006 5,357,232
4,500,000 MedPartners, Inc., Sr. Subordinated Notes 6.875% 9/1/2000 4,239,122
4,200,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 3,302,250
5,000,000 Sun HealthCare Group Inc., Sr. Subordinated Notes 9.375% 5/1/2008 5,075,000
7,200,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.125% 12/1/2008 7,281,000
-------------
45,687,939
-------------
Household Products - 1.6%
2,100,000 AMM Holdings, Inc., Sr. Discount Notes 13.5% 7/1/2009 1,123,500
7,800,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 8,580,000
3,000,000 Moll Industries Inc., Sr. Subordinated Notes 10.5% 7/1/2008 3,075,000
3,000,000 Sealy Mattress Company, Sr. Discount Notes Zero Coupon 12/15/2007 1,965,000
3,200,000 Sealy Mattress Company, Sr. Subordinated Notes 9.875% 12/15/2007 3,280,000
6,000,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 6,450,000
-------------
24,473,500
-------------
Leisure & Entertainment - 3.8%
7,471,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 6,042,171
3,000,000 CapStar Hotel Company, Convertible Subordinated Notes 4.75% 10/15/2004 2,467,500
2,400,000 CapStar Hotel Company, Sr. Subordinated Notes 8.75% 8/15/2007 2,502,000
7,500,000 Discovery Zone, Inc., Sr. Notes 13.5% 8/1/2002 6,825,000
6,000,000 HMH Properties, Inc., Sr. Secured Notes 8.875% 7/15/2007 6,720,000
3,000,000 IMAX Corp., Sr. Notes 10.0% 3/1/2001 3,138,750
5,400,000 Lodgenet Entertainment, Sr. Notes 10.25% 12/15/2006 5,589,000
8,000,000 Premier Cruise Ltd., Sr. Notes 11.0% 3/15/2008 5,360,000
4,950,000 Premier Parks, Inc., Sr. Discount Notes Zero Coupon 4/1/2008 3,310,313
7,000,000 Production Resource Group LLC, Sr. Subordinated Notes 11.5% 1/15/2008 6,860,000
2,400,000 Signature Resorts, Inc., Sr. Notes 9.25% 5/15/2006 2,412,000
3,000,000 Signature Resorts, Inc., Sr. Subordinated Notes 9.75% 10/1/2007 2,940,000
3,000,000 Silverleaf Resorts, Inc., Sr. Subordinated Notes 10.5% 4/1/2008 2,925,000
-------------
57,091,734
-------------
Machinery & Equipment - 1.4%
4,200,000 Motors & Gears, Inc., Sr. Discount Notes 10.75% 11/15/2006 4,515,000
7,200,000 Navistar Financial Corp., Sr. Subordinated Notes, Series B 9.0% 6/1/2002 7,569,000
5,400,000 Navistar International Corp., Sr. Notes, Series B 7.0% 2/1/2003 5,440,500
3,000,000 Scotsman Group, Inc., Sr. Subordinated Notes 8.625% 12/15/2007 3,067,500
-------------
20,592,000
-------------
Mining & Metals - 1.8%
6,500,000 AK Steel Corp., Sr. Notes 10.75% 4/1/2004 6,955,000
4,850,000 Altos Hornos de Mexico, Bonds, Series B 11.875% 4/30/2004 4,874,250
4,000,000 Doe Run Resources Corp., Sr. Notes Zero Coupon 3/15/2003 4,060,000
10,190,000 UCAR Global Enterprises, Inc., Sr. Subordinated Notes,
Series B 12.0% 1/15/2005 0,979,725
-------------
26,868,975
-------------
Oil & Gas - 4.5%
6,000,000 Abraxas Petroleum Corp., Sr. Notes, Series B 11.5% 11/1/2004 6,225,000
6,200,000 Belden & Blake Corp., Sr. Subordinated Notes 9.875% 6/15/2007 6,091,500
1,800,000 Chesapeake Energy Corp., Sr. Notes 9.625% 5/1/2005 1,813,500
4,800,000 Coho Energy, Inc., Sr. Subordinated Notes 8.875% 10/15/2007 4,536,000
4,500,000 Conproca, S.A. de C.V., Sr. Secured Bonds 12.0% 6/16/2010 4,578,750
4,200,000 Cross Timbers Oil Company, Sr. Subordinated Notes,
Series B 8.75% 11/1/2009 4,231,500
3,050,000 Dailey International Inc., Sr. B Notes 9.5% 2/15/2008 2,989,000
5,365,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures 9.625% 7/1/2005 5,780,788
9,000,000 National Energy Group, Inc., Sr. Notes, Series C 10.75% 11/1/2006 8,190,000
4,800,000 Northern Offshore ASA, Sr. Notes 10.0% 5/15/2005 4,608,000
5,100,000 Pride Petroleum Services, Inc., Sr. Notes 9.375% 5/1/2007 5,393,250
4,500,000 RAM Energy, Inc., Sr. Notes 11.5% 2/15/2008 4,545,000
4,850,000 Snyder Oil Corp., Sr. Subordinated Notes 8.75% 6/15/2007 4,947,000
3,650,000 Trico Marine Services, Inc., Sr. Unsecured F Notes 8.5% 8/1/2005 3,567,875
-------------
67,497,163
-------------
Paper & Forest Products - 1.9%
3,600,000 APP Finance (II) Mauritius Ltd., Guaranteed Preferred Securities,
Series B 12.0% 2/15/2004 2,637,000
1,200,000 App Intl' Finance, Secured Notes 10.25% 10/1/2000 1,059,000
3,000,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 656,250 (c)
1,800,000 Indah Kiat Finance Mauritius, Guaranteed Sr. Notes 10.0% 7/1/2007 1,278,000
8,100,000 National Fiberstok Corp., Sr. Notes Series B 11.625% 6/15/2002 8,667,000
3,600,000 Pindo Deli Finance Mauritius, Sr. Notes 10.25% 10/1/2002 2,587,500
6,000,000 S.D. Warren Co. Sr. Subordinated Notes 12.0% 12/15/2004 6,667,500
4,800,000 Tembec Finance Corp., Sr. Notes 9.875% 9/30/2005 5,100,000
-------------
28,652,250
-------------
Pollution Control - 0.3%
4,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 13.25% 11/15/2005 4,620,000
-------------
Publishing & Printing - 1.3%
5,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 5,885,000
7,500,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 7,912,500
5,850,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 6,157,125
-------------
19,954,625
-------------
Restaurants - 0.2%
3,000,000 Roma Corp., Inc., Sr. Notes 12.0% 7/1/2006 3,063,750
-------------
Retail - 2.2%
11,000,000 Brylane L.P., Sr. Subordinated Notes, Series B 10.0% 9/1/2003 11,618,750
5,000,000 County Seat Stores, Inc., Units 12.75% 11/1/2004 5,287,500
2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 34,375 (c)
5,400,000 Hollywood Entertainment Corp., Sr. Subordinated Notes, Series B 10.625% 8/15/2004 5,535,000
6,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated Notes 10.875% 8/1/2006 6,720,000
3,000,000 TravelCenters of America, Inc., Sr. Subordinated Notes 10.25% 4/1/2007 3,150,000
-------------
32,345,625
-------------
Retail - Food - 1.4%
5,100,000 Fleming Companies, Inc., Sr. Subordinated Notes, Series B 10.625% 7/31/2007 5,342,250
4,300,000 Jitney-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 4,869,750
1,800,000 Jitney-Jungle Stores of America, Sr. Subordinated Notes 10.375% 9/15/2007 1,930,500
7,600,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 8,094,000
-------------
20,236,500
-------------
Services - 0.8%
9,100,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes 9.5% 2/15/2009 9,213,750
3,000,000 US Office Products Company, Sr. Subordinated Notes 9.75% 6/15/2008 3,015,000
-------------
12,228,750
-------------
Telecommunications - 19.2%
6,000,000 Advanced Radio Telecom, Sr. Notes 14.0% 2/15/2007 6,450,000
10,800,000 Allegiance Telecom, Inc., Sr. Discount Notes Zero Coupon 2/15/2008 5,562,000
6,000,000 American Mobile Satellite Corp., Units 12.25% 4/1/2008 5,670,000
3,000,000 Birch Telecom, Inc., UNIT 14.0% 6/15/2008 3,022,500
4,900,000 CenCall Communications Corp., Sr. Redeemable Discount Notes Zero Coupon 1/15/2004 4,814,250
7,500,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 6,318,750
6,000,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 6,285,000
8,000,000 Covad Communication Group, Inc., Units Zero Coupon 3/15/2008 4,200,000
6,000,000 Dobson Wireline Company, Sr. Notes 12.25% 6/15/2008 5,850,000
3,500,000 Dolphin Telecom plc, Sr. Discount Notes Zero Coupon 6/1/2008 1,986,250
4,800,000 Esprit Telecom Group, plc, Sr. Notes 11.5% 12/15/2007 4,968,000
4,800,000 E.Spire Communications, Sr. Notes 13.75% 7/15/2007 5,496,000
4,200,000 Globalstar, L.P., Sr. Notes 11.5% 6/1/2005 4,110,750
6,700,000 GST Equipment Funding, Inc., Sr. Secured Notes 13.25% 5/1/2007 7,705,000
3,000,000 GST Telecommunications Inc., Sr. Discount Notes Zero Coupon 5/1/2008 1,815,000
1,445,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 1,849,600
4,250,000 Hermes Europe Railtel B.V., Sr. Notes 11.5% 8/15/2007 4,823,750
300,000 HighwayMaster Communications, Inc., Sr. Notes 13.75% 9/15/2005 226,500
4,300,000 HighwayMaster Communications, Inc., Sr. Notes 13.75% 9/15/2005 3,246,500
2,400,000 Hyperion Telecommunications, Inc., Sr. Secured Notes 12.25% 9/1/2004 2,598,000
5,600,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 4,200,000
3,700,000 IDT Corp., Sr. Notes 8.75% 2/15/2006 3,570,500
5,500,000 IntelCom Group (U.S.A.), Inc., Sr. Discount Notes Zero Coupon 5/1/2006 4,317,500
4,900,000 Intermedia Communications Inc., Sr. Notes, Series B 8.5% 1/15/2008 4,924,500
1,800,000 Intermedia Communications, Inc., Sr. Notes 8.6% 6/1/2008 1,831,500
4,200,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 2,583,000
1,200,000 Iridium LLC, Sr. C Notes 11.25% 7/15/2005 1,209,000
4,200,000 Iridium LLC/Capital Corp., Sr. Notes, Series A 13.0% 7/15/2005 4,525,500
4,850,000 Iridium LLC/Capital Corp., Sr. Notes, Series B 14.0% 7/15/2005 5,419,875
3,000,000 IXC Communications, Inc., Sr. Subordinated Notes 9.0% 4/15/2008 3,022,500
6,000,000 Level 3 Communications, Inc., Sr. Subordinated Notes 9.125% 5/1/2008 5,872,500
10,800,000 McCaw International Ltd., Sr. Discount Notes Zero Coupon 4/15/2007 7,128,000
4,800,000 MetroNet Communications Corp., Sr. Discount Notes Zero Coupon 6/15/2008 2,994,000
4,850,000 MGC Communications, Inc., Sr. Notes, Series B 13.0% 10/1/2004 4,825,750
9,000,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 6,727,500
12,600,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 9,796,500
6,000,000 MJD Communications Inc., Notes Zero Coupon 5/1/2008 6,120,000
6,000,000 Mobile Telecommunications Technology, Sr. Notes 13.5% 2/15/2002 6,930,000
5,000,000 Netia Holdings B.V., Sr. Discount B Notes Zero Coupon 11/1/2007 3,312,500
3,000,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 10/31/2007 1,965,000
4,900,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 9/15/2007 3,319,750
4,550,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 2/15/2008 2,929,063
4,800,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 5,472,000
2,400,000 NEXTLINK Communications, Inc., Sr. Notes 9.625% 10/1/2007 2,472,000
5,400,000 OnePoint Communications Corp., Units 14.5% 6/1/2008 5,103,000
7,200,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 6,516,000
4,200,000 PageMart Wireless, Inc., Sr. Discount Notes Zero Coupon 2/1/2008 2,604,000
4,200,000 Pathinet, Inc., UNIT 12.25% 4/15/2008 4,473,000
5,100,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 5,125,500
5,000,000 Poland Telecom Finance BV 14.0% 12/1/2007 5,650,000
3,050,000 Price Communications Wireless, Sr Subordinated Notes 11.75% 7/15/2007 3,370,250
5,400,000 Primus Telecommunications Group, Inc., Sr. Notes 11.75% 8/1/2004 5,751,000
6,755,000 RSL Communications Ltd., Units 12.25% 11/15/2006 7,599,375
3,000,000 Startec Global Communications, Units 12.0% 5/15/2008 2,925,000
4,200,000 Telegroup, Inc., Sr. Discount Notes Zero Coupon 11/1/2004 3,360,000
7,000,000 Teletrac, Inc. Sr. B Notes 14.0% 8/1/2007 6,545,000
4,800,000 Teligent, Inc., Sr. Discount Notes Zero Coupon 3/1/2008 2,670,000
4,800,000 Teligent, Inc., Sr. Notes 11.5% 12/1/2007 4,872,000
9,000,000 UNIFI Communications, Inc., Sr. Notes 14.0% 3/1/2004 1,777,500
4,900,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 5,414,500
6,000,000 USN Communications, Inc., Sr. Discount Notes, Series B Zero Coupon 8/15/2004 4,470,000
5,500,000 VIALOG Corp., Sr. Notes 12.75% 11/15/2001 5,692,500
5,000,000 Viatel, Inc., Units Zero Coupon 4/15/2008 3,050,000
3,300,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 2,763,750
3,000,000 WinStar Communications, Inc., Unsecured Sr. Notes 14.5% 10/15/2005 4,170,000
-------------
286,368,663
-------------
Textiles & Apparel - 2.5%
4,500,000 Brazos Sportswear, Inc., Sr. Notes 10.5% 7/1/2007 3,127,500
6,050,000 CMI Industries, Inc., Sr. Subordinated Notes 9.5% 10/1/2003 6,443,250
8,700,000 Dan River, Inc., Sr. Subordinated Notes 10.125% 12/15/2003 9,265,500
2,700,000 Delta Mills, Inc., Sr. Notes, Series B 9.625% 9/1/2007 2,666,250
4,200,000 Dyersburg Corp., Sr. Subordinated Notes 9.75% 9/1/2007 4,063,500
4,250,000 Galey & Lord, Inc., Sr. Subordinated Notes 9.125% 3/1/2008 4,122,500
4,200,000 Norton McNaughton, Inc., Sr. Notes 12.5% 6/1/2005 4,263,000
4,000,000 WestPoint Stevens Inc., Sr. Notes 7.875% 6/15/2008 4,045,000
-------------
37,996,500
-------------
Transportation - 2.5%
7,300,000 Allied Holdings, Inc., Sr. Notes, Series B 8.625% 10/1/2007 7,409,500
6,000,000 Alpha Shipping plc, Sr. Notes 9.5% 2/15/2008 5,760,000
4,200,000 Cenargo International plc, First Mortgage 9.75% 6/15/2008 4,121,250
5,400,000 Equimar Shipholdings Ltd., First Priority Mtg 9.875% 7/1/2007 4,941,000
4,200,000 PanOceanic Bulk Carriers, Ltd., 1st Preferred Ship
Mortgage Notes 12.0% 12/15/2007 3,423,000
3,600,000 Sabreliner Corp., Sr. Notes 11.0% 6/15/2008 3,618,000
4,500,000 TFM S. A. de C.V., Sr. Discount Debentures Zero Coupon 6/15/2009 2,823,750
6,000,000 Windsor Petroleum, Notes 7.84% 1/15/2021 5,250,000
-------------
37,346,500
-------------
Total Corporate Bonds (cost $1,283,402,415) 1,277,137,281
-------------
<CAPTION>
Shares
-----------
PREFERRED STOCKS - 9.7% (a)
<S> <C> <C>
Convertible - 2.8%
36,000 AES Trust II, Convertible Preferred Stock 2,052,000
60,000 CalEnergy Capital Trust III, Convertible Preferred Stock 2,745,000
69,000 Chesapeake Energy Corp., Convertible Preferred Stock 2,923,875
100,000 Echostar Communications Corp., Convertible Preferred Stock, Series C 6,000,000
158,300 Granite Broadcasting Corp., Convertible Preferred Stock 9,537,575
90,000 Host Marriott Financial Trust, Convertible Preferred Stock 4,758,750
50,000 Intermedia Communication, Convertible Preferred Stock 1,856,250
60,000 Owens - Illinois, Inc., Convertible Preferred Stock 3,127,500
45,500 Sinclair Broadcast Group, Inc., Convertible Preferred Stock 3,219,125
54,000 TIMET Capital Trust I, Convertible Preferred Stock 2,376,000
83,800 Treev, Inc., Convertible Preferred Stock, Series A 712,300
120,000 USX Corp. (Marathon Group), Convertible Preferred Stock 2,580,000
-------------
41,888,375
-------------
Non-Convertible - 6.9%
42,000 California Federal Bank, Non-cumulative Preferred Stock 4,746,000
105,000 Chevy Chase Capital Corp., Noncumulative Exchangeable Preferred Stock, Series A 5,761,875
30,000 Cluett American Corp., Preferred Stock 3,022,500
3,000 Concentric Network Corp., Payment-In-Kind, Preferred Stock 2,986,500
49,674 Communications & Power Industries, Inc., Preferred Stock, Series B 5,364,792
59,298 CSC Holdings, Inc., Payment-In-Kind, Preferred Stock 6,937,866
30,019 CSC Holdings, Inc., Preferred Stock 3,459,690
1,200 Cumulus Media Inc., Preferred Stock, Series A 1,227,000 (b)
2,294 Echostar Communications Corp., Payment-in-Kind, Series B Preferred 2,546,340
49,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0 (b,d)
396,146 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 891,329 (b)
7,135 ICG Holdings, Inc., Preferred Stock 8,312,275
3,464 Intermedia Communications, Inc., Preferred Stock 4,087,520
3,284 IXC Communications, Inc., Preferred Stock 3,809,440
1,800 J Crew Group, Preferred Stock 1,710,000
43,114 Nebco Evans Holdings Co., Payment-In-Kind, Preferred Stock 4,408,407
4,682 Nextel Communications, Inc., Preferred Stock 4,822,460
91,701 NEXTLINK Communications, Inc., Payment-In-Kind Preferred Stock 5,387,434
6,171 Paxson Communications Corp., Payment-In-Kind Preferred Stock 6,510,405
240,000 Petroleum Heat & Power Co., Inc., Exchangeable Preferred Stock, Series B 3,900,000
33,000 Primedia, Inc., Exchangeable Preferred Stock 3,357,750
42,500 Primedia, Inc., Preferred Stock 4,143,750
46,000 Primedia, Inc., Preferred Stock, Series D 4,864,500
147,500 River Bank Asset, Inc., Preferred Stock, Series A 2,839,375
47,469 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock 5,375,864
1,700 Winstar Communications, Inc., Preferred Stock 2,082,500
-------------
102,555,572
-------------
Total Preferred Stocks (cost $150,029,411) 144,443,947
-------------
COMMON STOCKS & STOCK WARRANTS - 3.5% (a)
10,800 Allegiance Telecom, Inc., Stock Warrants 27,000
34,000 American Telecasting, Inc., Stock Warrants 17,000 (d)
3,600 American Telecasting, Inc., Stock Warrants 1,800 (d)
175,000 Arch Communications Group, Common Stock 689,063
3,600 Australis Holdings Pty Ltd., Stock Warrants 36 (d)
17,150 Australis Media Ltd., Stock Warrants 172 (d)
120,000 Bell & Howell Co., Common Stock 3,097,500
35,475 Clearnet Communications, Inc., Stock Warrants 248,325
2,310 Communications & Power Industries, Inc., Common Stock 346,500
10,989 Consolidated Hydro, Inc., Stock Warrants, Class B 21,978 (d)
7,133 Consolidated Hydro, Inc., Stock Warrants, Class C 21,399 (d)
3,267 CS Wireless Systems, Inc., Common Stock 3 (d)
7,500 Discovery Zone, Inc., Stock Warrants 450,000
16,800 E.Spire Communications, Stock Warrants 3,272,583
101,377 Gaylord Container Corp., Class A Common Stock 779,336
127,902 Gaylord Container Corp., Stock Warrants 959,265
18,126 Grand Union Co., Stock Warrants 18 (d)
36,251 Grand Union Co., Stock Warrants 36 (d)
4,600 HighwayMaster Communications, Inc., Stock Warrants 46,575
13,800 Hyperion Telecommunications, Stock Warrants 1,338,600
121,000 IntelCom Group Communications, Inc., Common Stock 4,424,063
68,300 IntelCom Group (U.S.A.), Inc., Stock Warrants 2,015,737
5,900 Intermedia Communications of Florida, Stock Warrants 914,500
1,524 Intermedia Communications, Inc., Common Stock 63,913
14,800 Ionica plc, Stock Warrants 296,000
3,000 Iridium World Communications, Stock Warrants 645,000
38,000 JPS Textiles Group, Common Stock, Class A 380 (d)
3,000 L-3 Communications Holdings, Common Stock 98,063
95,000 Magellan Health Services, Common Stock 2,410,625
10,900 McCaw International Ltd., Stock Warrants 27,250
50,379 Memorex Telex N.V., ADR, Common Stock 126
1,728 Memorex Telex N.V., ADR, Stock Warrants 0 (d)
4,850 MGC Communications, Inc., Stock Warrants 291,000
40,800 Microcell Telecommunications, Inc., Stock Warrants 773,160
384,500 MobileMedia Corp., Class A Common Stock 46,140
3,750 NEXTEL Communications, Stock Warrants 4,350
3,086 NEXTEL Communications, Stock Warrants 31
33,250 PageMart Nationwide, Inc., Common Stock 299,250
168,000 Pagemart Wireless, Inc., Class A Common Stock 1,522,500
120,000 Powertel, Inc., Common Stock 2,220,000
4,800 Primus Telecommunications Group, Inc., Stock Warrants 105,600
23,840 Protection One Alarm Monitoring, Stock Warrants 324,224
9,000 RSL Communications Ltd., Stock Warrants 1,057,500
7,000 Teletrac Holdings, Inc., Stock Warrants 70,000
17,876 Treev Inc. 15,083
5,000 Triangle Wire & Cable, Inc., Stock Warrants 0 (d)
7,400 UIH Australia/Pacific, Inc., Stock Warrants 37,000
9,000 UNIFI Communications, Inc., Stock Warrants 2,475 (d)
118,000 United International Holdings, Inc., Class A Common Stock 1,888,000
27,000 United International Holdings, Inc., Stock Warrants 324,000
66,000 USN Communications, Inc., Stock Warrants 610,500
3,400 Vialog Corp., Warrants 204,000
207,000 Viatel, Inc. 3,519,000
6,363 Wherehouse Entertainment, Inc., Class B Stock Warrants 34,997
6,363 Wherehouse Entertainment, Inc., Class C Stock Warrants 22,271
36,654 Wherehouse Entertainment, Inc., Stock Warrants, Class A 623,118
19,200 Wireless One, Inc., Stock Warrants 192
327,060 Worldcom, Inc. 15,841,961
-------------
Total Common Stocks & Stock Warrants (cost $38,292,607) 52,049,198
-------------
<CAPTION>
Principal
Amount
- -----------
SHORT-TERM SECURITIES - 1.4% (a)
<S> <C> <C>
Commercial Paper
$20,500,000 Sheffield Receivables Corp., 6.5%, due 7/1/1998 (at amortized cost) $ 20,500,000
--------------
Total Investments (cost $1,492,224,433) $1,494,130,426 (e)
==============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the High Yield Portfolio.
(b) Currently non-income producing.
(c) Currently non-income producing and in default.
(d) Denotes restricted securities. These securities have been valued from the date of acquisition through
June 30, 1998, by obtaining quotations from brokers who are active with the issues. The following table
indicates the acquisition date and cost of restricted securities the Portfolio owned as of June 30, 1998.
<CAPTION>
Aquisition
Security Date Cost
------------ ------------ ------------
<S> <C> <C>
American Telecasting, Inc., Stock Warrants 4/19/1995 $ 34,000
American Telecasting, Inc., Stock Warrants 8/7/1995 82,273
Australis Holdings Pty Ltd., Stock Warrants 10/29/1996 --
Australis Media Ltd., Stock Warrants 5/16/1995 --
Consolidated Hydro, Inc., Stock Warrants, Class B 11/18/1997 2,061,665
Consolidated Hydro, Inc., Stock Warrants, Class C 11/18/1997 --
CS Wireless Systems, Inc., Common Stock 2/16/1996 22,110
Grand Union Co., Stock Warrants 6/20/1995 7,250
Grand Union Co., Stock Warrants 6/20/1995 3,625
Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,703,525
JPS Textiles Group, Common Stock, Class A 1/13/91994 1,512,500
Memorex Telex N.V., ADR, Stock Warrants 3/25/1994 3,456
Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 500
UNIFI Communications, Inc., Stock Warrants 2/14/1997 185,173
(e) At June 30, 1998, the aggregate cost of securities for federal tax purposes was $1,492,224,433 and the net
unrealized appreciation of investments based on that cost was $1,905,993 which is comprised of $89,620,859
aggregate gross unrealized appreciation and $87,714,866 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
INCOME PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 49.4% (a)
Aerospace - 0.7%
$4,000,000 Raytheon Company, Notes 6.55% 3/15/2010 $4,044,232
3,000,000 United Defense Industries Inc, Sr. Subordinated Notes 8.75% 11/15/2007 3,045,000
-------------
7,089,232
-------------
Automotive - 1.3%
5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 5,049,185
7,500,000 General Motors Acceptance Corp., Unsecured Notes 7.125% 5/1/2003 7,827,345
-------------
12,876,530
-------------
Bank & Finance - 10.8%
5,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 5,257,420
5,500,000 Banc One Corp., Subordinated Debentures 8.0% 4/29/2027 6,427,652
6,000,000 BankBoston N.A., Notes 6.375% 4/15/2008 6,023,706
6,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 6,566,904
2,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 2,058,952
5,000,000 Chemical New York Corp., Debentures 9.75% 6/15/1999 5,172,515
12,000,000 Equitable Life Assurance Society of the United States,
Surplus Notes 6.95% 12/1/2005 12,466,092
6,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 7,516,113
3,000,000 General Electric Capital Corp., Debentures 8.75% 5/21/2007 3,562,962
6,000,000 Mellon Capital II, Capital Securities 7.995% 1/15/2027 6,582,000
8,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 8,776,808
3,500,000 NationsBank Corp., Subordinated Notes 6.6% 5/15/2010 3,566,955
5,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 5,048,385
9,000,000 Prudential Insurance Co. of America, Capital Notes 6.875% 4/15/2003 9,231,714
7,500,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 8,685,338
6,000,000 Societe Generale Real Estate Investment Trust, LIBOR Bonds, Series A 7.64% 9/30/2007 5,971,536 (b)
6,000,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 6,412,248
-------------
109,327,300
-------------
Broadcasting - 3.2%
1,500,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 1,526,250
400,000 Clear Channel Communications, Convertible Sr. Notes 2.625% 4/1/2003 429,000
3,000,000 Clear Channel Communications, Sr. Notes 6.625% 6/15/2008 2,981,367
2,000,000 CSC Holdings, Inc., Sr. Notes 7.875% 12/15/2007 2,115,000
6,000,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes 9.625% 8/1/2002 6,435,000
8,000,000 TKR Cable I, Inc., Sr. Debentures 10.5% 10/30/2007 8,765,968
5,000,000 Viacom, Inc., Subordinated Debentures 8.0% 7/7/2006 5,175,000
5,000,000 Westinghouse Electric Corp., Notes 8.875% 6/1/2001 5,281,705
-------------
32,709,290
-------------
Computers & Office Equipment - 1.0%
9,000,000 International Business Machines Corp., Debentures 7.125% 12/1/2096 9,601,551
1,250,000 Xerox Corp., Convertible Subordinated Notes Zero Coupon 4/21/2018 715,625
-------------
10,317,176
-------------
Conglomerates - 0.6%
5,500,000 Dover Corp., Debentures 6.65% 6/1/2028 5,547,757
-------------
Construction & Home Building - 0.3%
3,000,000 American Standard Co., Inc., Notes 7.375% 4/15/2005 2,993,409
-------------
Containers & Packaging - 0.4%
4,000,000 Owens-Illinois, Inc., Sr. Notes 7.85% 5/15/2004 4,192,688
-------------
Drugs & Health Care - 1.3%
5,000,000 Allegiance Corp., Debentures 7.8% 10/15/2016 5,596,680
1,150,000 Athena Neurosciences, Inc., Convertible Bonds 4.75% 11/15/2004 1,329,688
250,000 Athena Neurosciences, Inc., Convertible Notes 4.75% 11/15/2004 289,063
5,000,000 McKesson Corp., Notes 6.3% 3/1/2005 5,035,055
1,500,000 Roche Holdings, Inc., Convertible Notes Zero Coupon 4/20/2010 858,750
-------------
13,109,236
-------------
Electric Utilities - 7.8%
3,000,000 AES Corp., Sr. Subordinated Notes 10.25% 7/15/2006 3,277,500
5,000,000 CalEnergy Company, Inc., Sr. Notes 7.63% 10/15/2007 5,021,025
1,500,000 Calpine Corp., Sr. Notes 8.75% 7/15/2007 1,548,750
2,000,000 Calpine Corp., Sr. Notes 7.875% 4/1/2008 2,005,000
5,000,000 Cleveland Electric Illumination Co., First Mortgage Bonds 7.625% 8/1/2002 5,184,900
7,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,194,873
6,500,000 Commonwealth Edison Co., Notes 7.625% 1/15/2007 6,968,858
5,000,000 Connecticut Light & Power Co., First Refunding Mortgage
Bonds, Series 97C 7.75% 6/1/2002 5,132,655
5,000,000 Consolidated Edison Co. NY, Inc., Debentures 6.45% 12/1/2007 5,118,870
3,000,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 3,360,000
6,500,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 6,577,682
9,000,000 Korea Electric Power Corp., Debentures 6.75% 8/1/2027 7,028,550
4,000,000 Niagara Mohawk Power Corp., Sr. C Notes 7.125% 7/1/2001 4,015,000
1,000,000 Niagara Mohawk Power Corp., Sr. G Notes 7.75% 10/1/2008 1,031,250
5,000,000 NRG Energy, Inc., Sr. Notes 7.5% 6/15/2007 5,279,925
9,000,000 Texas Utilities Electric Company, Debentures 7.17% 8/1/2007 9,374,184
-------------
78,119,022
-------------
Electronics - 0.7%
7,000,000 Sony Corp., Notes 6.125% 3/4/2003 7,021,840
-------------
Food & Beverage - 0.9%
9,000,000 Archer Daniels Midland Co., Bonds 6.75% 12/15/2027 9,369,306
-------------
Hospital Management - 1.0%
5,000,000 Quorum Health Group, Inc., Sr. Subordinated Notes 8.75% 11/1/2005 5,175,000
2,500,000 Tenet Healthcare Corp., Sr. Notes 8.625% 12/1/2003 2,666,320
1,000,000 Tenet Healthcare Corp., Sr. Notes 7.875% 1/15/2003 1,026,021
1,500,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.125% 12/1/2008 1,516,875
-------------
10,384,216
-------------
Household Products - 1.1%
4,000,000 Playtex Products Inc., Unsecured Sr. Notes 8.875% 7/15/2004 4,130,000
5,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 6,649,040
-------------
10,779,040
-------------
Leisure & Entertainment - 0.7%
6,000,000 Time Warner, Inc., Debentures 9.125% 1/15/2013 7,245,000
-------------
Oil Service - 0.1%
600,000 Baker Hughes, Inc., Convertible Liquid Yield Option Notes 5/5/2008 444,000
400,000 Diamond Offshore Drilling, Inc., Convertible Subordinated Notes 3.75% 2/15/2007 465,000
-------------
909,000
-------------
Oil & Gas - 3.4%
2,000,000 Flores & Rucks, Inc., Sr. Subordinated Notes 9.75% 10/1/2006 2,185,000
7,500,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures 9.625% 7/1/2005 8,081,250
3,801,714 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 3,935,466
3,500,000 Newfield Exploration Company 7.45% 10/15/2007 3,566,238
1,500,000 Ocean Energy, Inc., Sr. Notes 8.875% 7/15/2007 1,563,750
4,000,000 Oryx Energy Co., Notes 8.375% 7/15/2004 4,329,808
3,500,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 2,852,948
500,000 Swiss Life Finance Ltd., Convertible GEMMS (Royal Dutch) 2.0% 5/20/2005 512,500
7,000,000 Triton Energy Ltd., Sr. Notes 8.75% 4/15/2002 7,338,107
-------------
34,365,067
-------------
Paper & Forest Products - 0.4%
3,500,000 Willamette Industries, Inc., Notes 6.45% 2/1/2005 3,536,232
-------------
Pollution Control - 0.6%
2,000,000 USA Waste Services, Inc., Sr. Notes 7.0% 10/1/2004 2,064,800
3,000,000 USA Waste Services, Inc., Sr. Notes 6.5% 12/15/2002 3,020,637
1,000,000 USA Waste Services, Inc., Convertible Subordinated Notes 4.0% 2/1/2002 1,230,000
-------------
6,315,437
-------------
Publishing & Printing - 0.5%
2,400,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,568,000
2,500,000 PRIMEDIA Inc., Sr. Notes 7.625% 4/1/2008 2,443,750
-------------
5,011,750
-------------
Railroads - 1.0%
5,500,000 Norfolk Southern Corp., Notes 6.875% 5/1/2001 5,625,906
4,000,000 Norfolk Southern Corp., Notes 6.95% 5/1/2002 4,124,316
-------------
9,750,222
-------------
Retail - 4.8%
850,000 Costco Companies, Inc., Convertible Subordinated Notes Zero Coupon 8/19/2017 651,313
550,000 Costco Companies, Inc., Subordinated Notes Zero Coupon 8/19/2007 421,438
9,500,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 9,603,655
5,000,000 Federated Department Stores, Sr. Notes 8.5% 6/15/2003 5,477,050
6,000,000 Nordstrom, Inc., Debentures 6.95% 3/15/2028 6,223,818
8,000,000 Penney (J.C.) Co., Inc., Notes 6.95% 4/1/2000 8,102,232
1,625,000 Rite Aid Corp., Capital Notes 5.25% 9/15/2002 2,015,000
6,000,000 Sears Roebuck Acceptance Corp, Medium Term Notes, Series III 7.03% 6/4/2003 6,223,290
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,217,720
-------------
48,935,516
-------------
Retail - Food - 0.9%
1,000,000 Fred Meyer, Inc., Notes 7.375% 3/1/2005 1,009,096
7,000,000 Kroger Co. (The), Sr. Notes 8.15% 7/15/2006 7,802,221
-------------
8,811,317
-------------
Services - 1.1%
500,000 Credit Suisse First Boston - NY, Convertible Medium Term Notes 2.25% 5/5/2003 508,750
6,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 6,093,870
550,000 Interim Services Inc., Convertible Subordinated Notes 4.5% 6/1/2005 574,063
600,000 Interpublic Group of Companies, Convertible Subordinated Debentures 1.8% 9/16/2004 561,000
2,000,000 Loewen Group Int'l. Inc., Sr. Notes 7.2% 6/1/2003 2,005,794
850,000 Omnicom Group Inc., Convertible Subordinated Debentures 2.25% 1/16/2013 1,024,250
-------------
10,767,727
-------------
Telephone & Telecommunications - 3.4%
1,500,000 Bell Atlantic Financial Services, Sr. Exchange Notes 5.75% 4/1/2003 1,537,500
9,500,000 Bell South Telecommunications, Debentures 6.38% 6/1/2028 9,494,063
4,000,000 Cable & Wireless Communication, Notes 6.625% 3/6/2005 4,076,716
6,000,000 WorldCom Inc., Sr. Notes 7.75% 4/1/2007 6,491,910
6,000,000 Ameritech Capital Funding Corp., Notes 6.15% 1/15/2008 6,033,822
2,500,000 Philippine Long Distance Telephone, Notes 7.85% 3/6/2007 2,232,485
4,000,000 U.S. West Capital Funding, Inc., Notes 6.25% 7/15/2005 4,020,880
-------------
33,887,376
-------------
Textiles & Apparel - 0.9%
9,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 9,215,883
-------------
Transportation - 0.5%
5,000,000 Federal Express Corp., Series 1998-1-A, Class B 6.72% 1/15/2022 5,000,000
-------------
Total Corporate Bonds (cost $485,540,079) 497,586,569
-------------
FOREIGN GOVERNMENT BONDS - 2.5% (a,c)
5,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 5,261,400
9,000,000 Korea Development Bank, Unsecured Bonds 6.625% 11/21/2003 7,268,760
6,000,000 Korea (Republic of), Bonds 8.875% 4/15/2008 5,455,314
7,000,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 7,387,380
-------------
Total Foreign Government Bonds (cost $26,825,021) 25,372,854
-------------
ASSET-BACKED SECURITIES - 12.5% (a)
12,000,000 AESOP Funding II L.L.C., Rental Car Notes, Series 1997-1, Class A-2 6.4% 10/20/2003 12,232,740
11,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 11,090,475
5,544,647 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 5,591,028
5,000,000 CS First Boston Mortgage Security Corp., 1996-2 Class A4 6.62% 9/25/2009 5,052,775
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3 6.91% 5/25/2007 5,042,475
20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.856% 8/14/1998 20,030,100 (b)
10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 10,072,850
10,000,000 Proffitt's Credit Card Master Trust 6.5% 12/15/2005 10,243,650
12,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/2007 12,410,574
15,000,000 World Financial Network Credit Card Master Trust, Series 1996-B 6.95% 4/15/2006 15,695,222
17,990,689 World Omni Auto Lease Trust 6.9% 6/25/2003 18,267,835
-------------
Total Asset-Backed Securities (cost $123,333,151) 125,729,724
-------------
MORTGAGE-BACKED SECURITIES - 11.4% (a)
23,000,000 Federal Home Loan Mortgage Corp., Gold Pass Through 6.0% 12/1/1999 22,798,635 (d)
19,096,867 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 2011 18,946,003
37,000,000 Federal National Mortgage Association, Modified Pass Through 6.0% 12/1/1999 36,040,035 (d)
37,575,452 Government National Mortgage Association, Modified Pass Through
Certificates 6.5% 2/15/2027 37,545,016
-------------
Total Mortgage-Backed Securities (cost $113,290,358) 115,329,689
-------------
U.S. GOVERNMENT - 15.7% (a)
57,000,000 U.S. Treasury Notes 6.125% - 7.875% 2001 - 2006 62,136,291
12,500,000 U.S. Treasury Bonds 7.25% - 12.0% 2005 - 2022 96,178,486 (e)
-------------
Total U.S. Government (cost $153,074,038) 158,314,777
-------------
<CAPTION>
Shares
--------
COMMON STOCKS - 0.2% (a)
<S> <C> <C>
5,000 CarrAmerica Realty Corp., Common Stock 141,875
5,000 Cresent Real Estate Equities, Common Stock 168,125
10,000 Federal National Mortgage Association, Common Stock 607,500
5,000 First Industrial Realty Trust, Inc., Common Stock 159,063
10,000 First Union Corp., Common Stock 582,500
7,000 Simon Debartolo Group, Inc., Common Stock 227,500
5,000 Spieker Properties, Inc., Common Stock 193,750
-------------
Total Common Stocks (cost $1,930,050) 2,080,313
-------------
PREFERRED STOCKS - 1.3% (a)
14,000 AirTouch Communications, Inc., Convertible Preferred Stock 1,155,000
25,000 Cendant Corp., Preferred Stock 935,938
12,500 Conseco, Inc., Convertible Preferred Stock 662,500
14,000 CVS Corp., Convertible Preferred Stock 1,068,375
12,000 El Paso Energy Capital Trust I 636,000
23,000 Estee Lauder Company, Convertible Preferred Stock 1,541,000
15,000 Houston Industries, Inc., Preferred Stock 1,117,500
15,000 Life Re Capital Trust II 1,143,750
8,000 McKesson Financing Trust, Convertible Preferred Stock 911,000
20,000 National Australia Banks, Preferred Stock 573,750
35,000 Newell Financial Trust I., Convertible Preferred Stock 2,043,116
70,000 Philadelphia Consolidated Holding, Convertible Preferred Stock 717,500
15,000 Security Capital Industrial Trust Ltd., Preferred Stock 470,625
10,000 Unocal Capital Trust, Preferred Stock 538,750
-------------
Total Preferred Stocks (cost $11,831,761) 13,514,804
-------------
OPTIONS ON U.S. TREASURY BOND FUTURES - (f)
U.S. Treasury Bond Futures, 100 call option contracts,
exercise price of $124, expires July 1998 (Cost $86,998) 76,563
-------------
<CAPTION>
SHORT-TERM SECURITIES - 7.0% (a)
<S> <C> <C> <C> <C>
U.S. Government Agency - 1.5%
10,200,000 Federal Home Loan Mortgage, Discount Notes 5.44% 7/14/1998 10,179,981
5,000,000 Federal Home Loan Mortgage, Discount Notes 5.44% 7/14/1998 4,990,178
-------------
Total U.S. Government Agency 15,170,159
-------------
Commercial Paper - 5.5%
10,000,000 CXC, Inc. 5.54% 7/13/1998 9,981,533
16,200,000 Koch Industries, Inc. 6.3% 7/1/1998 16,200,000
8,593,000 Met-Life Funding Inc. 5.52% 7/8/1998 8,583,777
5,000,000 Prudential Funding Corp. 5.54% 7/20/1998 4,985,381
5,000,000 Seibe plc 5.55% 7/21/1998 4,984,583
10,000,000 Pfizer, Inc. 5.3% 4/10/1997 9,977,125
-------------
Total Commercial Paper 54,712,399
-------------
Total Short-Term Securities (at amortized cost) 69,882,558
-------------
Total Investments (cost $985,794,014) $1,007,887,851 (g)
=============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Income Portfolio.
(b) Denotes variable rate obligations for which current yield is shown.
(c) Denominated in U.S. dollars.
(d) Denotes investments purchased on a when-issued basis.
(e) At June 30, 1998, U.S. Treasury Bonds valued at $1,020,086 were held in escrow to cover open call
options written as follows:
Number of Exercise Expiration
Type Contracts Price Date Value
- ------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C>
US Treasury Bond Futures 200 $125 7/25/1998 $ 81,250
(f) Category is less than 0.05% of the Income Portfolio's total investments.
(g) At June 30, 1998, the aggregate cost of securities for federal income tax purposes was $985,794,014
and the net unrealized appreciation of investments based on that cost was $22,093,837 which is
comprised of $27,186,235 aggregate gross unrealized appreciation and $5,092,398 aggregate gross
unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
MONEY MARKET PORTFOLIO
Portfolio of Investments
June 30, 1998
(unaudited)
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BANKER'S ACCEPTANCES - 1.0% (a)
$ 120,000 Citibank N. A. 5.86% 7/8/1998 $ 119,866
188,603 Citibank N. A. 5.75% 9/3/1998 186,702
154,747 Citibank N. A. 5.73% 8/19/1998 153,553
100,000 Citibank N. A. 5.63% 7/10/1998 99,861
294,385 Citibank N. A. 5.72% 8/4/1998 292,809
151,419 Citibank N. A. 5.77% 10/9/1998 149,034
144,500 Citibank N. A. 5.86% 7/3/1998 144,454
191,226 Citibank N. A. 5.72% 8/7/1998 190,112
122,048 Citibank N. A. 5.72% 8/12/1998 121,241
-------------
1,457,632
-------------
BANK NOTES - 4.5% (a)
4,000,000 PNC Bank, N.A. Pittsburgh 5.58% 9/25/1998 4,000,806
2,000,000 Wachovia Bank, N.A. 5.60% 2/2/1999 1,999,429
-------------
6,000,235
-------------
COMMERCIAL PAPER - 81.6% (a)
Banking-Domestic - 3.4%
918,000 AES Hawaii, Inc. (Bank of America, NT&SA Direct Pay
Letter of Credit) 5.58% 7/17/1998 915,736
1,089,000 AES Hawaii, Inc. (Bank of America, NT&SA Direct Pay
Letter of Credit) 5.57% 7/2/1998 1,088,833
2,200,000 Allegheny University Hospital (PNC Bank, N.A. Direct Pay
Letter of Credit) 5.59% 8/10/1998 2,186,531
380,000 CommEd Fuel Company, Inc. (First National Bank of Chicago,
Direct Pay Letter of Credit) 5.57% 7/17/1998 379,073
-------------
4,570,173
-------------
Banking-Foreign - 7.8%
500,000 CEMEX, S.A. de C.V. (Credit Suisse, Direct Pay Letter of Credit) 5.59% 7/24/1998 498,227
2,000,000 American Family Financial Services 5.57% 7/23/1998 1,993,253
2,000,000 American Family Financial Services 5.57% 7/14/1998 1,996,013
2,000,000 Comision Federal De Electricidad (Westdeutsche Landesbank,
Girozentrale Direct Pay Letter of Credit) 5.61% 8/25/1998 1,983,042
2,000,000 Comision Federal De Electricidad (Westdeutsche Landesbank,
Girozentrale Direct Pay Letter of Credit) 5.60% 9/8/1998 1,978,840
2,000,000 Petroleo Brasileiro S.A. - Petrobras (Barclays Bank plc,
Direct Pay Letter of Credit) 5.62% 8/28/1998 1,982,374
-------------
10,431,749
-------------
Education - 9.4%
4,000,000 Duke University 5.58% 7/6/1998 3,996,933
3,102,000 Leland Stanford Junior University 5.62% 11/9/1998 3,040,143
2,000,000 Leland Stanford Junior University 5.61% 10/13/1998 1,968,164
1,000,000 Leland Stanford Junior University 5.60% 12/7/1998 976,172
1,000,000 Yale University 5.60% 9/4/1998 990,015
1,760,000 Yale University 5.60% 8/24/1998 1,745,427
-------------
12,716,854
-------------
Electronics - 1.5%
2,000,000 Seibe plc 5.61% 9/28/1998 1,972,657
-------------
Finance-Automotive - 3.4%
190,000 Ford Motor Credit Co. 5.71% 7/7/1998 189,820
2,000,000 Ford Motor Credit Co. 5.56% 7/10/1998 1,997,260
500,000 Toyota Motor Credit Corp. 5.60% 9/14/1998 494,271
2,000,000 Toyota Motor Credit Corp. 5.58% 9/9/1998 1,978,689
-------------
4,660,040
-------------
Finance-Commercial - 7.0%
2,000,000 CIT Group Holdings, Inc. 5.58% 8/12/1998 1,987,213
500,000 CIT Group Holdings, Inc. 5.57% 7/24/1998 498,240
2,000,000 CIT Group Holdings, Inc. 5.62% 9/29/1998 1,972,300
1,000,000 General Electric Capital Corp. 5.55% 8/17/1998 992,976
2,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.) 5.66% 9/25/1998 1,973,579
2,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.) 5.59% 9/8/1998 1,979,147
-------------
9,403,455
-------------
Finance-Consumer - 10.0%
2,000,000 American General Finance Corp. 5.60% 9/17/1998 1,976,123
1,400,000 Associates Financial Services Company of Puerto Rico
(Guaranteed Associates Corp. of North America) 5.60% 8/28/1998 1,387,549
2,000,000 Associates Financial Services Company of Puerto Rico
(Guaranteed Associates Corp. of North America) 5.59% 7/29/1998 1,991,382
2,000,000 Associates Financial Services Company of Puerto Rico
(Guaranteed Associates Corp. of North America) 5.58% 7/29/1998 1,991,398
2,000,000 AVCO Financial Services Inc. 5.62% 8/7/1998 1,988,633
2,000,000 AVCO Financial Services Inc. 5.58% 7/23/1998 1,993,290
2,000,000 Penney (J.C.) Funding Corp. 5.63% 9/25/1998 1,973,483
-------------
13,301,858
-------------
Finance-Structured - 8.9%
2,000,000 Asset Securitization Corp. 5.56% 7/31/1998 1,990,800
2,000,000 Corporate Asset Funding Co. 5.64% 10/9/1998 1,969,444
2,000,000 Corporate Asset Funding Co. 5.59% 9/17/1998 1,976,123
411,000 Enterprise Funding Corp. 5.60% 8/11/1998 408,407
632,000 Enterprise Funding Corp. 5.58% 7/15/1998 630,638
936,000 Enterprise Funding Corp. 5.57% 7/24/1998 932,693
2,000,000 Preferred Receivables Funding 5.65% 11/25/1998 1,954,920
1,550,000 Preferred Receivables Funding 5.60% 9/24/1998 1,529,798
474,000 Triple-A One Funding Corp. 5.88% 7/8/1998 473,459
-------------
11,866,282
-------------
Financial Services - 0.4%
550,000 USAA Capital Corp. 5.54% 7/24/1998 548,085
-------------
Industrial - 7.0%
4,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.67% 10/26/1998 3,928,370
1,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.60% 9/14/1998 988,583
250,000 Dupont (E.I.) de Nemours and Co. 5.57% 7/10/1998 249,655
136,000 Dupont (E.I.) de Nemours and Co. 5.59% 8/14/1998 135,092
505,000 Dupont (E.I.) de Nemours and Co. 6.01% 7/9/1998 504,327
2,000,000 Monsanto Co. 5.61% 10/22/1998 1,965,472
400,000 Monsanto Co. 5.53% 7/10/1998 399,460
1,100,000 Monsanto Co. 5.57% 7/6/1998 1,099,158
-------------
9,270,117
-------------
Insurance - 5.7%
875,000 Met-Life Funding Inc. 5.67% 7/10/1998 873,764
253,000 Met-Life Funding Inc. 5.72% 7/16/1998 252,399
416,000 Met-Life Funding Inc. 5.76% 7/7/1998 415,601
6,200,000 Prudential Funding Corp. 6.42% 7/1/1998 6,200,000
-------------
7,741,764
-------------
Services - 4.3%
1,802,000 Block Financial Corp. 5.59% 8/10/1998 1,790,948
2,000,000 Block Financial Corp. 5.57% 7/7/1998 1,998,170
2,000,000 Block Financial Corp. 5.62% 9/14/1998 1,976,917
-------------
5,766,035
-------------
U.S. Municipal - 12.8%
2,000,000 California Pollution Control Finance Authority
(Guaranteed Shell Oil Co.) 5.61% 10/7/1998 2,000,000
3,100,000 City of New York Government Bonds, Fiscal 1995, Series B
(Guaranteed FGIC SPI) 5.74% 8/21/1998 3,100,000
1,500,000 City of Whiting, Indiana Series 1995, Sewage & Waste Disposal
(Guaranteed Amoco Oil Co.) 5.58% 7/13/1998 1,500,000
4,020,000 Gulf Coast Waste Disposal Authority (Guaranteed Amoco Oil) 5.60% 7/16/1998 4,020,000
3,000,000 Industrial Development Board of the Parish of Calcasieu, Inc.,
Series 1996 (ABN Amro Bank NV, Direct Pay Letter of Credit) 5.61% 9/16/1998 3,000,000
3,650,000 Metrocrest Hospital Authority, Series 1989 (Bank of New York,
Direct Pay Letter of Credit) 5.65% 8/4/1998 3,630,800
-------------
17,250,800
-------------
Total Commercial Paper 109,499,869
-------------
CERTIFICATES OF DEPOSIT - 4.4% (a)
Domestic - 2.2%
1,000,000 Bankers Trust Company, New York 6.00% 8/28/1998 999,954
2,000,000 Morgan Guaranty Trust Co., New York 5.57% 7/28/1998 1,999,930
-------------
2,999,884
-------------
Euro Dollar-Foreign - 2.2%
3,000,000 Canadian Imperial Bank of Commerce 5.64% 12/2/1998 2,999,787
-------------
Total Certificates of Deposit 5,999,671
-------------
MEDIUM TERM NOTES - 1.5% (a)
2,000,000 Beneficial Corp. 5.66% 5/4/1999 2,000,000
-------------
VARIABLE RATE NOTES - 7.0% (a,b)
2,000,000 Federal Home Loan Bank 5.54% 7/7/1998 1,999,968
5,000,000 IBM Credit Corp. 5.74% 8/7/1998 4,999,518
2,300,000 Illinois Student Assistance Commission (Bank of America,
Illinois Direct Pay Letter of Credit) 5.65% 7/7/1998 2,300,000
-------------
Total Variable Rate Notes 9,299,486
-------------
OTHER - (b,c)
45,000 Federated Master Trust 5.38% 7/1/1998 45,000
-------------
Total Investments (at amortized cost) $ 134,301,893 (d)
=============
Notes to Portfolio of Investments:
(a) The categories of investments are shown as a percentage of total investments of the Money Market
Portfolio.
(b) Denotes variable rate obligations for which the current yield and the next scheduled interest reset
date are shown.
(c) Category is less than 0.05% of the Money Market Portfolio's total investments.
(d) Also represents cost for federal income tax purposes.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
Investments in securities, at value
(cost, $394,063,663) $395,003,811
Cash 3,959
Receivable for investment securities sold 2,898,194
Dividend and interest receivable 30,477
------------
Total assets 397,936,441
------------
LIABILITIES:
Payable for investment securities purchased 6,131,840
Accrued advisory fee 100,050
------------
Total liabilities 6,231,890
------------
NET ASSETS $391,704,551
============
NET ASSETS CONSIST OF:
Paid-in capital (34,575,494 shares of capital
stock outstanding) $401,401,857
Undistributed net investment income 804,622
Accumulated net realized loss from sale
of investments (11,442,076)
Unrealized net appreciation of investments 940,148
------------
NET ASSETS $391,704,551
============
Net asset value and public offering price per share
($391,704,551 divided by 34,575,494 shares
of capital stock outstanding) $11.33
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 602,843
Interest income 989,960
------------
Total income 1,592,803
------------
Expenses --
Investment advisory fee 788,181
------------
Net investment income 804,622
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (8,474,741)
Net change in unrealized appreciation of investments 4,150,289
------------
Net loss on investments (4,324,452)
------------
Net change in net assets resulting
from operations $ (3,519,830)
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 804,622 $ 2,117,275
Net realized gain (loss) on investments (8,474,741) 4,835,884
Net change in unrealized appreciation or depreciation
of investments 4,150,289 1,130,770
------------ ------------
Net change in net assets resulting from operations (3,519,830) 8,083,929
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income -- (2,117,275)
Net realized gain on investments (4,105,350) --
------------ ------------
Total distributions (4,105,350) (2,117,275)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 19,648,776 144,261,099
Reinvested dividend distributions 4,105,350 2,117,275
Cost of shares redeemed (15,888,178) (7,432,544)
------------ ------------
Net increase in net assets from capital stock transactions 7,865,948 138,945,830
------------ ------------
Net increase in net assets 240,768 144,912,484
NET ASSETS:
Beginning of period 391,463,783 246,551,299
------------ ------------
End of period (including undistributed net investment
income of $804,622 and $0, respectively) $391,704,551 $391,463,783
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
MID CAP GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $63,138,006) $ 64,116,870
Cash 41,599
Dividend and interest receivable 13,317
------------
Total assets 64,171,786
------------
LIABILITIES:
Payable for investment securities purchased 2,871,414
------------
NET ASSETS $ 61,300,372
============
NET ASSETS CONSIST OF:
Paid-in capital (5,588,434 shares of capital
stock outstanding) $ 60,672,036
Undistributed net investment income 97,967
Accumulated net realized loss from sale
of investments (448,495)
Unrealized net appreciation of investments 978,864
------------
NET ASSETS $ 61,300,372
============
Net asset value and public offering price per share
($61,300,372 divided by 5,588,434 shares of
capital stock outstanding) $10.97
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period from January 30, 1998 (effective date)
to June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 58,259
Interest income 92,942
------------
Total income 151,201
------------
Expenses --
Investment advisory fee 53,234
------------
Net investment income 97,967
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (448,495)
Net change in unrealized appreciation of investments 978,864
------------
Net gain on investments 530,369
------------
Net increase in net assets resulting
from operations $ 628,336
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the
period from
January 30, 1998
(effective date)
to June 30, 1998
(unaudited)
------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 97,967
Net realized gain (loss) on investments (448,495)
Net change in unrealized appreciation or depreciation
of investments 978,864
------------
Net increase in net assets resulting from operations 628,336
------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 61,122,516
Cost of shares redeemed (450,480)
------------
Net increase in net assets from capital stock transactions 60,672,036
------------
Net increase in net assets 61,300,372
NET ASSETS:
Beginning of period --
------------
End of period (including undistributed net investment
income of $97,967) $ 61,300,372
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
WORLD GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $294,777,880) $348,119,883
Cash (including foreign currency holdings
of $434,200) 452,264
Receivable for investment securities sold 359,239
Dividend and interest receivable 784,472
------------
Total assets 349,715,858
------------
LIABILITIES:
Payable for investment securities purchased 12,205
Accrued advisory fee 149,881
------------
Total liabilities 162,086
------------
NET ASSETS $349,553,772
============
NET ASSETS CONSIST OF:
Paid-in capital (27,786,210 shares of capital
stock outstanding) $301,406,080
Undistributed net investment income 2,754,920
Accumulated net realized loss from sale of
investments and foreign currency transactions (7,946,619)
Unrealized net appreciation of investments and
on translation of assets and liabilities in
foreign currencies 53,339,391
------------
NET ASSETS $349,553,772
============
Net asset value and public offering price per share
($349,553,772 divided by 27,786,210 shares of
capital stock outstanding). $12.58
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $524,319) $ 3,711,941
Interest income 407,717
------------
Total income 4,119,658
------------
Expenses --
Investment advisory fee 1,364,738
------------
Net investment income 2,754,920
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on investment transactions (5,455,781)
Net realized gain on foreign currency transactions 95,470
------------
Net realized loss on investments and foreign
currency transactions (5,360,311)
------------
Net change in unrealized appreciation of investments 42,988,803
Net change in unrealized appreciation on translation
of assets and liabilities in foreign currencies (38,830)
------------
Net change in unrealized appreciation of investments
and on translation of assets and liabilities in
foreign currencies 42,949,973
------------
Net gain on investments and foreign currency 37,589,662
------------
Net increase in net assets resulting
from operations $ 40,344,582
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,754,920 $ 2,644,523
Net realized gain (loss) on investments and foreign
currency transactions (5,360,311) 766,226
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 42,949,973 47,641
------------ ------------
Net increase in net assets resulting from operations 40,344,582 3,458,390
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income -- (3,251,752)
Net realized gain on investments (2,480,808) (161,102)
------------ ------------
Total distributions (2,480,808) (3,412,854)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 27,589,717 112,489,907
Reinvested dividend distributions 2,480,808 3,412,854
Cost of shares redeemed (5,584,274) (2,837,098)
------------ ------------
Net increase in net assets from capital stock transactions 24,486,251 113,065,663
------------ ------------
Net increase in net assets 62,350,025 113,111,199
NET ASSETS:
Beginning of period 287,203,747 174,092,548
------------ ------------
End of period (including undistributed net investment income
of $2,754,920 and $0, respectively) $349,553,772 $287,203,747
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $2,551,314,316) $3,002,550,304
Cash 134,131
Receivable for investment securities sold 50,269,703
Dividend and interest receivable 2,281,505
--------------
Total assets 3,055,235,643
--------------
LIABILITIES:
Open options written, at value (premium
received $752,061) 1,203,388
Payable for investment securities purchased 58,669,306
--------------
Total liabilities 59,872,694
--------------
NET ASSETS $2,995,362,949
==============
NET ASSETS CONSIST OF:
Paid-in capital (139,530,005 shares of capital
stock outstanding) $2,342,484,292
Accumulated net realized gain from sale
of investments 202,093,996
Unrealized net appreciation of investments 450,784,661
--------------
NET ASSETS $2,995,362,949
==============
Net asset value and public offering price per share
($2,995,362,949 divided by 139,530,005 shares
of capital stock interest outstanding) $21.47
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 14,018,615
Interest income 4,682,148
------------
Total income 18,700,763
------------
Expenses --
Investment advisory fee 5,425,030
------------
Net investment income 13,275,733
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 209,716,591
Net realized gain on closed or expired option
contracts written 755,313
------------
Net realized gain on investments 210,471,904
Net change in unrealized appreciation of investments 191,156,623
------------
Net gain on investments 401,628,527
------------
Net increase in net assets resulting
from operations $414,904,260
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 13,275,733 $ 22,970,797
Net realized gain on investments 210,471,904 389,813,407
Net change in unrealized appreciation or depreciation
of investments 191,156,623 118,290,444
-------------- --------------
Net increase in net assets resulting from operations 414,904,260 531,074,648
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (13,275,733) (22,970,797)
Net realized gain on investments (382,615,151) (239,942,399)
-------------- --------------
Total distributions (395,890,884) (262,913,196)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 172,986,025 268,095,815
Reinvested dividend distributions 395,890,884 262,913,195
Cost of shares redeemed (18,665,016) (31,613,719)
-------------- --------------
Net increase in net assets from capital stock transactions 550,211,893 499,395,291
-------------- --------------
Net increase in net assets 569,225,269 767,556,743
NET ASSETS:
Beginning of period 2,426,137,680 1,658,580,937
-------------- --------------
End of period $2,995,362,949 $2,426,137,680
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
HIGH YIELD PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,492,224,433) $1,494,130,426
Cash 475,547
Receivable for investment securities sold 1,650,341
Interest and dividends receivable 29,024,387
--------------
Total assets 1,525,280,701
--------------
LIABILITIES:
Payable for investment securities purchased 15,016,494
--------------
Total liabilities 15,016,494
--------------
NET ASSETS $1,510,264,207
==============
NET ASSETS CONSIST OF:
Paid-in capital (147,305,946 shares of capital
stock outstanding) $1,489,504,148
Undistributed net investment income (1,222)
Accumulated net realized gain from sale
of investments 18,855,288
Unrealized net appreciation of investments 1,905,993
--------------
NET ASSETS $1,510,264,207
==============
Net asset value and public offering price per share
($1,510,264,207 divided by 147,305,946 shares of
capital stock outstanding) $10.25
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 65,826,909
Dividend income 6,551,696
------------
Total income 72,378,605
------------
Expenses --
Investment advisory fee 2,865,679
------------
Net investment income 69,512,926
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 19,715,603
Net change in unrealized depreciation of investments (26,442,518)
------------
Net loss on investments (6,726,915)
------------
Net increase in net assets resulting
from operations $ 62,786,011
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 69,512,926 $ 113,336,033
Net realized gain on investment transactions 19,715,603 26,147,702
Net change in unrealized appreciation or depreciation
of investments (26,442,518) 18,136,291
-------------- --------------
Net increase in net assets resulting from operations 62,786,011 157,620,026
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (70,367,045) (112,483,136)
Net realized gain on investments (19,837,524) --
-------------- --------------
Total distributions (90,204,569) (112,483,136)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 112,439,301 180,112,872
Reinvested dividend distributions 90,204,569 112,483,136
Cost of shares redeemed (9,523,801) (19,906,718)
-------------- --------------
Net increase in net assets from capital stock transactions 193,120,069 272,689,290
-------------- --------------
Net increase in net assets 165,701,511 317,826,180
NET ASSETS:
Beginning of period 1,344,562,696 1,026,736,516
-------------- --------------
End of period (including undistributed net investment
income of ($1,222) and $852,897 respectively) $1,510,264,207 $1,344,562,696
-------------- --------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
INCOME PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $985,794,014) $1,007,887,851
Cash 77,266
Receivable for investment securities sold 144,917
Interest and dividends receivable 13,273,006
--------------
Total assets 1,021,383,040
--------------
LIABILITIES:
Open options written, at value (premium
received $97,880) 81,250
Payable for investment securities purchased 63,716,438
--------------
Total liabilities 63,797,688
--------------
NET ASSETS $ 957,585,352
==============
NET ASSETS CONSIST OF:
Paid-in capital (95,279,239 shares of capital
stock outstanding) $ 949,461,350
Accumulated net realized loss from sale
of investments (13,986,465)
Unrealized net appreciation of investments 22,110,467
--------------
NET ASSETS $ 957,585,352
==============
Net asset value and public offering price per share
($957,585,352 divided by 95,279,239 shares of
capital stock outstanding) $10.05
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 30,051,002
Dividend income 342,941
------------
Total income 30,393,943
------------
Expenses --
Investment advisory fee 1,818,621
------------
Net investment income 28,575,322
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 4,626,090
Net realized gain on closed or expired option
contracts written 147,944
Net realized loss on closed futures contracts (238,696)
------------
Net realized gain on investments 4,535,338
Net change in unrealized appreciation of investments 7,700,127
------------
Net gain on investments 12,235,465
------------
Net increase in net assets resulting
from operations $ 40,810,787
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 28,575,322 $ 55,084,746
Net realized gain on investment transactions 4,535,338 7,344,236
Net change in unrealized appreciation or depreciation
of investments 7,700,127 7,183,565
------------ ------------
Net increase in net assets resulting from operations 40,810,787 69,612,547
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (28,575,322) (55,084,746)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 51,588,029 65,602,599
Reinvested dividend distributions 28,575,322 55,084,746
Cost of shares redeemed (15,253,032) (55,935,562)
------------ ------------
Net increase in net assets from capital stock transactions 64,910,319 64,751,783
------------ ------------
Net increase in net assets 77,145,784 79,279,584
NET ASSETS:
Beginning of period 880,439,568 801,159,984
------------ ------------
End of period $957,585,352 $880,439,568
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
MONEY MARKET PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at amortized cost
and value $134,301,893
Cash 12,070
Interest receivable 397,680
------------
Total assets 134,711,643
------------
NET ASSETS $134,711,643
============
NET ASSETS CONSIST OF:
Paid-in capital (134,711,643 shares of capital
stock outstanding) $134,711,643
============
Net asset value and public offering price per share
($134,711,643 divided by 134,711,643 shares of
capital stock outstanding) $ 1.00
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 3,530,094
------------
Expenses --
Investment advisory fee 248,507
------------
Net investment income $ 3,281,587
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,281,587 $ 5,959,136
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (3,281,587) (5,959,136)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 39,307,320 76,690,617
Reinvested dividend distributions 3,281,587 5,959,136
Cost of shares redeemed (29,044,419) (65,403,224)
------------ ------------
Net increase in net assets from capital stock transactions 13,544,488 17,246,529
------------ ------------
Net increase in net assets 13,544,488 17,246,529
NET ASSETS:
Beginning of period 121,167,155 103,920,626
------------ ------------
End of period $134,711,643 $121,167,155
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period (a)
Six Months For the period from
Ended January 18, 1996
June 30, 1998 (effective date) to
OPPORTUNITY GROWTH PORTFOLIO (unaudited) 1997 December 31, 1996
-------------- -------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.55 $11.50 $10.00
-------- -------- --------
Income From Investment Operations --
Net investment income 0.02 0.06 0.02
Net realized and unrealized gain
(loss) on investments (0.12) 0.05 1.90
-------- -------- --------
Total from investment operations (0.10) 0.11 1.92
-------- -------- --------
Less Distributions --
Dividends from net investment income -- (0.06) (0.02)
Distributions from net realized
gain on investments (0.12) -- (0.40)
-------- -------- --------
Total distributions (0.12) (0.06) (0.42)
-------- -------- --------
Net asset value, end of period $11.33 $11.55 $11.50
======== ======== ========
Total investment return at net asset value (b) (0.89%) 0.93% 19.17%
Net assets, end of period ($ millions) $391.7 $391.5 $246.6
Ratio of expenses to average net assets 0.40%(c) 0.40% 0.40%(c)
Ratio of net investment income to
average net assets 0.41%(c) 0.65% 0.27%(c)
Portfolio turnover rate 106% 147% 155%
Average Commission Rate (d) $0.0360 $0.0531 $0.0342
<CAPTION>
For the period from
January 30, 1998
(effective date) to
June 30, 1998
MID CAP GROWTH PORTFOLIO (unaudited)
---------------------
<S> <C>
Net asset value, beginning of period $10.00
--------
Income From Investment Operations --
Net investment income 0.02
Net realized and unrealized gain
(loss) on investments 0.95
--------
Total from investment operations 0.97
--------
Net asset value, end of period $10.97
========
Total investment return at net asset value (b) 9.68%
Net assets, end of period ($ millions) $61.3
Ratio of expenses to average net assets 0.40%(c)
Ratio of net investment income to
average net assets 0.74%(c)
Portfolio turnover rate 50%
Average Commission Rate (d) $0.0600
See accompanying notes to the Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
Six Months For the period from
Ended January 18, 1996
June 30, 1998 (effective date) to
WORLD GROWTH PORTFOLIO (unaudited) 1997 December 31, 1996
-------------- -------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.12 $10.95 $10.00
-------- -------- --------
Income From Investment Operations --
Net investment income 0.10 0.10 0.08
Net realized and unrealized gain
(loss) on investments 1.46 0.21 0.96
-------- -------- --------
Total from investment operations 1.56 0.31 1.04
-------- -------- --------
Less Distributions --
Dividends from net investment income -- (0.13) (0.09)
Distributions from net realized
gain on investments (0.10) (0.01) --
-------- -------- --------
Total distributions (0.10) (0.14) (0.09)
-------- -------- --------
Net asset value, end of period $12.58 $11.12 $10.95
======== ======== ========
Total investment return at net asset value (b) 14.02% 2.81% 10.41%
Net assets, end of period ($ millions) $349.6 $287.2 $174.1
Ratio of expenses to average net assets 085%(c) 0.85% 0.85%(c)
Ratio of net investment income to
average net assets 1.72%(c) 1.08% 1.34%(c)
Portfolio turnover rate 9% 19% 9%
Average Commission Rate (d) $0.0177 $0.0245 $0.0265
<CAPTION>
Six Months
Ended
June 30, 1998
GROWTH PORTFOLIO (unaudited) 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $21.58 $19.32 $18.27 $13.51 $14.76 $13.89
-------- -------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.10 0.21 0.24 0.24 0.20 0.29
Net realized and unrealized gain
(loss) on investments 3.24 4.97 3.43 4.76 (0.87) 1.08
-------- -------- -------- -------- -------- --------
Total from investment operations 3.34 5.18 3.67 5.00 (0.67) 1.37
-------- -------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.10) (0.21) (0.24) (0.24) (0.20) (0.29)
Distributions from net realized
gain on investments (3.35) (2.71) (2.38) -- (0.38) (0.21)
-------- -------- -------- -------- -------- --------
Total distributions (3.45) (2.92) (2.62) (0.24) (0.58) (0.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $21.47 $21.58 $19.32 $18.27 $13.51 $14.76
======== ======== ======== ======== ======== ========
Total investment return at net asset value (b) 16.71% 30.18% 22.44% 37.25% (4.66%) 10.10%
Net assets, end of period ($ millions) $2,995.4 $2,426.1 $1,658.6 $1,173.1 $721.8 $534.5
Ratio of expenses to average net assets 0.40%(c) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 0.98%(c) 1.11% 1.41% 1.53% 1.52% 2.17%
Portfolio turnover rate 74% 193% 223% 184% 135% 243%
Average Commission Rate (d) $0.0599 $0.0600 $0.0629 n/a n/a n/a
See accompanying notes to the Financial Highlights.
<CAPTION>
Six Months
Ended
June 30, 1998
HIGH YIELD PORTFOLIO (unaudited) 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.44 $10.06 $ 9.94 $ 9.18 $10.76 $ 9.62
-------- -------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.50 0.98 0.98 0.96 0.97 0.96
Net realized and unrealized gain
(loss) on investments (0.03) 0.37 0.12 0.76 (1.40) 1.16
-------- -------- -------- -------- -------- --------
Total from investment operations 0.47 1.35 1.10 1.72 (0.43) 2.12
-------- -------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.51) (0.97) (0.98) (0.96) (0.97) (0.96)
Distributions from net realized
gain on investments (0.15) -- -- -- (0.18) (0.02)
-------- -------- -------- -------- -------- --------
Total distributions (0.66) (0.97) (0.98) (0.96) (1.15) (0.98)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.25 $10.44 $10.06 $ 9.94 $ 9.18 $10.76
======== ======== ======== ======== ======== ========
Total investment return at net asset value (b) 4.64% 14.10% 11.55% 19.62% (4.38%) 22.91%
Net assets, end of period ($ millions) $1,510.3 $1,344.6 $1,026.7 $792.5 $595.6 $444.5
Ratio of expenses to average net assets 0.40%(c) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 9.70%(c) 9.58% 9.83% 9.94% 9.75% 9.29%
Portfolio turnover rate 45% 105% 107% 67% 44% 68%
<CAPTION>
Six Months
Ended
June 30, 1998
INCOME PORTFOLIO (unaudited) 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87
-------- -------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.31 0.65 0.63 0.65 0.64 0.63
Net realized and unrealized gain
(loss) on investments 0.13 0.17 (0.33) 1.04 (1.11) 0.49
-------- -------- -------- -------- -------- --------
Total from investment operations 0.44 0.82 0.30 1.69 (0.47) 1.12
-------- -------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.31) (0.65) (0.63) (0.65) (0.64) (0.63)
Distributions from net realized
gain on investments -- -- -- -- (0.21) --
-------- -------- -------- -------- -------- --------
Total distributions (0.31) (0.65) (0.63) (0.65) (0.85) (0.63)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.05 $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36
======== ======== ======== ======== ======== ========
Total investment return at net asset value (b) 4.53% 8.75% 3.21% 19.36% (4.68%) 11.66%
Net assets, end of period ($ millions) $957.6 $880.4 $801.2 $762.1 $608.2 $566.9
Ratio of expenses to average net assets 0.40%(c) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 6.29%(c) 6.68% 6.54% 6.81% 6.78% 6.23%
Portfolio turnover rate 36% 117% 150% 132% 139% 153%
See accompanying notes to the Financial Highlights.
<CAPTION>
Six Months
Ended
June 30, 1998
MONEY MARKET PORTFOLIO (unaudited) 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income from investment operations 0.03 0.05 0.05 0.06 0.04 0.03
Less: Dividends from net investment income (0.03) (0.05) (0.05) (0.06) (0.04) (0.03)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return (b) 2.67% 5.43% 5.20% 5.71% 4.00% 2.87%
Net assets, end of period ($ millions) $134.7 $121.2 $103.9 $66.1 $41.9 $24.9
Ratio of expenses to average net assets 0.40%(c) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 5.28%(c) 5.27% 5.07% 5.55% 4.03% 2.83%
NOTES TO FINANCIAL HIGHLIGHTS:
- ------------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of a sales charge.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in
connection with execution of portfolio transactions during the period,
divided by the sum of all portfolio shares purchased and sold during
the period that were subject to a commission. Broker commissions are
treated as capital items that increase the cost basis of securities
purchased, or reduce the proceeds of securities sold.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB SERIES FUND, INC.
Notes to Financial Statements
June 30, 1998
(unaudited)
(1) ORGANIZATION
The LB Series Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as a diversified, open-end investment company. The
Fund is divided into seven separate series (the "Portfolio(s)"), each
with its own investment objective and policies. The seven Portfolios of
the Fund are: Opportunity Growth Portfolio, Mid Cap Growth Portfolio,
World Growth Portfolio, Growth Portfolio, High Yield Portfolio, Income
Portfolio and Money Market Portfolio. The Mid Cap Growth Portfolio's
registration was declared effective by the Securities and Exchange
Commission and began operations as a series of the LB Series Fund, Inc.
on January 30, 1998. The assets of each portfolio are segregated and
each has a separate class of capital stock. The Fund serves as the
investment vehicle to fund benefits for variable life insurance and
variable annuity contracts issued by Lutheran Brotherhood (LB) and
Lutheran Brotherhood Variable Insurance Products Company (LBVIP),
an indirect wholly owned subsidiary of Lutheran Brotherhood.
(2) SIGNIFICANT ACCOUNTING POLICIES
Investment Security Valuations
Securities traded on U.S. or foreign securities exchanges or included
in a national market system are valued at the last quoted sales price
at the close of each business day. Over-the-counter securities and
listed securities for which no price is readily available are valued
at prices within the range of the current bid and asked prices
considered best to represent the value in the circumstances, based on
quotes that are obtained from an independent pricing service approved
by the Board of Directors. The pricing service, in determining values
of securities, takes into consideration such factors as current
quotations by broker/dealers, coupon, maturity, quality, type of issue,
trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. Securities which cannot be valued
by the approved pricing service are valued using valuations obtained
from dealers that make markets in the securities. Exchange listed
options and futures contracts are valued at the last quoted sales
price. For all Portfolios other than the Money Market Portfolio,
short-term securities with maturities of 60 days or less are valued at
amortized cost; those with maturities greater than 60 days are valued
at the mean between bid and asked price. Short-term securities held by
the Money Market Portfolio are valued on the basis of amortized cost
(which approximates market value), whereby a security is valued at
its cost initially, and thereafter valued to reflect a constant
amortization to maturity of any discount or premium. The Money
Market Portfolio follows procedures necessary to maintain a constant
net asset value of $1.00 per share. All other securities for which
market values are not readily available are appraised at fair value
as determined in good faith by or under the direction of the Board
of Directors.
Foreign Currency Translations
The accounting records of the Fund are maintained in U.S. dollars.
Securities and other assets and liabilities of the World Growth
Portfolio that are denominated in foreign currencies are translated
into U.S. dollars at the daily closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and
income and expenses are translated at the exchange rate on the
transaction date. Currency gains and losses are recorded from sales of
foreign currency, exchange gains or losses between the trade date and
settlement dates on securities transactions, and other translation
gains or losses on dividends, interest income and foreign withholding
taxes. The Fund does not separately report the effect of changes in
foreign exchange rates from changes in market prices on securities
held. Such changes are included in net realized and unrealized gain
or loss from investments.
Federal Income Taxes
No provision has been made for income taxes because the Fund's policy
is to qualify as a regulated investment company under the Internal
Revenue Code and to distribute substantially all of its taxable
income on a timely basis. It is also the intention of the Funds to
distribute an amount sufficient to avoid imposition of any federal
excise tax. Each Fund is treated as a separate taxable entity for
federal income tax purposes.
Securities Transactions and Investment Income
Securities transactions are accounted for on trade date. Realized
gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is
the same basis used for federal income tax purposes.
Interest income is determined on the basis of interest or discount
earned on any short-term securities and interest earned on all other
debt securities, including amortization of discount or premium.
Dividend income is recorded on the ex-dividend date. For payment-in-
kind securities, income is recorded on the ex-dividend date in the
amount of the value received.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and
reinvested daily for the High Yield, Income and Money Market
Portfolios, quarterly for the Growth Portfolio, and annually for the
Opportunity Growth, Mid Cap Growth and World Growth Portfolios. With
the exception of the Money Market Portfolio, net realized gains from
securities transactions, if any, are distributed at least annually
after the close of the Fund's fiscal year. Short-term gains and losses
of the Money Market Portfolio are included in interest income and
distributed daily. Dividends and capital gains are recorded on the
ex-dividend date.
Net investment income (loss) and net realized gain (loss) may differ
for financial statement and tax purposes. The character of
distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of distributions,
the year in which amounts are distributed may differ from the
year that the income or net realized gains were recorded by the Fund.
Options, Financial Futures and
Forward Foreign Currency Contracts
The Fund, with the exception of the Money Market Portfolio, may buy
put and call options, write covered call options and buy and sell
futures contracts. The Fund intends to use such derivative instruments
as hedges to facilitate buying or selling securities or to provide
protection against adverse movements in security prices or interest
rates. The World Growth Portfolio may also enter into options and
futures contracts on foreign currencies and forward foreign currency
contracts to protect against adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sale for a written call option or the cost
of a security for purchased put and call options is adjusted by the
amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit
initial margin, either cash or securities in an amount equal to a
certain percentage of the contract value. Subsequent variation margin
payments are made or received by the Fund each day. The variation
margin payments are equal to the daily changes in the contract value
and are recorded as unrealized gains and losses. The Fund realizes a
gain or loss when the contract is closed or expires.
Forward foreign currency contracts are valued daily and unrealized
appreciation or depreciation is recorded daily as the difference
between the contract exchange rate and the closing forward rate
applied to the face amount of the contract. A realized gain or loss
is recorded at the time a forward contract is closed.
Dollar Roll Transactions
The Income Portfolio enters into dollar roll transactions, with respect
to mortgage securities issued by GNMA, FNMA and FHLMC, in which the
Portfolio sells mortgage securities and simultaneously agrees to
repurchase similar (same type, coupon and maturity) securities at a
later date at an agreed upon price. During the period between the
sale and repurchase, the Portfolio forgoes principal and interest paid
on the mortgage securities sold. The Portfolio is compensated by the
interest earned on the cash proceeds of the initial sale and from
negotiated fees paid by brokers offered as an inducement to the
Portfolio to "roll over" its purchase commitments. The Income
Portfolio earned $219,883 from such fees for the six month period
ended June 30, 1998.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions.
To the extent the Fund engages in such transactions, it will do so for
the purpose of acquiring securities consistent with its investment
objectives and policies and not for the purpose of investment leverage
or to speculate on interest rate changes. On the trade date, assets
of the Fund are segregated on the Fund's records in a dollar amount
sufficient to make payment for the securities to be purchased. Income
is not accrued until settlement date.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
(3) INVESTMENT ADVISORY FEES AND
OTHER EXPENSES
Investment Advisory Fees
Each Portfolio pays Lutheran Brotherhood, the Fund's investment
advisor, a fee for its advisory services. The fees are accrued daily
and paid monthly. The fees are based on the following annual rates of
average daily net assets: Opportunity Growth, Mid Cap Growth, Growth,
High Yield, Income and Money Market Portfolios, 0.40%; World Growth
Portfolio, 0.85%.
Lutheran Brotherhood has entered into a sub-advisory agreement with
Rowe Price - Fleming International, Inc. for the performance of
various sub-advisory services for the World Growth Portfolio. For
these services, Lutheran Brotherhood pays an annual sub-advisory
fee equal to 0.50% of all the World Growth Portfolio's annual average
daily net assets.
Effective April 30, 1998, Lutheran Brotherhood has entered into a sub-
advisory agreement with T. Rowe Price Associates, Inc. for the
performance of various sub-advisory services for the Opportunity
Growth Portfolio. For these services, Lutheran Brotherhood pays an
annual sub-advisory fee equal to 0.30% of all the Opportunity Growth
Portfolio's annual average daily net assets.
Other Expenses
All other expenses associated with operating the Fund are paid or
reimbursed to the Fund by LB and LBVIP pursuant to an Expense
Reimbursement Agreement. The Expense Reimbursement Agreement can be
terminated at any time by the mutual agreement of the Fund, LB and
LBVIP, but the Fund, LB and LBVIP currently contemplate that the
Expense Reimbursement Agreement will continue so long as the Fund
remains in existence.
The Fund has adopted a director fee deferral plan which allows the
independent directors of the Fund to defer the receipt of all or a
portion of their director fees. Amounts that are deferred are invested
in the Lutheran Brotherhood Family of Funds until distribution in
accordance with the plan.
Certain officers and non-independent directors of the Fund are
officers of Lutheran Brotherhood and officers or directors of LBVIP;
however, they receive no compensation from the Fund.
(4) DISTRIBUTIONS FROM CAPITAL GAINS
During six months ended June 30, 1998, distributions from net realized
capital gains of $4,105,350, $2,480,808, $382,615,151 and $19,837,524
were paid by the Opportunity Growth, World Growth, Growth and High
Yield Portfolios, respectively. These distributions relate to net
capital gains realized during the year ended December 31, 1997.
(5) CAPITAL LOSS CARRYOVER
At December 31, 1997, the Income Portfolio had an accumulated net
realized capital loss carryover of $17,727,812 expiring as follows:
Income
Year Portfolio
-------- --------------
2002 $14,060,792
2004 3,667,020
-----------
$17,727,812
-----------
To the extent that the Income Portfolio realizes future net capital
gains, taxable distributions will be reduced by any unused capital
loss carryovers.
(7) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities
For the six months ended June 30, 1998, the cost of purchases and
the proceeds from sales of investment securities other than U.S.
Government and short term securities were as follows:
In thousands
---------------------------
Portfolio Purchases Sales
- --------------------------------------------------------------------
Opportunity Growth $ 403,818 $ 383,028
Mid Cap Growth 75,042 17,756
World Growth 45,149 28,962
Growth 2,079,158 1,908,510
High Yield 833,231 628,702
Income 223,441 201,905
Purchases and sales of U.S. Government securities were:
In thousands
---------------------------
Portfolio Purchases Sales
- --------------------------------------------------------------------
Growth $ 13,660 $ 10,972
Income 165,642 116,869
Investments in Restricted Securities
The High Yield Portfolio owns restricted securities that were
purchased in private placement transactions without registration under
the Securities Act of 1933. Unless such securities subsequently become
registered, they generally may be resold only in privately negotiated
transactions with a limited number of purchasers. The aggregate value
of restricted securities was $65,294 at June 30, 1998, which
represented 0.004% of the net assets of the High Yield Portfolio.
Investments in High Yielding Securities
The High Yield Portfolio invests primarily in high yielding fixed
income securities. The Income Portfolio may from time to time invest
up to 25% of its total assets in high-yielding securities. These
securities will typically be in the lower rating categories or will be
non-rated and generally will involve more risk than securities in the
higher rating categories. Lower rated or unrated securities are more
likely to react to developments affecting market risk and credit risk
than are more highly rated securities, which react primarily to
movements in the general level of interest rates.
Investments in Options and Futures Contracts
The movement in the price of the instrument underlying an option or
futures contract may not correlate perfectly with the movement in the
prices of the portfolio securities being hedged. A lack of correlation
could render the Fund's hedging strategy unsuccessful and could result
in a loss to the Fund. In the event that a liquid secondary market
would not exist, the Fund could be prevented from entering into a
closing transaction which could result in additional losses to the
Fund.
Foreign Denominated Investments
The World Growth Portfolio invests primarily in foreign denominated
stocks. Foreign denominated assets and currency contracts may involve
more risks than domestic transactions, including: currency risk,
political and economic risk, regulatory risk, and market risk. The
Portfolio may also invest in securities ofcompanies located in
emerging markets. Future economic or political developments could
adversely affect the liquidity or value, or both, of such securities.
Open Option Contracts
The number of contracts and premium amounts associated with call
option contracts written during the six months ended June 30, 1998
were as follows:
Growth Portfolio
--------------------------------------
Number of Premium
Contracts Amount
----------------- -----------------
Balance at December 31, 1997 -- $ --
Opened 16,409 3,491,708
Closed (8,535) (2,027,173)
Expired (1,947) (187,886)
Exercised (2,531) (524,588)
----------------- -----------------
Balance at June 30, 1998 3,396 $ 752,061
================= =================
Income Portfolio
--------------------------------------
Number of Premium
Contracts Amount
----------------- -----------------
Balance at December 31, 1997 -- $ --
Opened 2,650 913,275
Closed (2,350) (813,380)
Expired (100) (2,015)
Exercised -- --
----------------- -----------------
Balance at June 30, 1998 200 $ 97,880
================= =================
(8) CAPITAL STOCK
Authorized Capital Stock
Authorized capital stock consists of two billion shares as follows:
Shares Par
Portfolio Authorized Value
- ------------------ --------------- -----------
Opportunity Growth 200,000,000 $ 0.01
Mid Cap Growth 200,000,000 $ 0.01
World Growth 200,000,000 $ 0.01
Growth 400,000,000 $ 0.01
High Yield 200,000,000 $ 0.01
Income 400,000,000 $ 0.01
Money Market 400,000,000 $ 0.01
The shares of each portfolio have equal rights and privileges with
all shares of that portfolio. Shares in the Fund are currently sold
only to separate accounts of Lutheran Brotherhood and LBVIP.
<TABLE>
<CAPTION>
Transactions in Capital Stock
Transactions in capital stock were as follows:
Opportunity Mid Cap World High Money
Growth Growth Growth Growth Yield Income Market
----------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares outstanding at
December 31, 1996 21,430,739 -- 15,900,731 85,832,808 102,107,904 82,175,962 103,920,626
Shares sold 12,916,456 -- 9,868,979 13,519,744 17,651,288 6,711,456 76,690,617
Shares issued on
reinvestment of dividends
and distributions 183,341 -- 307,190 14,633,525 11,014,219 5,644,954 5,959,136
Shares redeemed (633,116) -- (249,912) (1,579,866) (1,942,120) (5,749,815) (65,403,224)
------------ ---------- ---------- ---------- ----------- ---------- ------------
Shares outstanding at
December 31, 1997 33,897,420 -- 25,826,988 112,406,211 128,831,291 88,782,557 121,167,155
Shares sold 1,695,686 5,631,377 2,232,052 8,172,288 10,754,095 5,164,329 39,307,320
Shares issued on
reinvestment of dividends
and distributions 348,988 -- 205,153 19,834,713 8,632,878 2,860,432 3,281,587
Shares redeemed (1,366,600) (42,943) (477,983) (883,207) (912,318) (1,528,079) (29,044,419)
------------ ---------- ---------- ---------- ----------- ---------- ------------
Shares outstanding at
June 30, 1998 34,575,494 5,588,434 27,786,210 139,530,005 147,305,946 95,279,239 134,711,643
============ ========= ========== =========== =========== ========== ============
</TABLE>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH PORTFOLIO
MID CAP GROWTH PORTFOLIO
WORLD GROWTH PORTFOLIO
GROWTH PORTFOLIO
HIGH YIELD PORTFOLIO
INCOME PORTFOLIO
MONEY MARKET PORTFOLIO
DIRECTORS
Rolf F. Bjelland
Charles W. Arnason
Herbert F. Eggerding, Jr.
Noel K. Estenson
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
OFFICERS
Rolf F. Bjelland James M. Odland
Chairman and President Assistant Secretary
Otis F. Hilbert John C. Bjork
Secretary and Vice President Assistant Secretary
James R. Olson Wade M. Voigt
Vice President Treasurer
James M. Walline Rand E. Mattsson
Vice President Assistant Treasurer
Richard B. Ruckdashel Frederick P. Johnson
Vice President Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
[LUTHERAN BROTHERHOOD LOGO]
LUTHERAN BROTHERHOOD
Bulk Rate
U.S. Postage
PAID
Minneapolis, MN
Permit No. 1202
VP 54 (6/98)
[GRAPHIC OF PRINTED WITH SOY INK LOGO OMITTED]
