<PAGE>
1933 Act File No. 33-3677
1940 Act File No. 811-4603
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____ X
Post-Effective Amendment No. __23__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __25__ X
LB SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 340-7215
Otis F. Hilbert, Secretary
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
__x__ on May 1, 1999(date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
LB SERIES FUND, INC.
PROSPECTUS MAY 1, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
The Portfolios
Investment Objectives, Principal Strategies and Risks,
Volatility and Performance
Opportunity Growth Portfolio
Mid Cap Growth Portfolio
World Growth Portfolio
Growth Portfolio
High Yield Portfolio
Income Portfolio
Money Market Portfolio
Management
The Separate Accounts and the Contracts
Net Asset Value
Distributions
Other Securities and Investment Practices
Financial Highlights
<PAGE>
OPPORTUNITY GROWTH PORTFOLIO
INVESTMENT OBJECTIVE. The investment objective of the Opportunity
Growth Portfolio is to achieve long-term growth of capital by investing
primarily in a professionally managed diversified portfolio of smaller
capitalization common stocks.
PRINCIPAL STRATEGIES. The Opportunity Growth Portfolio seeks to
achieve its objective by investing at least 65% of its assets in common
stocks of small-cap growth companies under normal market conditions. T.
Rowe Price Associates, Inc. ("T. Rowe Price"), the Portfolio's sub-adviser,
defines small-cap growth companies as companies whose market capitalization
at the time of purchase is smaller than 80% of those in the Standard &
Poor's 500 Index, which was approximately $2.8 billion as of December 31,
1998. The upper size limit will vary with market fluctuations. The
Opportunity Growth Portfolio may on occasion purchase a stock whose market
cap exceeds the range, and it will not automatically sell a stock just
because the company's market cap has grown beyond the upper end of the
range. (Market capitalization of stocks gives you a snapshot view of a
company's size. A stock's "market cap" is calculated by multiplying the
number of the company's shares outstanding by the stock's per-share price.
Companies are categorized into small, medium and large based on their
capitalization, e.g., "small-cap," "mid-cap," or "large-cap.")
T. Rowe Price designed and uses a number of quantitative models to
identify key characteristics of small-cap growth stocks. Based on these
models, T. Rowe Price selects stocks in a "top down" manner so that the
Portfolio reflects characteristics T. Rowe Price considers important, such
as valuations (price/earnings or price/book value ratios, for example) and
projected earnings growth. These often will be companies with shorter
histories and less seasoned operations. The Portfolio will focus primarily
on companies that possess superior earnings prospects. The Portfolio will
be more broadly diversified than the typical small-cap growth fund, and the
top 25 holdings will not compose a large portion of assets. This broad
diversification should minimize the effects of individual security selection
on Portfolio performance.
PRINCIPAL RISKS. The Opportunity Growth Portfolio's principal risks
are the risks generally of stock investing. They include the risk of sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster performance.
In addition, smaller, less seasoned companies often have greater price
volatility, lower trading volume, and less liquidity than larger, more
established companies. These companies tend to be more dependent on the
success of limited product lines and have less experienced management and
financial resources.
For these and other reasons, the Opportunity Growth Portfolio may
underperform other stock Portfolios (such as large company stock Portfolios)
when stocks of small companies are out of favor.
The success of the Opportunity Growth Portfolio's investment strategy
depends significantly on T. Rowe Price's skill in assessing the potential of
the securities in which the Portfolio invests. Shares of the Opportunity
Growth Portfolio will rise and fall in value and there is a risk that you
could lose money by investing in the Portfolio. The Opportunity Growth
Portfolio cannot be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the Opportunity Growth Portfolio by showing changes in the
Portfolio's performance from year to year and by showing how the Portfolio's
average annual returns for a one-year period and since inception compared to
a broad-based securities market index. The bar chart and table include the
effects of Portfolio expenses, but not charges or deductions against your
variable contract, and assume that you sold your investment at the end of
the period. Because shares of the Portfolio may be purchased only through
variable life insurance and variable annuity contracts, you should carefully
review the variable contract prospectus for information on applicable
charges and expenses. If the charges and deductions against your variable
contract were included, returns would be lower than those shown. How a
Portfolio has performed in the past is not necessarily an indication of how
it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1997 +0.93%
1998 -2.99%
Best Quarter: Q4 '98 +25.57%
Worst Quarter: Q3 '98 -22.05%
Average Annual Total Returns
(periods ending
December 31, 1998)
-----------------------------
Since
Inception
1-Year (1/18/96)
Opportunity Growth Portfolio -2.99% 5.36%
Russell 2000 -2.55% 18.81%
The Russell 2000 is an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index (an index of the
3,000 largest companies based on market capitalization).
MID CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE. The investment objective of the Mid Cap Growth
Portfolio is to achieve long-term growth of capital by investing primarily
in a professionally managed diversified portfolio of common stocks of
companies with medium market capitalizations.
PRINCIPAL STRATEGIES. The Mid Cap Growth Portfolio tries to increase
the long-term value of your investment by investing in common stocks of
companies with medium market capitalizations. Under normal market
conditions, the Mid Cap Growth Portfolio invests at least 65% of its assets
in companies that fall within the range of companies included in the
Standard & Poor's MidCap 400 Index at the time of the Portfolio's
investment. As of February 15, 1999, the S&P MidCap 400 included companies
with capitalizations between approximately $220 million and $13 billion.
Lutheran Brotherhood, the Portfolio's investment adviser, uses both
fundamental and technical investment research techniques to determine what
stocks to buy and sell. (Fundamental investment analysis generally involves
assessing a company's or security's value based on factors such as sales,
assets, markets, management, products and services, earnings, and financial
structure. Technical analysis generally involves studying trends and
movements in a security's price, trading volume, and other market-related
factors in an attempt to discern patterns.) Lutheran Brotherhood focuses on
companies that have a strong record of earnings growth or show good
prospects for growth in sales and earnings and also considers the trends in
the market as a whole.
PRINCIPAL RISKS. The Mid Cap Growth Portfolio's principal risks are
the risks generally of stock investing. They include the risk of sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster performance.
In addition, medium-sized companies often have greater price
volatility, lower trading volume, and less liquidity than larger, more-
established companies. These companies tend to have smaller revenues,
narrower product lines, less management depth and experience, smaller shares
of their product or service markets, fewer financial resources, and less
competitive strength than larger companies. For these and other reasons,
the Mid Cap Growth Portfolio may underperform other stock Portfolios (such
as large company stock Portfolios) when stocks of medium-sized companies are
out of favor.
The success of the Portfolio's investment strategy depends
significantly on Lutheran Brotherhood's skill in assessing the potential of
the securities in which the Portfolio invests. Shares of the Mid Cap Growth
Portfolio will rise and fall in value and there is a risk that you could
lose money by investing in the Portfolio. The Mid Cap Growth Portfolio
cannot be certain that it will achieve its objective.
No bar chart or performance table has been included for the Mid Cap
Growth Portfolio. The Mid Cap Growth Portfolio commenced operations on
January 30, 1998.
WORLD GROWTH PORTFOLIO
INVESTMENT OJBECTIVE. The investment objective of the World Growth
Portfolio is to achieve long-term growth of capital by investing primarily
in a professionally managed diversified portfolio of common stocks of
established, non-U.S. companies.
PRINCIPAL STRATEGIES. The World Growth Portfolio seeks to achieve its
objective by investing primarily in common stocks of established non-U.S.
companies. The Portfolio may invest in companies located anywhere in the
world (including the United States).
While stocks may be purchased without regard to a company's market
capitalization, the focus typically will be on large and, to a lesser
extent, medium-sized, companies. In determining the appropriate distribution
of investments among various countries and geographic regions, Rowe Price-
Fleming International, Inc. ("Price-Fleming"), the Portfolio's sub-adviser,
will consider prospects for relative economic growth, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships, and the range of individual investment
opportunities available to international investors. Price-Fleming selects
stocks by blending a bottom-up approach, based on its fundamental research
techniques, with an awareness of a country's economic status and outlook.
Price-Fleming weighs a company's prospects for achieving and sustaining
above-average, long-term earnings growth and also considers valuation
factors, such as price/earnings and price/cash flows ratios. Valuation
factors often influence allocations among large-cap, mid-cap, or small-cap
companies.
PRINCIPAL RISKS. The World Growth Portfolio's principal risks are the
risks generally of stock investing. They include the risk of sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster performance.
Stocks of non-U.S. companies present additional risks for U.S.
investors. One of the most important is currency risk. Fluctuations in
currency exchange rates may reduce or eliminate gains or create losses.
Stocks of non-U.S. companies also tend to be less liquid and more volatile
than their U.S. counterparts, in part because foreign markets are generally
smaller, more sensitive to trading activity and more likely to experience
delayed or less frequent settlement of transactions. In many foreign
countries, accounting and regulatory standards are less rigorous, and
economic and political climates are less stable. These risks usually are
greater in emerging markets, such as most countries in Africa, Asia, Latin
America and the Middle East. For these and other reasons, the World Growth
Portfolio may underperform other stock Portfolios (such as U.S. stock
Portfolios) when international stocks are out of favor.
The success of the Portfolio's investment strategy depends
significantly on Price-Fleming's skill in assessing the potential of the
securities in which the Portfolio invests. Shares of the World Growth
Portfolio will rise and fall in value and there is a risk that you could
lose money by investing in the Portfolio. The World Growth Portfolio
cannot be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the World Growth Portfolio by showing changes in the
Portfolio's performance from year to year and by showing how the Portfolio's
average annual returns for a one-year period and since inception compared to
a broad-based securities market index. The bar chart and table include the
effects of Portfolio expenses, but not charges or deductions against your
variable contract, and assume that you sold your investment at the end of
the period. Because shares of the Portfolio may be purchased only through
variable life insurance and variable annuity contracts, you should carefully
review the variable contract prospectus for information on applicable
charges and expenses. If the charges and deductions against your variable
contract were included, returns would be lower than those shown. How a
Portfolio has performed in the past is not necessarily an indication of how
it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1997 2.81%
1998 16.75%
Best Quarter: Q4 '98 +17.87%
Worst Quarter: Q3 '98 -13.14%
Average Annual Total Returns
(periods ending
December 31, 1998)
-----------------------------
Since
Inception
1-Year (1/18/96)
World Growth Portfolio 16.75% 9.99%
Morgan Stanley EAFE Index 20.33% 14.68%
The Morgan Stanley EAFE (Europe and Australasia, Far East Equity) is an
unmanaged index which measures the performance of international companies
screened for liquidity, cross-ownership, and industry representation.
GROWTH PORTFOLIO
INVESTMENT OBJECTIVE. The investment objective of the Growth Portfolio
is to achieve long-term growth of capital through investment primarily in
common stocks of established corporations that appear to offer attractive
prospects of a high total return from dividends and capital appreciation.
PRINCIPAL STRATEGIES. The Growth Portfolio's principal strategy for
achieving its objective is to invest in leading U.S. domestic and multi-
national companies. Lutheran Brotherhood, the Portfolio's investment
adviser, uses fundamental and technical investment research techniques to
identify stocks of companies that it believes have a leading position and
successful business strategy within their industry. The Portfolio invests
primarily in stocks of large and, to a lesser extent, medium-sized,
companies, which Lutheran Brotherhood believes have balance sheet strength
and profitability. Lutheran Brotherhood seeks to invest in companies with
a strong management team that will develop business strategies which lead to
sales and earnings growth and improving relative stock value.
PRINCIPAL RISKS. The Growth Portfolio's principal risks are the risks
generally of stock investing. They include the risk of sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster performance.
In addition, the prices of larger company stocks may not rise as
quickly or as significantly as prices of stocks of well-managed smaller
companies. For these and other reasons, the Growth Portfolio may
underperform other stock Portfolios (such as small company or medium company
stock Portfolios) when larger company stocks are out of favor.
The success of the Growth Portfolio's investment strategy depends
significantly on Lutheran Brotherhood's skill in assessing the potential of
the securities in which the Portfolio invests. Shares of the Growth
Portfolio will rise and fall in value and there is a risk that you could
lose money by investing in the Portfolio. The Growth Portfolio cannot be
certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the Growth Portfolio by showing changes in the Portfolio's
performance from year to year and by showing how the Portfolio's average
annual returns for one, five, and ten years compared to a broad-based
securities market index. The bar chart and table include the effects of
Portfolio expenses, but not charges or deductions against your variable
contract, and assume that you sold your investment at the end of the period.
Because shares of the Portfolio may be purchased only through variable life
insurance and variable annuity contracts, you should carefully review the
variable contract prospectus for information on applicable charges and
expenses. If the charges and deductions against your variable contract were
included, returns would be lower than those shown. How a Portfolio has
performed in the past is not necessarily an indication of how it will
perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1989 26.57%
1990 -1.97%
1991 41.35%
1992 8.13%
1993 10.10%
1994 -4.66%
1995 37.25%
1996 22.44%
1997 30.18%
1998 28.38%
Best Quarter: Q4 '98 +24.41%
Worst Quarter: Q3 '90 -15.81%
Average Annual Total Returns
(periods ending
December 31, 1998)
-----------------------------
1-Year 5-Years 10-Years
Growth Portfolio 28.38% 21.76% 18.77%
S&P 500 28.59% 24.03% 19.19%
The S&P 500 is an unmanaged index which measures the performance of 500
widely held common stocks of large-cap companies.
HIGH YIELD PORTFOLIO
INVESTMENT OBJECTIVE. The investment objective of the High Yield
Portfolio is to achieve a higher level of income through investment in a
diversified portfolio of high yield securities ("junk bonds") which involve
greater risks than higher quality investments. The Portfolio will also
consider growth of capital as a secondary objective.
PRINCIPAL STRATEGIES. Under normal market conditions, the High Yield
Portfolio invests at least 65% of its total assets in high-yield, high risk
bonds, notes, debentures and other debt obligations or preferred stocks.
These securities are commonly known as "junk bonds." At the time of
purchase these securities are rated within or below the BB major rating
category by Standard & Poor's Corporation or the Ba major rating category by
Moody's Investor Services, Inc. or are unrated but considered to be of
comparable quality by Lutheran Brotherhood, the Portfolio's investment
adviser. Lutheran Brotherhood uses fundamental investment research
techniques to determine what securities to buy and sell. Lutheran
Brotherhood focuses on companies which it believes have or are expected to
achieve adequate cash flows or access to capital markets for the payment of
principal and interest obligations. Lutheran Brotherhood generally
purchases bonds with a 10-year maturity, although it may purchase bonds with
a shorter or longer maturity.
PRINCIPAL RISKS. The principal risks of the High Yield Portfolio
include the tendency of high-yield bond prices to fall when the economy is
sluggish or overall corporate earnings are weak. During those times, it may
become difficult for issuers of high-yield bonds to generate sufficient cash
flow or to obtain adequate access to capital markets to pay principal or
interest. For all bonds, there is a risk that an issuer will default.
High-yield bonds, however, are more susceptible to the risk of default and
their prices usually fall if a number of issuers, or a high profile issuer,
default or go bankrupt or if the market anticipates either of those events.
The price of the High Yield Portfolio shares also may be affected by
weak equity markets, when issuers of high-yield bonds generally find it
difficult to improve their financial condition by replacing debt with
equity. In addition, many high yield securities are traded only among
institutional investors, and it may be difficult for Lutheran Brotherhood
to sell the Portfolio's portfolio investments at fair prices when high-yield
bonds fall out of favor with those investors.
Generally, when interest rates rise, bond prices fall, which may cause
the price of shares of the High Yield Portfolio to fall as well. Bonds with
longer durations and maturities tend to be more sensitive to changes in
interest rates than bonds with shorter durations or maturities. In general,
the prices at which lower quality bonds are traded before they mature may be
more affected by the financial health of the issuer and the economy and less
by changes in interest rates.
The success of the High Yield Portfolio's investment strategy depends
significantly on Lutheran Brotherhood's skill in assessing the potential of
the securities in which the Portfolio invests. Shares of the High Yield
Portfolio will rise and fall in value and there is a risk that you could
lose money by investing in the Portfolio. The High Yield Portfolio cannot
be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the High Yield Portfolio by showing changes in the
Portfolio's performance from year to year and by showing how the Portfolio's
average annual returns for one, five, and ten years compared to a broad-
based securities market index. The bar chart and table include the effects
of Portfolio expenses, but not charges or deductions against your variable
contract, and assume that you sold your investment at the end of the period.
Because shares of the Portfolio may be purchased only through variable life
insurance and variable annuity contracts, you should carefully review the
variable contract prospectus for information on applicable charges and
expenses. If the charges and deductions against your variable contract were
included, returns would be lower than those shown. How a Portfolio has
performed in the past is not necessarily an indication of how it will
perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1989 3.13%
1990 -3.72%
1991 35.32%
1992 20.08%
1993 22.91%
1994 -4.38%
1995 19.62%
1996 11.55%
1997 14.10%
1998 -1.50%
Best Quarter: Q1 '91 +12.39%
Worst Quarter: Q3 '98 - 8.86%
Average Annual Total Returns
(periods ending
December 31, 1998)
-----------------------------
1-Year 5-Years 10-Years
High Yield Portfolio -1.50% 7.47% 11.01%
Lehman High Yield Index 1.87% 8.57% 10.54%
The Lehman High Yield Index is an unmanaged index which measures the
performance of fixed-rate non-investment grade bonds.
INCOME PORTFOLIO
INVESTMENT OBJECTIVE. The investment objective of the Income Portfolio
is to achieve a high level of income over the longer term while providing
reasonable safety of capital through investment primarily in readily
marketable intermediate and long-term fixed income securities.
PRINCIPAL STRATEGIES. The Income Portfolio invests primarily in
investment-grade corporate bonds, government bonds, and mortgage-backed
securities. Under normal conditions, at least 65% of the Portfolio's assets
will be invested in debt securities or preferred stock at least in the "Baa"
major rating category by Moody's or at least in the "BBB" major rating
category by S&P or unrated securities considered to be of comparable quality
by Lutheran Brotherhood, the Portfolio's investment adviser. The Portfolio
may also invest in high-yield, high risk bonds, notes, debentures and other
debt obligations or preferred stock commonly known as "junk bonds."
Lutheran Brotherhood uses fundamental investment research techniques to
determine what debt obligations to buy and sell. Lutheran Brotherhood
focuses on companies which it believes are financially sound and have strong
cash flow, asset values, and interest or dividend earnings.
PRINCIPAL RISKS. The Income Portfolio's principal risks are those of
debt investing, including increases in interest rates and loss of principal.
Generally, when interest rates rise, bond prices fall, which may cause the
price of shares of the Income Portfolio to fall as well. Bond prices fall
because bonds issued after rates rise will offer higher yields, making older
bonds with lower rates less attractive. To raise the effective yield on
older bonds, holders of the older bonds must discount their prices. Bonds
with longer durations and maturities tend to be more sensitive to changes in
interest rates than bonds with shorter durations or maturities.
For all bonds there is a risk that an issuer will default. High-yield
bonds generally are more susceptible to risk of default than higher rated
bonds, and to the Income Portfolio, this risk increases as Lutheran
Brotherhood increases the percentage of the Portfolio's investments in high-
yield bonds.
The success of the Income Portfolio's investment strategy depends
significantly on Lutheran Brotherhood's skill in assessing the potential of
the securities in which the Portfolio invests. Shares of the Income
Portfolio will rise and fall in value and there is a risk that you could
lose money by investing in the Portfolio. The Income Portfolio cannot be
certain that it will achieve its goal.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the Income Portfolio by showing changes in the Portfolio's
performance from year to year and by showing how the Portfolio's average
annual returns for one, five, and ten years compared to a broad-based
securities market index. The bar chart and table include the effects of
Portfolio expenses, but not charges or deductions against your variable
contract, and assume that you sold your investment at the end of the period.
Because shares of the Portfolio may be purchased only through variable life
insurance and variable annuity contracts, you should carefully review the
variable contract prospectus for information on applicable charges and
expenses. If the charges and deductions against your variable contract were
included, returns would be lower than those shown. How a Portfolio has
performed in the past is not necessarily an indication of how it will
perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1989 12.22%
1990 6.91%
1991 19.76%
1992 9.23%
1993 11.66%
1994 -4.68%
1995 19.36%
1996 3.21%
1997 8.75%
1998 9.37%
Best Quarter: Q2 '89 +7.44%
Worst Quarter: Q1 '94 -3.99%
Average Annual Total Returns
(periods ending
December 31, 1998)
-----------------------------
1-Year 5-Years 10-Years
Income Portfolio 9.37% 6.92% 9.36%
Lehman Aggregate Bond Index 8.69% 7.27% 9.26%
The Lehman Aggregate Bond Index is an unmanaged index which measures
the performance of U.S. investment grade bonds.
MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE. The investment objective of the Money Market
Portfolio is to achieve the maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality, short-term debt obligations.
PRINCIPAL STRATEGIES. The Money Market Portfolio seeks to achieve its
objective by investing in high quality, short-term money market instruments
that mature in 397 days or less, including U.S. dollar-denominated
commercial paper, bank instruments such as certificates of deposit, U.S.
government discount notes, and U.S. Treasury Bills. Lutheran Brotherhood,
the Portfolio's investment adviser, uses fundamental investment research
techniques to determine what money market instruments to buy and sell.
Under normal market conditions, the Portfolio invests primarily in prime
commercial paper. Lutheran Brotherhood looks for prime commercial paper
issued by corporations which it believes are financially sound, have strong
cash flows, and solid capital levels, are leaders in their industry and have
experienced management.
Lutheran Brotherhood manages the Money Market Portfolio subject to
strict rules established by the Securities and Exchange Commission that are
designed so that the Money Market Portfolio may maintain a stable $1.00
share price. Those guidelines generally require the Money Market Portfolio
to, among other things, invest only in high quality securities that
generally are diversified with respect to issuers, are denominated in U.S.
dollars and have short remaining maturities. In addition, the guidelines
require the Money Market Portfolio to maintain a dollar-weighted average
portfolio maturity of not more than 90 days.
Under the guidelines, at least 95% of the Money Market Portfolio's
total assets must be invested in "first tier" securities. First-tier
securities must be rated by at least two rating agencies in their highest
short-term major rating categories (or one, if only one rating agency has
rated the security, or if they have not received a short-term rating,
determined by Lutheran Brotherhood to be of comparable quality). First-tier
securities generally include U.S. Government securities, such as U.S.
Treasury bills and securities issued or sponsored by U.S. government
agencies. They also may include corporate debt securities, finance company
commercial paper and certain obligations of U.S. and foreign banks.
The remainder of the Money Market Portfolio's assets will be invested
in securities rated within the two highest rating categories by any two
rating agencies (or one, if only one rating agency has rated the security
or, if unrated, determined by Lutheran Brotherhood to be of comparable
quality), or kept in cash.
PRINCIPAL RISKS. The Money Market Portfolio's principal risks are
those that could affect the yield of its shares. They include those factors
that could cause short-term interest rates to decline, such as a weak
economy, strong equity markets and changes by the Federal Reserve in its
monetary policies. The success of the Portfolio's investment strategy
depends significantly on Lutheran Brotherhood's skill in assessing the
potential of the securities in which the Portfolio invests.
An investment in the Money Market Portfolio is not a bank deposit and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the Money Market Portfolio by showing changes in the
Portfolio's performance from year to year and by showing the Portfolio's
average annual returns for one, five, and ten years. The bar chart and table
include the effects of Portfolio expenses, but not charges or deductions
against your variable contract, and assume that you sold your investment at
the end of the period. Because shares of the Portfolio may be purchased only
through variable life insurance and variable annuity contracts, you should
carefully review the variable contract prospectus for information on
applicable charges and expenses. If the charges and deductions against your
variable contract were included, returns would be lower than those shown.
How a Portfolio has performed in the past is not necessarily an indication
of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1989 9.07%
1990 8.00%
1991 5.89%
1992 3.53%
1993 2.87%
1994 4.00%
1995 5.71%
1996 5.20%
1997 5.43%
1998 5.32%
Best Quarter: Q2 '89 +2.34%
Worst Quarter: Q2 '93 +0.69%
Average Annual Total Returns
(periods ending
December 31, 1998)
-----------------------------
1-Year 5-Years 10-Years
Money Market Portfolio 5.32% 5.13% 5.48%
You may call 1-800-328-4552 to obtain the Portfolio's current 7-day yield.
MANAGEMENT
Lutheran Brotherhood, 625 Fourth Avenue South, Minneapolis, Minnesota
55415, serves as investment adviser for each of the Portfolios. Lutheran
Brotherhood and its wholly-owned subsidiary, Lutheran Brotherhood Research
Corp., have been in the investment advisory business since 1970 and managed
over $23.4 billion in assets as of December 31, 1998, including $11.4
billion in mutual fund assets. Lutheran Brotherhood provides investment
research and supervision of the Portfolios' investments. The following
individuals are responsible for the day-to-day management of the Portfolios.
MID CAP GROWTH PORTFOLIO
Brian L. Thorkelson, Portfolio Manager of Lutheran Brotherhood, has
been the portfolio manager of the Mid Cap Growth Portfolio since its
inception in 1998. Mr. Thorkelson has been with Lutheran Brotherhood since
1987, and previously served as a securities analyst.
GROWTH PORTFOLIO
Scott A. Vergin, Portfolio Manager of Lutheran Brotherhood, has been
the portfolio manager of the Growth Portfolio since 1994. Mr. Vergin has
been with Lutheran Brotherhood since 1984.
HIGH YIELD PORTFOLIO
Thomas N. Haag, Assistant Vice President of Lutheran Brotherhood, has
been the portfolio manager of the High Yield Portfolio since 1992. Mr. Haag
has been with Lutheran Brotherhood since 1986.
INCOME PORTFOLIO
Charles E. Heeren, Vice President of Lutheran Brotherhood, has been the
portfolio manager of the Income Portfolio since 1987. Mr. Heeren has been
with Lutheran Brotherhood since 1976.
MONEY MARKET PORTFOLIO
Gail R. Onan, Portfolio Manager of Lutheran Brotherhood, has been the
portfolio manager of the Money Market Portfolio since 1994. Ms. Onan
has been with Lutheran Brotherhood since 1986.
OPPORTUNITY GROWTH PORTFOLIO
Lutheran Brotherhood engaged T. Rowe Price as investment sub-adviser
for the Opportunity Growth Portfolio effective May 1, 1998. T. Rowe Price
was founded in 1937 and has its principal office at 100 East Pratt Street,
Baltimore, Maryland 21202. As of December 31, 1998, T. Rowe Price and its
affiliates managed approximately $148 billion. Richard T. Whitney, Managing
Director of T. Rowe Price, is primarily responsible for day-to-day
management of the Opportunity Growth Portfolio and for developing and
executing the Portfolio's investment program.
WORLD GROWTH PORTFOLIO
Lutheran Brotherhood has engaged Price-Fleming, 100 East Pratt Street,
Baltimore, Maryland 21202, as investment sub-adviser for the World Growth
Portfolio. Price-Fleming is one of the world's largest international mutual
fund asset managers with the U.S. equivalent of over $32 billion under
management as of December 31, 1998 in its offices in Baltimore, London,
Tokyo, Singapore, Hong Kong, and Buenos Aires. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing
the Portfolio and developing and executing the Portfolio's investment
program.
Lutheran Brotherhood, T. Rowe Price, and Price-Fleming personnel may
invest in securities for their own account pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
During the fiscal year ended December 31, 1998, Lutheran Brotherhood
received the following advisory fees, expressed as a percentage of the
Portfolio's net assets:
Opportunity Growth Porfolio 0.40%
Mid Cap Growth Portfolio 0.40%
World Growth Portfolio 0.85%
Growth Portfolio 0.40%
High Yield Portfolio 0.40%
Income Portfolio 0.40%
Money Market Portfolio 0.40%
THE SEPARATE ACCOUNTS AND THE CONTRACTS
Shares in the LB Series Fund, Inc. ("the Fund") are currently sold,
without sales charges, only to separate accounts of Lutheran Brotherhood and
Lutheran Brotherhood Variable Insurance Products Company ("LBVIP"). These
separate accounts fund benefits of variable life insurance and variable
annuity contracts. A Prospectus for your variable contract accompanies this
Prospectus and describes how you may allocate the premiums and the assets
relating to your variable contract among one or more of the seven
subaccounts which correspond to the Portfolios of the Fund.
The separate accounts of Lutheran Brotherhood and LBVIP place a single
order to buy or sell shares of each Portfolio each business day. The
separate accounts calculate the amount of the order based on the aggregate
instructions from owners of the variable annuity contracts and variable life
insurance contracts. Instructions received from contract owners before the
close of the New York Stock Exchange ("NYSE")on a given day result in share
purchases and redemptions at the net asset value ("NAV") calculated as of
the close of the NYSE that day.
NET ASSET VALUE
Each Portfolio determines its NAV by adding the value of Portfolio
assets, subtracting the Portfolio's liabilities, and dividing the result by
the number of outstanding shares. The Money Market Portfolio seeks to
maintain a stable $1.00 NAV pursuant to procedures established by the Board
of Directors for the Fund in connection with the amortized cost method of
portfolio valuation. The NAV for the other Portfolios varies with the value
of their investments. The other Portfolios value their securities using
market quotations, other than short-term debt securities maturing in less
than 60 days, which are valued using amortized costs, and securities for
which market quotations are not readily available, which are valued at fair
value.
The Portfolios determine their NAV on each day the NYSE is open for
business, or any other day as required under the rules of the Securities and
Exchange Commission. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
calculation is made as of the close of regular trading of the NYSE
(currently 4:00 p.m. Eastern time) after the Portfolio has declared any
applicable dividends. Because foreign securities markets are open on
different days from U.S. markets, there may be instances when the value of a
Portfolio's investment in foreign securities changes on days when you are
not able to change the allocation in your variable contract.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions of each Portfolio will be
reinvested in additional full and fractional shares of that Portfolio.
Dividends. Dividends are declared and paid as follows:
- declared daily and paid monthly Money Market Portfolio
High Yield Portfolio
Income Portfolio
- declared and paid quarterly Growth Portfolio
- declared and paid annually Opportunity Growth Portfolio
Mid Cap Growth Portfolio
World Growth Portfolio
Income dividends are derived from investment income, including
dividends, interest, realized short-term capital gains, and certain foreign
currency gains received by a Portfolio.
Capital Gains. Capital gains distributions, if any, will usually be
declared in February.
Contract owners should review the documents pertaining to their
variable annuity and variable life insurance contracts for information
regarding the personal tax consequences purchasing such a contract.
Under existing tax law, dividends or capital gains distributions from a
Portfolio are not currently taxable to holders of variable annuity and
variable life insurance contracts when left to accumulate within a variable
contract. Depending on the variable contract, withdrawals from the contract
may be subject to ordinary income tax and, in addition, to a 10% penalty tax
on withdrawals before age 59.
OTHER SECURITIES AND INVESTMENT PRACTICES
The principal investment strategies and risk factors of each Portfolio
are outlined beginning on page __. The Portfolios may also invest in other
securities and engage in other practices. Below are brief discussions of
some of these securities, other practices in which certain of the Portfolios
may engage, and their associated risks.
REPURCHASE AGREEMENTS. Each of the Portfolios may buy securities with
the understanding that the seller will buy them back with interest at a
later date. If the seller is unable to honor its commitment to repurchase
the securities, the Portfolio could lose money.
WHEN-ISSUED SECURITIES. Each Portfolio may invest in securities prior
to their date of issue. These securities could fall in value by the time
they are actually issued, which may be any time from a few days to over a
year.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The High Yield Portfolio,
Income Portfolio, and Money Market Portfolio may invest in mortgage-backed
and asset-backed securities. Mortgage-backed securities are securities that
are backed by pools of mortgages and which pay income based on the payments
of principal and income they receive from the underlying mortgages. Asset-
backed securities are similar but are backed by other assets, such as pools
of consumer loans. Both are sensitive to interest rate changes as well as
to changes in the redemption patterns of the underlying securities. If the
principal payment on the underlying asset is repaid faster or slower than
the holder of the mortgage-backed or asset-backed security anticipates, the
price of the security may fall, especially if the holder must reinvest the
repaid principal at lower rates or must continue to hold the securities when
interest rates rise.
ZERO COUPONS. Each of the Portfolios may invest in zero coupon
securities. A zero coupon security is a debt security that is purchased and
traded at discount to its face value because it pays no interest for some or
all of its life. Interest, however, is reported as income to the Portfolio
that has purchased the security and the Portfolio is required to distribute
to shareholders an amount equal to the amount reported. Those distributions
may require the Portfolio to liquidate portfolio securities at a
disadvantageous time.
FOREIGN SECURITIES. Each of the Portfolios may invest in foreign
securities. Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic
risks, lack of reliable information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries. Each of
these Portfolios except the Money Market Portfolio may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell than
comparable U.S. securities because the markets for foreign securities are
less efficient. Even where a foreign security increases in price in its
local currency, the appreciation may be diluted by the negative effect of
exchange rates when the security's value is converted to U.S. dollars.
Foreign withholding taxes also may apply and errors and delays may occur in
the settlement process for foreign securities.
RESTRICTED AND ILLIQUID SECURITIES. Each of the Portfolios may invest
in restricted or illiquid securities. Any securities that are thinly traded
or whose resale is restricted can be difficult to sell at a desired time and
price. Some of these securities are new and complex, and trade only among
institutions. The markets for these securities are still developing and may
not function as efficiently as established markets. Owning a large
percentage of restricted or illiquid securities could hamper a Portfolio's
ability to raise cash to meet redemptions. Also, because there may not be
an established market price for these securities, the Portfolio may have to
estimate their value, which means that their valuation (and, to a much
smaller extent, the valuation of the Portfolio) may have a subjective
element.
SECURIITES LENDING. Each of the Portfolios except the Money Market
Portfolio may seek additional income by lending securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, a Portfolio could realize additional gains or losses. If the
borrower fails to return the securities and the invested collateral has
declined in value, the Portfolio could lose money.
DERIVATIVES. Each of the Portfolios except the Money Market Portfolio
may invest in derivatives. Derivatives, a category that includes options
and futures, are financial instruments whose value derives from another
security, an index or a currency. Each Portfolio may use derivatives for
hedging (attempting to offset a potential loss in one position by
establishing an interest in an opposite position). This includes the use of
currency-based derivatives for hedging its positions in foreign securities.
Each Portfolio may also use derivatives for speculation (investing for
potential income or capital gain).
While hedging can guard against potential risks, it adds to the
Portfolio's expenses and can eliminate some opportunities for gains. There
is also a risk that a derivative intended as a hedge may not perform as
expected.
The main risk with derivatives is that some types can amplify a gain or
loss, potentially earning or losing substantially more money than the actual
cost of the derivative.
With some derivatives, whether used for hedging or speculation, there
is also the risk that the counterpart may fail to honor its contract terms,
causing a loss for the Portfolio. In addition, suitable derivative
investments for hedging or speculative purposes may not be available.
HIGH-YIELD BONDS. The Opportunity Growth Portfolio, Mid Cap Growth
Portfolio, World Growth Portfolio, Growth Portfolio, High Yield Portfolio
and Income Portfolio may invest in high-yield bonds. High-yield bonds are
debt securities rated below BBB by S&P or Baa by Moody's. To the extent
that a Portfolio invests in high-yield bonds, it takes on certain risks:
o The risk of a bond's issuer defaulting on principal or interest
payments is greater than on higher quality bonds.
o Issuers of high-yield bonds are less secure financially and are more
likely to be hurt by interest rate increases and declines in the
health of the issuer or the economy.
SHORT-TERM TRADING. The investment strategy for the Opportunity Growth
Portfolio, Mid Cap Growth Portfolio, World Growth Portfolio, Growth
Portfolio, High Yield Portfolio, and Income Portfolio at times may include
short-term trading. While each other Portfolio ordinarily does not trade
securities for short-term profits, it will sell any security at any time it
believes best, which may result in short-term trading. Short-term trading
can increase a Portfolio's transaction costs and may increase your tax
liability.
INTERNATIONAL EXPOSURE. Many U.S. companies in which the Opportunity
Growth Portfolio, Mid Cap Growth Portfolio, World Growth Portfolio, Growth
Portfolio, High Yield Portfolio, and Income Portfolio may invest generate
significant revenues and earnings from abroad. As a result, these companies
and the prices of their securities may be affected by weaknesses in global
and regional economies and the relative value of foreign currencies to the
U.S. dollar. These factors, taken as a whole, could adversely affect the
price of Portfolio shares.
BONDS. The value of any bonds held by a Portfolio is likely to decline
when interest rates rise; this risk is greater for bonds with longer
maturities. A less significant risk is that a bond issuer could default on
principal or interest payments, possibly causing a loss for the Portfolio.
COMPUTER RISKS. Lutheran Brotherhood does not currently anticipate
that computer problems related to the year 2000 or to the conversion of
various European currencies into a single currency, the Euro, will have a
material effect on any Portfolio. However, there can be no assurances in
this area, including the possibility that year 2000 computer problems could
negatively affect communications systems, the investment markets or the
economy in general or that Euro conversion-related computer problems could
negatively affect the European investment markets or the global economy.
SECURITIES RATINGS. When fixed-income securities are rated by one or
more independent rating agencies, a Portfolio uses these ratings to
determine bond quality. Investment grade bonds are those that are rated
within or above the BBB major rating category by S&P or the Baa major rating
category by Moody's, or unrated but considered of equivalent quality by the
Portfolio's adviser. High-yield bonds are below investment grade bonds in
terms of quality.
In cases where a bond is rated in conflicting categories by different
rating agencies, a Portfolio (other than the Money Market Portfolio) may
choose to follow the higher rating. If a bond is unrated, the Portfolio may
assign it to a given category based on its own credit research. If a rating
agency downgrades a security, the Portfolio will determine whether to hold
or sell the security, depending on all of the facts and circumstances at
that time.
DEFENSIVE INVESTING. During unusual market conditions, each Portfolio
(other than the Money Market Portfolio) may place up to 100% of its total
assets in cash or quality short-term debt securities. To the extent that
the Portfolio does this, it is not pursuing its investment objective.
FINANCIAL HIGHLIGHTS
The financial highlights tables for each of the Portfolios are intended
to help you understand the Portfolios' financial performance for the past 5
years or, if shorter, the period of the Portfolios' operations. The total
returns in the tables represent the rate that an investor would have earned
or lost on an investment in a Portfolio (assuming reinvestment of all
dividends and distributions). The returns do not reflect any charges that
would normally occur at the separate account level. This information has
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Portfolios' financial statements, are included in the
Annual Report for Variable Products for the fiscal year ended December 31,
1998, which is available upon request.
<PAGE>
<TABLE>
<CAPTION>
Opportunity Growth Portfolio
- ---------------------------------------------------------------------------------------------------------
For the period from
Year Ended Year Ended 1/18/96 (effective
12/31/98 12/31/97 date) to 12/31/96
-----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.55 $11.50 $10.00
------ ------ ------
Investment Operations -
Net investment income 0.03 0.06 0.02
Net realized and unrealized gain
on investments.(a) (0.37) 0.05 1.90
------ ------ ------
Total from investment operations (0.34) 0.11 1.92
------ ------ ------
Less Distributions From:
Net investment income (0.03) (0.06) (0.02)
Net realized gain on investments (0.12) -- (0.40)
------ ------ ------
Total Distributions (0.15) (0.06) (0.42)
------ ------ ------
Net asset value, end of period 11.06 $11.55 $11.50
====== ====== ======
Total investment return at
net asset value (%) (2.99%) 0.93% 19.17%
Net assets, end of period (in millions) $372.2 $391.5 $246.6
Ratio of expenses to average
net assets (%) 0.40% 0.40% 0.40%(b)
Ratio of net investment income to
average net assets (%) 0.30% 0.65% 0.27%(b)
Portfolio turnover rate (%) 134% 147% 155%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mid Cap Growth Portfolio
- -----------------------------------------------------------------------
For the period from
January 30, 1998
(effective date) to
December 31, 1998
------------------
<S> <C>
Net asset value, beginning of period $10.00
------
Investment Operations -
Net investment income 0.04
Net realized and unrealized gain
on investments.(a) 1.13
------
Total from investment operations 1.17
------
Less Distribution:
Dividends from net investment income (0.04)
------
Net asset value, end of period $11.13
======
Total investment return at
net asset value 11.62%
Net assets, end of period (in millions) $95.7
Ratio of expenses to average
net assets 0.40%(b)
Ratio of net investment income to
average net assets 0.64%(b)
Portfolio turnover rate 125%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
World Growth Portfolio
- ---------------------------------------------------------------------------------------------------------
For the period from
Year Ended Year Ended 1/18/96 (effective
12/31/98 12/31/97 date) to 12/31/96
-----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.12 $10.95 $10.00
------ ------ ------
Investment Operations -
Net investment income 0.12 0.10 0.08
Net realized and unrealized gain
on investments (a) 1.74 0.21 0.96
------ ------ ------
Total from investment operations 1.86 0.31 1.04
------ ------ ------
Less Distributions From:
Net investment income (0.21) (0.13) (0.09)
Net realized gain on investments (0.10) (0.01) --
------ ------ ------
Total Distributions (0.31) (0.14) (0.09)
------ ------ ------
Net asset value, end of period 12.67 $11.12 $10.95
====== ====== ======
Total investment return at
net asset value (%) 16.75% 2.81% 10.41%
Net assets, end of period (in millions) $369.7 $287.2 $174.1
Ratio of expenses to average
net assets (%) 0.85% 0.85% 0.85%(b)
Ratio of net investment income to
average net assets (%) 1.04$ 1.08% 1.34%(b)
Portfolio turnover rate (%) 19% 19% 9%
</TABLE>
<PAGE>
<TABLE>
<CAPTION
Growth Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $21.58 $19.32 $18.27 $13.51 $14.76
------ ------ ------ ------ ------
Investment Operations -
Net investment income 0.19 0.21 0.24 0.24 0.20
Net realized and unrealized gain
on investments.(a) 5.28 4.97 3.43 4.76 (0.87)
------ ------ ------ ----- -----
Total from investment operations 5.47 5.18 3.67 5.00 (0.67)
------ ------ ------ ----- -----
Less Distributions From:
Net investment income (0.19) (0.21) (0.24) (0.24) (0.20)
Net realized gain on investments (3.35) (2.71) (2.38) -- (0.38)
------ ------ ------ ----- -----
Total Distributions (3.54) (2.92) (2.62) (0.24) (0.58)
------ ------ ------ ----- -----
Net asset value, end of period $23.51 $21.58 $19.32 $18.27 $13.51
====== ====== ====== ====== ======
Total investment return at
net asset value (%) 28.38% 30.18% 22.44% 37.25% -4.66%
Net assets, end of period (in millions) $3,320.0 $2,426.1 $1,658.6 $1,173.1 $721.8
Ratio of expenses to average
net assets (%) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets (%) 0.94% 1.11% 1.41% 1.53% 1.52%
Portfolio turnover rate (%) 152% 193% 223% 184% 135%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Yield Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.44 $10.06 $ 9.94 $ 9.18 $10.76
------ ------ ------ ------ ------
Investment Operations -
Net investment income 0.99 0.98 0.98 0.96 0.97
Net realized and unrealized gain
on investments.(a) (1.12) 0.37 0.12 0.76 (1.40)
------ ------ ------ ----- -----
Total from investment operations (0.13) 1.35 1.10 1.72 (0.43)
------ ------ ------ ----- -----
Less Distributions From:
Net investment income (1.00) (0.97) (0.98) (0.96) (0.97)
Net realized gain on investments (0.15) -- -- -- (0.18)
------ ------ ------ ----- -----
Total Distributions (1.15) (0.97) (0.98) (0.96) (1.15)
------ ------ ------ ----- -----
Net asset value, end of period $9.16 $10.44 $10.06 $ 9.94 $ 9.18
====== ====== ====== ====== ======
Total investment return at
net asset value (%) (1.50%) 14.10% 11.55% 19.62% -4.38%
Net assets, end of period (in millions) $1,427.3 $1,344.6 $1,026.7 $792.5 $595.6
Ratio of expenses to average
net assets (%) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets (%) 10.04% 9.58% 9.83% 9.94% 9.75%
Portfolio turnover rate (%) 71% 105% 107% 67% 44%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36
------ ------ ------ ------ ------
Investment Operations -
Net investment income 0.61 0.65 0.63 0.65 0.64
Net realized and unrealized gain
on investments.(a) 0.29 0.17 (0.33) 1.04 (1.11)
------ ------ ------ ----- -----
Total from investment operations 0.90 0.82 0.30 1.69 (0.47)
------ ------ ------ ----- -----
Less Distributions From:
Net investment income (0.61) (0.65) (0.63) (0.65) (0.64)
Net realized gain on investments -- -- -- -- (0.21)
------ ------ ------ ----- -----
Total Distributions (0.61) (0.65) (0.63) (0.65) (0.85)
------ ------ ------ ----- -----
Net asset value, end of period $10.21 $ 9.92 $ 9.75 $10.08 $ 9.04
====== ====== ====== ====== ======
Total investment return at
net asset value (%) 9.37% 8.75% 3.21% 19.36% -4.68%
Net assets, end of period (in millions) $1,074.3 $880.4 $801.2 $762.1 $608.2
Ratio of expenses to average
net assets (%) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets (%) 6.06% 6.68% 6.54% 6.81% 6.78%
Portfolio turnover rate (%) 86% 117% 150% 132% 139%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money Market Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Investment Operations -
Net investment income 0.05 0.05 0.05 0.06 0.04
------ ------ ------ ----- -----
Less Distributions From:
Net investment income (0.05) (0.05) (0.05) (0.06) (0.04)
------ ------ ------ ----- -----
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total investment return at
net asset value (%) 5.32% 5.43% 5.20% 5.71% 4.00%
Net assets, end of period (in millions) $193.8 $121.2 $103.9 $66.1 $41.9
Ratio of expenses to average
net assets (%) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets (%) 5.16% 5.27% 5.07% 5.55% 4.03%
- ----------------------------------------
(a) The amount shown is a balancing figure and may not agree with the change in aggregate gains and losses of
portfolio securities as a result of the timing of sales and redemption of fund shares.
(b) Computed on an annualized basis.
</TABLE>
<PAGE>
[Back cover page]
The Statement of Additional Information which is incorporated by
reference into this Prospectus contains additional information about the
Fund and its Portfolios. Additional information about the Portfolios'
investments is available in the Fund's annual and semi-annual reports for
variable products. In the Fund's annual report, you will find a discussion
of the market conditions and investment strategies that significantly
affected the performance of each of the Portfolios during their last fiscal
year. You may request a free copy of the Statement of Additional
Information, the annual report, or the semi-annual report, or you may make
additional requests or inquiries by calling 1-800-990-6290. You may also
review and copy information about the Portfolios (including the Statement of
Additional Information) at the Public Reference Room of the Securities and
Exchange Commission in Washington, DC. You may get more information about
the Public Reference Room by calling 1-800-SEC-0330. You may also get
information about the Portfolios at the SEC web site (www.sec.gov) or by
mail, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, DC 20549-6009.
1940 Act File No. 811-4603
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LB SERIES FUND, INC.
May 1, 1999
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for LB Series Fund, Inc.
(the "Fund") dated May 1, 1999. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectus. To receive a copy of the Prospectus for the Fund, write to LB
Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota 55415 or
call toll-free (800) 328-4552 for Automated Investor Access Line or (800)
990-6290 to speak with an Investor Representative.
<PAGE>
TABLE OF CONTENTS
PAGE
History of the Fund...................................................
Investment Policies and Restrictions..................................
Fund Management.......................................................
Investment Advisory Services..........................................
Brokerage Transactions................................................
Code of Ethics........................................................
Capital Stock.........................................................
Net Asset Value.......................................................
Tax Status............................................................
Calculation of Performance Data.......................................
Description of Debt Ratings...........................................
Report of Independent Public Accountants and Financial Statements.....
<PAGE>
HISTORY OF THE FUND
The Fund is a diversified open-end management investment company, a
Minnesota corporation organized on February 24, 1986. Prior to January 31,
1994, the Fund was known as LBVIP Series Fund, Inc. The Fund is made up of
seven separate Portfolios: the Opportunity Growth Portfolio, the Mid Cap
Growth Portfolio, the World Growth Portfolio, the Growth Portfolio, the High
Yield Portfolio, the Income Portfolio, and the Money Market Portfolio. Each
Portfolio is in effect a separate investment fund, and a separate class of
capital stock is issued with respect to each Portfolio.
INVESTMENT POLICIES AND RESTRICTIONS
ADDITIONAL INVESTMENT PRACTICES
In addition to those practices stated in the Prospectus, various of the
Portfolios may purchase the following securities or may engage in the
following transactions.
OTHER SECURITIES
The Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, the
World Growth Portfolio, and the Growth Portfolio may each invest in other
types of securities, including bonds, preferred stocks, convertible bonds,
convertible preferred stocks, warrants, American Depository Receipts
(ADR's), and other debt or equity securities. In addition, each of these
Portfolios may invest in U.S. Government securities or cash, and the World
Growth Portfolio may also invest in European Depository Receipts (EDR's) and
the securities of foreign investment trusts and or trusts. At no time will
the Opportunity Growth Portfolio, Mid Cap Growth Portfolio, or World Growth
Portfolio invest more than 5% of its net assets in debt obligations. In
calculating this per cent limitation, cash and U.S. Government securities
are excluded.
The Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, the
World Growth Portfolio, and the Growth Portfolio will not use any minimum
level of credit quality. Debt obligations may be rated less than investment
grade, which is defined as having a quality rating below "Baa", as rated by
Moody's Investors Service, Inc. ("Moody's"), or below "BBB", as rated by
Standard & Poor's Corporation ("S&P"). For a description of Moody's and
S&P's ratings, see "Description of Debt Ratings". Securities rated below
investment grade (sometimes referred to as "high yield" or "junk bonds") are
considered to be speculative and involve certain risks, including a higher
risk of default and greater sensitivity to interest rate and economic
changes.
The High Yield Portfolio and the Income Portfolio may also invest in
common stocks, warrants to purchase stocks, bonds or preferred stocks
convertible into common stock, and other equity securities. No more than 20%
of the High Yield Portfolio's assets will be invested in equity securities.
No more than 10% of the Income Portfolio's assets will be invested in common
stocks and no more than 25% of its assets will be invested in high yield
securities, common stocks, and bonds and preferred stocks that are
convertible into common stock.
BANK INSTRUMENTS
The Money Market Portfolio may invest in bank instruments including,
but not limited to, certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are generally short-term (i.e., less than
one year), interest-bearing negotiable certificates issued by commercial
banks or savings and loan associations against funds deposited in the
issuing institution. A banker's acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage
of goods). A banker's acceptance may be obtained from a domestic or foreign
bank including a U.S. branch or agency of a foreign bank. The borrower is
liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances
have maturities of six months or less and are traded in secondary markets
prior to maturity. Time deposits are non-negotiable deposits for a fixed
period of time at a stated interest rate.
U.S. branches of foreign banks are offices of foreign banks and are not
separately incorporated entities. They are chartered and regulated either
federally or under state law. U.S. federal branches of foreign banks are
chartered and regulated by the Comptroller of the Currency, while state
branches and agencies are chartered and regulated by authorities of the
respective state or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however,
not all such branches elect FDIC insurance. U.S. branches of foreign banks
can maintain credit balances, which are funds received by the office
incidental to or arising out of the exercise of their banking powers and can
exercise other commercial functions, such as lending activities.
Investing in foreign branches of U.S. banks and U.S. branches of
foreign banks may involve risks. These risks may include future unfavorable
political and economic developments, possible withholding or confiscatory
taxes, seizure of foreign deposits, currency controls, interest limitations
and other governmental restrictions that might affect payment of principal
or interest, and possible difficulties pursuing or enforcing claims against
banks located outside the U.S. Additionally, foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory requirements and practices comparable to U.S.
issuers, and there may be less public information available about foreign
banks and their branches and agencies.
REPURCHASE AGREEMENTS
Each of the Portfolios may engage in repurchase agreement transactions
in pursuit of its investment objective. A repurchase agreement consists of a
purchase and a simultaneous agreement to resell for later delivery at an
agreed upon price and rate of interest U.S. Government obligations. The
Portfolio or its custodian will take possession of the obligations subject
to a repurchase agreement. If the original seller of a security subject to a
repurchase agreement fails to repurchase the security at the agreed upon
time, the Portfolio could incur a loss due to a drop in the market value of
the security during the time it takes the Portfolio to either sell the
security or take action to enforce the original seller's agreement to
repurchase the security. Also, if a defaulting original seller filed for
bankruptcy or became insolvent, disposition of such security might be
delayed by pending court action. The Portfolio may only enter into
repurchase agreements with banks and other recognized financial institutions
such as broker/dealers which are found by Lutheran Brotherhood (or a sub-
adviser) to be creditworthy.
RESTRICTED SECURITIES
The Portfolios may buy or sell restricted securities, including
securities that meet the requirements of Rule 144A under the Securities Act
of 1933 ("Rule 144A Securities"). Securities may be resold pursuant to Rule
144A under certain circumstances only to qualified institutional buyers as
defined in the rule, and the markets and trading practices for such
securities are relatively new and still developing; depending on the
development of such markets, such Rule 144A Securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the
Directors. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, market making activity, and
the nature of the security and marketplace trades. Investments in Rule 144A
Securities could have the effect of increasing the level of a Portfolio's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, a Portfolio may be
adversely impacted by the subjective valuation of such securities in the
absence of an active market for them. Restricted securities that are not
resalable under Rule 144A may be subject to risks of illiquidity and
subjective valuations to a greater degree than Rule 144A securities.
REVERSE REPURCHASE AGREEMENTS
Each of the Portfolios also may enter into reverse repurchase
agreements, which are similar to borrowing cash. A reverse repurchase
agreement is a transaction in which the Portfolio transfers possession of a
portfolio instrument to another person, such as a financial institution,
broker or dealer, in return for a percentage of the instrument's market
value in cash, with an agreement that at a stipulated date in the future the
Portfolio will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Portfolio to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but
the ability to enter into reverse repurchase agreements does not assure that
the Portfolio will be able to avoid selling portfolio instruments at a
disadvantageous time. The Portfolio will engage in reverse repurchase
agreements which are not in excess of 60 days to maturity and will do so to
avoid borrowing cash and not for the purpose of investment leverage or to
speculate on interest rate changes. When effecting reverse repurchase
agreements, assets of the Portfolio in a dollar amount sufficient to make
payment of the obligations to be purchased are segregated on the Portfolio's
records at the trade date and maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Portfolios may purchase securities on a when-issued and
delayed delivery basis. When-issued and delayed delivery transactions arise
when U.S. Government obligations and other types of securities are bought by
the Portfolio with payment and delivery taking place in the future. The
settlement dates of these transactions, which may be a month or more after
entering into the transaction, are determined by mutual agreement of the
parties. There are no fees or other expenses associated with these types of
transactions other than normal transaction costs. To the extent a Portfolio
engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring portfolio instruments consistent with its
investment objective and policies and not for the purpose of investment
leverage or to speculate on interest rate changes. On the settlement date,
the value of such instruments may be less than the cost thereof. When
effecting when-issued and delayed delivery transactions, cash, cash
equivalents or high grade debt obligations of a dollar amount sufficient to
make payment for the obligations to be purchased will be segregated at the
trade date and maintained until the transaction has been settled.
LENDING SECURITIES (ALL PORTFOLIOS EXCEPT THE MONEY MARKET PORTFOLIO)
Consistent with applicable regulatory requirements, each of the
Portfolios may from time to time lend the securities it holds to broker-
dealers, provided that such loans are made pursuant to written agreements
and are continuously secured by collateral in the form of cash, U.S.
Government securities, irrevocable standby letters of credit or other liquid
securities in an amount at all times equal to at least the market value of
the loaned securities plus the accrued interest and dividends. For the
period during which the securities are on loan, the lending Portfolio will
be entitled to receive the interest and dividends, or amounts equivalent
thereto, on the loaned securities and a fee from the borrower or interest on
the investment of the cash collateral. The right to terminate the loan will
be given to either party subject to appropriate notice. Upon termination of
the loan, the borrower will return to the Portfolio securities identical to
the loaned securities.
The primary risk in lending securities is that the borrower may become
insolvent on a day on which the loaned security is rapidly increasing in
value. In such event, if the borrower fails to return the loaned security,
the existing collateral might be insufficient to purchase back the full
amount of the security loaned, and the borrower would be unable to furnish
additional collateral. The borrower would be liable for any shortage, but
the lending Portfolio would be an unsecured creditor with respect to such
shortage and might not be able to recover all or any thereof. However, this
risk may be minimized by a careful selection of borrowers and securities to
be lent and by monitoring collateral.
No Portfolio will lend securities to broker-dealers affiliated with
Lutheran Brotherhood or a sub-adviser. Lutheran Brotherhood believes that
this will not affect the Portfolio's ability to maximize its securities
lending opportunities. No Portfolio may lend any security or make any other
loan if, as a result, more than one-third of its total assets would be lent
to other parties.
PUT AND CALL OPTIONS (ALL PORTFOLIOS EXCEPT THE MONEY MARKET PORTFOLIO)
Selling ("Writing" Covered Call Options: Certain of the Portfolios may
from time to time sell ("write") covered call options on any portion of its
investments as a hedge to provide partial protection against adverse
movements in prices of securities in those Portfolios and, subject to the
limitations described below, for the non- hedging purpose of attempting to
create additional income. A call option gives the buyer of the option, upon
payment of a premium, the right to call upon the writer to deliver a
specified amount of a security on or before a fixed date at a predetermined
("strike") price. As the writer of a call option, a Portfolio assumes the
obligation to deliver the underlying security to the holder of the option on
demand at the strike price.
If the price of a security hedged by a call option falls below or
remains below the strike price of the option, a Portfolio will generally not
be called upon to deliver the security. A Portfolio will, however, retain
the premium received for the option as additional income, offsetting all or
part of any decline in the value of the security. If the price of a hedged
security rises above or remains above the strike price of the option, the
Portfolio will generally be called upon to deliver the security. In this
event, a Portfolio limits its potential gain by limiting the value it can
receive from the security to the strike price of the option plus the option
premium.
Buying Call Options: Certain of the Portfolios may also from time to
time purchase call options on securities in which those Portfolios may
invest. As the holder of a call option, a Portfolio has the right to
purchase the underlying security or currency at the exercise price at any
time during the option period (American style) or at the expiration of the
option (European style). A Portfolio generally will purchase such options as
a hedge to provide protection against adverse movements in the prices of
securities which the Portfolio intends to purchase. In purchasing a call
option, a Portfolio would realize a gain if, during the option period, the
price of the underlying security increased by more than the amount of the
premium paid. A Portfolio would realize a loss equal to all or a portion of
the premium paid if the price of the underlying security decreased, remained
the same, or did not increase by more than the premium paid.
Buying Put Options: Certain of the Portfolios may from time to time
purchase put options on any portion of its investments. A put option gives
the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of a security to the writer of the option on or before a
fixed date at a predetermined ("strike") price. A Portfolio generally will
purchase such options as a hedge to provide protection against adverse
movements in the prices of securities in the Portfolio. In purchasing a put
option, a Portfolio would realize a gain if, during the option period, the
price of the security declined by an amount in excess of the premium paid. A
Portfolio would realize a loss equal to all or a portion of the premium paid
if the price of the security increased, remained the same, or did not
decrease by more than the premium paid.
Options on Foreign Currencies: The World Growth Portfolio may also
write covered call options and purchase put and call options on foreign
currencies as a hedge against changes in prevailing levels of currency
exchange rates.
Selling Put Options: The Portfolios may not sell put options, except in
the case of a closing purchase transaction (see Closing Transactions).
Index Options: As part of its options transactions, certain of the
Portfolios may also purchase and sell call options and purchase put options
on stock and bond indices. Options on securities indices are similar to
options on a security except that, upon the exercise of an option on a
securities index, settlement is made in cash rather than in specific
securities.
Closing Transactions: Certain of the Portfolios may dispose of options
which they have written by entering into "closing purchase transactions".
Those Portfolios may dispose of options which they have purchased by
entering into "closing sale transactions". A closing transaction terminates
the rights of a holder, or the obligation of a writer, of an option and does
not result in the ownership of an option.
A Portfolio realizes a profit from a closing purchase transaction if
the premium paid to close the option is less than the premium received by
the Portfolio from writing the option. The Portfolio realizes a loss if the
premium paid is more than the premium received. The Portfolio may not enter
into a closing purchase transaction with respect to an option it has written
after it has been notified of the exercise of such option.
A Portfolio realizes a profit from a closing sale transaction if the
premium received to close out the option is more than the premium paid for
the option. A Portfolio realizes a loss if the premium received is less than
the premium paid.
Spreads and Straddles: Certain of the Portfolios may also engage in
"straddle" and "spread" transactions in order to enhance return, which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call and a put option on the same underlying security, each with the same
exercise price and expiration date. A spread is a combination of two or more
call options or put options on the same security with differing exercise
prices or times to maturity. The particular strategies employed by a
Portfolio will depend on Lutheran Brotherhood's or the Sub-adviser's
perception of anticipated market movements.
Negotiated Transactions: Certain of the Portfolios will generally
purchase and sell options traded on a national securities or options
exchange. Where options are not readily available on such exchanges, a
Portfolio may purchase and sell options in negotiated transactions. A
Portfolio effects negotiated transactions only with investment dealers and
other financial institutions deemed creditworthy by its investment adviser.
Despite the investment adviser's or sub-adviser's best efforts to enter into
negotiated options transactions with only creditworthy parties, there is
always a risk that the opposite party to the transaction may default in its
obligation to either purchase or sell the underlying security at the agreed
upon time and price, resulting in a possible loss by the Portfolio. This
risk is described more completely in the section of this Statement of
Additional Information entitled, "Risks of Transactions in Options and
Futures". Options written or purchased by a Portfolio in negotiated
transactions are illiquid and there is no assurance that a Portfolio will be
able to effect a closing purchase or closing sale transaction at a time when
its investment adviser or sub-adviser believes it would be advantageous to
do so. In the event the Portfolio is unable to effect a closing transaction
with the holder of a call option written by the Portfolio, the Portfolio may
not sell the security underlying the option until the call written by the
Portfolio expires or is exercised.
Limitations: A Portfolio will not purchase any option if, immediately
thereafter, the aggregate cost of all outstanding options purchased and held
by the Portfolio would exceed 5% of the market value of the Portfolio's
total assets.
FINANCIAL FUTURES AND OPTIONS ON FUTURES (ALL PORTFOLIOS EXCEPT THE MONEY
MARKET PORTFOLIO)
Selling Futures Contracts: Certain of the Portfolios may sell financial
futures contracts ("futures contracts") as a hedge against adverse movements
in the prices of securities in those Portfolios. Such contracts may involve
futures on items such as U.S. Government Treasury bonds, notes and bills,
government mortgage-backed securities; corporate and municipal bond indices;
and stock indices. A futures contract sale creates an obligation for the
Portfolio, as seller, to deliver the specific type of instrument called for
in the contract at a specified future time for a specified price. In selling
a futures contract, the Portfolio would realize a gain on the contract if,
during the contract period, the price of the securities underlying the
futures contract decreased. Such a gain would be expected to approximately
offset the decrease in value of the same or similar securities in the
Portfolio. The Portfolio would realize a loss if the price of the securities
underlying the contract increased. Such a loss would be expected to
approximately offset the increase in value of the same or similar securities
in the Portfolio.
Futures contracts have been designed by and are traded on boards of
trade which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC"). These boards of trade, through their clearing
corporations, guarantee performance of the contracts. Although the terms of
some financial futures contracts specify actual delivery or receipt of
securities, in most instances these contracts are closed out before the
settlement due date without the making or taking of delivery of the
securities. Other financial futures contracts, such as futures contracts on
a securities index, by their terms call for cash settlements. The closing
out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
When a Portfolio sells a futures contract, or a call option on a
futures contract, it is required to make payments to the commodities broker
which are called "margin" by commodities exchanges and brokers.
The payment of "margin" in these transactions is different than
purchasing securities "on margin". In purchasing securities "on margin" an
investor pays part of the purchase price in cash and receives an extension
of credit from the broker, in the form of a loan secured by the securities,
for the unpaid balance. There are two categories of "margin" involved in
these transactions: initial margin and variation margin. Initial margin does
not represent a loan between a Portfolio and its broker, but rather is a
"good faith deposit" by a Portfolio to secure its obligations under a
futures contract or an option. Each day during the term of certain futures
transactions, a Portfolio will receive or pay "variation margin" equal to
the daily change in the value of the position held by the Portfolio.
Buying Futures Contracts: Certain of the Portfolios may purchase
financial futures contracts as a hedge against adverse movements in the
prices of securities which they intend to purchase. The Opportunity Growth
and World Growth Portfolios may buy and sell futures contracts for a number
of reasons, including to manage their exposure to changes in securities
prices and foreign currencies as an efficient means of adjusting their
overall exposure to certain markets in an effort to enhance income; and to
protect the value of portfolio securities. A futures contract purchase
creates an obligation by a Portfolio, as buyer, to take delivery of the
specific type of instrument called for in the contract at a specified future
time for a specified price. In purchasing a futures contract, a Portfolio
would realize a gain if, during the contract period, the price of the
securities underlying the futures contract increased. Such a gain would
approximately offset the increase in cost of the same or similar securities
which a Portfolio intends to purchase. A Portfolio would realize a loss if
the price of the securities underlying the contract decreased. Such a loss
would approximately offset the decrease in cost of the same or similar
securities which a Portfolio intends to purchase.
Options on Futures Contracts: Certain of the Portfolios may also sell
("write") covered call options on futures contracts and purchase put and
call options on futures contracts in connection with the above strategies. A
Portfolio may not sell put options on futures contracts. An option on a
futures contract gives the buyer of the option, in return for the premium
paid for the option, the right to assume a position in the underlying
futures contract (a long position if the option is a call and a short
position if the option is a put). The writing of a call option on a futures
contract constitutes a partial hedge against declining prices of securities
underlying the futures contract to the extent of the premium received for
the option. The purchase of a put option on a futures contract constitutes a
hedge against price declines below the exercise price of the option and net
of the premium paid for the option. The purchase of a call option
constitutes a hedge, net of the premium, against an increase in cost of
securities which a Portfolio intends to purchase.
Currency Futures Contracts and Options: The World Growth Portfolio may
also sell and purchase currency futures contracts (or options thereon) as a
hedge against changes in prevailing levels of currency exchange rates. Such
contracts may be traded on U.S. or foreign exchanges. The Portfolio will not
use such contracts or options for leveraging purposes.
Limitations: Certain of the Portfolios may engage in futures
transactions, and transactions involving options on futures, only on
regulated commodity exchanges or boards of trade. A Portfolio will not enter
into a futures contract or purchase or sell related options if immediately
thereafter (a) the sum of the amount of initial margin deposits on the
Portfolio's existing futures and related options positions and premiums paid
for options with respect to futures and options used for non-hedging
purposes would exceed 5% of the market value of the Portfolio's total assets
or (b) the sum of the then aggregate value of open futures contracts sales,
the aggregate purchase prices under open futures contract purchases, and the
aggregate value of futures contracts subject to outstanding options would
exceed 30% of the market value of the Portfolio's total assets. In addition,
in instances involving the purchase of futures contracts or call options
thereon, a Portfolio will maintain cash or cash equivalents, less any
related margin deposits, in an amount equal to the market value of such
contracts. "Cash and cash equivalents" may include cash, government
securities, or liquid high quality debt obligations.
HYBRID INVESTMENTS (ALL PORTFOLIOS EXCEPT THE MONEY MARKET PORTFOLIO)
As part of its investment program and to maintain greater flexibility,
the Portfolios may invest in hybrid instruments (a potentially high risk
derivative) which have the characteristics of futures, options and
securities. Such instruments may take a variety of forms, such as debt
instruments with interest or principal payments determined by reference to
the value of a currency, security index or commodity at a future point in
time. The risks of such investments would reflect both the risks of
investing in futures, options, currencies and securities, including
volatility and illiquidity. Under certain conditions, the redemption value
of a hybrid instrument could be zero. In addition, because the purchase and
sale of hybrid instruments could take place in an over-the-counter market or
in a private transaction between the Portfolio and the seller of the hybrid
instrument, the creditworthiness of the contra party to the transaction
would be a risk factor which the Portfolio would have to consider. Hybrid
Instruments also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the trading of
commodity futures by U.S. persons, the SEC, which regulates the offer and
sale of securities by and to U.S. persons, or any other governmental
regulatory authority. None of the Portfolios expect to hold more than 5% of
its total assets in hybrid instruments.
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES
There are certain risks involved in the use of futures contracts,
options on securities and securities index options, and options on futures
contracts, as hedging devices. There is a risk that the movement in the
prices of the index or instrument underlying an option or futures contract
may not correlate perfectly with the movement in the prices of the assets
being hedged. The lack of correlation could render a Portfolio's hedging
strategy unsuccessful and could result in losses. The loss from investing in
futures transactions is potentially unlimited.
There is a risk that Lutheran Brotherhood or a sub-adviser could be
incorrect in their expectations about the direction or extent of market
factors such as interest rate movements. In such a case a Portfolio would
have been better off without the hedge. In addition, while the principal
purpose of hedging is to limit the effects of adverse market movements, the
attendant expense may cause a Portfolio's return to be less than if hedging
had not taken place. The overall effectiveness of hedging therefore depends
on the expense of hedging and Lutheran Brotherhood's or a Portfolio's sub-
adviser's accuracy in predicting the future changes in interest rate levels
and securities price movements.
A Portfolio will generally purchase and sell options traded on a
national securities or options exchange. Where options are not readily
available on such exchanges a Portfolio may purchase and sell options in
negotiated transactions. When a Portfolio uses negotiated options
transactions it will seek to enter into such transactions involving only
those options and futures contracts for which there appears to be an active
secondary market. There is nonetheless no assurance that a liquid secondary
market such as an exchange or board of trade will exist for any particular
option or futures contract at any particular time. If a futures market were
to become unavailable, in the event of an adverse movement, a Portfolio
would be required to continue to make daily cash payments of maintenance
margin if it could not close a futures position. If an options market were
to become unavailable and a closing transaction could not be entered into,
an option holder would be able to realize profits or limit losses only by
exercising an option, and an option writer would remain obligated until
exercise or expiration. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading
if a contract's price moves upward or downward more than the limit in a
given day. On volatile trading days when the price fluctuation limit is
reached or a trading halt is imposed, it may be impossible for a Portfolio
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a Portfolio to continue to hold a
position until delivery or expiration regardless of changes in its value. As
a result, a Portfolio's access to other assets held to cover its options or
futures positions could also be impaired.
When conducting negotiated options transactions there is a risk that
the opposite party to the transaction may default in its obligation to
either purchase or sell the underlying security at the agreed upon time and
price. In the event of such a default, a Portfolio could lose all or part of
the benefit it would otherwise have realized from the transaction, including
the ability to sell securities it holds at a price above the current market
price or to purchase a security from another party at a price below the
current market price.
Finally, if a broker or clearing member of an options or futures
clearing corporation were to become insolvent, a Portfolio could experience
delays and might not be able to trade or exercise options or futures
purchased through that broker or clearing member. In addition, a Portfolio
could have some or all of its positions closed out without its consent. If
substantial and widespread, these insolvencies could ultimately impair the
ability of the clearing corporations themselves.
SHORT SALES AGAINST THE BOX
The Portfolios may effect short sales, but only if such transactions
are short sale transactions known as short sales "against the box". A short
sale is a transaction in which a Portfolio sells a security it does not own
by borrowing it from a broker, and consequently becomes obligated to replace
that security. A short sale against the box is a short sale where a
Portfolio owns the security sold short or has an immediate and unconditional
right to acquire that security without additional cash consideration upon
conversion, exercise or exchange of options with respect to securities held
in its portfolio. The effect of selling a security short against the box is
to insulate that security against any future gain or loss.
FOREIGN FUTURES AND OPTIONS
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of
a foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade,
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may be
liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, customers
who trade foreign futures or foreign options contracts may not be afforded
certain of the protective measures provided by the Commodity Exchange Act,
the CFTC's regulations and the rules of the National Futures Association and
any domestic exchange, including the right to use reparations proceedings
before the Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In particular, funds
received from customers for foreign futures or foreign options transactions
may not be provided the same protections as funds received in respect of
transactions on United States futures exchanges. In addition, the price of
any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the
foreign exchange rate between the time an order is placed and the time it is
liquidated, offset or exercised.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign Currency Warrants. Foreign currency warrants are warrants which
entitle the holder to receive from their issuer an amount of cash
(generally, for warrants issued in the United States, in U.S. dollars) which
is calculated pursuant to a predetermined formula and based on the exchange
rate between a specified foreign currency and the U.S. dollar as of the
exercise date of the warrant. Foreign currency warrants generally are
exercisable upon their issuance and expire as of a specified date and time.
Foreign currency warrants have been issued in connection with U.S. dollar-
denominated debt offerings by major corporate issuers in an attempt to
reduce the foreign currency exchange risk which, from the point of view of
prospective purchasers of the securities, is inherent in the international
fixed-income marketplace. Foreign currency warrants may attempt to reduce
the foreign exchange risk assumed by purchasers of a security by, for
example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or
depreciates against the particular foreign currency to which the warrant is
linked or indexed). Foreign currency warrants are severable from the debt
obligations with which they may be offered, and may be listed on exchanges.
Foreign currency warrants may be exercisable only in certain minimum
amounts, and an investor wishing to exercise warrants who possesses less
than the minimum number required for exercise may be required either to sell
the warrants or to purchase additional warrants, thereby incurring
additional transaction costs. In the case of any exercise of warrants, there
may be a time delay between the time a holder of warrants gives instructions
to exercise and the time the exchange rate relating to exercise is
determined, during which time the exchange rate could change significantly,
thereby affecting both the market and cash settlement values of the warrants
being exercised. The expiration date of the warrants may be accelerated if
the warrants should be delisted from an exchange or if their trading should
be suspended permanently, which would result in the loss of any remaining
"time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of
the warrants. Warrants are generally unsecured obligations of their issuers
and are not standardized foreign currency options issued by the Options
Clearing Corporation ("OCC"). Unlike foreign currency options issued by OCC,
the terms of foreign exchange warrants generally will not be amended in the
event of governmental or regulatory actions affecting exchange rates or in
the event of the imposition of other regulatory controls affecting the
international currency markets. The initial public offering price of foreign
currency warrants is generally considerably in excess of the price that a
commercial user of foreign currencies might pay in the interbank market for
a comparable option involving significantly larger amounts of foreign
currencies. Foreign currency warrants are subject to significant foreign
exchange risk, including risks arising from complex political or economic
factors.
Principal Exchange Rate Linked Securities. Principal exchange rate
linked securities are debt obligations the principal on which is payable at
maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The
return on "standard" principal exchange rate linked securities is enhanced
if the foreign currency to which the security is linked appreciates against
the U.S. dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted
by increases in the value of foreign currency. Interest payments on the
securities are generally made in U.S. dollars at rates that reflect the
degree of foreign currency risk assumed or given up by the purchaser of the
notes (i.e., at relatively higher interest rates if the purchaser has
assumed some of the foreign exchange risk, or relatively lower interest
rates if the issuer has assumed some of the foreign exchange risk, based on
the expectations of the current market). Principal exchange rate linked
securities may in limited cases be subject to acceleration of maturity
(generally, not without the consent of the holders of the securities), which
may have an adverse impact on the value of the principal payment to be made
at maturity.
Performance Indexed Paper. Performance indexed paper is U.S. dollar-
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on performance indexed
paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is
below, and a potential maximum rate of return that is above, market yields
on U.S. dollar-denominated commercial paper, with both the minimum and
maximum rates of return on the investment corresponding to the minimum and
maximum values of the spot exchange rate two business days prior to
maturity.
TEMPORARY DEFENSIVE INVESTMENTS
The Opportunity Growth Portfolio, Mid Cap Growth Portfolio, World
Growth Portfolio, Growth Portfolio, High Yield Portfolio, and Income
Portfolio may hold up to 100% of their assets in cash or short-term debt
securities for temporary defensive position when, in the opinion of Lutheran
Brotherhood or a Portfolio's sub-adviser such a position is more likely to
provide protection against unfavorable market conditions than adherence to
the Portfolios' other investment policies. The types of short-term
instruments in which the Portfolios may invest for such purposes include
short-term money market securities such as repurchase agreements and
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, Eurodollar certificates of
deposit, commercial paper and banker's acceptances issued by domestic and
foreign corporations and banks. When investing in short-term money market
obligations for temporary defensive purposes, a Portfolio will invest only
in securities rated at the time of purchase Prime-1 or Prime-2 by Moody's,
A-1 or A-2 by S&P, F-1 or F-2 by Fitch Investors Service, Inc., or unrated
instruments that are determined by Lutheran Brotherhood or the Sub-adviser
to be of a comparable level of quality. When a Portfolio adopts a temporary
defensive position its investment objective may not be achieved.
PORTFOLIO TURNOVER RATE
The rate of portfolio turnover in the Portfolios will not be a limiting
factor when Lutheran Brotherhood or the Sub-adviser deems changes in a
Portfolio's assets appropriate in view of its investment objectives. As a
result, while a Portfolio will not purchase or sell securities solely to
achieve short term trading profits, a Portfolio may sell securities without
regard to the length of time held if consistent with the Portfolio's
investment objective. A higher degree of equity trading activity will
increase brokerage costs to a Portfolio. The portfolio turnover rate is
computed by dividing the dollar amount of securities purchased or sold
(whichever is smaller) by the average value of securities owned during the
year. Short-term investments such as commercial paper and short-term U.S.
Government securities are not considered when computing the turnover rate.
For the last three fiscal years, the portfolio turnover rates of the
Opportunity Growth Portfolio, Mid Cap Growth Portfolio, World Growth
Portfolio, Growth Portfolio, High Yield Portfolio, and Income Portfolio were
as follows:
12/31/98 12/31/97 12/31/96
Opportunity Growth Portfolio 134% 147% 155%
Mid Cap Growth Portfolio 125% -- --
World Growth Portfolio 19% 19% 9%
Growth Portfolio 152% 193% 223%
High Yield Portfolio 71% 105% 107%
Income Portfolio 86% 117% 150%
COMPUTER RELATED RISKS
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may
be adversely affected by computer systems (whether their own systems or
systems of their service providers) that do not properly process dates
beginning with January 1, 2000 and information related to those dates. In
addition, many funds and other companies, especially those funds and
companies that do business in one or more national currencies of the
countries in the European Union (the "EU"), may be adversely affected by
computer systems that cannot accommodate concurrent references to two
currencies, the national currency and the euro (the proposed currency unit
of the EU). Beginning on January 1, 1999 and for the three years
thereafter, businesses and governments in most EU countries generally must
be prepared to conduct their businesses in their national currency and the
euro. After such three-year period, they must conduct their businesses only
in the euro.
The euro conversion presents additional risks for the World Growth
Portfolio and the Opportunity Growth Portfolio to the extent that they
invest in securities denominated in a national currency that eventually will
be replaced by the euro. For example, trading, accounting and other
administrative systems must be able to reflect exchange rates between a
national currency of an EU member and the euro and to redenominate
outstanding tradable debt securities into the euro in accordance with
specific technical requirements.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to each of these Portfolios, as
well as the computer systems of those service providers upon which the
Portfolios rely, in order to obtain reasonable assurances that the
Portfolios will not experience a material adverse impact related to either
problem. The Portfolios do not currently anticipate that either problem
will have a material adverse impact on their portfolio investments, taken as
a whole. There can be no assurances in either area, however, including the
possibility that either or both problems could negatively affect the
investment markets or the economy generally.
INVESTMENT LIMITATIONS
The fundamental investment restrictions for the Portfolios are set
forth below. These fundamental investment restrictions may not be changed by
a Portfolio except by the affirmative vote of a majority of the outstanding
voting securities of that Portfolio as defined in the Investment Company Act
of 1940. (Under the Investment Company Act of 1940, a "vote of the majority
of the outstanding voting securities" means the vote, at a meeting of
security holders duly called, (i) of 67% or more of the voting securities
present at a meeting if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy or (ii) of more than
50% of the outstanding voting securities, whichever is less (a "1940 Act
Majority Vote").) Under these restrictions:
1. None of the Portfolios may borrow money, except that a Portfolio may
borrow money (through the issuance of debt securities or otherwise) in
an amount not exceeding one-third of the Portfolio's total assets
immediately after the time of such borrowing.
2. None of the Portfolios may issue senior securities, except as permitted
under the Investment Company Act of 1940 or any exemptive order or rule
issued by the Securities and Exchange Commission.
3. None of the Portfolios will make an investment unless, when considering
all its other investments, 75% of the value of a Portfolio's assets
would consist of cash, cash items, obligations of the U.S. Government,
its agencies or instrumentalities, and securities other securities. For
purposes of this restriction, "other securities" are limited for each
issuer to not more than 5% of the value of a Portfolio's assets and to
not more than 10% of the issuer's outstanding voting held by the Fund as
a whole.
4. None of the Portfolios will buy or sell real estate, commodities or
commodity contracts, although the Portfolios may buy and sell securities
or other instruments which are secured by real estate and securities of
real estate investment trusts and of other issuers that engage in real
estate operations and except that the Portfolios may enter into
financial futures contracts, may purchase put options on financial
futures contracts and may purchase and sell call options on financial
futures contracts.
5. None of the Portfolios may lend any of its assets except portfolio
securities. The purchase of corporate or U.S. or foreign governmental
bonds, debentures, notes, certificates of indebtedness, repurchase
agreements or other debt securities of an issuer permitted by a
Portfolio's investment objective and policies will not be considered a
loan for purposes of this limitation.
6. None of the Portfolios will underwrite the securities of other issuers,
except where the Fund may be deemed to be an underwriter for purposes of
certain federal securities laws in connection with the disposition of
portfolio securities and with loans that a Portfolio may make pursuant
to paragraph 5 above.
7. None of the Portfolios will purchase securities of a company in any
industry if as a result of the purchase a Portfolio's holdings of
securities issued by companies in that industry would exceed 25% of the
value of the Portfolio, except that this restriction does not apply to
purchases of obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, or issued by domestic banks. For
purposes of this restriction, neither finance companies as a group nor
utility companies as a group are considered to be a single industry and
will be grouped instead according to their services; for example, gas,
electric, and telephone utilities will each be considered a separate
industry.
The following nonfundamental investment restriction may be changed
without shareholder approval. Under this restriction:
1. None of the Portfolios will purchase any security while borrowings,
including reverse repurchase agreements, representing more than 5% of
the Portfolio's total assets are outstanding.
FUND MANAGEMENT
The Board of Directors of the Fund is responsible for the management
and supervision of the Fund's business affairs and for exercising all powers
except those reserved to the shareholders.
The officers and Directors of the Fund and their addresses, positions
with the Fund, and principal occupations are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING THE
PAST 5 YEARS
<S> <C> <C>
Rolf F. Bjelland* Chairman, Director and Executive Vice President and Chief
625 Fourth Avenue South President Investment Officer, Lutheran
Minneapolis, MN Brotherhood; Director and President,
Age 60 Lutheran Brotherhood Research Corp;
Director and Executive Vice President,
Lutheran Brotherhood Financial
Corporation; Director, Lutheran
Brotherhood Securities Corp.; Director,
Vice President and Chief Investment
Officer, Lutheran Brotherhood Variable
Insurance Products Company; Director,
Lutheran Brotherhood Real Estate Products
Company; Trustee, Chairman and President
of Lutheran Brotherhood Family of Funds
Herbert F. Eggerding, Jr. Director Management consultant to several privately
12587 Glencroft Drive owned companies; formerly Executive Vice
St. Louis, MO President and Chief Financial Officer,
Age 61 Petrolite Corporation; Director, Lutheran
Charities Foundation of St. Louis, MO;
Trustee, Lutheran Brotherhood Family of Funds
Noel K. Estenson Director President and Chief Executive Officer,
CENEX, Inc. CENEX, Inc.; Vice Chairman, CF
P.O. Box 64089 Industries; Board member, National
St. Paul, MN Cooperative Refinery Association;
Age 59 Board member, Farm Credit Leasing;
Board member, National Council of
Farmer Cooperatives; Trustee, Lutheran
Brotherhood Family of Funds
Jodi L. Harpstead Director Vice President, U.S. Cardiac Rhythm
Medtronic Management for Medtronic, Inc.; Previously,
7000 Central Avenue NE Manager and Vice President, U.S. Pacing
Minneapolis, MN Marketing, Medtronic, Inc.; Board member
Age 41 of Delta Dental Plan of Minnesota;
Trustee, Lutheran Brotherhood Family of
Funds
Richard A. Hauser Director Partner, Baker & Hostetler, LLP; Previously,
1050 Connecticut Avenue NW Chairman of the Pennsylvania Avenue
Suite 1100 Development Corporation, Washington, DC;
Washington, DC Director, The Luther Institute; Trustee,
Lutheran Brotherhood Family of Funds
Connie M. Levi Director Retired President of the Greater
P.O. Box 675325 Minneapolis Chamber of Commerce;
Rancho Santa Fe, CA served in the Minnesota House of
Age 59 Representatives from 1978 to 1986,
including in the capacity as majority
leader; former Director or member of
numerous governmental, public service
and non-profit boards and organizations;
Director, Norstan, Inc.; Trustee, Lutheran
Brotherhood Family of Funds
Bruce J. Nicholson* Director Executive Vice President and Chief
625 Fourth Avenue South Operating Officer, Lutheran
Minneapolis, MN Brotherhood; Director, Executive Vice
Age 52 President and Chief Operating Officer,
Lutheran Brotherhood Financial
Corporation; Director and Chief
Operating Officer, Lutheran Brotherhood
Variable Insurance Products Company;
Director, Lutheran Brotherhood Research
Corp; Director, Lutheran Brotherhood
Securities Corp.; Director, Lutheran
Brotherhood Real Estate Products Company;
Trustee, Lutheran Brotherhood Family of
Funds
Ruth E. Randall Director Retired Interim Dean, Division of
25 Coolidge Road Continuing Studies, University of
West Hartford, CT Nebraska-Lincoln; formerly Associate
Age 69 Dean, Teachers College and Professor,
Department of Educational
Administration, Teachers College,
University of Nebraska-Lincoln;
Commissioner of Education for the
State of Minnesota; Director or member
of numerous governmental, public
service and non-profit boards and
organizations; Trustee, Lutheran
Brotherhood Family of Funds
Randall L. Boushek Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President, Lutheran Brotherhood
Minneapolis, MN Research Corp.; Vice President, Lutheran
Age 42 Brotherhood Variable Insurance Products
Company; Portfolio Manager, Lutheran
Brotherhood Securities Corp.
James R. Olson Vice President Senior Vice President, Lutheran
625 Fourth Avenue South Brotherhood; Vice President, Lutheran
Minneapolis, MN Brotherhood Variable Insurance Products
Age 56 Company; Vice President, Lutheran
Brotherhood Research Corp.; Vice
President, Lutheran Brotherhood Research
Corp.; Vice President, Lutheran
Brotherhood Securities Corp.; Vice
President, Lutheran Brotherhood Real
Estate Products Company; Vice President,
Lutheran Brotherhood Family of Funds
Brenda J. Pederson Vice President Assistant Vice President, Lutheran
625 Fourth Avenue South Brotherhood
Minneapolis, MN
Age 37
Richard B. Ruckdashel Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President, Lutheran Brotherhood
Minneapolis, MN Variable Insurance Products Company; Vice
Age 43 President, Lutheran Brotherhood
Securities Corp.; Vice President,
Lutheran Brotherhood Family of Funds
Wade M. Voigt Treasurer Assistant Vice President, Mutual Fund
625 Fourth Avenue South Accounting, Lutheran Brotherhood;
Minneapolis, MN Treasurer of LB Series Fund, Inc.
Age 42
Otis F. Hilbert Secretary and Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President and Secretary,
Minneapolis, MN Lutheran Brotherhood Securities Corp.;
Age 61 Secretary of Lutheran Brotherhood
Research Corp.; Vice President and
Secretary, Lutheran Brotherhood
Real Estate Products Company; Vice
President and Assistant Secretary,
Lutheran Brotherhood Variable
Insurance Products Company; Secretary and
Vice President of LB Series Fund, Inc.
Frederick P. Johnson Vice President Assistant Vice President, Lutheran
625 Fourth Avenue South Brotherhood; Assistant Vice President,
Minneapolis, MN Lutheran Brotherhood Variable Insurance
Age 36 Products Company; Assistant Vice
President, Lutheran Brotherhood
Securities Corp.; Assistant Vice
President, LB Research; Vice President,
LB Series Fund, Inc.
</TABLE>
- -----------------------
(*) "Interested person" of the Fund as defined in the Investment Company
Act of 1940 by virtue of his positions with affiliated entities
referred to elsewhere herein.
COMPENSATION OF DIRECTORS AND OFFICERS
The Fund makes no payments to any of its officers for services
performed for the Fund. Directors of the Fund who are not interested persons
of the Fund are paid an annual retainer fee of $25,000 and an annual fee of
$10,000 per year to attend meetings of Board of Directors of the Fund
complex.
Directors who are not interested persons of the Fund are reimbursed by
the Fund for any expenses they may incur by reason of attending Board
meetings or in connection with other services they may perform in connection
with their duties as Directors of the Fund. The Directors receive no pension
or retirement benefits in connection with their service to the Fund.
For the fiscal year ended December 31, 1998, the Directors of the Fund
received the following amounts of compensation either directly or in the
form of payments into a deferred compensation plan:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL TOTAL COMPENSATION
NAME AND POSITION COMPENSATION AS PART OF FUND BENEFITS UPON PAID BY FUND
OF PERSON FROM FUND EXPENSES RETIREMENT AND FUND COMPLEX (1)
<S> <C> <C> <C> <C>
Rolf F. Bjelland(2) $ 0 $ 0 $ 0 $ 0
Chairman and Director
Herbert F. Eggerding, Jr. 15,262 0 0 33,750
Director
Noel K. Estenson 15,262 0 0 33,750
Director
Jodi L. Harpstead 4,042 0 0 8,750
Director
Richard K. Hauser 8,083 0 0 17,500
Director
Connie M. Levi 15,262 0 0 33,750
Director
Bruce J. Nicholson(2) 0 0 0 0
Director
Ruth E. Randall 15,262 (3) 0 0 33,750
Director
- -------------------------
(1) The "Fund Complex" includes The Lutheran Brotherhood Family of Funds and LB Series Fund, Inc.
(2) "Interested person" of the Fund as defined in the Investment Company Act of 1940.
(3) Dr. Randall elected to receive her compensation as deferred compensation. The total amount of deferred
compensation payable to Dr. Randall as of December 31, 1998, was $34,901.
</TABLE>
CONTROL PERSONS AND PURCHASES OF SECURITIES
Shares in the Fund are sold only to separate accounts (the "Accounts")
of Lutheran Brotherhood and Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP"), to fund benefits under various variable life insurance
and annuity contracts issued by Lutheran Brotherhood and LBVIP (the
"Contracts").
The voting rights of Contract owners, and limitations on those rights,
are explained in separate prospectuses relating to such Contracts. Lutheran
Brotherhood and LBVIP, as the owners of the assets in the Accounts, are
entitled to vote all of the shares of the Fund held to fund the benefits
under the Contracts, but they will generally do so in accordance with the
instructions of Contract owners. Any shares of a Portfolio attributable to a
Contract for which no timely voting instructions are received, and any
shares of that Portfolio held by Lutheran Brotherhood, LBVIP or any of their
affiliates for their own account, will be voted by Lutheran Brotherhood and
LBVIP in proportion to the voting instructions that are received with
respect to all Contracts participating in that Portfolio. Under certain
circumstances described in the separate prospectus relating to the
Contracts, however, Lutheran Brotherhood and LBVIP may disregard voting
instructions received from Contract owners.
INVESTMENT ADVISORY SERVICES
Lutheran Brotherhood (the "Adviser") is the investment adviser of the
Fund. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. Lutheran Brotherhood, founded in 1917 under
the laws of Minnesota, is a fraternal benefit society owned by and operated
for its members. It is subject to regulation by the Insurance Division of
the State of Minnesota as well as by the insurance departments of all the
other states and jurisdictions in which it does business. LBVIP is an
indirect subsidiary of Lutheran Brotherhood.
Certain directors and officers of the Fund are also affiliates of
Lutheran Brotherhood and/or LBVIP. See "Fund Management".
Investment decisions for each of the Portfolios, except the Opportunity
Growth Portfolio and the World Growth Portfolio, are made by Lutheran
Brotherhood, subject to the overall direction of the Board of Directors.
Lutheran Brotherhood provides overall investment supervision of the
Opportunity Growth Portfolio's and the World Growth Portfolio's
investments, with investment decisions for those Portfolios being made by
investment sub-advisers. Except for the Opportunity Growth Portfolio and
the World Growth Portfolio, Lutheran Brotherhood provides investment
research and supervision of each Portfolio's investments and conducts a
continuous program of investment evaluation and appropriate disposition and
reinvestment of each Portfolio's assets.
Investment decisions for the Opportunity Growth Portfolio are made by
T. Rowe Price Associates, Inc. ("T. Rowe Price"), which Lutheran
Brotherhood has engaged as the sub-adviser for that Portfolio. T. Rowe
Price manages the Opportunity Growth Portfolio on a daily basis, subject to
the overall direction of Lutheran Brotherhood and the Board of Directors.
T. Rowe Price was founded in 1937 and has its principal offices in
Baltimore, Maryland. As of December 31, 1998, T. Rowe Price and its
affiliates managed approximately $148 billion.
Investment decisions for the World Growth Portfolio are made by Rowe
Price-Fleming International, Inc. ("Price-Fleming"), which Lutheran
Brotherhood has engaged as the sub-adviser for that Portfolio. Price-Fleming
manages that Portfolio on a daily basis, subject to the overall direction of
Lutheran Brotherhood and the Board of Directors.
Price-Fleming was founded in 1979 as a joint venture between T. Rowe
Price and Robert Fleming Holdings Limited. Price-Fleming is one of the
world's largest international mutual fund asset managers with the U.S.
equivalent of over $32 billion under management as of December 31, 1998 in
its offices in Baltimore, London, Tokyo, Singapore, Hong Kong, and Buenos
Aires.
The Advisory Contract provides that it shall continue in effect with
respect to each Portfolio from year to year as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of such Portfolio (as defined in the 1940 Act) or by the
Directors of the Fund, and (ii) in either event by a vote of a majority of
the Directors who are not parties to the Advisory Contract or "interested
persons" of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Contract may be terminated
on 60 days' written notice by either party and will terminate automatically
in the event of its assignment, as defined under the 1940 Act and
regulations thereunder. Such regulations provide that a transaction which
does not result in a change of actual control or management of an adviser is
not deemed an assignment.
The Investment Sub-advisory Contract between Lutheran Brotherhood, the
Fund and T. Rowe Price (the "T. Rowe Price Sub-advisory Contract") provides
that it shall continue in effect with respect to the Opportunity Growth
Portfolio from year to year as long as it is approved at least annually both
(i) by a vote of a majority of the outstanding voting securities of such
Portfolio (as defined in the 1940 Act) or by the Directors of the Fund, and
(ii) in either event by a vote of a majority of the Directors who are not
parties to the T. Rowe Price Sub-advisory Contract or "interested persons"
of any party thereto, cast in person at a meeting called for the purpose of
voting on such approval. The T. Rowe Price Sub-advisory Contract may be
terminated on 60 days' written notice by each party and will terminate
automatically in the event of its assignment, as defined under the 1940 Act
and regulations thereunder. Such regulations provide that a transaction
which does not result in a change of actual control or management of an
adviser is not deemed an assignment.
The Investment Sub-advisory Contract between Lutheran Brotherhood, the
Fund and Price-Fleming (the "Price-Fleming Sub-advisory Contract") provides
that it shall continue in effect with respect to the World Growth Portfolio
from year to year as long as it is approved at least annually both (i) by a
vote of a majority of the outstanding voting securities of such Portfolio
(as defined in the 1940 Act) or by the Directors of the Fund, and (ii) in
either event by a vote of a majority of the Directors who are not parties to
the Price-Fleming Sub-advisory Contract or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Price-Fleming Sub-advisory Contract may be terminated on
60 days' written notice by either party and will terminate automatically in
the event of its assignment, as defined under the 1940 Act and regulations
thereunder. Such regulations provide that a transaction which does not
result in a change of actual control or management of an adviser is not
deemed an assignment.
The Adviser receives an investment advisory fee as compensation for its
services to the Fund. The fee is a daily charge equal to an annual rate of
.40% of the aggregate average daily net assets of the Money Market, Income,
High Yield, Growth, Opportunity Growth, and Mid Cap Growth Portfolios. The
fee is a daily charge equal to an annual rate of .85% of the aggregate
average daily net assets of the World Growth Portfolio. Each daily charge
for the fee is divided among the Portfolios in proportion to their net
assets on that day. During the fiscal periods ended December 31, 1998, 1997,
and 1996, the Adviser earned $25,936,473, $20,167,422, and $13,945,681,
respectively, as gross advisory fees.
Lutheran Brotherhood pays T. Rowe Price an annual sub-advisory fee for
the performance of sub-advisory services. The fee payable is equal to .30%
of that Portfolio's average daily net assets.
Lutheran Brotherhood pays Price-Fleming an annual sub-advisory fee for
the performance of sub-advisory services. The fee payable is equal to a
percentage of that Portfolio's average daily net assets. The percentage
decreases as the Portfolio's assets increase. For purposes of determining
the percentage level of the sub-advisory fee for the Portfolio, the assets
of the Portfolio are combined with the assets of the Lutheran Brotherhood
World Growth Fund, another fund with investment objectives and policies that
are similar to the World Growth Portfolio and for which the Sub-adviser also
provides sub-advisory services. The sub-advisory fee Lutheran Brotherhood
pays the Sub-adviser is equal to the World Growth Portfolio's pro rata share
of the combined assets of the Portfolio and the Lutheran Brotherhood World
Growth Fund and is equal to .75% of combined average daily net assets up to
$20 million, .60% of combined average daily net assets over $20 million but
not over $50 million, and .50% of combined average daily net assets over $50
million. When the combined assets of the World Growth Portfolio and the
Lutheran Brotherhood World Growth Fund exceed $200 million, the sub-advisory
fee for the World Growth Portfolio is equal to .50% of all of the
Portfolio's average daily net assets. Price-Fleming has agreed to waive its
fees so that when the combined assets of the World Growth Portfolio and
World Growth Fund exceed $500 million, the sub-advisory fee for the World
Growth Portfolio is equal to .45% of all the Portfolio's average daily net
assets. As of December 31, 1998, the combined assets of the World Growth
Portfolio and the World Growth Fund totaled $464.3 million.
The Investment Advisory Agreement provides that the Fund will pay, or
provide for the payment of, the compensation of the directors who are not
affiliated with the Adviser, Lutheran Brotherhood or LBVIP and all other
expenses of the Fund (other than those assumed by the Adviser), including
governmental fees, interest charges, taxes, membership dues in the
Investment Company Institute allocable to the Fund, fees and expenses of the
independent auditors, of legal counsel and of any transfer agent, registrar
and dividend disbursing agent of the Fund, expenses of preparing, printing
and mailing prospectuses, shareholders' reports, notices, proxy statements
and reports to governmental officers and commissions, expenses connected
with the execution, recording and settlement of portfolio security
transactions, insurance premiums, fees and expenses of the Fund's custodian
for all services to the Fund, expenses of calculating the net asset value of
the shares of the Portfolio of the Fund, expenses of shareholders' meetings
and expenses relating to the issuance, registration and qualification of
shares of the Fund. Lutheran Brotherhood and LBVIP have agreed with the Fund
to pay, or to reimburse the Fund for the payment of, all of the foregoing
expenses.
The Adviser also furnishes at its own expense all necessary
administrative services, office space, equipment and clerical personnel for
servicing the investments of the Fund and maintaining its organization, and
investment advisory facilities and executive and supervisory personnel for
managing the investments and effecting the portfolio transactions of the
Fund.
The Adviser, through the indirect ownership of Lutheran Brotherhood
Research Corp., also serves as the investment adviser to several other
investment companies. When investment opportunities arise that may be
appropriate for one of the Portfolios and one or more of such other
companies, the Adviser will not favor one over another and may allocate
investments among them in an impartial manner believed to be equitable to
each entity involved. The allocations will be based on the investment
objectives and current cash and investment position of each. Because the
various entities for which the Adviser acts as investment adviser have
different investment objectives and positions, the Adviser may from time to
time buy a particular security for one or more such entities while at the
same time it sells such securities for another.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of the securities held by the
Portfolios and is authorized to use various securities depository
facilities, such as the Depository Trust Company and the facilities of the
book-entry system of the Federal Reserve Bank. State Street Bank and Trust
Company is also the transfer agent and dividend disbursing agent for the
Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 650 Third Avenue South, Park Building,
Suite 1300, Minneapolis, Minnesota 55402, serves as the Fund's independent
accountants, providing professional services including audits of the Fund's
annual financial statements, assistance and consultation in connection with
Securities and Exchange Commission filings, and review of the annual income
tax returns filed on behalf of the Fund.
BROKERAGE TRANSACTIONS
PORTFOLIO TRANSACTIONS
In connection with the management of the investment and reinvestment of
the assets of the Portfolios, the Advisory Contract authorizes Lutheran
Brotherhood, acting by its own officers, directors or employees or by a duly
authorized subcontractor, including T. Rowe Price and Price-Fleming (each a
"sub-adviser"), to select the brokers or dealers that will execute purchase
and sale transactions for the Portfolios. In executing portfolio
transactions and selecting brokers or dealers, if any, Lutheran Brotherhood
and the sub-advisers will use reasonable efforts to seek on behalf of the
Portfolios the best overall terms available. In assessing the best overall
terms available for any transaction, Lutheran Brotherhood and the sub-
advisers will consider all factors it deems relevant, including the breadth
of the market in and the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any (for the specific transaction and on a continuing basis).
In evaluating the best overall terms available, and in selecting the broker
or dealer, if any, to execute a particular transaction, Lutheran Brotherhood
and the sub-advisers may also consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934) provided to any other accounts over which Lutheran Brotherhood or
the sub-advisers or an affiliate of Lutheran Brotherhood or the sub-advisers
exercises investment discretion. Lutheran Brotherhood and the sub-advisers
may pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction which is in
excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, Lutheran Brotherhood
or the sub-advisers determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided.
To the extent that the receipt of the above-described services may
supplant services for which Lutheran Brotherhood or the sub-advisers might
otherwise have paid, it would, of course, tend to reduce the expenses of
Lutheran Brotherhood or the sub-advisers.
The investment decisions for a Portfolio are and will continue to be
made independently from those of other investment companies and accounts
managed by Lutheran Brotherhood, a sub-adviser, or their affiliates. Such
other investment companies and accounts may also invest in the same
securities as a Portfolio. When purchases and sales of the same security are
made at substantially the same time on behalf of such other investment
companies and accounts, transactions may be averaged as to the price and
available investments allocated as to the amount in a manner which Lutheran
Brotherhood and its affiliates believe to be equitable to each investment
company or account, including the Portfolio. In some instances, this
investment procedure may affect the price paid or received by a Portfolio or
the size of the position obtainable or sold by a Portfolio.
AFFILIATED TRANSACTIONS OF THE SUB-ADVISERS
Subject to applicable SEC rules, as well as other regulatory
requirements, the sub-advisers of the Opportunity Growth Portfolio and the
World Growth Portfolio may allocate orders to brokers or dealers affiliated
with such sub-advisers. Such allocation shall be in such amounts and
proportions as the sub-adviser shall determine and the Portfolio's sub-
adviser will report such allocations either to Lutheran Brotherhood, which
will report such allocations to the Board of Directors, or, if requested,
directly to the Board of Directors.
BROKERAGE COMMISSIONS
During the last three fiscal years, the Portfolios paid the following
brokerage fees:
12/31/98 12/31/97 12/31/96
Opportunity Growth
Portfolio $ 857,916 $ 789,032 $ 353,407
Mid Cap Growth Portfolio 203,262 -- --
World Growth Portfolio* 285,236 492,771 441,571
Growth Portfolio 8,234,385 6,961,631 6,346,524
High Yield Portfolio 9,706 8,418 44,558
Income Portfolio 82,478 135,832 89,581
Money Market Portfolio -- -- --
- -----------------------
* Amount paid to affiliated broker-dealer is $10,640 for the fiscal year
ended December 31, 1998, $11,272 for the fiscal year ended December 31,
1997, and $10,997 for the fiscal year ended December 31, 1996.
Of the brokerage fee amounts stated above and underwriting concessions
of dealers from whom the Portfolio purchased newly issued debt securities,
the following percentages were paid to firms which provided research,
statistical, or other services to Lutheran Brotherhood or the Sub-adviser in
connection with the management of the Portfolios:
12/31/98 12/31/97 12/31/96
Opportunity Growth
Portfolio 6.70% 5.52% 0.30%
Mid Cap Growth Portfolio 45.80% -- --
World Growth Portfolio 3.77% 1.90% 1.30%
Growth Portfolio 17.15% 18.19% 9.79%
High Yield Portfolio -- -- --
Income Portfolio 3.15% 3.29% 4.78%
Money Market Portfolio -- -- --
CODE OF ETHICS
The Fund has adopted a code of ethics that imposes certain limitations
and restrictions on personal securities transactions by persons having
access to Fund investment information, including portfolio managers. Such
access persons may not purchase any security being offered under an initial
public offering, any security for which one of the Portfolios has a purchase
or sale order pending, or any security currently under active consideration
for purchase or sale by a Portfolio. Additionally, portfolio managers may
not purchase or sell any security within seven days before or after any
transaction in such security by the Portfolio that he or she manages. In
order for the Fund to monitor the personal investment transactions, all
access persons must obtain the approval of an officer of the Fund designated
by the Directors before they may purchase or sell any security and they must
have all such transactions reported to such officer by the broker-dealer
through which the transaction was accomplished.
CAPITAL STOCK
The total number of shares of capital stock which the Fund has
authority to issue is 2,000,000,000 shares of the par value of $.01 per
share. All shares are divided into the following classes of capital stock,
each class comprising the number of shares and having the designations
indicated, subject, however, to the authority to increase and decrease the
number of shares of any class granted to the Board of Directors:
Class Number of Shares
Money Market Portfolio Capital Stock 400,000,000
Income Portfolio Capital Stock 400,000,000
High Yield Portfolio Capital Stock 200,000,000
Growth Portfolio Capital Stock 400,000,000
Opportunity Growth Portfolio Capital Stock 200,000,000
Mid Cap Growth Portfolio Capital Stock 200,000,000
World Growth Portfolio Capital Stock 200,000,000
Subject to any then applicable statutory requirements, the balance of
any unassigned shares of the authorized capital stock may be issued in such
classes, or in any new class or classes having such designations, such
powers, preferences and rights as may be fixed and determined by the Board
of Directors. In addition, and subject to any applicable statutory
requirements, the Board of Directors has the authority to increase or
decrease the number of shares of any class, but the number of shares of any
class will not be decreased below the number of shares thereof then
outstanding.
The holder of each share of stock of the Fund shall be entitled to one
vote for each full share and a fractional vote for each fractional share of
stock, irrespective of the class, then standing in such holder's name on the
books of the Fund. On any matter submitted to a vote of shareholders, all
shares of the Fund will be voted in the aggregate and not by class except
that (a) when otherwise expressly required by statutes or the Investment
Company Act of 1940 shares will be voted by individual class, (b) only
shares of a particular Portfolio are entitled to vote on matters concerning
only that Portfolio, and (c) fundamental objectives and restrictions may be
changed, with respect to any Portfolio, if such change is approved by the
holders of a majority (as defined under the Investment Company Act of 1940)
of the outstanding shares of such Portfolio. No shareholder will have any
cumulative voting rights.
The shares of each class, when issued, will be fully paid and
nonassessable, have no preference, preemptive, conversion, exchange or
similar rights and will be freely transferable. The consideration received
by the Fund for the sale of shares shall become part of the assets of the
Portfolio to which the shares of the class relates. Each share will have a
pro rata interest in the assets of the Portfolio to which the share relates
and will have no interest in the assets of any other Portfolio.
The Board of Directors may from time to time declare and pay dividends
or distributions, in stock or in cash, on any or all classes of stock, the
amount of such dividends and distributions and the payment of them being
wholly in the discretion of the Board. Dividends or distributions on shares
of any class of stock shall be paid only out of undistributed earnings or
other lawfully available funds belonging to such class.
Inasmuch as one goal of the Fund is to qualify as a Regulated
Investment Company under the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder, and inasmuch as the computation of
net income and gains for Federal income tax purposes may vary from the
computation thereof on the books of the Fund, the Board of Directors has the
power in its discretion to distribute in any fiscal year as dividends,
including dividends designated in whole or in part as capital gains
distributions, amounts sufficient in the opinion of the Board to enable the
Fund and each portfolio to qualify as a Regulated Investment Company and to
avoid liability for Federal income tax in respect of that year.
The assets belonging to any class of stock will be charged with the
liabilities in respect to such class, and will also be charged with their
share of the general liabilities of the Fund in proportion to the asset
values of the respective classes.
NET ASSET VALUE
OPPORTUNITY GROWTH PORTFOLIO, MID CAP GROWTH PORTFOLIO, WORLD GROWTH
PORTFOLIO, GROWTH PORTFOLIO, HIGH YIELD PORTFOLIO, AND INCOME PORTFOLIO
The net asset value per share is determined at the close of each day
the New York Stock Exchange (the "NYSE") is open, or any other day as
provided by Rule 22c-1 under the Investment Company Act of 1940.
Determination of net asset value may be suspended when the Exchange is
closed or if certain emergencies have been determined to exist by the
Securities and Exchange Commission, as allowed by the Investment Company Act
of 1940.
Net asset value is determined by adding the market or appraised value
of all securities and other assets; subtracting liabilities; and dividing
the result by the number of shares outstanding.
The market value of each Portfolio's securities is determined at the
close of regular trading of the NYSE on each day the NYSE is open. The value
of portfolio securities is determined in the following manner:
- - Equity securities traded on the NYSE or any other national
securities exchange are valued at the last sale price. If there has
been no sale on that day or if the security is unlisted, it is
valued at prices within the range of the current bid and asked
prices considered best to represent value in the circumstances.
- - Equity securities not traded on a national securities exchange are
valued at prices within the range of the current bid and asked
prices considered best to represent the value in the circumstances,
except that securities for which quotations are furnished through
the nationwide automated quotation system approved by the NASDAQ
will be valued at their last sales prices so furnished on the date
of valuation, if such quotations are available for sales occurring
on that day.
- - Bonds and other income securities traded on a national securities
exchange will be valued at the last sale price on such national
securities exchange that day. Lutheran Brotherhood may value such
securities on the basis of prices provided by an independent
pricing service or within the range of the current bid and asked
prices considered best to represent the value in the circumstances,
if those prices are believed to better reflect the fair market
value of such exchange listed securities.
- - Bonds and other income securities not traded on a national
securities exchange will be valued within the range of the current
bid and asked prices considered best to represent the value in the
circumstances. Such securities may also be valued on the basis of
prices provided by an independent pricing service if those prices
are believed to reflect the fair market value of such securities.
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.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider institutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data
employed in determining valuation for such securities.
All other securities and assets will be appraised at fair value as
determined by the Board of Director.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of
shares of a Portfolio are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the NYSE.
Occasionally, events affecting the value of such securities and exchange
rates may occur between the times at which they are determined and the close
of the NYSE, which will not be reflected in the computation of net asset
values. If during such periods events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the Directors of the Fund.
For purposes of determining the net asset value of shares of a
Portfolio all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars quoted by a major bank that
is a regular participant in the foreign exchange market or on the basis of a
pricing service that takes into account the quotes provided by a number of
such major banks.
MONEY MARKET PORTFOLIO
Securities held by the Money Market Portfolio are valued on the basis
of amortized cost, which involves a constant amortization of premium or
accretion of discount to maturity regardless of the impact of fluctuating
interest rates on the market value of the security. While this method
provides certainty in valuation, it may result in periods in which the value
as determined by amortized cost is higher or lower than the price the Money
Market Portfolio would receive if it sold the security.
The Money Market Portfolio anticipates that under ordinary and usual
circumstances it will be able to maintain a constant net asset value of
$1.00 per share and the Money Market Portfolio will use its best efforts to
do so. However, such maintenance at $1.00 might not be possible if (1)
there are changes in short-term interest rates or other factors such as
unfavorable changes in the credit of issuers affecting the values of the
securities held by the Money Market Portfolio and the Money Market Portfolio
is compelled to sell such securities at a time when the prices which it is
able to realize vary significantly from the values determined on the
amortized cost basis or (2) the Money Market Portfolio should have negative
net income. It is expected that the Money Market Portfolio will have
positive net income at the time of each determination thereof.
The utilization of the amortized cost method of valuation requires
compliance with the requirements of Rule 2a-7 under the 1940 Act. Such
compliance requires, among other things, the following:
(1) The Directors must adopt procedures whereby the extent of
deviation, if any, of the current net asset value per share
calculated using available market quotations (or an appropriate
substitute which reflects current market conditions) from the
Money Market Portfolio's net asset value per share under the
amortized cost valuation method will be determined at such
intervals as the Directors deem appropriate and reasonable in
light of current market conditions, and the Directors must review
periodically the amount of the deviation as well as the methods
used to calculate the deviation;
(2) In the event such deviation from the Money Market Portfolio's net
asset value under the amortized cost valuation method exceeds
1/2 of 1%, the Directors must promptly consider what action should
be initiated by them, and when the Directors believe the extent of
any deviation from the Money Market Portfolio's net asset value
per share under the amortized cost valuation method may result in
material dilution or any other unfair results to investors or
existing shareholders, they must take such action as they deem
appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results (shareholders will be
notified in the event any such corrective action is taken by the
Directors);
(3) The Money Market Portfolio may not purchase any instrument with a
remaining maturity greater than 397 calendar days or maintain a
dollar-weighted average portfolio maturity which exceeds 90 days;
(4) The Money Market Portfolio must limit its portfolio investments,
including repurchase agreements, to those United States dollar-
denominated instruments which the Directors determine present
minimal credit risks and which are "eligible securities" as
defined in Rule 2a-7; and
(5) The Money Market Portfolio must record, maintain and preserve
certain records and observe certain reporting obligations in
accordance with Rule 2a-7.
Securities in which the Money Market Portfolio invests must be U.S.
dollar-denominated Eligible Securities (as defined in Rule 2a-7 under the
1940 Act) that are determined to present minimal credit risks. In general,
the term "Eligible Security" is limited to any security that:
(i) (a) either (1) has received a short-term rating from a nationally
recognized statistical rating organization (NRSRO") or has been
issued by an issuer that has received a short-term rating from an
NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and
security with the security or (2) is subject to a guarantee that
has received a short-term rating from an NRSRO, or a guarantee
issued by a guarantor that has received a short-term rating from
an NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and
security with the guarantee, (b) has a remaining maturity of 397
calendar days or less and (c) has received a rating from the
requisite number of NRSROs (i.e.. two, if two organizations have
issued ratings and one if only one has issued a rating) in one of
the two highest short-term major rating categories; or
(ii) is unrated but is of comparable quality to a rated security as
described in (i), above, and which at the time of issuance (a)
had a remaining maturity of more than 397 calendar days and now
has a remaining maturity of 397 calendar days or less, and (b)
has not received a long-term rating from an NRSRO in any NRSRO
major rating category outside of the NRSRO's three highest major
rating categories, unless the security has received a long-term
rating from the requisite number of NRSROs (i.e., two, if two
organizations have issued ratings and one if only one has issued
a rating) in one of the three highest long-term major rating
categories.
As indicated in the Prospectus, at least 95% of the Money Market
Portfolio's total assets will consist of government securities and "first
tier" eligible securities as defined in Rule 2a-7 under the 1940 Act, with
the balance of the Money Market Portfolio's assets invested in "second tier"
eligible securities as defined in Rule 2a-7. For this purpose, "second
tier" eligible securities generally are those which have been (i) rated by
at least two nationally recognized statistical rating organizations in one
of the two highest rating categories for short-term obligations (or so rated
by one such organization if it alone has rated the security), (ii) issued by
an issuer with comparable short-term obligations that are rated in one of
the two highest rating categories, or (iii) if unrated, determined to be
comparable to such securities. The Money Market Portfolio may not invest
more than the greater of 1% of its total assets or $1 million in "second
tier" eligible securities of any single issuer.
TAX STATUS
The Portfolios expect to pay no federal income tax because they intend
to meet requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each Portfolio
must, among other requirements:
- derive at least 90% of its gross income from dividends,
interest, gains from the sale of securities, and certain
other investments;
- invest in securities within certain statutory limits; and
- distribute at least 90% of its ordinary income to
shareholders.
It is each Portfolio's policy to distribute substantially all of its
income on a timely basis, including any net realized gains on investments
each year.
To avoid payment of a 4% excise tax, each Portfolio is also generally
required to distribute to shareholders at least 98% of its ordinary income
earned during the calendar year and 98% of its net capital gains realized
during the 12-month period ending December 31.
CAPITAL GAINS
While the Portfolios do not intend to engage in short-term trading,
they may dispose of securities held for only a short time if Lutheran
Brotherhood believes it to be advisable. Such changes may result in the
realization of capital gains. Each Portfolio distributes its realized gains
in accordance with federal tax regulations. Distributions from any net
realized capital gains will usually be declared in February.
CALCULATION OF PERFORMANCE DATA
The total return and yield of each of the Portfolios will be calculated
as set forth below. Calculations of performance data for the Portfolios
includes the effect of the investment advisory fee charged to the Fund but
does not reflect the expenses charged to the variable contracts at the
separate account level.
TOTAL RETURN
Average annual total return is computed by determining the average
annual compounded rates of return over the designated periods that, if
applied to the initial amount invested would produce the ending redeemable
value, according to the following formula:
P(1+T)(n) = ERV
[In the above formula "n" is an exponent.]
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that all dividends
and distributions by the Portfolio are reinvested at net asset value on the
reinvestment dates during the periods. The investment advisory fee charged
to the Fund is also taken into account as described later herein.
YIELD
Yield is computed by dividing the net investment income per share
earned during a recent month or other specified 30-day period by the
applicable maximum offering price per share on the last day of the period
and annualizing the result, according to the following formula:
[A formula is expressed here that is as follows:
Yield is equal to 2 times the difference between the sixth power of a
number and 1, where that number is equal to the sum of the quotient of a
divided by b and 1.]
Where:
a = dividends and interest earned during the period
minus the investment advisory fee accrued for the
period
b = the average daily number of shares outstanding
during the period that were entitled to receive
dividends multiplied by the maximum offering
price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Portfolio computes the yield to maturity of each obligation
held by a Portfolio based on the market value of the obligation (including
actual accrued interest) at the close of the last business day of the
preceding period, or, with respect to obligations purchased during the
period, the purchase price (plus actual accrued interest). The yield to
maturity is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) to determine the
interest income on the obligation for each day of the period that the
obligation is in the portfolio. Dividend income is recognized daily based on
published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to
monthly payments of principal and interest ("paydowns"), a Portfolio
accounts for gain or loss attributable to actual monthly paydowns as a
realized capital gain or loss during the period. Each Portfolio has elected
not to amortize discount or premium on such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the
end of the base period, has not been declared as a dividend, but is
reasonably expected to be declared as a dividend shortly thereafter.
Yield information is useful in reviewing a Portfolio's performance, but
because yields fluctuate, such information cannot necessarily be used to
compare an investment in a Portfolio's shares with bank deposits, savings
accounts and similar investment alternatives which are insured and/or often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is a function of the kind and
quality of the instruments in the portfolio, portfolio maturity and
operating expenses and market conditions.
The tables below present the average annual returns for all Portfolios
except the Money Market Portfolio and the yields for the High Yield
Portfolio, and the Income Portfolio for the indicated periods ended December
31, 1998.
<TABLE>
<CAPTION>
Current
SEC Average Annual Total Returns as of 12/31/98 Date
Yield --------------------------------------------- of
Portfolio 12/31/98 1-Year 5-Years 10-Years Inception Inception
- -------------------------- -------- ------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Opportunity Growth Portfolio n/a -2.99% n/a n/a 5.36% 01/18/96
Mid Cap Growth Portfolio n/a n/a n/a n/a 11.62% 01/30/98
World Growth Portfolio n/a 16.75% n/a n/a 9.99% 01/18/96
Growth Portfolio n/a 28.38% 21.76% 18.77% n/a --
High Yield Portfolio 10.82% -1.50% 7.47% 11.01% n/a --
Income Portfolio 5.59% 9.37% 6.92% 9.36% n/a --
</TABLE>
YIELD - MONEY MARKET PORTFOLIO
When the Money Market Portfolio quotes a "current annualized" yield, it
is based on a specified recent seven calendar-day period. It is computed by
(1) determining the net change, exclusive of capital changes, in the value
of a hypothetical preexisting account having a balance of one share at the
beginning of the period, (2) dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
return, then (3) multiplying the base period by 52.14 (365 divided by 7).
The resulting yield figure is carried to the nearest hundredth of one
percent.
The calculation includes (1) the value of additional shares purchased
with dividends on the original share, and dividends declared on both the
original share and any such additional shares, and (2) all fees charge to
all shareholder accounts, in proportion to the length of the base period.
The capital changes excluded from the calculation are realized capital
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The Portfolio's effective (compounded) yield will be computed
by dividing the seven-day annualized yield as defined above by 365, adding 1
to the quotient, raising the sum to the 365th power, and subtracting 1 from
the result.
Current and effective yields fluctuate daily and will vary with factors
such as interest rates and the quality, length of maturities, and type of
investments in the portfolio.
Money Market
Portfolio
----------
Annualized Current Yield For 7-day Period Ended 12/31/98 4.84%
Effective Yield For 7-day Period Ended 12/31/98 4.95%
NONSTANDARDIZED TOTAL RETURN
A Portfolio may provide the above described average annual total return
results for periods which end no earlier than the most recent calendar
quarter end and which begin one, five and ten years before such quarter end
and at the commencement of such Portfolio's operations. In addition, a
Portfolio may provide nonstandardized total return results for differing
periods, such as for the most recent six months, and/or without taking sales
charges into account. Such nonstandardized total return is computed as
otherwise described under "Total Return" except that the result may or may
not be annualized, and as noted any applicable sales charge may not be taken
into account and therefore not deducted from the hypothetical initial
payment of $1,000.
DESCRIPTION OF DEBT RATINGS
Moody's Investors Service, Inc. describes grades of corporate debt
securities and "Prime-1" and "Prime-2" commercial paper as follows:
BONDS:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
COMMERCIAL PAPER:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return of funds employed.
o Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of senior short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earning trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's Corporation describes grades of corporate debt
securities and "A" commercial paper as follows:
BONDS:
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher rated categories. However, the obligor's capacity to meet
its financial commitments on the obligation is still strong.
BBB Debt rated BBB exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitments on the obligation in this category than in higher rated
categories.
BB Debt rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity of the obligor to meet its
financial commitments on the obligation. The BB rating category is
also used for debt subordinated to senior debt that is assigned an
actual or implied BBB-rating.
B Debt rated B is more vulnerable to nonpayment but currently has the
capacity to meet its financial commitments on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial
commitments on the obligation.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC is vulnerable to nonpayment, and is dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitments on the obligation.
The CCC rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied B or B- rating.
CC The rating CC typically is currently highly vulnerable to
nonpayment.
C The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken but payments on the
obligation are being continued.
D Debt rated D is in payment default. The D rating category is used
when payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or the taking
of similar action if payments on the obligation are jeopardized.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise judgment with respect to such likelihood and
risk.
Commercial Paper: Commercial paper rated A by Standard & Poor's
Corporation has the following characteristics: liquidity ratios are better
than the industry average; long-term senior debt rating is "A" or better
(however, in some cases a "BBB" long-term rating may be acceptable); the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowances made for unusual
circumstances. Also, the issuer's industry typically is well established,
the issuer has a strong position within its industry and the reliability and
quality of management is unquestioned. Issuers rated A are further referred
to by use of numbers 1, 2 and 3 to denote relative strength within this
classification.
REPORT OF INDEPENDENT ACCOUNTANTS
AND FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders for the fiscal year ended December 31,
1998 of the Fund are a separate report to be furnished with this Statement
of Additional Information and are incorporated herein by reference.
<PAGE>
LB SERIES FUND, INC.
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits
(a) Articles of Incorporation of the Registrant (6)
(b) By-Laws of the Registrant (3)(6)(7)
(c) Not applicable
(d)(1) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp. (6)
(d)(2) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood. (6)
(d)(3) Form of Sub-Advisory Agreement between Lutheran Brotherhood,
the Registrant and Rowe Price-Fleming International, Inc. (1)
(d)(4) Form of Sub-Advisory Agreement between Lutheran Brotherhood,
the Registrant and T. Rowe Price Associates, Inc. (5)
(e) Not Applicable
(f) Not applicable
(g)(1) Custodian Contract between the Registrant and State
Street Bank and Trust Company (6)
(g)(2) Transfer Agency Agreement between the Registrant and
State Street Bank and Trust Company (6)
(g)(3) Amendment to Custodian Contract dated February 1, 1989 (1)
(g)(4) Amendment to Custodian Contract dated January 11, 1990 (1)
(g)(5) Amendment to Custodian Contract dated March 15, 1995 (1)
(g)(6) Letter Agreement between the Registrant and State Street
Bank and Trust Company regarding the Opportunity Growth Portfolio
and the World Growth Portfolio (2)
(g)(7) Form of Letter Agreement between the Registrant and State Street
Bank and Trust Company regarding the Mid Cap Growth Portfolio (3)
(h) Reimbursement Agreement between the Registrant, Lutheran
Brotherhood, and Lutheran Brotherhood Variable Insurance Products
Company (7)
(i) Opinion and consent of counsel (7)
(j) Consent of independent accountants (7)
(k) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
(A) Financial Highlights for the Opportunity
Growth Portfolio for the fiscal year ended December 31, 1998
(B) Financial Highlights for the Mid Cap
Growth Portfolio for the fiscal year ended December 31, 1998
(C) Financial Highlights for the World
Growth Portfolio for the fiscal year ended December 31, 1998
(D) Financial Highlights for the Growth Portfolio
for the fiscal year ended December 31, 1998
(E) Financial Highlights for the High Yield
Portfolio for the fiscal year ended December 31, 1998
(F) Financial Highlights for the Income
Portfolio for the fiscal year ended December 31, 1998
(G) Financial Highlights for the Money
Market Portfolio for the fiscal year ended December 31, 1998
Financial Statements included in the Annual Report for
Variable Products for the period ended December 31, 1998 as
incorporated by reference into PART B (Statement of
Additional Information) of this Registration Statement for
the Opportunity Growth Portfolio, the Mid Cap Growth
Portfolio, the World Growth Portfolio, the Growth Portfolio,
the High Yield Portfolio, the Income Portfolio, and the
Money Market Portfolio:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements (including Financial
Highlights referenced to the Prospecuts)
Report of Independent Accountants (7)
(l)(1) Letter from Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP")with respect to providing initial capital. (6)
(l)(2) Letter from Lutheran Brotherhood with respect to providing
initial capital to the Opportunity Growth Portfolio (2)
(l)(3) Letter from Lutheran Brotherhood with respect to providing
initial capital to the World Growth Portfolio (2)
(l)(4) Letter from Lutheran Brotherhood Variable Insurance Products
Company with respect to providing initial capital to the
Opportunity Growth Portfolio (2)
(l)(5) Letter from Lutheran Brotherhood Variable Insurance Products
Company with respect to providing initial capital to the World
Growth Portfolio (2)
(l)(6) Letter from Lutheran Brotherhood with respect to providing
initial capital to the Mid Cap Growth Portfolio (3)
(l)(7) Letter from Lutheran Brotherhood Variable Insurance Products
Company with respect to providing initial capital Letter
with respect to the Mid Cap Growth Portfolio (3)
(m) Not applicable
(n) Financial Data Schedules (7)
(o) Powers of Attorney for Rolf F. Bjelland, Herbert F. Eggerding,
Jr., Noel K. Estenson, Jodi L. Harpstead, Richard A. Hauser,
Connie M. Levi, Bruce J. Nicholson, Ruth E. Randall, and Wade M.
Voigt. (7)
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
(1) Post-effective Amendment No. 14 November 1, 1995
(2) Post-effective Amendment No. 15 January 17, 1996
(3) Post-effective Amendment No. 18 November 12, 1997
(4) Post-effective Amendment No. 19 January 30, 1998
(5) Post-effective Amendment No. 21 March 13, 1998
(6) Post-effective Amendment No. 22 April 27, 1998
(7) Filed herewith
Item 24. Persons Controlled by or under Common Control with Registrant
- ----------------------------------------------------------------------
None.
Item 25. Indemnification
- ------------------------
Filed as part of the initial Registration Statement filed on March 3, 1986,
and incorporated herein by reference.
Item 26. Business and Other Connections of Investment Adviser
- -------------------------------------------------------------
The Adviser has been engaged in the management of its own investment
portfolio since 1917, and has been a registered investment adviser since
1989. The Adviser's own assets were approximately $12.0 billion on December
31, 1998. The Adviser also has owned a subsidiary investment advisory
company since 1970 that acts as investment adviser to eight mutual funds
which are each a series of a registered investment company with combined net
assets of approximately $11.4 billion on December 31, 1998.
The directors and officers of the Adviser are listed below, together
with their principal occupations during the past two years. (Their titles
may have varied during that period.)
Directors:
Robert O. Blomquist, Chairman and Director of Lutheran Brotherhood;
Richard W. Duesenberg, Director;
Director of Liberty Fund, Indianapolis, IN; Formerly Senior Vice
President, General Counsel and Secretary of Monsanto Company, St.
Louis, MO.
Robert P. Gandrud, President & Chief Executive Officer and Director of
Lutheran Brotherhood.
Bobby I. Griffin; Director
Executive Vice President of Medtronic, Inc.; President, Medtronic
Pacing Business, Fridley, MN.
William R. Halling, Director;
Director and President of The Economic Club of Detroit, Detroit, MI;
Director of SelectCare, Inc., Troy, MI; Director of Compuware
Corporation, Farmington Hills, MI; Director of Detroit Legal News,
Detroit, MI; Director of Standard Federal Bank, Troy, MI.
James M. Hushagen, Director
Attorney-at-Law, Tacoma, Washington.
Herbert D. Ihle, Director;
Formerly President of Diversified Financial Consultants, Marco Island,
FL and Eden Prarie, MN.
Richard C. Kessler, Director;
President of the Kessler Enterprise, Inc., 12205 Apopka Vineland Road,
Orlando, FL.
Judith K. Larson, Director;
Vice President of AC Nielsen, Schaumburg, IL; formerly Vice President
of Dataquest, San Jose, CA.
Luther S. Luedtke, Director
President, California Lutheran University, Thousand Oaks, California
John P. McDaniel, Director;
President and Chief Executive Officer of Medlantic Healthcare Group,
100 Irving Street N.W., Washington, DC.
Mary Ellen H. Schmider, Director;
Formerly Dean of Graduate Studies - Coordinator of Grants, Moorhead
State University, Moorhead, MN.
Albert Siu, Director;
Vice President, AT&T, 19 School House Road Room A107, Somerset, NJ.
Officers:
Robert P. Gandrud, President and Chief Executive Officer
Bruce J. Nicholson, Executive Vice President and Chief Operating Officer
David W. Angstadt, Executive Vice President and Chief Marketing Officer
Rolf F. Bjelland, Executive Vice President
William H. Reichwald, Executive Vice President
David J. Larson, Senior Vice President, Secretary and General Counsel
Jerald E. Sourdiff, Senior Vice President and Chief Financial Officer
David K. Stewart, Vice President and Treasurer
J. Keith Both, Senior Vice President
Edward A. Lindell, Senior Vice President
Michael E. Loken, Senior Vice President
James R. Olson, Senior Vice President
Jennifer H. Smith, Senior Vice President
Daniel G. Walseth, Senior Vice President
Mary M. Abbey, Vice President
Galen R. Becklin, Vice President
Larry A. Borlaug, Vice President
Collen Both, Vice President
Randall L. Boushek, Vice President
Michael R. Braun, Vice President
David J. Christianson, Vice President
Pamela H. Desnick, Vice President
Nathan A. Dungan, Vice President
Mitchell F. Felchle, Vice President
Charles E. Heeren, Vice President
Wayne A. Hellbusch, Vice President
Otis F. Hilbert, Vice President
Roger W. Howe, Vice Presidet
Gary J. Kallsen, Vice President
Fred O. Konrath, Vice President
Douglas B. Miller, Vice President
C. Theodore Molen, Vice President
Susan Oberman Smith, Vice President
Kay J. Owen, Vice President
Dennis K. Peterson, Vice President
Bruce M. Piltingsrud, Vice President
Richard B. Ruckdashel, Vice President
Rolf H. Running, Vice President
Lynette J.C. Stertz, Vice President
John O. Swanson, Vice President
Louise K. Thoreson, Vice President
James M. Walline, Vice President
Anita J. T. Young, Vice President
Except where noted otherwise, the business address of each of the above
directors and officers employed by Lutheran Brotherhood is 625 Fourth Avenue
South, Minneapolis, Minnesota 55415.
The business and other connections of the officers and directors of T. Rowe
Price Associates, Inc. ("Sub-advisor for Opportunity Growth Portfolio") are
set forth in the Form ADV of Sub-advisor currently on file with the
Securities and Exchange Commission (File No.801-856).
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor for World Growth Portfolio")
are set forth in the Form ADV of Sub-advisor currently on file with the
Securities and Exchange Commission (File No. 801-14713)
Item 27. Principal Underwriters
- -------------------------------
Not Applicable
Item 28. Location of Accounts and Records
- -----------------------------------------
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company
Act of 1940 at its principal executive offices at 625 Fourth Avenue South,
Minneapolis, Minnesota 55415. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 under the Investment Company Act of
1940 by the Registrant's transfer agent or custodian at the following
locations:
Name Address
---- -------
Lutheran Brotherhood Securities Corp. 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Norwest Bank Minnesota, N.A. Sixth and Marquette Avenue
Minneapolis, Minnesota 55402
State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110
Item 29. Management Services
- ----------------------------
Not Applicable.
Item 30. Undertakings
- ---------------------
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has
duly caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of
Minneapolis and State of Minnesota, on the 25th day of February, 1999.
LB SERIES FUND, INC.
By: /s/ John C. Bjork
-------------------------------
John C. Bjork,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
* Director and President February 25, 1999
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer February 25, 1999
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Director February 25, 1999
- -------------------------
Herbert F. Eggerding, Jr.
* Director February 25, 1999
- -------------------------
Noel K. Estenson
* Director February 25, 1999
- -------------------------
Jodi L. Harpstead
* Director February 25, 1999
- -------------------------
Richard A. Hauser
* Director February 25, 1999
- ------------------------
Connie M. Levi
* Director February 25, 1999
- ------------------------
Bruce J. Nicholson
* Director February 25, 1999
- ------------------------
Ruth E. Randall
By: /s/ John C. Bjork
----------------------------
John C. Bjork,
Attorney-in-Fact Under Powers
of Attorney filed herewith.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Item
- ----------- -----------------------------------------------------
(b) By-laws of the Registrant
(h) Reimbursement Agreement
(i) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(k) Annual Report for period ended December 31, 1998
(n) Financial Data Schedules
(p) Powers of Attorney for:
Rolf F. Bjelland, Wade M. Voigt, Herbert F. Eggerding,
Jr., Noel K. Estenson, Jodi L. Harpstead, Richard A.
Hauser, Connie M. Levi, Bruce J. Nicholson, and Ruth E.
Randall
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[GRAPHIC OMITTED: 7 SOLID SQUARE BULLETS]
- -------------------------------------------
LB SERIES FUND, INC.
- -------------------------------------------
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Curved copy within art reads:
CHOICE [BULLET] PROTECTION [BULLET] ACCUMULATION
December 31, 1998
Annual Report for Variable Products
[GRAPHIC OMITTED: LUTHERAN BROTHERHOOD LOGO]
Our Message To You
February 1999
[PHOTO OF MR. BJELLAND OMITTED]
Dear Contract Owner:
Enclosed is the LB Series Fund, Inc. Annual Report covering the 12-month
period ending December 31, 1998. LB Series Fund, Inc. 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.
On the following pages we review the major economic issues that
influenced the investment markets in 1998, as well as the strategies our
portfolio managers used to navigate the volatile markets of the past
year. We also provide you with each portfolio's performance history and
top 10 holdings. And, on pages 18-20, you'll find summaries of the two
LB Series Fund shareholder meetings that were held during 1998.
Year 1998 put many long-term investment strategies to the test. Last
summer's sharp downturn in stock prices prompted some investors to sell
corporate securities in hopes of avoiding losses by timing the markets.
Unfortunately, these tactics often had a reverse effect, with many
market participants selling their holdings during market downdrafts,
only to re-enter the market when prices had already risen. Those with
the discipline to endure the markets' ups and downs, however, were amply
rewarded for their patience. By the end of the year, stock prices
rebounded impressively from their October lows and liquidity in the
corporate bond markets improved steadily, as well.
Strong U.S. economic growth, combined with low levels of inflation and
interest rates, should provide fertile ground for future gains in the
broad market. At the same time, however, there are also signs of
overvaluation in some sectors of the equities markets, particularly in
the area of technology growth stocks. This could signal further market
corrections on the horizon in order for companies' earnings to "catch
up" with their stock valuations.
The normal cyclical nature of the financial markets necessitates
occasional market corrections. If the prospect of potential market
turbulence puts you ill at ease, contact your LBSC registered
representative for a review of your investment strategy. Using Lutheran
Brotherhood's AssetMatchSM program, your LBSC registered representative
can make sure that your asset allocation strategy is in line with your
risk temperament and time horizon.
Programs like AssetMatch are a result of Lutheran Brotherhood's
commitment to continually add value to the products and services we
provide our members. In the past year we also added the Mid Cap Growth
Portfolio to the LB Series Fund, Inc. The Mid Cap Growth Portfolio
invests primarily in common stocks of medium-sized companies, which
often have greater potential for growth than larger firms. Lutheran
Brotherhood members have reacted enthusiastically to this addition,
helping the Mid Cap Growth Portfolio grow to over $95 million in net
assets as of December 31, 1998.
We are also in the process of redrafting our LB Series Fund, Inc. and
variable products prospectuses with clear, concise "plain English"
language, increased use of charts and graphs, and other features to
better communicate the essential information that investors need to
know. You will receive these updated prospectuses in the mail in early
May 1999.
As always, we remain committed to providing Lutheran Brotherhood members
with high-quality products and customer service, as well as accurate and
timely investment information. If you would like information on variable
annuity unit values, call 1-800-328-4552, option 3. For customer service
support, call our new toll-free number, 1-800-990-6290.
Thank you for investing with us. We're pleased to include you among the
growing ranks of investors who put their trust in Lutheran Brotherhood.
Sincerely,
[/s/Rolf F. Bjelland]
Rolf F. Bjelland
President and Chairman
LB Series Fund, Inc.
Economic and Market Overview December 31, 1998
Following a late-summer meltdown, the financial markets staged a
remarkable recovery in the latter part of the 12-month fiscal period
ending December 31, 1998. After delivering strong returns early in 1998,
stock prices began a downward slide in July, fueled by international
financial turmoil. By mid-October, demand for corporate bonds was
lagging and equity valuations had dropped significantly, briefly
interrupting the record bull market that began in 1990. Amid fears of a
looming U.S. recession, many investors shifted assets from riskier
corporate securities into safe U.S. Treasury bonds and cash management
accounts.
In an effort to ease investor fears, the U.S. Federal Reserve enacted
three separate interest rate cuts in September, October and November.
With the extra cash these rate cuts infused into the U.S. economy, the
stock markets responded quite positively, posting impressive gains in
the last quarter. By year-end, the major equity indexes had surged past
their all-time highs, including the large-company Standard & Poor's 500
Index, which gained over 20% for the fourth straight year. High-quality
corporate bond prices also rebounded strongly, though demand for high-
yield corporate issues remained sluggish by comparison.
Economy
The U.S. economic machine continued its impressive momentum in the face
of recessionary conditions in East Asia, currency problems in Russia,
and slowing growth elsewhere around the world. As of December, the
economic expansion which began in April 1991 became the second-longest
in U.S. economic history. In the fourth quarter of 1998, the U.S. gross
domestic product grew at an estimated 4.10% from the previous year,
according to statistics released by the U.S. Department of Commerce on
January 29, 1999. Strong levels of consumer spending and residential
construction were largely responsible for these gains.
Despite robust economic conditions, both inflation and interest rates
remained at historically low levels. Consumer prices never rose more
than 2% from the previous year throughout all of 1998, and yields on the
benchmark 30-year U.S. Treasury bond dipped below 5% for the first time
ever. However, the United States was not completely isolated from dire
economic conditions elsewhere in the world. Weak export markets
contributed to falling farm incomes, low commodity prices, and an
increasing trade gap.
1998 also provided further evidence of a rapidly concentrating
industrial structure. Rising cost pressures and excess global industrial
capacity spawned a wave of corporate consolidations around the globe as,
one by one, industry titans once considered too large to merge announced
deals to join hands. In the U.S. alone, the total value of mergers and
acquisitions rose 78% in 1998. While these deals frequently provided
rewards to equity shareholders in the form of higher share prices, they
also led to wide-scale corporate downsizing and job losses. Fortunately,
a low national unemployment rate of just over four percent took some of
the sting out of job layoffs.
Sector Performance
Throughout most of the year, equity market gains were disproportionately
in the hands of large, growth-company stockholders, as investors
continued to place a premium on the name recognition, liquidity, and
reliable earnings histories of larger companies. The strong performance
of health care and retailing stocks, coupled with frenetic bidding for
Internet and technology stocks, helped push the large-company S&P 500 to
a 28.59% total return in 1998, outpacing by over 10% the Dow Jones
Industrial Average, which returned 18.12% for the 12-month period.
Total return for the Russell 2000 Index of small-capitalization stocks
was -2.55% for the year, though the performance of small-cap issues
improved markedly following the Federal Reserve Board's lowering of
short-term interest rates. Meanwhile, a strong fourth quarter rally in
the performance of mid-cap stocks helped boost the S&P 400 Midcap Index
to an 18.25% total return for the year. Strong gains in Europe accounted
for much of the 20.33% gain in the Morgan Stanley EAFE Index, while
growth in most areas of East Asia and Latin America remained stagnant.
The investment-grade sector of the bond market performed well in 1998,
spurred on by strong investor demand for U.S. Treasury bonds and high-
quality corporate issues. However, economic uncertainties abroad
resulted in weakening demand for high-yield corporate issues, pulling
down market prices, but resulting in higher current yields for new
investors. For the 12-month period, the Lehman Brothers Aggregate Bond
Index returned 8.69%, while the Lehman Brothers High Yield Index lagged
at 1.87%.
Challenges in the Year Ahead
In the coming year, attention to Year 2000 ("Y2K") computer fixes will
reach a fever pitch as corporations and units of government prepare for
the new millenium. This issue centers around the ability of computers
and other date-sensitive components to accurately distinguish dates in
their program codes for the year 2000 and beyond. While no organization
can promise to be totally Y2K compliant, Lutheran Brotherhood has
allocated significant resources to update and test our critical computer
systems. Additionally, we have incorporated the Y2K issue into
investment research, reviewing the Y2K compliance efforts of securities
issuers and weighing the risks of non-compliance with the other risks of
investing. Though no investment manager can insure against securities
price declines relating to Y2K, we are committed to taking steps to
minimize its impact on Lutheran Brotherhood's investment portfolios.
Currency issues could also have an effect on European markets over the
coming year. The nations of the European Economic and Monetary Union
(EMU) are adapting to the introduction of a common European currency,
the Euro, introduced in January 1999. Circulation of existing currencies
in these countries will gradually be reduced until the Euro becomes the
sole currency among EMU member nations on January 1, 2002. Though
advancement of the EMU is generally considered a positive influence for
European investments, conversion to the Euro presents both challenges
and opportunities for European companies, and the ultimate effect of
this transition on global financial markets remains unclear.
Outlook
There are a few concerns surrounding the U.S. equities markets,
including extremely high valuations in the technology sector and
disproportionate sector returns. In 1998, approximately 40 percent of
the stocks included in the S&P 500 finished the year with negative
returns, while five stocks alone accounted for one-fourth of the Index's
total return. Consequently, the direction of the equities markets in the
coming year could depend, in part, on whether or not technology and
large, growth companies can produce earnings commensurate with their
soaring stock valuations.
Many parts of the world are expected to experience slow economic growth
in the coming year, particularly Russia and the economies of Southeast
Asia. Additionally, there are fears that Brazil's recently devalued
currency could drag Latin America into recession. Fortunately, the U.S.
remains economically vibrant, consumer confidence is high and, with the
Federal Reserve's easing of monetary policy, prospects for future
economic growth are good.
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Curved copy within art reads:
CHOICE [BULLET] PROTECTION [BULLET] ACCUMULATION
Opportunity Growth Portfolio Review
[GRAPHIC OMITTED: PHOTO OF Richard T. Whitney]
Richard T. Whitney is portfolio manager of the Opportunity Growth
Portfolio and a managing director of T. Rowe Price Associates, the
investment subadvisor for the Portfolio. Rich has been with T. Rowe
Price since 1985 and heads the firm's investment advisory committee.
Rich is a Chartered Financial Analyst.
Stocks of small companies significantly underperformed shares of larger
firms in the 12 months ended December 31, 1998, as investors sought
issues with stronger liquidity and reliable earnings. Among the hardest
hit were stocks with the smallest market capitalizations (which are
calculated by multiplying the number of stock shares outstanding by the
price for those shares). By moving into stocks at the larger end of the
small-company spectrum, and by emphasizing the better-performing small-
cap growth sector over small-cap value shares, we helped the Opportunity
Growth Portfolio maintain a competitive position in this difficult
market environment.
[GRAPHIC OMITTED: Top 10 Holdings]
Top 10 Holdings % of Portfolio
Citrix Systems, Inc. 0.8%
Concord EFS, Inc. 0.8%
Symbol Technologies, Inc. 0.8%
NOVA Corp. 0.8%
Sanmina Corp. 0.7%
E*TRADE Group, Inc. 0.7%
Insight Enterprise, Inc. 0.7%
Orbital Sciences Corp. 0.7%
HBO & Co. 0.7%
NCO Group, Inc. 0.6%
Footnote reads:
These holdings represent 7.3% of the Portfolio's total investments.
During the reporting period, the Portfolio had a total return (based on
NAV) of -2.99%. Over the same time, the Portfolio's market benchmark,
the Russell 2000 Index, had a return of -2.55%.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Common Stocks 97.1%
Short-Term Securities 2.9%
Adding Stability in a Volatile Market
When the year began, the Opportunity Growth Portfolio was overweighted
in stocks with market capitalizations under $250 million as compared to
the Russell 2000 Index. As investors continued to move away from these
issues, we added investments in small-cap stocks with greater
capitalizations and sold stocks with capitalizations of $200 million or
less. This strategy helped to stabilize the Portfolio's returns as the
small-company market fell nearly 40% between April and October of 1998.
To give the Portfolio added stability, we increased positions in
consumer growth stocks, which benefited from the highest level of
consumer confidence in several decades. We also boosted positions in
stocks of media and telecommunications firms, which we expect to enjoy
strong growth over time, as well as positions in stocks of financial
firms. These changes were especially beneficial to the Portfolio's
performance when small-cap stocks rebounded in the fourth quarter of
1998.
With investors uncertain where the economy was headed, we reduced the
Portfolio's exposure to economically sensitive sectors, including shares
of capital goods, energy, and basic materials firms. By the end of
December these and other changes increased the median five-year
projected earnings growth rate for stocks in the Portfolio to 23.6%.
That compares to a median rate of 17.5% for stocks in the Russell 2000
Index.
[GRAPHIC OMITTED: Top 10 Sectors]
Top 10 Sectors
Computer Software 17.4%
Business Services 9.3%
Retail 8.6%
Bank & Finance 6.8%
Media & Communications 5.7%
Hospital Supplies & Management 5.6%
Electronic Components 5.1%
Pharmaceuticals 2.9%
Telecommunications Equipment 2.8%
Distribution Services 2.6%
Footnote reads:
These sectors represent 66.8% of the Portfolio's total investments.
LB Series Fund, Inc.
Opportunity Growth Portfolio seeks long-term growth of capital by
investing primarily in common stocks of small companies.
Portfolio Facts
Inception Date: 1/18/96
Total Net Assets
(in millions): $372.2
Attractive Opportunities
Despite a 16.31% gain in the Russell 2000 Index in 1998's final quarter
- -- one of the Index's best quarterly returns since it was created in
1986 -- relative valuations for small-cap stocks remain near 40-year
lows. Meanwhile, the earnings of small-cap firms have been mostly
sheltered from the foreign economic problems that have hurt the earnings
of large, multinational firms. Historically, valuations like these have
signaled attractive opportunities for investing in small-cap growth
companies.
Nonetheless, small-cap stocks sometimes remain cheap for extended
periods, especially when investors expect economic growth to weaken.
Thus, the small-cap sector could continue to underperform until
investors are confident that growth will strengthen. Once economic
expectations improve, and stocks enjoy a broader, sustained rally,
small-cap shares could emerge as the new market leaders.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000 Invested Since 1/31/96]
Performance Through December 31, 1998
Growth of $10,000 Invested Since 1/31/96
Opportunity Russell Consumer
Growth 2000 Price
Date Portfolio Index Index
- ---- ----------- ------- --------
1996 10,000 10,000 10,000
1996 10,416 10,312 10,030
1996 10,722 10,525 10,080
1996 11,944 11,089 10,120
1996 12,716 11,525 10,140
1996 11,871 11,052 10,150
1996 10,855 10,087 10,170
1996 11,499 10,673 10,190
1996 12,342 11,090 10,220
1996 11,364 10,920 10,250
1996 10,954 11,369 10,270
1996 11,302 11,667 10,270
1997 11,528 11,901 10,300
1997 10,533 11,613 10,340
1997 9,415 11,065 10,360
1997 9,009 11,095 10,380
1997 10,338 12,329 10,370
1997 10,887 12,858 10,380
1997 11,454 13,456 10,400
1997 11,721 13,764 10,410
1997 13,018 14,772 10,440
1997 12,246 14,123 10,470
1997 11,776 14,032 10,460
1997 11,407 14,277 10,450
1998 11,063 14,052 10,470
1998 11,739 15,090 10,490
1998 12,175 15,712 10,510
1998 12,216 15,798 10,520
1998 11,219 14,947 10,540
1998 11,305 14,978 10,560
1998 10,451 13,765 10,570
1998 8,200 11,094 10,580
1998 8,812 11,963 10,600
1998 9,345 12,451 10,620
1998 9,990 13,104 10,620
1998 $11,066 $13,915 $10,610
*See accompanying notes to Portfolio Management Reviews.
[INSET BOX ON CHART READS:]
Opportunity Growth
Portfolio
Annualized Total Returns*
- -------------------------
Since Inception
1/18/96 5.36%
1 Year -2.99%
Mid Cap Growth Portfolio Review
[GRAPHIC OMITTED: PHOTO OF Brian L. Thorkelson]
Brian L. Thorkelson is 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.
In a climate where economic uncertainty caused investors to favor stocks
with strong liquidity and reliable earnings, stocks of mid-sized
companies outperformed stocks with smaller market capitalizations but
significantly underperformed large-capitalization issues during 1998.
(Market capitalization is calculated by multiplying the number of stock
shares outstanding by the price of those shares.) During the reporting
period, the Mid Cap Growth Portfolio benefited from emphasizing stocks
of quality mid-cap companies, whose prices were reasonable in light of
their strong potential for long-term growth.
Although the Portfolio earned a solid return for the period, it
underperformed its market benchmark, the Standard & Poor's 400 MidCap
Index. This is, in part, attributable to the portion of the Portfolio's
assets that were held in cash reserves early in the period as we waited
to make attractive investments that were appropriate to the young
Portfolio's size. Of course, the Index, as a pure measure of market
values, reflects no such holdings in cash reserves. In addition, one-
third of the S&P 400's 1998 return came from just one of its 400 stocks.
That stock represented more than 7% of the value of the Index -- a level
that diversified mutual funds (which must not exceed 5% of holdings in
any single issuer) are prohibited from matching.
[GRAPHIC OMITTED: Top 10 Holdings]
Top 10 Holdings % of Portfolio
America Online, Inc. 1.5%
Staples, Inc. 0.9%
Office Depot, Inc. 0.8%
Clear Channel Communications, Inc. 0.8%
Watson Pharmaceuticals, Inc. 0.7%
TJX Companies, Inc. 0.7%
Fiserv, Inc. 0.7%
Outdoor Systems, Inc. 0.6%
Compuware Corp. 0.6%
Ascend Communications, Inc. 0.6%
Footnote reads:
These holdings represent 7.9% of the Portfolio's total investments.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Common Stocks 95.6%
Short-Term Securities 4.4%
Between the Portfolio's inception on January 30, 1998, and the end of
the reporting period on December 31, 1998, the Portfolio had a total
return (based on NAV) of 11.62%. Over the same 11-month period, the S&P
400 MidCap Index had a return of 21.42%.
Technology Stocks Strong Performers
With investors concerned about economies here and abroad, we tilted the
Portfolio's investments toward companies that focus on domestic sales,
giving extra attention to stocks of technology, consumer growth, and
financial firms. Technology stocks, particularly those of computer
software and semiconductor firms, significantly improved the Portfolio's
returns, along with shares of retail firms. These performances helped
offset disappointing returns from basic materials and energy shares.
During the summer of 1998, when economic problems overseas threatened
financial firms around the world, we trimmed the Portfolio's holdings in
the financial sector. As stock prices corrected late in the summer, we
found many attractive opportunities to put the Portfolio's cash to work.
These investments included financial, technology and consumer growth
shares, which continued to perform well when stocks rebounded. At the
end of December, the Portfolio was overweighted in technology,
biotechnology, healthcare and energy stocks versus its market benchmark
and underweighted in shares of basic materials firms.
LB Series Fund, Inc.
Mid Cap Growth Portfolio seeks long-term growth of capital by investing
primarily in common stocks of medium-sized companies.
Portfolio Facts
Inception Date: 1/30/98
Total Net Assets
(in millions): $95.7
Continued Focus on Growth
Even though the mid-cap sector has rallied strongly in recent months, it
remains attractively priced in comparison to large-cap shares. In
addition, mid-cap companies are generally experiencing better earnings
growth rates than large-cap firms. Mid-cap shares may continue to lag
the broader market while investors remain uncertain about near-term
economic growth. However, like small-cap stocks, the mid-cap sector
could outperform once investor confidence finds a solid footing.
In this environment, we plan to maintain our focus on companies with
strong growth prospects. This should mean a continued overweighting in
shares of technology and consumer growth firms, with special attention
to biotechnology and health care issues.
[GRAPHIC OMITTED: Top 10 Sectors]
Top 10 Sectors
Computer Software 10.7%
Retail 10.0%
Bank & Finance 8.8%
Computers & Office Equipment 7.9%
Drugs & Health Care 7.6%
Services 7.1%
Electronics 6.9%
Healthcare Management 3.9%
Telephone & Telecommunications 3.7%
Broadcasting 3.4%
Footnote reads:
These sectors represent 70.0% of the Portfolio's total investments.
Mid Cap Growth
Portfolio
Total Return*
Period Ending 12/31/98
- ----------------------
Since Inception
1/30/98 11.62%
*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 chief executive officer and vice chairman of Rowe
Price-Fleming International, the investment subadvisor for the World
Growth Portfolio. He heads the Portfolio's investment management team
and has done so since the Portfolio's inception in January 1996. Martin
has been working in research and investment management since 1968 and
has been with Rowe Price-Fleming since 1979.
The Asian financial crisis that started in the summer of 1997 deepened
during 1998, as Japan entered an economic recession. Economies in the
emerging markets of Russia and Latin America also weakened over this
time. While European economies continued to grow, stocks in the region
were restrained for most of the year by concerns about a worldwide
recession. Although foreign stocks retraced most of their gains during a
third quarter correction, a strong fourth quarter rebound led by shares
in Asian companies helped the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index earn a total return of 20.33%
for the 12 months ended December 31, 1998.
[GRAPHIC OMITTED: Top 10 Countries]
Top 10 Countries
United Kingdom 18.8%
Japan 16.8%
Netherlands 11.0%
France 10.7%
Switzerland 7.4%
Germany 7.2%
Italy 5.9%
Sweden 3.5%
Spain 3.1%
Australia 2.0%
Footnote reads:
These countries represent 86.4% of the Portfolio's total investments.
During the reporting period, we invested a smaller portion of the World
Growth Portfolio in Asian companies than that represented in the EAFE
Index, while simultaneously overweighting the Portfolio in European
investments compared to the Index. However, an underweighting in the
strongly performing markets of Finland and Germany, and an overweighting
in the lagging markets of Latin America, caused the Portfolio to
underperform its benchmark with a total return (based on NAV) of 16.75%.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Common Stocks & Warrants 95.9%
Short-Term Securities 3.4%
Preferred Stocks 0.7%
A Further Shift from Asia to Europe
When 1998 began, Asian stocks accounted for about 22% of Portfolio
assets, versus 33% of the EAFE Index. As economic conditions in the
region deteriorated, we continued to trim that part of the Portfolio.
These cuts, plus a decline in market value, reduced Asian stocks to 19%
of the Portfolio at the end of the year, versus 27% of the Index.
For the most part, we used the proceeds from sales of Asian stocks to
increase investments in Europe. During the first half of the year, we
added stocks of French, Italian, and German banks, as well as shares of
Royal Philips Electronics, a major Dutch electronics firm. In the third
quarter, we trimmed investments in several Japanese blue-chip companies.
This let us take advantage of weaker prices in European stocks to
further increase Portfolio positions in that region. As stocks rebounded
in the fourth quarter, we traded certain European holdings for shares of
other European firms that we felt had better promise. We also bought
stocks of two telecommunications firms in Asia.
[GRAPHIC OMITTED: Top 10 Holdings]
% of
Top 10 Holdings Country Portfolio
National Westminster Bank U.K. 2.9%
SmithKline Beecham plc U.K. 2.5%
Wolters Kluwer Netherlands 2.2%
Nestle Switzerland 2.0%
Glaxo Wellcome U.K. 1.8%
Kingfisher U.K. 1.7%
Eaux Cie Generale France 1.7%
Shell Transport & Trading U.K. 1.7%
ING Groep NV Netherlands 1.6%
Novartis AG Switzerland 1.5%
Footnote reads:
These holdings represent 19.6% of the Portfolio's total investments.
LB Series Fund, Inc.
World Growth Portfolio seeks long-term capital growth by investing
primarily in common stocks issued by established companies outside
of the United States.**
Portfolio Facts
Inception Date: 1/18/96
Total Net Assets
(in millions): $369.7
Focusing on Europe
With 70% of its investments in Europe, and 19% in Asia, we believe the
Portfolio is properly positioned for the months ahead. While Europe
faces the near-term uncertainties of the European Monetary Union and
deregulation of industry and trade, the region should benefit over time
from the corporate mergers and restructuring that are now taking place.
We continue to find stocks in that region that are reasonably priced
versus their companies' long-term potential for growth.
While we are encouraged by recent actions taken by the Japanese
government to stimulate its economy, we believe few companies are taking
the tough actions needed to reverse the recession there. Though other
Asian economies may be near bottom, we think stock prices in those
markets remain high relative to their prospects for growth in corporate
earnings. In Latin America, we remain convinced that there are many
attractive investment opportunities that can perform strongly once
economies in that region stabilize.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000 Invested Since 1/31/96]
Performance Through December 31, 1998
Growth of $10,000 Invested Since 1/31/96
World Growth MSCI EAFE Consumer
Date Portfolio Index Price Index
- ---- ------------ --------- -----------
1996 10,000 10,000 10,000
1996 9,974 10,036 10,030
1996 10,098 10,252 10,080
1996 10,355 10,552 10,120
1996 10,336 10,360 10,140
1996 10,468 10,421 10,150
1996 10,137 10,119 10,170
1996 10,290 10,143 10,190
1996 10,534 10,415 10,220
1996 10,481 10,311 10,250
1996 10,965 10,723 10,270
1996 11,025 10,588 10,270
1997 10,871 10,220 10,300
1997 10,983 10,389 10,340
1997 10,967 10,430 10,360
1997 11,035 10,487 10,380
1997 11,738 11,172 10,370
1997 12,239 11,791 10,380
1997 12,568 11,985 10,400
1997 11,433 11,092 10,410
1997 12,195 11,715 10,440
1997 11,306 10,816 10,470
1997 11,276 10,708 10,460
1997 11,335 10,805 10,450
1998 11,737 11,302 10,470
1998 12,423 12,030 10,490
1998 12,851 12,402 10,510
1998 12,952 12,503 10,520
1998 12,928 12,445 10,540
1998 12,924 12,542 10,560
1998 13,082 12,673 10,570
1998 11,483 11,105 10,580
1998 11,226 10,768 10,600
1998 12,223 11,893 10,620
1998 12,781 12,505 10,620
1998 $13,233 $13,002 $10,610
*See accompanying notes to Portfolio Management Reviews.
[INSET BOX ON CHART READS:]
World
Growth Portfolio
Annualized Total Returns*
- -------------------------
Since inception
1/18/96 9.99%
1 Year 16.75%
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.
Investors' preference for stocks of large, high-quality companies in
1998 benefited the Growth Portfolio, which focuses on such issues.
During the year, the Portfolio also gained from emphasizing such
strongly performing sectors as technology, finance, and consumer growth
and from de-emphasizing companies that trade heavily with the troubled
economies of Asia. These factors, plus strong gains from many individual
investments, helped the Portfolio earn strong returns that were
comparable to those of its market benchmark.
For the 12 months ended December 31, 1998, the Portfolio earned a total
return (based on NAV) of 28.38%. Over the same period, the Standard &
Poor's 500 Index returned 28.59%.
[GRAPHIC OMITTED: Top 10 Holdings]
Top 10 Holdings % of Portfolio
Microsoft Corp. 2.2%
Cisco Systems, Inc. 2.2%
Intel Corp. 2.1%
MCI Worldcom, Inc. 1.7%
General Electric Co. 1.7%
Pfizer, Inc. 1.5%
International Business Machines Corp. 1.3%
AT&T Corp. 1.3%
Wal-Mart Stores, Inc. 1.2%
Citigroup, Inc. 1.2%
Footnote reads:
These holdings represent 16.4% of the Portfolio's total investments.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Common Stocks & Warrants 94.5%
Short-Term Securities 5.5%
Adding Investments in Growth Sectors
During the year we increased the Portfolio's allocation in technology
stocks, with the addition of companies like America Online, Inc. and
Ascend Communications, Inc. and an increase in shares of Compaq Computer
Corp. We made some of these purchases at attractive prices when the
stock market corrected in the third quarter. Such opportunities, plus an
overweighting in technology shares versus the Portfolio's benchmark
index, proved especially beneficial when technology stocks led the
market rebound in the fourth quarter.
We also used periods of price weakness to add positions in retail
companies like Lowe's Companies Inc., Home Depot, Inc., and Circuit City
Stores, Inc. The Portfolio's weighting in telecommunication issues rose
in 1998 as well, with the introduction of service firms like ALLTEL
Corp. and Sprint Corp (PCS Group) and additions to its position in AT&T
Corp.
As investor uncertainty grew early in the year, we trimmed the
Portfolio's allocation in stocks that are particularly sensitive to
economic changes -- especially shares of capital goods, basic materials
and energy firms. This proved a prudent strategy, as basic materials and
energy shares lagged significantly during the year.
[GRAPHIC OMITTED: Top 10 Sectors]
Top 10 Sectors
Bank & Finance 14.9%
Drugs & Health Care 12.6%
Computers & Office Equipment 8.9%
Retail 8.0%
Telephone & Telecommunications 6.6%
Computer Software 5.9%
Electronics 4.4%
Oil & Oil Service 3.8%
Telecommunications Equipment 3.3%
Food & Beverage 3.1%
Footnote reads:
These sectors represent 71.5% of the Portfolio's total investments.
LB Series Fund, Inc.
Growth Portfolio seeks long-term growth of capital by investing
primarily in common stocks of established companies.
Portfolio Facts
Inception Date: 1/9/87
Total Net Assets
(in millions): $3,320.0
Growth Shares Should Continue to Lead
We expect that continued uncertainty about the economy should further
benefit the stocks of larger firms. We also believe that investors will
maintain their preference for companies with strong growth prospects.
This could help most of 1998's top-performing industry sectors
outperform once again in 1999. With its strong emphasis on technology
and consumer growth shares, the Portfolio is well positioned to make
the most of these trends.
As before, we will look for top-quality companies in industry sectors
that have the best potential for earnings improvements. For now, we also
plan to limit our exposure to economies abroad. Should it appear that
the U.S. economy is poised for a sustained period of growth, we may look
for opportunities in economically sensitive sectors, such as basic
materials or capital goods.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000 Invested Since 12/31/88]
Performance Through December 31, 1998
Growth of $10,000 Invested Since 12/31/88
Growth S & P 500 Consumer
Date Portfolio Index Price Index
- ---- --------- --------- -----------
1988 10,000 10,000 10,000
1989 10,636 10,742 10,050
1989 10,435 10,458 10,090
1989 10,701 10,707 10,150
1989 11,234 11,277 10,220
1989 11,671 11,710 10,270
1989 11,471 11,653 10,300
1989 12,445 12,716 10,320
1989 12,938 12,952 10,340
1989 13,007 12,900 10,370
1989 12,350 12,611 10,420
1989 12,619 12,856 10,450
1989 12,657 13,165 10,460
1990 11,673 12,294 10,570
1990 11,943 12,430 10,620
1990 12,336 12,767 10,680
1990 12,154 12,461 10,700
1990 13,448 13,650 10,720
1990 13,547 13,569 10,780
1990 13,273 13,535 10,820
1990 12,176 12,299 10,920
1990 11,405 11,703 11,010
1990 11,382 11,666 11,080
1990 12,084 12,405 11,100
1990 12,408 12,751 11,100
1991 13,207 13,320 11,170
1991 14,179 14,249 11,190
1991 14,553 14,600 11,200
1991 14,553 14,648 11,220
1991 15,332 15,258 11,250
1991 14,555 14,567 11,290
1991 15,350 15,263 11,300
1991 15,900 15,607 11,340
1991 15,761 15,347 11,390
1991 16,114 15,573 11,400
1991 15,573 14,926 11,440
1991 17,538 16,634 11,440
1992 17,503 16,343 11,460
1992 17,670 16,534 11,500
1992 17,234 16,213 11,560
1992 17,300 16,709 11,580
1992 17,444 16,766 11,590
1992 17,055 16,520 11,630
1992 17,623 17,216 11,660
1992 17,253 16,846 11,690
1992 17,491 17,042 11,730
1992 17,942 17,122 11,770
1992 18,844 17,680 11,780
1992 18,965 17,901 11,780
1993 19,292 18,067 11,830
1993 19,241 18,293 11,880
1993 19,776 18,680 11,920
1993 19,414 18,250 11,950
1993 19,915 18,708 11,970
1993 19,933 18,770 11,980
1993 19,877 18,714 11,980
1993 20,608 19,406 12,020
1993 20,797 19,256 12,040
1993 20,981 19,674 12,090
1993 20,417 19,466 12,100
1993 20,880 19,709 12,100
1994 21,536 20,393 12,130
1994 20,954 19,820 12,170
1994 19,937 18,960 12,220
1994 19,911 19,219 12,230
1994 19,936 19,502 12,240
1994 19,256 19,024 12,280
1994 19,715 19,669 12,320
1994 20,612 20,462 12,370
1994 20,278 19,958 12,400
1994 20,564 20,423 12,410
1994 19,756 19,666 12,420
1994 19,907 19,955 12,420
1995 20,345 20,488 12,470
1995 21,146 21,270 12,520
1995 21,748 21,906 12,560
1995 22,379 22,561 12,610
1995 23,070 23,430 12,630
1995 24,079 23,976 12,660
1995 25,370 24,788 12,660
1995 25,448 24,838 12,690
1995 26,243 25,884 12,710
1995 26,316 25,809 12,760
1995 27,280 26,921 12,750
1995 27,326 27,441 12,740
1996 27,988 28,393 12,810
1996 28,572 28,637 12,850
1996 28,672 28,918 12,920
1996 29,697 29,357 12,970
1996 30,351 30,082 13,000
1996 29,955 30,200 13,000
1996 28,666 28,877 13,030
1996 29,792 29,477 13,050
1996 31,604 31,131 13,100
1996 32,144 32,009 13,140
1996 34,188 34,416 13,160
1996 33,450 33,735 13,160
1997 35,662 35,863 13,200
1997 35,212 36,125 13,240
1997 33,555 34,637 13,280
1997 35,115 36,718 13,290
1997 37,604 38,925 13,290
1997 39,204 40,673 13,300
1997 42,675 43,910 13,320
1997 40,978 41,443 13,340
1997 43,247 43,726 13,380
1997 41,808 42,283 13,410
1997 42,939 44,224 13,400
1997 43,545 44,985 13,390
1998 43,849 45,502 13,410
1998 46,942 48,765 13,440
1998 49,310 51,266 13,460
1998 50,158 51,789 13,490
1998 48,944 50,867 13,510
1998 50,819 52,937 13,530
1998 50,264 52,387 13,540
1998 41,769 44,807 13,560
1998 44,932 47,665 13,580
1998 48,442 51,569 13,610
1998 51,596 54,684 13,610
1998 $55,901 $57,839 $13,600
*See accompanying notes to Portfolio Management Reviews.
[INSET BOX ON CHART READS:]
Growth Portfolio
Annualized Total Returns*
- -------------------------
10 Years 18.77%
5 Years 21.76%
1 Year 28.38%
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.
Prices for corporate bonds, like those for stocks, were more volatile in
1998 due to greater uncertainty over company earnings and world economic
stability. After performing strongly in the first quarter of the year,
when earnings outlooks were most positive, corporate bond prices
weakened as fears of slower growth prompted a "flight to quality." The
corporate bond sector also suffered as falling interest rates increased
supplies of new issues. Prices for high-yield corporates were
particularly vulnerable to these changes. Most high-yield issues
continued to produce strong income streams throughout the year, however,
which helped shore-up their declining returns.
During the year we used three primary strategies to give the High Yield
Portfolio greater price stability. First, we gave greater attention to
issues with higher credit quality. Second, we emphasized debt from
"defensive" industries (such as utilities and broadcasting) that are
generally less sensitive to changing economic conditions. Finally, we
increased holdings in investments with shorter maturities, which tend to
be less volatile than longer maturities during changing interest rate
environments. However, with large investments in bonds of
telecommunications firms, whose prices were volatile, the Portfolio
lagged its market benchmark index slightly for the reporting period.
[GRAPHIC OMITTED: Top 10 Holdings by Issuers]
Top 10 Holdings by Issuers % of Portfolio
Orion Network Systems, Inc. 1.3%
Intermedia Capital Partners 1.2%
MCI Worldcom, Inc. 1.2%
CSC Holdings, Inc. 1.0%
Nextel Communications, Inc. 1.0%
ICG Holdings, Inc. 0.9%
Jitney-Jungle Stores of America 0.9%
Primedia, Inc. 0.9%
Grupo Televisa S.A. 0.8%
Intermedia Communications, Inc. 0.8%
Footnote reads:
These holdings represent 10.0% of the Portfolio's total investments.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Corporate Bonds 85.2%
Short-Term Securities 2.0%
Non-Convertible Preferred Stocks 7.7%
Common Stocks & Stock Warrants 3.1%
Convertible Preferred Stocks 2.0%
During the 12 months ending December 31, 1998, the High Yield Portfolio
had a total return (based on NAV) of -1.50%. That compares with a return
of 1.87% for the Lehman Brothers High Yield Index.
Stabilizing Returns
We continued to invest heavily in telecommunications firms during the
year, because we believe the sector will benefit over time from trends
such as industry deregulation. As in prior periods, we sold selected
issues from this sector when their prices were strong and bought issues
when prices weakened. This strategy proved particularly helpful in the
second half of the year, when issues we'd bought during a market slump
in the third quarter rebounded strongly in the fourth quarter. At the
end of the year, the Portfolio had a somewhat larger weighting in the
sector than it did when the year began.
[GRAPHIC OMITTED: Top 10 Sectors]
Top 10 Sectors
Telecommunications 23.4%
Broadcasting 12.5%
Bank & Finance 6.3%
Leisure & Entertainment 3.4%
Oil & Gas 3.2%
Electric Utilities 2.8%
Food & Beverage 2.7%
Hospital Management 2.7%
Retail -- Food 2.1%
Machinery & Equipment 2.0%
Footnote reads:
These sectors represent 61.1% of the Portfolio's total investments.
High Yield Portfolio seeks high current income and, secondarily, growth
of capital by investing primarily in high-yielding ("junk") corporate
bonds.***
Portfolio Facts
Inception Date: 11/2/87
Total Net Assets
(in millions): $1,427.3
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality Rating Distribution
A 0.4%
Baa 1.2%
Ba 25.9%
B 49.5%
Caa 13.8%
Ca 1.2%
D 0.0%
Not Rated 8.0%
We offset the added fluctuations from telecommunications issues by
increasing the Portfolio's weighting in bonds with a Moody's quality
rating of "Ba" or better from 15% to 28% of assets. We also reduced the
Portfolio's average maturity of investments from 8.23 years to 7.85
years. We further increased stability by avoiding sectors that tend to
be more sensitive to economic uncertainty. During the year we trimmed
holdings in energy and financial firms.
Looking Ahead
Recent economic indicators show that growth remains strong. While growth
could slow later in 1999, we expect prices for corporate bonds to be
less volatile than they were in 1998. As a result, we have stopped
adding shorter-term issues to the Portfolio and have begun to focus new
investments on bonds with credit ratings in the middle of the high-yield
spectrum. Because the economic outlook remains uncertain at home and
abroad, we expect to remain relatively defensive and limit the
Portfolio's exposure to "cyclical" sectors, such as financial, chemical
and paper companies.
If lower-quality issues rally significantly, we might lock in price
gains in that sector and shift back into higher-quality debt.
Conversely, if lower-quality issues weaken, we may take advantage of
attractive opportunities as they arise, further increasing investments
in that sector. Regardless, we anticipate keeping the Portfolio
overweighted in bonds rated "Ba" by Moody's -- the highest of the junk
bond rating categories.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000 Invested Since 12/31/88]
Performance Through December 31, 1998
Growth of $10,000 Invested Since 12/31/88
Lehman
High Yield High Yield Consumer
Date Portfolio Index Price Index
- ---- ---------- ---------- -----------
1988 10,000 10,000 10,000
1989 10,234 10,176 10,050
1989 10,303 10,198 10,090
1989 10,234 10,119 10,150
1989 10,182 10,161 10,220
1989 10,456 10,358 10,270
1989 10,736 10,487 10,300
1989 10,715 10,473 10,320
1989 10,811 10,509 10,340
1989 10,618 10,332 10,370
1989 10,333 10,087 10,420
1989 10,363 10,067 10,450
1989 10,313 10,083 10,460
1990 10,115 9,867 10,570
1990 9,931 9,663 10,620
1990 10,013 9,917 10,680
1990 10,022 9,900 10,700
1990 10,337 10,091 10,720
1990 10,488 10,335 10,780
1990 10,669 10,613 10,820
1990 10,331 10,009 10,920
1990 9,924 9,278 11,010
1990 9,618 8,791 11,080
1990 9,782 9,066 11,100
1990 9,930 9,116 11,100
1991 10,032 9,367 11,170
1991 10,694 10,392 11,190
1991 11,161 11,004 11,200
1991 11,540 11,455 11,220
1991 11,668 11,476 11,250
1991 11,982 11,815 11,290
1991 12,300 12,193 11,300
1991 12,498 12,474 11,340
1991 12,705 12,647 11,390
1991 13,158 13,070 11,400
1991 13,358 13,138 11,440
1991 13,437 13,327 11,440
1992 13,990 13,796 11,460
1992 14,381 14,137 11,500
1992 14,632 14,312 11,560
1992 14,764 14,366 11,580
1992 15,015 14,569 11,590
1992 15,103 14,706 11,630
1992 15,411 14,928 11,660
1992 15,636 15,123 11,690
1992 15,819 15,278 11,730
1992 15,508 15,062 11,770
1992 15,795 15,252 11,780
1992 16,136 15,426 11,780
1993 16,785 15,875 11,830
1993 17,058 16,154 11,880
1993 17,427 16,363 11,920
1993 17,532 16,505 11,950
1993 17,843 16,701 11,970
1993 18,448 17,052 11,980
1993 18,631 17,218 11,980
1993 18,781 17,362 12,020
1993 18,780 17,407 12,040
1993 19,419 17,759 12,090
1993 19,498 17,844 12,100
1993 19,832 18,065 12,100
1994 20,445 18,458 12,130
1994 20,372 18,410 12,170
1994 19,598 17,714 12,220
1994 19,346 17,593 12,230
1994 19,444 17,602 12,240
1994 19,527 17,657 12,280
1994 19,384 17,807 12,320
1994 19,535 17,933 12,370
1994 19,434 17,935 12,400
1994 19,490 17,978 12,410
1994 19,073 17,751 12,420
1994 18,961 17,883 12,420
1995 19,022 18,126 12,470
1995 19,765 18,748 12,520
1995 19,962 18,950 12,560
1995 20,452 19,431 12,610
1995 20,889 19,976 12,630
1995 20,990 20,109 12,660
1995 21,656 20,363 12,660
1995 21,748 20,426 12,690
1995 21,954 20,677 12,710
1995 22,057 20,805 12,760
1995 22,314 20,988 12,750
1995 22,677 21,318 12,740
1996 23,205 21,693 12,810
1996 23,791 21,710 12,850
1996 23,566 21,695 12,920
1996 23,725 21,743 12,970
1996 23,991 21,873 13,000
1996 23,798 22,055 13,000
1996 23,629 22,156 13,030
1996 24,009 22,396 13,050
1996 24,830 22,936 13,100
1996 24,761 23,112 13,140
1996 25,019 23,567 13,160
1996 25,296 23,737 13,160
1997 25,599 23,970 13,200
1997 25,973 24,346 13,240
1997 25,145 23,983 13,280
1997 25,149 24,235 13,290
1997 26,113 24,754 13,290
1997 26,862 25,098 13,300
1997 27,785 25,788 13,320
1997 27,877 25,729 13,340
1997 28,743 26,238 13,380
1997 28,489 26,262 13,410
1997 28,580 26,514 13,400
1997 28,862 26,747 13,390
1998 29,471 27,229 13,410
1998 29,882 27,389 13,440
1998 30,275 27,647 13,460
1998 30,158 27,755 13,490
1998 30,053 27,852 13,510
1998 30,200 27,952 13,530
1998 30,385 28,111 13,540
1998 27,933 26,560 13,560
1998 27,519 26,679 13,580
1998 26,942 26,132 13,610
1998 28,279 27,217 13,610
1998 $28,428 $27,247 $13,600
*See accompanying notes to Portfolio Management Reviews.
[INSET BOX ON CHART READS:]
High Yield Portfolio
Annualized Total Returns*
- -------------------------
10 Years 11.01%
5 Years 7.47%
1 Year -1.50%
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.
For the first five months of 1998, prices for high-quality bonds traded
in a narrow range. Then, as economic growth began to slow and interest
rates fell, investors became concerned about credit risk and liquidity.
Prices for high-quality bonds rallied strongly in this environment. By
increasing investments in U.S. government issues, and focusing on high-
quality corporate bonds representing good value, we helped the Income
Portfolio outperform its market benchmark for the 12 months ended
December 31, 1998. During the reporting period the Income Portfolio
earned a total return (based on NAV) of 9.37%, while the Lehman Brothers
Aggregate Bond Index returned 8.69%.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Corporate Bonds 52.9%
Foreign Government Bonds 3.0%
Asset-Backed Securities 10.9%
Mortgage-Backed Securities 6.2%
U.S. Government Agency 4.0%
U.S. Government 20.3%
Common Stocks 0.1%
Preferred Stocks 1.1%
Short-Term Securities 1.5%
[GRAPHIC OMITTED: Top 10 Holdings]
% of
Top 10 Holdings Coupon Maturity Portfolio
U.S. Treasury Bond 7.625% 11/15/2022 8.6%
U.S. Treasury Note 7.875% 11/15/2004 5.0%
U.S. Treasury Note 7.0% 7/15/2006 3.4%
Government National
Mortgage Association 6.5% 2/15/2027 2.4%
Federal National
Mortgage Association 5.75% 2/15/2008 2.3%
Federal Home Loan Mortgage Corp. 6.0% 7/1/2013 2.1%
World Omni Auto Lease Trust 6.9% 6/25/2003 1.7%
U.S. Treasury Note 6.25% 2/15/2003 1.6%
U.S. Treasury Bond 7.5% 11/15/2016 1.6%
Equitable Life Assurance
Society of the United States,
Surplus Notes 6.95% 12/1/2005 1.5%
Footnote reads:
These holdings represent 30.2% of the Portfolio's total investments.
A Move to Higher Quality
In the final months of 1997, before the period began, we found
attractive opportunities in higher-yielding corporate bonds that we
believed had been oversold. In the first months of 1998, as an improving
economy strengthened the credit ratings of the issuers of these bonds,
they enjoyed healthy price gains. These issues also added income as
interest rates fell. In addition, the Portfolio benefited as holdings in
dollar-denominated "Yankee" bonds issued in the United States by foreign
companies and governments rose in response to greater stability in Asian
economies. Holdings in convertible bonds (which can be traded for the
common stocks of their issuers) further enhanced the Portfolio's
returns.
In the second and third quarters of 1998, as foreign economies
deteriorated, we trimmed positions in Yankee bonds and lower-rated,
higher-yielding corporates. With lower interest rates causing more
homeowners to prepay their loans, we also reduced investments in
mortgage-backed securities. We used the proceeds from these sales to buy
U.S. Treasury securities and higher-rated corporate bonds. These issues
performed well as the "flight to quality" intensified in August
and September.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality Rating Distribution
U.S. Government-/
Aaa Equivalent 47.1%
Aa 6.8%
A 18.4%
Baa 15.6%
Ba 10.5%
B 1.0%
LB Series Fund, Inc.
Income Portfolio seeks a high level of income while preserving principal
by investing primarily in intermediate- and long-term bonds.
Portfolio Facts
Inception Date: 1/9/87
Total Net Assets
(in millions): $1,074.3
As a result of these strategies, we increased investments in U.S.
government issues during the year from 22% to 31% of assets and
decreased holdings in bonds with a Moody's quality rating of "Ba" or "B"
from 18% to 12% of assets.
Less Near-Term Volatility
At the end of the year, when prices for corporates had become quite
attractive, we began to trim Treasury holdings for investments in high-
quality corporate bonds and issues of U.S. government agencies. Many of
the corporates we bought were attractively-priced issues of financial
firms hit hard when foreign economic problems broadened. We also added
to positions in economically "defensive" firms in the food, drug and
retail sectors, as well as telecommunications and electric utility
companies.
While we believe growth could slow in the second half of 1999, economic
conditions are now stable enough to keep bonds in a relatively narrow
range for the next few months. If this is the case, we may further
increase investments in corporates as new opportunities arise. With
further cuts in interest rates unlikely in the near term, we have also
started to buy mortgage-backed securities again.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000 Invested Since 12/31/88]
Performance Through December 31, 1998
Growth of $10,000 Invested Since 12/31/88
Lehman Brothers
Income Aggregate Consumer
Date Portfolio Bond Index Price Index
- ---- --------- --------------- -----------
1988 10,000 10,000 10,000
1989 10,151 10,144 10,050
1989 10,006 10,071 10,090
1989 10,064 10,114 10,150
1989 10,260 10,326 10,220
1989 10,482 10,597 10,270
1989 10,813 10,919 10,300
1989 11,000 11,152 10,320
1989 10,900 10,987 10,340
1989 10,912 11,043 10,370
1989 11,073 11,315 10,420
1989 11,194 11,422 10,450
1989 11,223 11,453 10,460
1990 11,106 11,317 10,570
1990 11,143 11,353 10,620
1990 11,180 11,361 10,680
1990 11,035 11,256 10,700
1990 11,373 11,589 10,720
1990 11,548 11,776 10,780
1990 11,689 11,939 10,820
1990 11,499 11,779 10,920
1990 11,427 11,876 11,010
1990 11,535 12,027 11,080
1990 11,805 12,286 11,100
1990 11,999 12,477 11,100
1991 12,157 12,632 11,170
1991 12,432 12,740 11,190
1991 12,583 12,827 11,200
1991 12,763 12,966 11,220
1991 12,911 13,041 11,250
1991 12,930 13,035 11,290
1991 13,100 13,216 11,300
1991 13,401 13,501 11,340
1991 13,692 13,775 11,390
1991 13,840 13,928 11,400
1991 13,936 14,056 11,440
1991 14,369 14,474 11,440
1992 14,316 14,277 11,460
1992 14,411 14,370 11,500
1992 14,420 14,289 11,560
1992 14,469 14,392 11,580
1992 14,747 14,664 11,590
1992 14,951 14,867 11,630
1992 15,299 15,170 11,660
1992 15,450 15,323 11,690
1992 15,634 15,505 11,730
1992 15,382 15,299 11,770
1992 15,441 15,302 11,780
1992 15,695 15,546 11,780
1993 16,021 15,844 11,830
1993 16,357 16,121 11,880
1993 16,454 16,189 11,920
1993 16,576 16,302 11,950
1993 16,605 16,324 11,970
1993 16,948 16,619 11,980
1993 17,099 16,714 11,980
1993 17,407 17,006 12,020
1993 17,460 17,052 12,040
1993 17,616 17,115 12,090
1993 17,427 16,970 12,100
1993 17,526 17,061 12,100
1994 17,784 17,292 12,130
1994 17,399 16,991 12,170
1994 16,827 16,571 12,220
1994 16,647 16,439 12,230
1994 16,678 16,437 12,240
1994 16,555 16,401 12,280
1994 16,913 16,727 12,320
1994 16,956 16,747 12,370
1994 16,658 16,501 12,400
1994 16,596 16,486 12,410
1994 16,601 16,450 12,420
1994 16,705 16,563 12,420
1995 17,007 16,891 12,470
1995 17,397 17,293 12,520
1995 17,495 17,399 12,560
1995 17,795 17,643 12,610
1995 18,566 18,325 12,630
1995 18,718 18,459 12,660
1995 18,610 18,418 12,660
1995 18,844 18,641 12,690
1995 19,025 18,822 12,710
1995 19,319 19,067 12,760
1995 19,619 19,353 12,750
1995 19,938 19,624 12,740
1996 20,052 19,753 12,810
1996 19,630 19,410 12,850
1996 19,436 19,274 12,920
1996 19,316 19,166 12,970
1996 19,304 19,127 13,000
1996 19,544 19,384 13,000
1996 19,584 19,436 13,030
1996 19,512 19,403 13,050
1996 19,892 19,741 13,100
1996 20,354 20,179 13,140
1996 20,774 20,524 13,160
1996 20,584 20,333 13,160
1997 20,649 20,396 13,200
1997 20,746 20,447 13,240
1997 20,442 20,220 13,280
1997 20,681 20,523 13,290
1997 20,898 20,718 13,290
1997 21,200 20,965 13,300
1997 21,827 21,531 13,320
1997 21,596 21,348 13,340
1997 21,943 21,664 13,380
1997 22,119 21,978 13,410
1997 22,218 22,079 13,400
1997 22,385 22,302 13,390
1998 22,687 22,588 13,410
1998 22,724 22,570 13,440
1998 22,855 22,646 13,460
1998 22,982 22,764 13,490
1998 23,182 22,980 13,510
1998 23,400 23,176 13,530
1998 23,437 23,224 13,540
1998 23,596 23,603 13,560
1998 24,255 24,155 13,580
1998 24,114 24,027 13,610
1998 24,398 24,164 13,610
1998 $24,486 $24,237 $13,600
*See accompanying notes to Portfolio Management Reviews.
[INSET BOX ON CHART READS:]
Income Portfolio
Annualized Total Returns*
- -------------------------
10 Years 9.36%
5 Years 6.92%
1 Year 9.37%
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.
Money market yields fell by roughly 0.60% during 1998 as economic growth
slowed somewhat and the Federal Reserve cut short-term interest rates by
0.75%. Starting the year at 5.12%, the average yield for money market
instruments in the IBC Donoghue's All-Taxable Index fell to 4.53% as the
year closed. During that time there were many fluctuations in money
market yields that offered attractive investment opportunities in
individual instruments. By taking advantage of these opportunities, and
adjusting the maturity structure of the Money Market Portfolio to make
the most of changing yields, we helped the Portfolio earn a total return
of 5.32% for the 12 months ended December 31, 1998.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Commercial Paper 90.0%
Variable Rate Notes 5.8%
U.S. Government Agency 1.6%
Banker's Acceptances 0.5%
Bank Notes 2.1%
Adapting to Lower Yields
When the year started, investments in the Portfolio had a weighted
average maturity of 47 days, versus 54 days for the Donoghue Index.
In the spring and summer, when economic problems worsened abroad, and it
looked like the Federal Reserve might cut interest rates, the yields for
investments with maturities of 18 months to 2 years fell below those for
investments dated 1- to 6-months. In this "inverted" short-term yield
environment, we gave greater attention to investments with shorter
maturities. This let us move more quickly into higher-yielding
securities as we identified them in the marketplace. After the Fed began
to cut interest rates in the fall, the yield curve moved from an
inverted to a flat position. Because longer-term issues remained
relatively unattractive, we stayed focused on shorter maturities. At the
end of the year, as technical market factors pushed yields higher, we
added some investments in longer-term issues. This left the Portfolio
with an average weighted maturity of 52 days on December 31, 1998,
versus 54 days for the Donoghue Index.
[GRAPHIC OMITTED: Top 10 Holdings]
% of
Top 10 Holdings Industry Portfolio
Chevron Corp. Industrial 4.3%
Ford Motor Credit Co. Finance-Automotive 4.3%
Duke University Education 4.1%
Amoco Oil Co. Petroleum 4.1%
Block Financial Corp. Services 4.0%
Petrofina S.A. Energy 3.8%
Harvard University Education 3.8%
Yale University Education 3.8%
General Electric Capital Corp. Finance-Commercial 3.8%
Associates Corp. of North America Finance-Consumer 3.7%
Footnote reads:
These holdings represent 39.7% of the Portfolio's total investments.
LB Series Fund, Inc.
Money Market Portfolio seeks current income with stability of principal
by investing in high-quality, short-term debt securities.****
Portfolio Facts
Inception Date: 1/9/87
Total Net Assets
(in millions): $193.8
As in past years, we remained heavily invested in commercial paper,
while improving the Portfolio's yield with other instruments. These
instruments included taxable municipal paper issued by state and local
governments. Typically, such securities finance commercial projects and
have credit enhancements from major corporations and banks. During the
first part of the year we also kept a small portion of the Portfolio in
U.S. dollar-denominated securities issued by top-quality banks and
businesses in Europe. However, given the foreign economic upheaval that
developed later in the year, we were very conservative when replacing
maturing issues.
Further Rate Cuts Unlikely
Recent economic strength suggests that the Fed will not cut interest
rates further in months to come. With inflation apparently under
control, a near-term increase in rates also seems unlikely. We expect,
therefore, that short-term yields will remain in a relatively narrow
range during the first part of 1999. Given that scenario, we plan to
maintain the Portfolio's current maturity structure while remaining
watchful for new opportunities to add yield. In the meantime, we'll
continue to strengthen yield through individual instruments such as
taxable municipal issues.
Money Market Portfolio
Annualized Total Returns*
Period Ending 12/31/98
- -------------------------
10 Years 5.48%
5 Years 5.13%
1 Year 5.32%
Seven-Day Yields
as of 12/31/98+
- -------------------------
Current 4.84%
Effective 4.95%
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.
****An investment in the Money Market Portfolio is not insured or
guaranteed by the FDIC or any other government agency. Although the
Portfolio seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Portfolio.
+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.
Results of Special Shareholder Meetings (unaudited)
April 29, 1998 Meeting
A special meeting of the shareholders of the LB Series Fund, Inc.
Opportunity Growth Portfolio was held on April 29, 1998, to consider the
proposed appointment of T. Rowe Price Associates, Inc. of Baltimore,
Maryland, to serve as investment subadviser for the Portfolio. The
shares cast for, against and abstaining were as follows:
For Against Abstaining
31,709,608 423,052 2,213,543
December 1, 1998 Meeting
A special meeting of the shareholders of each of the LB Series Fund,
Inc. portfolios (Opportunity Growth Portfolio, Mid Cap Growth Portfolio,
World Growth Portfolio, Growth Portfolio, High Yield Portfolio, Income
Portfolio and Money Market Portfolio) was held on December 1, 1998. The
matters voted upon at the meeting and the shares cast for, against, and
abstaining can be found on the following pages.
<TABLE>
<CAPTION>
Results of Special Shareholder Meeting -- 12/1/98 (unaudited)
Opportunity Mid Cap World Money
Growth Growth Growth Growth High Yield Income Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Election of Directors of LB Series Fund, Inc.
Rolf F. Bjelland For 33,323,862 7,554,478 28,065,639 139,938,143 151,192,403 99,283,081 160,161,314
Withhold 556,907 75,943 397,706 1,693,874 1,626,391 914,482 1,496,333
Abstain 0 0 0 0 0 0 0
Herbert F. Eggerding, Jr. For 33,349,047 7,560,592 28,092,390 140,009,800 151,244,304 99,342,865 160,558,964
Withhold 531,721 69,829 370,955 1,622,217 1,574,490 854,698 1,098,683
Abstain 0 0 0 0 0 0 0
Noel K. Estenson For 33,353,348 7,560,789 28,085,117 139,912,048 151,159,094 99,285,610 160,190,930
Withhold 527,421 69,633 378,228 1,719,969 1,659,700 911,954 1,466,717
Abstain 0 0 0 0 0 0 0
Jodi L. Harpstead For 33,327,705 7,553,956 28,066,150 139,953,796 151,166,966 99,260,341 160,297,929
Withhold 553,064 76,466 397,195 1,678,221 1,651,828 937,222 1,359,718
Abstain 0 0 0 0 0 0 0
Richard A. Hauser For 33,344,170 7,554,844 28,076,573 139,961,127 151,183,145 99,311,477 160,485,492
Withhold 536,599 75,578 386,772 1,670,890 1,635,650 886,086 1,172,155
Abstain 0 0 0 0 0 0 0
Connie M. Levi For 33,320,768 7,552,724 28,064,149 139,798,413 151,096,976 99,260,605 160,351,716
Withhold 560,001 77,697 399,196 1,833,605 1,721,818 936,958 1,305,931
Abstain 0 0 0 0 0 0 0
Bruce J. Nicholson For 33,349,983 7,546,004 28,060,907 140,013,370 151,210,053 99,253,432 160,595,884
Withhold 530,785 84,418 402,438 1,618,647 1,608,742 944,132 1,061,763
Abstain 0 0 0 0 0 0 0
Ruth E. Randall For 33,328,040 7,556,222 28,077,113 139,918,475 151,178,668 99,274,741 160,354,663
Withhold 552,729 74,200 386,232 1,713,542 1,640,126 922,823 1,302,984
Abstain 0 0 0 0 0 0 0
Amending or Eliminating Certain Investment Restrictions
Borrowing and Issuance
of Senior Securities For 32,339,421 7,359,305 27,173,417 135,227,192 146,352,617 96,061,971 154,977,497
Against 410,140 75,475 340,399 1,633,409 1,300,455 698,656 1,647,270
Abstain 1,131,207 195,642 949,529 4,771,416 5,165,722 3,436,937 5,032,879
Lending For 32,346,293 7,362,404 27,183,459 135,329,015 146,402,821 96,098,024 155,027,225
Against 403,268 72,376 330,357 1,532,712 1,250,251 663,568 1,597,542
Abstain 1,131,207 195,642 949,529 4,770,291 5,165,722 3,435,971 5,032,879
Real Estate Companies
and Commodities For 32,344,692 7,362,365 27,178,378 135,318,196 146,410,663 96,076,010 155,058,186
Against 404,869 72,415 335,437 1,542,405 1,242,409 685,582 1,566,581
Abstain 1,131,207 195,642 949,529 4,771,416 5,165,722 3,435,971 5,032,879
Results of Special Shareholder Meeting -- 12/1/98 (continued) (unaudited)
Opportunity Mid Cap World Money
Growth Growth Growth Growth High Yield Income Market
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amending or Eliminating Certain Investment Restrictions
Reverse Purchase Agreements For 32,350,035 7,362,000 27,182,143 135,295,991 146,398,379 96,075,341 155,072,750
Against 399,526 72,780 331,672 1,565,736 1,254,693 686,251 1,552,017
Abstain 1,131,207 195,642 949,529 4,770,291 5,165,722 3,435,971 5,032,879
Pledge of Assets For 32,346,921 7,359,563 27,179,666 135,296,513 146,381,486 96,094,194 155,062,651
Against 402,640 75,217 334,150 1,564,088 1,271,586 667,398 1,562,116
Abstain 1,131,207 195,642 949,529 4,771,416 5,165,722 3,435,971 5,032,879
Restricted Securities,
Illiquid Securities, and
Unseasoned Issuers For 32,329,957 7,359,505 27,173,730 135,266,775 146,288,719 96,018,283 155,068,666
Against 419,604 75,275 340,085 1,593,826 1,364,353 743,309 1,556,102
Abstain 1,131,207 195,642 949,529 4,771,416 5,165,722 3,435,971 5,032,879
Control Securities For 32,356,049 7,362,498 27,186,723 135,334,491 146,405,756 96,099,913 155,093,482
Against 393,512 72,282 327,093 1,526,110 1,247,316 661,679 1,531,286
Abstain 1,131,207 195,642 949,529 4,771,416 5,165,722 3,435,971 5,032,879
Short Sales For 32,282,438 7,323,746 27,112,904 135,186,710 146,262,514 95,986,526 155,069,403
Against 467,123 111,034 400,912 1,675,016 1,390,558 775,066 1,555,364
Abstain 1,131,207 195,642 949,529 4,770,291 5,165,722 3,435,971 5,032,879
Investments in other
Investment Companies For 32,339,822 7,356,369 27,171,009 135,253,024 146,341,069 96,097,415 155,085,418
Against 409,739 78,411 342,807 1,608,702 1,312,003 664,177 1,539,350
Abstain 1,131,207 195,642 949,529 4,770,291 5,165,722 3,435,971 5,032,879
Investments in Oil and Gas
Interests, Common Stock &
Other Equity Securities For N/A N/A N/A N/A N/A N/A 155,105,022
Against N/A N/A N/A N/A N/A N/A 1,519,746
Abstain N/A N/A N/A N/A N/A N/A 5,032,879
Portfolio Maturity For N/A N/A N/A N/A N/A N/A 155,102,138
Against N/A N/A N/A N/A N/A N/A 1,522,629
Abstain N/A N/A N/A N/A N/A N/A 5,032,879
Ratification of PricewaterhouseCoopers LLP as Independent Auditors
For 33,109,904 7,498,364 27,835,808 138,756,884 149,679,180 98,329,168 157,952,309
Against 155,952 18,832 106,264 528,115 393,471 205,520 190,072
Abstain 614,912 113,226 521,273 2,347,018 2,746,144 1,662,876 3,515,266
</TABLE>
Pricewaterhouse Coopers LLP
650 Third Avenue South
Park Building
Suite 1300
Minneapolis MN 55402-4333
Telephone (612) 370 9300
Facsimile (612) 373 7178
Report of Independent Accountants
To the Shareholders and Board of Directors of
LB Series Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
each of the Portfolios (Opportunity Growth, Mid Cap Growth, World
Growth, Growth, High Yield, Income and Money Market) comprising the LB
Series Fund, Inc. (hereafter referred to as the "Fund") at December
31, 1998, the results of each of their operations for the year or
period then ended and the changes in each of their net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements
and financial highlights (hereafter referred to as "financial
statements") are the responsibility of management; our responsibility
is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
February 10, 1999
LB SERIES FUND, INC.
Opportunity Growth Portfolio
Portfolio of Investments
December 31, 1998
Shares Value
- -------------- -------------
[S] [C]
COMMON STOCKS - 97.1% (a)
Aerospace & Defense - 2.1%
71,800 Aar Corp. $ 1,714,194
43,800 Avondale Industries, Inc. 1,270,200(b)
56,400 Orbital Sciences Corp. 2,495,700(b)
26,600 Precision Castparts Corp. 1,177,050(c)
33,000 Triumph Group, Inc. 1,056,000(b)
-------------
7,713,144
-------------
Airlines - 1.0%
22,400 Alaska Air Group, Inc. 991,200(b)
50,900 COMAIR Holdings, Inc. 1,717,875
55,500 Mesaba Holdings, Inc. 1,144,688(b)
-------------
3,853,763
-------------
Automotive - 1.9%
15,900 Central Parking Corp. 515,756
95,200 Gentex Corp. 1,904,000(b)
38,900 Group 1 Automotive, Inc. 1,011,400(b)
45,900 O'Reilly Automotive, Inc. 2,168,775(b)
65,600 Tower Automotive, Inc. 1,635,900(b)
-------------
7,235,831
-------------
Bank & Finance - 6.8%
28,500 Affiliated Managers Group, Inc. 851,438(b)
110,400 Americredit Corp. 1,524,900(b)
52,800 Amerin Corp. 1,247,400(b)
45,300 City National Corp. 1,885,613
25,300 CMAC Investment Corp. 1,162,219
31,500 Commerce Bankcorp, Inc. 1,653,750
60,100 Community First Bankshares, Inc. 1,265,856
22,700 Executive Risk, Inc. 1,247,081
27,500 E.W. Blanch Holdings, Inc. 1,304,531
60,000 Fremont General Corp. 1,485,000
29,800 HealthCare Financial Partners, Inc. 1,188,275(b)
40,700 Imperial Credit Commercial Mortgage
Investment Corp. 381,563
44,630 Imperial Credit Industries 373,776(b)
52,200 Legg Mason, Inc. 1,647,563
67,000 North Fork Bancorporation, Inc. 1,603,813
46,400 Protective Life Corp. 1,847,300
75,000 Silicon Valley Bancshares 1,277,344(b)
54,200 Waddell & Reed Financial, Inc.,
Class A 1,283,863
33,700 Webster Financial Corp. 924,644
18,300 Zions Bancorporation 1,141,463
-------------
25,297,392
-------------
Biotechnology - 1.8%
52,400 Covance, Inc. 1,526,150(b)
54,100 Cytyc Corp. 1,393,075(b)
44,000 Medco Research, Inc. 1,144,000(b)
122,700 NBTY, Inc. 874,238(b)
58,320 Serologicals Corp. 1,749,600(b)
-------------
6,687,063
-------------
Building &
Construction - 1.6%
81,600 American Homestar Corp. 1,224,000(b)
21,600 Dycom Industries, Inc. 1,233,900(b)
42,204 Fairfield Communities, Inc. 466,882(b)
43,300 Global Industries, Ltd. 265,213(b)
43,000 Insituform Technologies, Inc. 623,500(b)
50,000 NCI Building Systems, Inc. 1,406,250(b)
20,200 Simpson Manufacturing Co., Inc. 756,238(b)
-------------
5,975,983
-------------
Business Services - 9.3%
34,700 ABR Information Services, Inc. 680,988(b)
1,600 Billing Concepts Corp. 17,600(b)
34,400 Carriage Services, Inc. 978,250(b)
70,050 Concord EFS, Inc. 2,968,369(b)
21,100 Consolidated Graphics, Inc. 1,425,569(b)
27,400 Cort Business Services Corp. 664,450(b)
14,400 Fastenal Co. 633,600
21,200 G & K Services, Inc. 1,128,900
15,600 IMR Global Corp. 459,225(b)
46,400 Innovative Valve Technologies, Inc. 118,900(b)
34,500 Knoll, Inc. 1,022,063(b)
9,300 Lason, Inc. 541,144(b)
47,100 Merrill Corp. 909,619
66,900 META Group, Inc. 1,990,275(b)
67,600 Metamor Worldwide, Inc. 1,690,000(b)
8,500 Metzler Group, Inc. 413,844(b)
113,100 Modis Professional Services, Inc. 1,639,950(b)
44,330 National Computer Systems, Inc. 1,640,210
53,000 NCO Group, Inc. 2,385,000(b)
80,938 NOVA Corp. 2,807,537(b)
86,200 Paging Network, Inc. 404,063(b)
23,600 Pre-Paid Legal Services, Inc. 778,800(b)
111,300 Professional Staff plc ADR 876,488(b)
65,300 Rent-Way, Inc. 1,587,606(b)
76,600 Romac International, Inc. 1,704,350(b)
37,800 Service Experts, Inc. 1,105,650(b)
30,900 StaffMark, Inc. 691,388(b)
21,500 Strayer Education, Inc. 757,875
47,500 Superior Services, Inc. 952,969(b)
60,875 Tetra Tech, Inc. 1,647,430(b)
-------------
34,622,112
-------------
Chemicals - 0.5%
67,200 Sybon Corp . 1,827,000(b)
-------------
Computer Equipment - 1.8%
6,700 Lexmark International Group, Inc. 673,350(b)
30,600 Pinnacle Systems, Inc. 1,093,950(b)
78,600 Security Dynamics Technologies, Inc. 1,807,800(b)
44,300 Symbol Technologies, Inc. 2,832,431
36,300 Technology Solutions Co. 389,091(b)
-------------
6,796,622
-------------
Computer Software - 17.4%
33,600 Affiliated Computer Services, Inc.,
Class A 1,512,000(b)
34,700 Analysts International Corp. 667,975
64,200 AXENT Technologies, Inc. 1,962,113(b)
26,800 Bisys (The) Group, Inc. 1,383,550(b)
51,800 Cadence Design Systems, Inc. 1,541,050(b)
26,000 Cambridge Technology Partners, Inc. 575,250(b)
57,800 CIBER, Inc. 1,614,788(b)
31,200 Citrix Systems, Inc. 3,028,350(b)
43,400 Cognos, Inc. 1,085,000(b)
65,000 Computer Management Sciences, Inc. 1,129,375(b)
53,500 Cotelligent Group, Inc. 1,140,219(b)
59,200 Datastream Systems, Inc. 680,800(b)
29,100 Documentum, Inc. 1,555,031(b)
28,900 DST Systems, Inc. 1,649,106(b)
31,500 Electronic Arts, Inc. 1,767,938(b)
25,000 Engineering Animation, Inc. 1,350,000(b)
53,800 E*TRADE Group, Inc. 2,516,831(b)
85,155 HBO & Co. 2,442,884
52,155 Hyperion Solutions Corp. 938,790(b)
45,100 IDX Systems Corp. 1,984,400(b)
25,100 International Network Services Co. 1,669,150(b)
18,900 Intuit, Inc. 1,370,250(b)
33,900 Keane, Inc. 1,353,881(b)
24,200 Legato Systems, Inc. 1,595,688(b)
30,000 MAPICS, Inc. 495,000(b)
47,600 Mastech Corp. 1,362,550(b)
8,200 Mercury Interactive Corp. 518,650(b)
41,000 National Data Corp. 1,996,188
45,000 National Instruments Corp. 1,535,625(b)
27,750 Network Associates, Inc. 1,838,438(b)
32,600 Platinum Technology, Inc. 623,475(b)
36,500 QRS Corp. 1,752,000(b)
59,300 Saville Systems Ireland plc ADR 1,126,700(b)
26,633 Sterling Commerce, Inc. 1,198,485(b)
142,700 Summit Design, Inc. 1,328,894(b)
43,800 SunGard Data Systems, Inc. 1,738,313(b)
54,200 Sykes Enterprises, Inc. 1,653,100(b)
40,500 Symantec Corp. 880,875(b)
32,600 Synopsys, Inc. 1,768,550(b)
32,500 Transaction Systems Architects, Inc. 1,625,000(b)
87,450 USWeb Corp. 2,306,494(b)
27,000 Veritas Software Corp. 1,618,313(b)
37,000 Visio Corp. 1,352,813(b)
46,170 Zebra Technologies Corp. 1,327,388(b)
-------------
64,561,270
-------------
Distribution Services - 2.6%
23,100 AmeriSource Health Corp. 1,501,500(b)
12,200 Aviation Sales Co. 495,625(b)
6,270 Cardinal Health, Inc. 475,736
48,610 Central Garden & Pet Co. 698,769(b)
58,800 MSC Industrial Direct Co., Inc., Class A 1,330,350(b)
47,400 Richfood Holdings, Inc. 983,550
30,000 Tech Data Corp. 1,207,500(b)
34,100 U.S. Foodservice Co. 1,670,900(b)
76,100 Watsco, Inc. 1,274,675
-------------
9,638,605
-------------
Education - 1.3%
45,715 Apollo Group, Inc., Class A 1,548,596(b)
37,400 ITT Educational Services, Inc. 1,271,600(b)
45,300 Learning Tree International, Inc. 410,531(b)
52,850 Sylvan Learning Systems, Inc. 1,611,925(b)
-------------
4,842,652
-------------
Electronic Components - 5.1%
53,550 Burr-Brown Corp. 1,255,078(b)
45,000 Cybex Computer Products Corp. 1,321,875(b)
37,700 Dallas Semiconductor Corp. 1,536,275
35,200 Etec Systems, Inc. 1,408,000(b)
36,700 Lattice Semiconductor Corp. 1,684,759(b)
22,600 Maxim Integrated Products, Inc. 987,338(b)
27,600 Micrel, Inc. 1,518,000(b)
38,900 Microchip Technology, Inc. 1,439,300(b)
32,800 Plexus Corp. 1,111,100(b)
10,300 PMC-Sierra, Inc. 650,188(b)
17,900 QLogic Corp. 2,342,663(b)
42,400 Sanmina Corp. 2,650,000(b)
23,500 Vitesse Semiconductor Corp. 1,072,188(b)
-------------
18,976,764
-------------
Electronic Systems - 2.0%
25,500 Black Box Corp. 965,813(b)
27,300 Novellus Systems, Inc. 1,351,350(b)
69,100 Sawtek, Inc. 1,209,250(b)
27,500 Teradyne, Inc. 1,165,313(b,c)
48,500 Tollgrade Communications, Inc. 933,625(b)
25,400 Uniphase Corp. 1,762,125(b)
-------------
7,387,476
-------------
Energy Services - 0.8%
45,800 BJ Services Co. 715,625(b)
12,200 Gulf Island Fabrication, Inc. 94,550(b)
56,000 Oceaneering International, Inc. 840,000(b)
38,900 R&B Falcon Corp. 296,613(b)
19,900 Smith International, Inc. 501,231(b)
18,500 Weatherford International, Inc. 358,438(b)
-------------
2,806,457
-------------
Entertainment & Leisure - 2.5%
38,200 Brinker International, Inc. 1,103,025(b)
56,200 Imax Corp. 1,777,325(b)
49,600 J & J Snack Foods Corp. 1,109,800(b)
26,050 Promus Hotel Corp. 843,369(b)
26,200 SFX Entertainment, Inc. 1,437,725(b)
19,100 Sonic Corp. 475,113(b)
43,000 Steinway Musical Instruments, Inc. 1,118,000(b)
84,800 Sunterra Corp. 1,272,000(b)
-------------
9,136,357
-------------
Exploration & Production - 0.3%
39,400 Noble Affliliates, Inc. 970,225
-------------
Food Processing - 0.8%
32,700 Earthgrains Co. 1,011,656
44,370 Smithfield Foods, Inc. 1,503,034(b)
45,800 Twinlab Corp. 601,125(b)
-------------
3,115,815
-------------
Healthcare Services - 2.5%
59,300 Concentra Managed Care, Inc. 633,769(b)
2,900 Healthcare Recoveries, Inc. 49,300(b)
29,800 Henry Schein, Inc. 1,333,550(b)
50,000 Inhale Therapeutic Systems, Inc. 1,650,000(b)
43,700 Novoste Corp. 1,239,988(b)
57,100 Orthodontic Centers of America, Inc. 1,109,881(b)
8,900 PacifiCare Health Systems, Inc. 707,550(b)
23,900 Roberts Pharmaceutical Corp. 519,825(b)
72,000 Total Renal Care Holdings, Inc. 2,128,500(b)
-------------
9,372,363
-------------
Hospital Supplies & Management - 5.6%
76,100 ADAC Labs, Inc. 1,519,622(b)
46,600 American Oncology Resources, Inc. 678,613(b)
34,300 DENTSPLY International, Inc. 883,225
41,800 First Health Group Corp. 692,313(b)
51,800 Lincare Holdings, Inc. 2,101,138(b)
21,800 MedQuist Inc. 861,100(b)
80,000 Mentor Corp. 1,875,000
32,000 Omnicare, Inc. 1,112,000
14,700 Patterson Dental Co. 639,450(b)
32,400 Pediatrix Medical Group, Inc. 1,941,975(b)
83,400 PSS World Medical, Inc. 1,918,200(b)
26,800 Quorum Health Group, Inc. 346,725(b)
49,100 Renal Care Group, Inc. 1,414,694(b)
51,300 STERIS Corp. 1,458,844(b)
30,000 Universal Health Services, Inc. 1,556,250(b)
20,600 Veterinary Centers of America, Inc. 410,713(b)
15,500 VISX, Inc. 1,355,281(b)
-------------
20,765,143
-------------
Information Processing - 1.4%
21,400 Catalina Marketing Corp. 1,463,225(b)
41,400 Data Processing Resources Corp. 1,210,950(b)
43,000 Paymentech, Inc. 795,500(b)
28,100 SCI Systems, Inc. 1,622,775(b)
-------------
5,092,450
-------------
Machinery - 0.5%
81,500 JLG Industries, Inc. 1,273,438
19,800 Terex Corp. 565,538(b)
-------------
1,838,976
-------------
Media & Communications - 5.7%
43,800 ACNielsen Corp. 1,237,350(b)
1,000 American Tower Corp. 29,563(b)
52,200 Century Communications Corp., Class A 1,655,719(b)
41,800 Chancellor Media Corp. 2,001,175(b)
13,600 Cox Radio, Inc., Class A 574,600(b)
38,900 Emmis Communications Corp., Class A 1,687,288(b)
35,900 Harte-Hanks, Inc. 1,023,150
20,000 Heftel Broadcasting Corp., Class A 985,000(b)
29,700 Jacor Communications, Inc. 1,911,938(b)
49,700 Level One Communications, Inc. 1,764,350(b)
14,200 Media General, Inc. 752,600
58,805 Outdoor Systems, Inc. 1,764,150(b)
39,800 TCA Cable TV, Inc. 1,420,363
40,800 United Video Satellite
Group, Inc., Class A 963,900(b)
22,400 Univision Communications, Inc., Class A 810,600(b)
20,200 Valassis Communications, Inc. 1,042,825(b)
22,200 World Color Press, Inc. 675,713(b)
25,200 Young Broadcasting Inc., Class A 1,055,250(b)
-------------
21,355,534
-------------
Mining & Metals - 0.1%
30,500 RTI International Metals, Inc. 427,000(b)
-------------
Miscellaneous Consumer
Products - 2.6%
48,600 Blyth Industries, Inc. 1,518,750(b)
33,290 Equity Corporation International 884,266(b)
32,700 Fossil, Inc. 940,125(b)
42,500 HA LO Industries, Inc. 1,599,063(b)
50,800 Jones Apparel Group, Inc. 1,120,775(b)
67,400 Nautica Enterprises, Inc. 1,011,000(b)
19,700 North Face (The), Inc. 256,100(b)
19,500 Pillowtex Corp. 521,625
28,600 Quiksilver, Inc. 858,000(b)
5,400 Tefron, Ltd. 35,438(b)
30,800 Wesley Jessen VisionCare, Inc. 854,700(b)
-------------
9,599,842
-------------
Pharmaceuticals - 2.9%
26,800 Barr Laboratories, Inc. 1,286,400(b)
11,900 Biogen, Inc. 987,700(b)
28,200 Express Scripts, Inc., Class A 1,892,925(b)
15,500 IDEXX Laboratories, Inc. 417,047(b)
900 K-V Pharmaceutical Co., Class A 18,619(b)
45,000 PAREXEL International Corp. 1,125,000(b)
15,800 Sofamor Danek Group, Inc. 1,923,650(b)
92,340 Theragenics Corp. 1,552,466(b)
28,000 Watson Pharmaceuticals, Inc. 1,760,500(b)
-------------
10,964,307
-------------
Pollution Control - 0.4%
70,700 Allied Waste Industries, Inc. 1,670,288(b)
-------------
Real Estate Investment Trust - 0.4%
38,700 Apartment Investment & Management 1,439,156
-------------
Restaurants - 1.3%
39,700 Applebee's International, Inc. 818,813
43,780 CKE Restaurants, Inc. 1,288,774
50,700 Dave & Busters, Inc. 1,169,269(b)
9,000 Logan's Roadhouse, Inc. 211,500(b)
37,400 Outback Steakhouse, Inc. 1,491,325(b)
-------------
4,979,681
-------------
Retail - 8.6%
33,000 Barnes and Noble, Inc. 1,402,500(b)
44,200 Bed, Bath & Beyond, Inc. 1,508,325(b)
49,200 Borders Group, Inc. 1,226,925(b)
31,600 Buckle (The), Inc. 758,400(b)
20,600 CDW Computer Centers, Inc. 1,976,313(b)
34,600 Day Runner, Inc. 501,700(b)
39,600 Dollar Tree Stores, Inc. 1,730,025(b)
42,800 Family Dollar Stores, Inc. 941,600
27,370 Fred Meyer, Inc. 1,649,043(b)
42,300 General Nutrition Companies 687,375(b)
36,600 Guitar Center, Inc. 901,275(b)
49,350 Insight Enterprise, Inc. 2,510,681(b)
24,800 Kenneth Cole Productions, Inc.,
Class A 465,000(b)
32,000 Lands' End, Inc. 862,000(b)
27,800 Linens 'N Things, Inc. 1,101,575(b)
42,000 Men's (The) Wearhouse, Inc. 1,333,500(b)
48,500 Neiman Marcus Group, Inc. 1,209,469(b)
49,500 Office Depot, Inc. 1,828,406(b)
36,150 Pacific Sunwear of California 591,956(b)
39,700 Polo Ralph Lauren Corp. 761,744(b)
54,800 Renters Choice, Inc. 1,739,900(b)
33,000 Ross Stores, Inc. 1,299,375
48,900 SLI, Inc. 1,356,975(b)
72,400 Stein Mart, Inc. 504,538(b)
22,800 Whole Foods Market, Inc. 1,102,950(b)
49,900 Williams-Sonoma, Inc. 2,011,594(b)
-------------
31,963,144
-------------
Telecommunications Equipment - 2.8%
40,600 Dialogic Corp. 798,044(b)
40,300 Gilat Satellite Networks, Ltd. 2,221,538(b)
30,400 Inter-Tel, Inc. 710,600
24,200 Omnipoint Corp. 225,363(b)
21,700 Pacific Gateway Exchange, Inc. 1,042,956(b)
42,900 Premisys Communications, Inc. 394,144(b)
70,300 Proxim, Inc. 1,876,131(b)
52,200 Tekelec Co. 864,563(b)
39,300 Transaction Network Services, Inc. 788,456(b)
39,600 USA Networks, Inc. 1,311,750(b)
-------------
10,233,545
-------------
Telephone Services - 0.7%
20,200 Comverse Technology, Inc. 1,434,200(b)
31,000 InterVoice, Inc. 1,069,500(b)
-------------
2,503,700
-------------
Transportation Services - 2.0%
64,800 BE Aerospace, Inc. 1,360,800(b)
44,200 Coach USA, Inc. 1,533,188(b)
32,880 Expeditors International of
Washington, Inc. 1,380,960
69,800 Swift Transportation Co., Inc. 1,956,581(b)
41,700 USFreightways Corp. 1,214,513
-------------
7,446,042
-------------
Total Common Stocks
(cost $332,721,477) 361,095,702
-------------
Principal
Amount
- ------------
SHORT-TERM SECURITIES - 2.9% (a)
Commercial Paper
$10,600,000 New Center Asset Trust, 5.23%,
Due 1/4/1999
(at amortized cost) 10,595,380
-------------
Total Investments
(cost $344,316,857) 371,691,082(d)
=============
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 December 31, 1998.
(d) At December 31, 1998, the aggregate cost of securities for federal
income tax purposes was $344,446,308 and the net unrealized
appreciation of investments based on that cost was $27,244,774 which
is comprised of $64,215,748 aggregate gross unrealized appreciation
and $36,970,974 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC.
Mid Cap Growth Portfolio
Portfolio of Investments
December 31, 1998
Shares Value
- -------------- -------------
COMMON STOCKS - 95.6% (a)
Aerospace - 0.4%
7,550 BE Aerospace, Inc. 158,524(b)
4,950 Sunstrand Corp. 256,781
-------------
415,305
-------------
Airlines - 1.3%
5,700 ASA Holdings, Inc. 173,850
11,440 Comair Holdings, Inc. 386,100
4,300 Delta Air Lines, Inc. 223,600
6,460 Expeditors International of
Washington, Inc. 271,320
9,575 Southwest Airlines Co. 214,839
-------------
1,269,709
-------------
Appliances & Furnishings - 0.2%
3,400 Maytag Corp. 211,650
-------------
Automotive - 1.7%
13,190 AutoZone, Inc. 434,446(b)
7,000 Borg-Warner Automotive, Inc. 390,688
7,400 Dana Corp. 302,475
1,400 SPX Corp. 93,800(b)
14,370 Tower Automotive, Inc. 358,352(b)
-------------
1,579,761
-------------
Bank & Finance - 8.8%
7,600 Associates First Capital Corp. 322,050
4,200 Bear Stearns Cos., Inc. 156,975
1,500 Capital One Financial Corp. 172,500
5,990 Charter One Financial, Inc. 166,223
3,200 Chase Manhattan Corp. 217,800
6,010 Citigroup, Inc. 297,495
9,230 City National Corp. 384,199
3,330 Crestar Financial Corp. 239,760
2,920 Donaldson, Lufkin & Jenrette, Inc. 119,720
4,740 EVEREN Capital Corp. 107,835
9,660 Finova Group, Inc. 521,036
1,900 First American Corp. 84,313
5,340 First Union Corp. 324,739
2,200 Firstar Corp. 205,150
4,300 Franklin Resources, Inc. 137,600
2,200 Lehman Brothers Holdings, Inc. 96,938
2,400 Merrill Lynch & Co., Inc. 160,200
2,200 Morgan Stanley Dean Witter & Co. 156,200
7,550 Mutual Risk Management, Ltd. 295,394
4,910 Northern Trust Corp. 428,704
3,250 PaineWebber Group, Inc. 125,531
2,290 PMI Group 113,069
7,300 Profit Recovery Group
International, Inc. 273,294(b)
11,930 Provident Companies, Inc. 495,095
5,100 Providian Financial Corp. 382,500
1,300 Standard & Poor's Depositary
Receipts Trust 159,900
5,890 State Street Corp. 409,723
8,760 Summit Bancorp 382,703
5,770 SunAmerica, Inc. 468,091
9,970 TCF Financial Corp. 241,149
10,500 T. Rowe Price Associates, Inc. 359,625
7,300 Zions Bancorp 455,338
-------------
8,460,849
-------------
Broadcasting - 3.4%
11,650 Chancellor Media Corp. 557,744(b)
13,260 Clear Channel Communications, Inc. 722,670(b)
9,200 Comcast Corp., Class A 539,925
9,100 Fox Entertainment Group, Inc. 229,206(b)
6,000 Infinity Broadcasting Corp. 164,250(b)
8,010 Jacor Communications, Inc. 515,644(b)
12,700 Sinclair Broadcast Group, Inc. 248,444(b)
5,800 Tele-Communications, Inc.,
TCI Group, Series A 320,813(b)
-------------
3,298,696
-------------
Building Products & Materials - 0.3%
2,765 Fastenal Co. 121,660
8,480 Leggett & Platt, Inc. 186,560
-------------
308,220
-------------
Chemicals - 0.2%
10,050 Crompton & Knowles Corp. 207,909
-------------
Computer Software - 10.7%
8,400 Acclaim Entertainment, Inc. 102,900(b)
9,260 America Online, Inc. 1,481,600
5,780 American Power Conversion Corp. 279,969(b)
12,000 Arrow Electronics, Inc. 320,250(b)
5,030 Autodesk, Inc. 214,718
9,900 AXENT Technologies, Inc. 302,569(b)
8,880 BMC Software, Inc. 395,715(b)
15,100 Cadence Design Systems, Inc. 449,224(b)
5,030 Citrix Systems, Inc. 488,224(b)
7,880 Compuware Corp. 615,625(b)
6,390 Documentum, Inc. 341,466(b)
10,390 HBO & Co. 298,063
8,010 HNC Software, Inc. 323,904(b)
7,690 Keane, Inc. 307,119(b)
3,700 Macromedia, Inc. 124,644(b)
2,380 Microsoft Corp. 330,076(b)
3,800 Network Associates, Inc. 251,750(b)
8,600 Oracle Corp. 370,875(b)
9,200 Parametric Technology Corp. 150,650(b)
18,480 Platinum Technology, Inc. 353,430(b)
8,600 Project Software &
Development, Inc. 288,100(b)
13,700 Rational Software Corp. 363,050(b)
9,160 Saville Systems Ireland plc ADR (USD) 174,040(b)
5,440 Shared Medical Systems Corp. 271,320
5,700 Siebel Systems, Inc. 193,444(b)
4,280 Sterling Commerce, Inc. 192,600(b)
15,210 SunGard Data Systems, Inc. 603,647(b)
7,340 Synopsys, Inc. 398,195(b)
5,200 Veritas Software Corp. 311,675(b)
-------------
10,298,842
-------------
Computers & Office Equipment - 7.9%
9,710 3Com Corp. 435,129(b)
11,000 Apple Computer 450,313(b)
6,300 At Home Corp., Series A 467,775(b,d)
4,600 Cisco Systems, Inc. 426,938(b)
5,800 CNet, Inc. 317,913(b)
7,420 Compaq Computer Corp. 311,176
3,200 Comverse Technology, Inc. 227,200(b)
5,700 EMC Corp. 484,500(b)
5,000 Excite, Inc. 210,313(b,d)
3,400 Gateway 2000, Inc. 174,038(b)
4,700 GeoCities Corp. 158,038(b)
6,760 Herman Miller, Inc. 181,675
7,280 Hon Industries, Inc. 174,265
2,600 Intuit, Inc. 188,500(b)
3,200 Legato Systems, Inc. 211,000(b)
2,080 Lexmark International
Group, Inc., Class A 209,040(b)
3,600 Lycos, Inc. 200,025(b)
5,780 Network Appliance, Inc. 260,100(b)
15,300 Novell, Inc. 277,313(b)
12,000 PRI Automation, Inc. 312,000(b)
13,500 Quantum Corp. 286,875(b)
4,600 RealNetworks, Inc. 165,025(b)
10,150 Seagate Technology, Inc. 307,038(b)
2,380 Sun Microsystems, Inc. 203,788(b)
3,920 Systems & Computer Technology Corp. 53,900(b)
3,380 Tech Data Corp. 136,045(b)
7,100 Teradyne, Inc. 300,863(b,c)
11,500 Verio, Inc. 257,313(b)
9,900 Western Digital Corp. 149,119(b,c)
-------------
7,537,217
-------------
Conglomerates - 0.6%
8,700 ITT Industries, Inc. 345,825
3,480 Tyco International, Ltd. 262,523
-------------
608,348
-------------
Construction & Home Building - 0.4%
8,760 Centex Corp. 394,748
-------------
Containers & Packaging - 0.3%
9,220 Owens-Illinois, Inc. 282,363(b)
-------------
Drugs & Health Care - 7.6%
5,040 Alza Corp. 263,340(b)
3,200 Amgen, Inc. 334,600
8,100 Arterial Vascular Engineering 425,250(b)
11,900 Biochem Pharma, Inc. 340,638(b)
3,260 Biogen, Inc. 270,580(b)
6,330 Biomet, Inc. 254,783
2,490 Cardinal Health, Inc. 188,929
6,580 Centocor, Inc. 296,923(b)
5,930 Elan Corp. plc, ADR (USD) 412,506(b)
3,100 Eli Lilly & Co. 275,513
5,840 Forest Laboratories, Inc. 310,615(b)
4,740 Genzyme Corp. 235,815(b)
7,680 Gilead Sciences, Inc. 315,360(b)
1,890 Guidant Corporation 208,373
4,500 Haemonetics Corp. 102,375(b)
8,900 HCR Manor Care, Inc. 261,438(b)
13,280 Luxottica Group S.P.A. ADR (USD) 159,360
4,460 McKesson Corp. 352,619
2,000 MedImmune, Inc. 198,875(b)
8,020 Mylan Laboratories, Inc. 252,630
9,320 Rite Aid Corp. 461,923
3,640 Sofamor Danek Group, Inc. 443,170(b)
6,060 STERIS Corp. 172,331(b)
11,350 Watson Pharmaceuticals, Inc. 713,631(b)
-------------
7,251,577
-------------
Electric Utilities - 0.2%
4,680 AES (The) Corp. 221,715(b)
-------------
Electrical Equipment - 1.2%
6,290 Applied Materials, Inc. 268,504(b)
7,470 KLA Instruments Corp. 324,011(b)
5,790 Novellus Systems, Inc. 286,605(b)
4,300 Symbol Technologies, Inc. 274,931
-------------
1,154,051
-------------
Electronics - 6.9%
8,420 Altera Corp. 512,568(b)
6,300 AMP, Inc. 327,994
9,300 Analog Devices, Inc. 291,788(b)
5,400 Avnet, Inc. 326,700
2,000 Jabil Circuit, Inc. 149,250(b)
5,380 Linear Technology Corp. 481,846
10,920 Maxim Integrated Products, Inc. 477,068(b)
11,900 Mettler-Toledo International Inc. 333,944(b)
4,100 Micrel, Inc. 225,500(b)
7,360 Microchip Technology, Inc. 272,320(b)
11,800 Oak Industries, Inc. 413,000(b)
3,260 PMC-Sierra, Inc. 205,788(b)
1,700 SCI Systems, Inc. 98,175(b)
15,000 Smart Modular Technologies, Inc. 416,250(b)
3,340 Solectron Corp. 310,411(b)
8,070 Uniphase Corp. 559,856(b)
10,170 Vitesse Semiconductor Corp. 464,006(b)
3,860 Waters Corp. 336,785(b)
6,730 Xilinx, Inc. 438,291(b)
-------------
6,641,540
-------------
Food & Beverage - 1.1%
4,900 Coca-Cola Enterprises, Inc. 175,175
17,030 Flowers Industries, Inc. 407,656
6,500 Nabisco Holdings, Inc. 269,750
3,680 U.S. Foodservice 180,320(b)
-------------
1,032,901
-------------
Healthcare Management - 3.9%
7,300 Allegiance Corp. 340,363
3,700 Express Scripts, Inc., Class A 248,363(b)
24,870 HEALTHSOUTH Corp. 383,931(b)
3,770 Henry Schein, Inc. 168,708(b)
7,500 Humana, Inc. 133,594(b)
5,000 Lincare Holdings, Inc. 202,813(b)
14,670 Omnicare, Inc. 509,783
10,730 Orthodontic Centers of
America, Inc. 208,564(b)
7,180 Quintiles Transnational Corp. 383,233(b)
17,710 Total Renal Care Holdings, Inc. 523,552(b)
13,770 Trigon Healthcare, Inc. 513,793(b)
1,990 Wellpoint Health Networks Inc. 173,130(b)
-------------
3,789,827
-------------
Hospital Management - 0.7%
25,875 Health Management Associates,
Inc., Class A 559,547(b)
3,140 Tenet Healthcare Corporation 82,425(b)
-------------
641,972
-------------
Household Products - 0.5%
15,330 Dial Corp. 442,654
-------------
Insurance - 1.6%
10,800 AFLAC, Inc. 475,200
6,350 Allmerica Financial Corp. 367,506
9,350 Nationwide Financial Services,
Class A 483,278
8,825 Old Republic International Corp. 198,563
-------------
1,524,547
-------------
Leisure & Entertainment - 1.0%
4,300 Carnival Corp., Inc. 206,400
3,960 Harley Davidson, Inc. 187,605(c)
5,400 Royal Caribbean Cruises, Ltd. 199,800
6,660 Time Warner, Inc. 413,336
-------------
1,007,141
-------------
Machinery & Equipment - 1.5%
9,500 Applied Power, Inc. 358,625
7,860 Black & Decker Corp. 440,651
7,545 Crane Co. 227,765
3,500 Danaher Corp. 190,094
11,470 MSC Industrial Direct Co., Inc.,
Class A 259,509(b)
-------------
1,476,644
-------------
Media - 1.5%
4,000 Cox Communications, Inc., Class A 276,500(b)
20,730 Outdoor Systems, Inc. 621,900(b)
10,990 Tele-Communications, Inc.,
Liberty Media Group, Series A 506,227(b)
-------------
1,404,627
-------------
Natural Gas - 0.6%
10,000 Consolidated Natural Gas Co. 540,000
-------------
Oil & Oil Service - 3.0%
6,730 Apache Corp. 170,353
8,380 BJ Services Co. 130,938(b)
8,340 Cooper Cameron Corp. 204,330(b)
5,640 Devon Energy Corp. 173,078
10,100 Diamond Offshore Drilling, Inc. 239,244
11,320 ENSCO International, Inc. 120,983
13,720 Global Marine, Inc. 126,053(b)
15,960 Noble Drilling Corp. 206,483(b)
12,640 R&B Falcon Corp. 96,380(b)
3,050 Schlumberger, Ltd. 140,681
8,590 Smith International, Inc. 216,361(b)
8,880 Sunoco, Inc. 320,235
6,250 Tosco Corp. 161,719
6,160 Transocean Offshore, Inc. 165,165
10,490 USX-Marathon Group 316,011
4,840 Weatherford International, Inc. 93,775(b)
-------------
2,881,789
-------------
Paper & Forest Products - 0.3%
6,600 Bowater, Inc. 273,488
-------------
Pollution Control - 1.1%
10,900 Allied Waste Industries, Inc. 257,513(b)
18,400 Catalyca, Inc. 331,200(b)
10,070 Waste Management, Inc. 469,514
-------------
1,058,227
-------------
Publishing & Printing - 0.3%
10,580 World Color Press, Inc. 322,029(b)
-------------
Railroads - 0.2%
4,930 CSX Corp. 204,595
-------------
Restaurants - 1.3%
18,800 Darden Restaurants, Inc. 338,400
5,600 Outback Steakhouse, Inc. 223,300(b)
6,750 Papa John's International, Inc. 297,844(b)
6,500 Starbucks Corp. 364,813(b)
-------------
1,224,357
-------------
Retail - 10.0%
5,800 Abercrombie & Fitch Co., Class A 410,350(b)
8,400 Albertson's, Inc. 534,975
15,300 Bed, Bath & Beyond, Inc. 522,113(b)
7,340 Circuit City Stores, Inc. 366,541
5,100 Costco Companies, Inc. 368,156(b)
6,300 CVS Corp. 346,500
4,300 Dayton Hudson Corp. 233,275
9,900 Dollar Tree Stores, Inc. 432,506(b)
6,770 Eagle Hardware & Garden, Inc. 220,025(b)
4,290 Ethan Allen Interiors, Inc. 175,890
8,490 Fred Meyer, Inc. 511,523(b)
9,920 Kohl's Corp. 609,460(b)
17,600 Limited, Inc. 512,600
5,300 Lowe's Companies 271,294
10,735 Men's (The) Wearhouse, Inc. 340,836(b)
20,900 Office Depot, Inc. 771,994(b)
6,500 Ross Stores, Inc. 255,938
8,060 Safeway, Inc. 491,156(b)
9,050 Saks, Inc. 285,641(b)
20,330 Staples, Inc. 888,167(b)
23,920 TJX Companies, Inc. 693,680
8,500 Williams-Sonoma, Inc. 342,656(b)
-------------
9,585,276
-------------
Services - 7.1%
13,000 Acxiom Corp. 403,000(b)
2,430 Apollo Group, Inc., Class A 82,316(b)
8,850 Cambridge Technology
Partners, Inc. 195,806(b)
2,900 Cintas Corp. 204,269
6,300 Computer Sciences Corp. 405,956
8,200 Concord EFS, Inc. 347,475(b)
4,800 Covance, Inc. 139,800(b)
3,200 DST Systems, Inc. 182,600(b)
8,200 Electronic Data Systems Corp. 412,050
6,580 Equifax, Inc. 224,954
9,100 First Data Corp. 288,356
13,140 Fiserv, Inc. 675,889(b)
10,430 Getty Images, Inc. 179,266(b)
11,500 IDEXX Laboratories, Inc. 309,422(b)
2,000 Interpublic Group of Cos., Inc. 159,500
9,330 ITT Educational Services, Inc. 317,220(b)
9,690 Modis Professional Services, Inc. 140,505(b)
6,760 Omnicom Group, Inc. 392,080
7,120 Paychex, Inc. 366,235
8,900 Renters Choice, Inc. 282,575(b)
5,420 Robert Half International, Inc. 242,206(b)
4,210 Service Corp. International 160,243
6,960 Stewart Enterprises, Inc.,
Class A 154,860
10,800 Sylvan Learning Systems, Inc. 329,400(b)
6,600 Young & Rubicam, Inc. 213,675(b)
-------------
6,809,658
-------------
Telecommunications Equipment - 3.0%
5,700 ADC Telecommunications, Inc. 198,075(b)
9,300 Ascend Communications, Inc. 611,475(b)
3,000 Bisys (The) Group, Inc. 154,875(b)
7,100 Global TeleSystems Group, Inc. 395,825(b)
6,800 Level One Communications, Inc. 241,400(b)
2,900 Lucent Technologies, Inc. 319,000
4,300 Motorola, Inc. 262,569
1,900 Nokia Corp. ADR (USD) 228,831
2,560 Tellabs, Inc. 175,520(b)
7,100 Terayon Communication Systems, Inc. 262,700(b)
-------------
2,850,270
-------------
Telephone & Telecommunications - 3.7%
4,560 Century Telephone Enterprises 307,800
9,110 Cincinnati Bell, Inc. 344,472
4,700 Level 3 Communications
Holdings Corp. 218,844(b)
7,400 MCI Worldcom, Inc. 530,950(b)
9,600 Newbridge Networks Corp. 291,600(b)
8,670 Pacific Gateway Exchange, Inc. 416,702(b)
10,500 Qwest Communications
International, Inc. 525,000(b)
9,300 RSL Communications, Ltd. 274,350(b)
13,100 Tel-Save Holdings, Inc 219,425(b)
17,270 Western Wireless Corp., Class A 379,940(b)
-------------
3,509,083
-------------
Textiles & Apparel - 0.7%
10,500 Jones Apparel Group, Inc. 231,656(b)
3,850 Tommy Hilfiger Corp. 231,000(b)
8,320 Stewart Enterprises, Inc., Class A 210,080
-------------
672,736
-------------
Trucking - 0.4%
3,100 Airborne Freight Corp. 111,794
10,360 USFreightways Corp. 301,736
-------------
413,530
-------------
Total Common Stocks
(cost $81,892,562) 91,807,851
-------------
Principal
Amount
- ------------
SHORT-TERM
SECURITIES - 4.4% (a)
U.S. Government Agency
$4,210,000 Federal Home Loan Bank
Discount Notes, 4.2%,
due 1/4/1999
(at amortized cost) 4,208,527
-------------
Total Investments
(cost $86,101,089) $96,016,378(e)
=============
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 December 31, 1998.
(d) At December 31, 1998, common stocks valued at $440,488 were held
in escrow to cover call options written as follows:
Number of Exercise Expiration
Type Contracts Price Date Value
- ------ ------------ ---------- ------------ -------
At Home Corp. 31 $80 1/15/1999 $ 9,300
Excite, Inc. 50 45 1/15/1999 17,500
-- -------
81 $26,800
== =======
(e) At December 31, 1998, the aggregate cost of securities for
federal income tax purposes was $87,116,796 and the net unrealized
appreciation of investments based on that cost was
$8,899,581 which is comprised of
$13,713,646 aggregate gross unrealized appreciation and $4,814,065
aggregate gross unrealized depreciation.
(f) Miscellaneous Footnotes:
(ADR) - American Depository Receipts
The accompanying notes are an integral part of the financial statements.
LB Series Fund, Inc.
World Growth Portfolio
Portfolio of Investments
December 31, 1998
Shares Value
- -------------- -------------
ARGENTINA - 0.7% (a)
COMMON STOCKS
13,592 Banco de Galicia Buenos
Aires 'B' ADR (USD) $ 239,559
10,799 Banco Frances del Rio de la
Plata ADR (USD) 224,079
22,830 Telefonica de Argentina ADR (USD) 637,813
47,286 YPF Sociedad Anonima ADR (USD) 1,321,053
-------------
Total Argentina 2,422,504
-------------
AUSTRALIA - 2.0% (a)
COMMON STOCKS
70,109 Australia Gas & Light 504,970
25,000 Brambles Industries, Ltd. 608,953
213,030 Colonial, Ltd. 731,030
59,887 Commonwealth Bank of Australia 850,029
333,000 Goodman, Fielder, Wattie, Ltd. 336,693
35,000 John Fairfax Holdings, Ltd. 71,849
33,558 Lend Lease Corp. 452,403
718 National Australia Bank, Ltd. 10,823
106,401 News Corp., Ltd. 702,863
113,000 Publishing & Broadcasting, Ltd. 493,713
240,398 Telstra Corporation 1,123,988
145,544 Westpac Banking Corp. 973,920
-------------
6,861,234
-------------
PREFERRED STOCKS
90,402 News Corp., Ltd. 550,090
-------------
Total Australia 7,411,324
-------------
BELGIUM - 1.9% (a)
COMMON STOCKS
2,693 Credit Communal Holding/Dexia 447,925
5,551 Fortis AG 1,999,131
51,230 Kredietbank 4,030,824
104 UCB 637,778
-------------
Total Belgium 7,115,658
-------------
BRAZIL - 1.2% (a)
COMMON STOCKS
1,030 Brazil Fund (USD) 11,201
10,360 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR (USD) 160,580
391 Companhia Energetica Brasilia
ADR (USD) 7,429
25,513 Companhia Energetica Minas
Gerais ADR (USD) 484,747
47,819 Telecomunicacues Brasilieras
SA ADR (USD) 3,475,844
15,000 Unibanco - Uniao de Bancos
Brasileiros SA GDR 216,563
-------------
Total Brazil 4,356,364
-------------
CANADA - 0.2% (a)
COMMON STOCKS
16,090 Alcan Aluminum 436,856
5,900 Royal Bank of Canada 295,482
-------------
Total Canada 732,338
-------------
CHILE - 0.1% (a)
COMMON STOCKS
8,522 Chilectra ADR (USD) 183,223
-------------
CHINA - 0.2% (a)
COMMON STOCKS
41,360 Huaneng Power International
'N' ADR (USD) 599,720(c)
-------------
CZECH REPUBLIC (b)
COMMON STOCKS
7,000 SPT Telecom a.s. 106,815
-------------
DENMARK - 0.4% (a)
COMMON STOCKS
5,244 Den Danske Bank 704,495
2,287 Tele Danmark 'B' 308,680
4,510 Unidanmark 'A' 407,468
-------------
Total Denmark 1,420,643
-------------
FINLAND - 0.7% (a)
COMMON STOCKS
21,670 Nokia Oyj 'A' 2,634,909
-------------
FRANCE - 10.7% (a)
COMMON STOCKS
12,259 Alcatel Alsthom 1,499,760
20,860 AXA 3,022,107
2,581 Carrefour 1,947,637
10,250 Cie de St. Gobain 1,446,476
12,414 Credit Commercial de France 1,152,364
1,539 Credit Local de France 237,002
2,513 Credit Local de France -
Dexia France 386,996
24,437 Eaux Cie Generale 6,337,623
4,890 Groupe Danone 1,399,392
2,820 GTM Entrepose 292,542
4,983 Lafarge Coppee 473,256
5,500 Lapeyre 392,506
2,319 Legrand 614,280
1,094 L'Oreal 790,513
1,877 Pathe SA 523,720
21,925 Pinault-Printemps-Redoute SA 4,188,142
587 Primagaz 55,645
16,059 Sanofi 2,642,511
32,880 Schneider SA 1,993,618
7,823 Societe Generale 1,266,288
10,605 Societe Nationale Elf Aquitaine 1,225,332
14,838 Sodexho 3,317,385
7,370 Television Francaise 1,311,599
29,959 Total 'B' 3,032,873
-------------
Total France 39,549,567
-------------
GERMANY - 7.2% (a)
COMMON STOCKS
5,830 Allianz AG 2,137,363
32,372 Bayer AG 1,350,938
39,216 Bayerische Vereinsbank AG 3,070,736
400 Buderas AG 145,686
27,131 Deutsche Bank AG 1,596,181
48,558 Deutsche Telekom AG 1,596,651
39,217 Dresdner Bank AG 1,647,180
17,778 Dresdner Bank AG Warrants
Expiring 4/30/2002 304,016(c)
46,007 Gehe AG 3,174,610
9,000 Hoechst AG 373,155
520 Hornbach Baumarkt AG 18,721
27,770 Mannesmann AG 3,182,569
4,716 Rhoen Klinikum AG 468,318
4,810 SAP AG 2,078,003
12,653 Siemens AG 816,151
34,915 Veba AG 2,088,699
6,490 Volkswagon AG 517,923
-------------
24,566,900
-------------
PREFERRED STOCKS
1,200 Fielmann AG 57,602
1,450 Fresenius AG 305,382
4,590 Hornbach Holdings AG 272,657
2,684 SAP AG 1,280,641
-------------
1,916,282
-------------
Total Germany 26,483,182
-------------
HONG KONG - 1.4% (a)
COMMON STOCKS
35,000 Cheung Kong Holdings, Ltd. 251,852
176,000 China Telecom, Ltd. 300,996
39,000 Hang Seng Bank, Ltd. 348,592
135,000 Henderson Land Development, Ltd. 698,733
22,400 Hong Kong Shanghai Bank Holdings 558,005
282,000 Hong Kong Telecommunications, Ltd. 493,198
301,000 Hutchison Whampoa 2,127,078
34,000 Sun Hung Kai Properties, Ltd. 247,948
-------------
Total Hong Kong 5,026,402
-------------
INDIA - 0.1% (a)
COMMON STOCKS
27,000 Mahanager Telephone Nigam, Ltd. GDR 334,125
-------------
IRELAND - 0.1% (a)
COMMON STOCKS
28,507 CBT Group plc 424,042(c)
-------------
ITALY - 5.9% (a)
COMMON STOCKS
42,560 Assicurazioni Generali 1,776,068
87,000 Banca Commerciale Italiana 599,837
672,000 Banca di Roma 1,137,984(c)
383,177 Credito Italiano 2,269,932
361,491 Ente Nazionale Idrocarburi 2,361,186
9,074 Industrie Natuzzi SpA ADR (USD) 225,716
123,477 Instituto Bancario San Paolo
di Torino 2,180,609
482,000 Istituto Nazionale
Delle Assicurazioni 1,272,449
71,600 Italgas 387,349
178,645 Mediolanum SpA 1,323,536
17,600 Rinascente 180,902
449,400 Telecom Italia Mobile 3,315,903
548,903 Telecom Italia SpA 4,680,838
-------------
Total Italy 21,712,309
-------------
JAPAN - 16.8% (a)
COMMON STOCKS
5,340 Advantest Corp. 338,208
31,000 Alps Electric 568,996
73,000 Amada 353,215
141,000 Canon 3,012,074
45,000 Citizen Watch Co. 270,677
71,000 Dai Nippon Screen
Manufacturing Co., Ltd. 177,107
77,000 Daiichi Pharmaceutical 1,300,248
98,000 Daiwa House 1,042,848
207 DDI Corp. 769,040
186 East Japan Railway 1,038,178
15,900 Fanuc 544,299
30,000 Fujitsu, Ltd. 399,381
170,000 Hitachi 1,052,632
8,000 Honda Motor Co. 262,539
28,000 Ito-Yokado 1,956,656
79,000 Kao Corp. 1,781,955
44,000 Kokuyo 591,986
76,000 Komatsu 398,655
43,000 Komori 905,263
106,000 Kuraray 1,169,235
34,000 Kyocera 1,795,489
56,000 Makita 623,653
104,000 Marui 2,000,885
157,000 Matsushita Electric Industrial 2,776,143
92,000 Mitsubishi 528,969
446,000 Mitsubishi Heavy Industries 1,735,869
246,000 Mitsui Fudosan 1,860,504
51,000 Murata Manufacturing 2,115,789
269,000 NEC 2,474,657
163,000 Nippon Denso 3,013,445
203 Nippon Telegraph & Telecom 1,565,820
154,000 Nomura Securities 1,341,796
10 NTT Mobile Communication
Network, Inc. 411,322
26,000 Pioneer Electronic 435,825
4,000 Sangetsu Co., Ltd. 59,797
116,000 Sankyo Co. 2,534,454
147,000 Sekisui Chemical 988,235
90,000 Sekisui House 951,349
11,000 Seven-Eleven Japan 885,449
85,300 Shin-Etsu Chemical 2,052,331
49,000 Shiseido Co., Ltd. 629,350
38,700 Sony 2,817,346
199,000 Sumitomo 968,156
246,000 Sumitomo Electric 2,765,732
36,000 Sumitomo Forestry 257,939
35,000 TDK 3,198,142
32,000 Tokio Marine & Fire Insurance 382,132
16,900 Tokyo Electronics 641,318
31,800 Tokyo Steel Manufacturing 159,211
87,000 Toppan Printing 1,062,008
47,000 Uny Co. 858,514
-------------
Total Japan 61,824,821
-------------
LUXEMBOURG - 0.1% (a)
COMMON STOCKS
1,800 Societe Europeenne des Satellites 287,209(c)
-------------
MEXICO - 1.1% (a)
COMMON STOCKS
75,000 Cementos de Mexico ADR (USD) 332,813
47,850 Cemex 'B' 118,092
1,435 Cemex SA de C.V. 3,092
74,660 Gruma 'B' 188,402(c)
20,695 Gruma SA ADR 205,657
240,062 Grupo Industrial Maseca 'B' 193,852
17,500 Grupo Televisa GDR (USD) 432,031(c)
110,408 Kimberly-Clark Mexico 'A' 351,050
22,020 Panamerican Beverages 'A' ADR (USD) 480,311
35,435 Telefonos de Mexico 'L' ADR (USD) 1,725,242
20,700 TV Azteca SA ADR (USD) 138,431
-------------
Total Mexico 4,168,973
-------------
NETHERLANDS - 11.0% (a)
COMMON STOCKS
75,136 ABN Amro Holdings NV 1,579,748
9,160 Akzo Nobel NV 416,873
37,210 ASM Lithography Holdings NV 1,136,879(c)
111,000 CLP Holdings, Ltd. 553,023
33,699 CSM 1,944,415
185,199 Elsevier 2,592,609
35,885 Fortis Amev NV 2,972,112
10,231 Gucci Group NV ADR (USD) 497,482
99,082 ING Groep NV 6,038,691
75,314 Koninklijke Ahold NV 2,782,132
29,310 Koninklijke Numico NV 1,396,309
8,490 KPN NV 424,794
65,778 Royal Dutch Petroleum 3,273,670
26,070 Royal Phillips Electronics NV 1,748,454
10,200 ST Microelectronics 802,719
8,490 TNT Post Group NV 273,404
49,520 Unilever NV 4,230,564
38,057 Wolters Kluwer 8,139,300
-------------
Total Netherlands 40,803,178
-------------
NEW ZEALAND - 0.2% (a)
COMMON STOCKS
77,000 Telecom Corporation of New
Zealand, Ltd. 168,149(c)
132,000 Telecom Corp. of New Zealand 573,037
-------------
Total New Zealand 741,186
-------------
NORWAY - 1.1% (a)
COMMON STOCKS
5,570 Bergesen 'A' 66,707
56,354 Norsk Hydro 1,906,031
148,190 Orkla ASA 2,213,538
6,910 Saga Petroleum ASA 63,203
-------------
Total Norway 4,249,479
-------------
PORTUGAL - 0.5% (a)
COMMON STOCKS
35,545 Jeronimo Martins 1,945,389
-------------
RUSSIA - (b)
COMMON STOCKS
13,070 Gazprom ADS (USD) 110,768
1,880 Lukoil holding AB ADR 30,550
-------------
Total Russia 141,318
-------------
SINGAPORE - 0.1% (a)
COMMON STOCKS
35,416 Singapore Press Holdings, Ltd. 386,122
-------------
SOUTH KOREA - 0.1% (a)
COMMON STOCKS
53,991 Korea Equity Fund (USD) 499,417
-------------
SPAIN - 3.1% (a)
COMMON STOCKS
36,780 Banco Bilboa Vizcaya SA 575,820(c)
87,091 Banco Santander SA 1,728,093
40,178 Corporacion Bancaria de Espana SA 1,038,940
57,564 Endesa SA 1,522,943
11,276 Gas Natural SDG SA 1,225,825
59,060 Iberdrola 1,103,323
13,325 Repsol SA 709,754
77,344 Telefonica de Espana 3,434,004
77,344 Telefonica SA 6,857
-------------
Total Spain 11,345,559
-------------
SWEDEN - 3.5% (a)
COMMON STOCKS
57,930 ABB AB 616,747
175,540 Astra AB 3,564,900
40,060 Atlas Copco 'B' 867,783
107,225 Electrolux AB 1,841,016
7,770 Esselte 'B' 127,192
6,582 Granges AB 94,783
37,250 Hennes & Mauritz AB 3,035,091
325,121 Nordbanken Holding AB 2,080,826
4,860 Sandvik 'A' 84,342
29,620 Sandvik 'B' 510,388
-------------
Total Sweden 12,823,068
-------------
SWITZERLAND - 7.4% (a)
COMMON STOCKS
1,320 ABB AG 1,547,063
5,447 Adecco SA 2,486,183
9,750 Credit Suisse Group 1,525,988
3,355 Nestle 7,302,504
2,818 Novartis AG 5,538,764
344 Roche Holdings 4,197,015
1,542 Swisscom AG 645,447(c)
13,738 UBS AG 4,220,307
-------------
Total Switzerland 27,463,271
-------------
UNITED KINGDOM - 18.8% (a)
COMMON STOCKS
120,000 Abbey National 2,553,913
421,000 Asda Group 1,129,615
132,764 BG plc 853,625
111,000 British Petroleum 1,652,368
245,000 Cable & Wireless 2,995,846
179,225 Cadbury Schweppes 3,066,984
257,800 Caradon plc 441,160
62,000 Centrica plc 127,214(c)
190,000 Compass Group plc 2,168,633
114,000 David S. Smith 200,764
79,000 Electrocomponents 521,067
26,000 GKN plc 345,572
191,500 Glaxo Wellcome 6,592,258
11,000 Heywood Williams Group 39,475
58,000 John Laing 'A' 240,904
593,000 Kingfisher 6,423,592
555,000 National Westminster Bank 10,742,233
90,000 Rank Group plc 344,001
496,000 Reed International plc 3,938,993
84,000 Rolls Royce 348,895
122,000 RTZ 1,418,840
240,000 Safeway plc 1,204,187
992,000 Shell Transport & Trading 6,098,023
674,400 SmithKline Beecham plc 9,346,698
573,000 Tesco 1,665,974
515,700 Tomkins 2,450,410
71,000 Unilever plc 798,588
186,000 United News & Media 1,616,175
-------------
Total United Kingdom 69,326,007
-------------
Principal
Amount
- ------------
SHORT-TERM
SECURITIES - 3.4% (a)
Commercial Paper
$12,400,000 New Center Asset Trust,
5.23%, Due 1/4/1999
(at amortized cost) 12,394,596
-------------
Total Investments $368,912,718(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
represents less than 0.1% of the total investments of the
World Growth Portfolio.
(c) Currently non-income producing.
(d) Security Classification:
% of
Cost Value Portfolio
------------- ------------- ---------
Common Stocks
& Warrants $ 296,280,555 $ 354,051,750 95.9%
Preferred Stocks 2,284,109 2,466,372 0.7%
Short-Term 12,394,596 12,394,596 3.4%
------------- ------------- ---------
Total Investments $ 310,959,260 $ 368,912,718 100.0%
============= ============= =========
(e) At December 31, 1998, the aggregate cost of securities for
federal income tax purposes was $314,495,907 and the net unrealized
appreciation of investments based on that cost was
$54,416,811 which is comprised of
$78,975,916 aggregate gross unrealized appreciation and $24,559,105
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.
LB SERIES FUND, INC.
World Growth Portfolio
Portfolio of Investments
December 31, 1998
Shares Value
- -------------- -------------
COMMON STOCKS - 94.5% (a)
Airlines - 0.9%
196,100 Airborne Freight Corp. $ 7,071,856
100,000 Continental Airlines
Holding, Inc., Class B 3,350,000(b)
53,800 Delta Air Lines, Inc. 2,797,600
268,700 Northwest Airlines Corp., Class A 6,868,613(b)
467,850 Southwest Airlines Co. 10,497,384
-------------
30,585,453
-------------
Appliances &
Furnishings - (c)
142,300 Sunbeam Corp. 996,100
-------------
Automotive - 1.9%
100,000 DaimlerChrysler AG 9,606,250(b)
250,000 Ford Motor Co. 14,671,875
215,700 General Motors Corp., Class H 8,560,594(b)
201,600 General Motors Corp. 14,427,000
80,000 Magna International, Inc. 4,960,000
350,000 Tower Automotive, Inc. 8,728,125(b)
38,000 Volvo Aktiebolaget ADR (USD) 885,875
-------------
61,839,719
-------------
Bank & Finance - 14.9%
142,500 Ace, Ltd. 4,907,344
263,100 American Express Co. 26,901,975
341,900 American International Group, Inc. 33,036,088
646,200 Associates First Capital Corp. 27,382,725
603,800 Bank of New York Co., Inc. 24,302,950
255,632 Bank One Corp. 13,053,209
105,900 Bank United Corp. 4,156,575
549,999 BankAmerica Corp. 33,068,690
153,100 BankBoston Corp. 5,961,331
407,800 Chase Manhattan Corp. 27,755,888
773,100 Citigroup, Inc. 38,268,450
91,200 Compass Bancshares, Inc. 3,471,300
107,000 Crestar Financial Corp. 7,704,000
115,500 Donaldson, Lufkin & Jenrette, Inc. 4,735,500
395,000 Federal Home Loan Mortgage Corp. 25,452,813
470,000 Federal National Mortgage Association 34,780,000
133,900 Finova Group, Inc. 7,222,231
54,200 First American Corp. 2,405,125
173,900 First Union Corp. 10,575,294
451,500 Fleet Financial Group, Inc. 20,176,406
129,800 Greenpoint Financial Corp. 4,559,225
375,000 Hibernia Corp., Class A 6,515,625
324,100 Keycorp 10,371,200
215,000 Lehman Brothers Holdings, Inc. 9,473,438
570,000 MBNA Corp. 14,214,375
237,700 Mellon Bank Corp. 16,341,875
185,000 Merrill Lynch & Co., Inc. 12,348,750
193,100 PaineWebber Group, Inc. 7,458,488
30,000 Progressive Corp. 5,081,250
121,660 Provident Bankshares Corporation 3,026,293
85,000 Standard & Poor's Depositary
Receipts Trust 10,455,000
236,900 Summit Bancorp 10,349,569
106,200 SunAmerica, Inc. 8,615,475
138,400 TCF Financial Corp. 3,347,550
453,900 U.S. Bancorp 16,113,450
-------------
493,589,457
-------------
Broadcasting - 1.9%
359,200 CBS Corp. 11,763,800
200,000 Chancellor Media Corp. 9,575,000(b)
220,000 Clear Channel Communications, Inc. 11,990,000(b)
181,500 Cumulus Media, Inc., Class A 3,017,438(b)
38,000 Echostar Communications Corp. 1,838,250(b)
193,400 Fox Entertainment Group, Inc. 4,871,263(b)
350,000 Tele-Communications, Inc.,
Liberty Media Group, Series A 16,121,875(b)
106,200 TV Azteca, S.A. de C.V. ADR 710,213
100,000 USA Networks, Inc. 3,312,500(b)
-------------
63,200,339
-------------
Building Materials - 0.3%
350,000 Masco Corp. 10,062,500
-------------
Chemicals - 1.1%
246,200 Air Products & Chemicals, Inc. 9,848,000
115,700 Avery Dennison Corp. 5,213,731
178,800 E.I. du Pont de Nemours and Co. 9,487,575
252,900 Monsanto Co. 12,012,750
-------------
36,562,056
-------------
Computer Software - 5.9%
200,000 America Online, Inc. 32,000,000
170,000 BMC Software, Inc. 7,575,625(b)
120,300 Cadence Design Systems, Inc. 3,578,925(b)
200,200 Compuware Corp. 15,640,625(b)
200,000 Electronic Arts, Inc. 11,225,000(b)
136,200 Excite, Inc. 5,728,913(b,c)
123,300 HBO & Co. 3,537,169
525,000 Microsoft Corp. 72,810,938(b)
130,000 Network Associates, Inc. 8,612,500(b)
195,900 Novell, Inc. 3,550,688(b)
350,000 Oracle Corp. 15,093,750(b)
219,600 Parametric Technology Corp. 3,595,950(b)
272,000 Platinum Technology, Inc. 5,202,000(b)
150,400 Security Dynamics Technologies, Inc. 3,459,200(b)
120,900 Verio, Inc. 2,705,138(b)
304,000 Viasoft, Inc. 2,128,000(b)
-------------
196,444,421
-------------
Computers & Office Equipment - 8.9%
330,800 3Com Corp. 14,823,975(b)
162,000 Apple Computer, Inc. 6,631,875(b)
771,100 Cisco Systems, Inc. 71,567,719(b)
778,800 Compaq Computer Corp. 32,660,925
300,000 Dell Computer Corp. 21,956,250(b)
235,000 FORE Systems, Inc. 4,303,438(b)
110,000 Gateway 2000, Inc. 5,630,625(b)
315,000 Hewlett Packard Co. 21,518,438
235,000 International Business
Machines Corp. 43,416,250
85,000 Lexmark International Group, Inc. 8,542,500(b)
175,000 Pitney Bowes, Inc. 11,560,938
184,300 Quantum Corp. 3,916,375(b)
423,100 Seagate Technology, Inc. 12,798,775(b)
293,200 Sun Microsystems, Inc. 25,105,250(b)
100,000 Xerox Corp. 11,800,000
-------------
296,233,333
-------------
Conglomerates - 1.8%
390,200 AlliedSignal, Inc. 17,290,738
28,200 Minnesota Mining & Manufacturing Co. 2,005,725
446,000 Tyco International, Ltd. 33,645,125
300,000 U.S. Industries, Inc. 5,587,500
-------------
58,529,088
-------------
Construction & Home Building - 0.3%
250,000 Kaufman & Broad Home Corp. 7,187,500
123,100 Pulte Corp. 3,423,719
-------------
10,611,219
-------------
Drugs & Health Care - 12.6%
424,900 Abbott Laboratories 20,820,100
325,000 American Home Products Corp. 18,301,563
150,000 Amgen, Inc. 15,684,375
150,000 Arterial Vascular Engineering, Inc. 7,875,000(b)
276,000 Baxter International, Inc. 17,750,250
115,200 Beckman Coulter, Inc. 6,249,600
594,900 Becton, Dickinson & Co. 25,394,794
255,000 Bristol-Myers Squibb Co. 34,122,188
109,100 Cardinal Health, Inc. 8,277,963
244,100 Centocor, Inc. 11,015,013(b)
103,900 Elan Corp. plc, ADR (USD) 7,227,544(b)
250,000 Eli Lilly & Co. 22,218,750
160,000 Genzyme Corp. 7,960,000(b)
39,000 Guidant Corporation 4,299,750
360,000 Johnson & Johnson 30,195,000
230,000 Mallinckrodt, Inc. 7,086,875
140,000 McKesson Corp. 11,068,750
175,000 Medtronic, Inc. 12,993,750
216,900 Merck & Co., Inc. 32,033,419
62,500 Miravant Medical Technologies 804,688(b)
400,000 Pfizer, Inc. 50,175,000
593,000 Schering-Plough Corp. 32,763,250
155,000 Smithkline Beecham plc., ADR (USD) 10,772,500
300,000 Warner-Lambert Co. 22,556,250
-------------
417,646,372
-------------
Electrical Equipment - 1.9%
553,700 General Electric Co. 56,512,006
103,900 Honeywell, Inc. 7,824,969
-------------
64,336,975
-------------
Electronics - 4.4%
125,000 Advanced Micro Devices, Inc. 3,617,188(b)
232,700 Altera Corp. 14,165,613(b)
146,100 Analog Devices, Inc. 4,583,888(b)
223,000 Applied Materials, Inc. 9,519,313(b)
580,000 Intel Corp. 68,766,250
100,000 Novellus Systems, Inc. 4,950,000(b)
120,000 Philips Electronics N.V. 8,122,500
225,000 Texas Instruments, Inc. 19,251,563
175,000 Xilinx, Inc. 11,396,875(b)
-------------
144,373,190
-------------
Food & Beverage - 3.1%
175,400 American Italian Pasta Co. 4,626,175(b)
300,000 Coca-Cola Co. 20,062,500
138,300 Heinz (H.J.) Co. 7,831,238
130,000 IBP, Inc. 3,786,250
371,400 International Home Foods, Inc. 6,267,375(b)
200,000 Nabisco Holdings, Inc. 8,300,000
633,800 PepsiCo, Inc. 25,946,188
710,000 Sara Lee Corp. 20,013,125
124,500 Suiza Foods Corp. 6,341,719(b)
-------------
103,174,570
-------------
Healthcare Management - 1.0%
115,000 Aetna, Inc. 9,041,875
220,200 Capital Senior Living Corp. 3,069,038(b)
250,000 Columbia/HCA Healthcare Corp. 6,187,500
338,200 Oxford Health Plans, Inc. 5,030,725(b)
333,600 Total Renal Care Holdings, Inc. 9,862,050(b)
-------------
33,191,188
-------------
Household Products - 2.3%
80,000 Clorox Co. 9,345,000
200,000 Colgate Palmolive Co. 18,575,000
300,000 Dial Corp. 8,662,500
373,200 Gillette Co. 18,030,225
230,000 Procter & Gamble Co. 21,001,875
-------------
75,614,600
-------------
Insurance - 0.3%
78,500 CMAC Investment Corp. 3,606,094
69,700 Lincoln National Corp. 5,702,331
-------------
9,308,425
-------------
Leisure &
Entertainment - 1.6%
40,000 Adams Golf, Inc. 163,750(b)
165,600 American Skiing Co. 1,273,050(b)
160,500 Carnival Corp., Inc. 7,704,000
268,800 Disney (Walt) Co. 8,064,000
106,050 Sunterra Corp. 1,590,750(b)
553,600 Time Warner, Inc. 34,357,800
-------------
53,153,350
-------------
Machinery & Equipment - 0.6%
393,800 AGCO Corp. 3,101,175
270,000 Black & Decker Corp. 15,136,875
-------------
18,238,050
-------------
Media - 1.4%
103,000 Cablevision Systems Corp., Class A 5,169,313(b)
42,000 Lamar Advertising Co. 1,564,500(b)
247,700 MediaOne Group, Inc. 11,641,900(b)
227,100 MediaOne Group, Inc.
(Airtouch Communications,
Premium Income
Exchangeable Security) 15,102,150
235,000 News Corp., Ltd. ADR 5,801,563
154,600 Outdoor Systems, Inc. 4,638,000(b)
68,600 Times (The) Mirror Co. 3,841,600
-------------
47,759,026
-------------
Mining & Metals - 0.6%
170,000 Aluminum Co. of America 12,675,625
429,400 Homestake Mining Co. 3,945,113
152,100 USX-U.S. Steel Group, Inc. 3,498,300
-------------
20,119,038
-------------
Oil & Oil Service - 3.8%
123,600 Apache Corp. 3,128,625
106,000 Atlantic Richfield Co. 6,916,500
68,600 British Petroleum Co. plc ADR 5,706,663
257,600 Chevron Corp. 21,364,700
596,100 Halliburton Co. 17,659,463
283,200 Mobil Corp. 24,673,800
289,600 R&B Falcon Corp. 2,208,200(b)
162,500 Smith International, Inc. 4,092,969(b)
197,500 Sunoco, Inc. 7,122,344
156,800 Texaco, Inc. 8,290,800
120,400 Total SA ADR 5,989,900
225,000 Transocean Offshore, Inc. 6,032,813
342,500 USX-Marathon Group 10,317,813
200,000 Weatherford International, Inc. 3,875,000(b)
-------------
127,379,590
-------------
Paper & Forest Products - 0.4%
187,800 Louisiana Pacific Corp. 3,439,088
45,700 Mead Corp. 1,339,581
92,300 Temple Inland, Inc. 5,474,544
110,100 Willamette Industries, Inc. 3,688,350
-------------
13,941,563
-------------
Pollution Control - 0.6%
400,000 Republic Services, Inc., Class A 7,375,000(b)
139,000 U.S. Filter Corp. 3,179,625(b)
165,200 Waste Management, Inc. 7,702,450
-------------
18,257,075
-------------
Real Estate Investment
Trust - 0.5%
127,000 Crescent Real Estate Equities 2,921,000
252,523 Equity Office Properties Trust 6,060,552
157,000 Glimcher Realty Trust 2,462,938
220,000 Simon Property Group, Inc. 6,270,000
-------------
17,714,490
-------------
Restaurants - 0.9%
500,000 Landry's Seafood Restaurant, Inc. 3,750,000(b)
303,500 McDonald's Corp. 23,255,688
67,000 PR Chang's China Bistro, Inc. 1,524,250(b)
-------------
28,529,938
-------------
Retail - 8.0%
200,900 Borders Group, Inc. 5,009,944(b)
200,000 Circuit City Stores, Inc. 9,987,500
112,600 Computer Literacy, Inc. 1,513,063(b)
528,100 CVS Corp. 29,045,500
338,000 Dayton Hudson Corp. 18,336,500
205,100 Eagle Hardware & Garden, Inc. 6,665,750(b)
88,400 Federated Department Stores 3,850,925(b)
109,500 Fred Meyer, Inc. 6,597,375(b)
75,000 Gucci Group NV ADR (USD) 3,576,563
550,000 Home Depot, Inc. 33,653,125
190,500 Intimate Brands, Inc. 5,691,188
385,100 Kmart Corp. 5,896,844(b)
268,100 Kroger Co. 16,220,050(b)
96,100 Lowe's Companies 4,919,119
100,000 Office Depot, Inc. 3,693,750(b)
455,500 OfficeMax, Inc. 5,579,875(b)
200,000 PETCO Animal Supplies, Inc. 2,012,500(b)
294,300 Rite Aid Corp. 14,586,244
475,000 Safeway, Inc. 28,945,313(b)
348,300 Saks, Inc. 10,993,219(b)
272,000 TJX Companies, Inc. 7,888,000
138,600 Venator Group, Inc. 892,238(b)
475,000 Wal-Mart Stores, Inc. 38,682,813
55,200 Zale Corp. 1,780,200(b)
-------------
266,017,598
-------------
Services - 2.1%
92,500 Block (H & R), Inc. 4,162,500
100,000 Budget Group, Inc. 1,587,500(b)
500,000 Cendant Corp. 9,531,250(b)
96,800 Ceridian Corp. 6,757,850(b)
175,300 Computer Sciences Corp. 11,295,894
184,600 Electronic Data Systems Corp. 9,276,150
25,000 Entrust Technologies, Inc. 596,875(b)
78,800 Interpublic Group of Companies., Inc. 6,284,300
389,400 Modis Professional Services, Inc. 5,646,300(b)
126,300 Stewart Enterprises, Inc. 2,810,175
341,300 Young & Rubicam, Inc. 11,049,588(b)
-------------
68,998,382
-------------
Telecommunications Equipment - 3.3%
189,200 Ascend Communications, Inc. 12,439,900(b)
185,900 General Instrument Corp. 6,308,981(b)
315,000 Lucent Technologies, Inc. 34,650,000
311,000 Motorola, Inc. 18,990,438
103,500 Newbridge Networks Corp. 3,143,813(b)
115,000 Nokia Corp. ADR (USD) 13,850,313
280,000 Tellabs, Inc. 19,197,500(b)
-------------
108,580,945
-------------
Telephone & Telecommunications - 6.6%
50,000 AirTouch Communications, Inc. 3,606,250(b)
126,900 ALLTEL Corp. 7,590,206
423,200 Ameritech Corp. 26,820,300
551,239 AT&T Corp. 41,480,735
325,100 Bell Atlantic Corp. 17,230,300
800,000 MCI Worldcom, Inc. 57,400,000(b)
327,500 MobileMedia Corp., Class A 164(b)
291,100 Premiere Technologies, Inc. 2,146,863(b)
130,700 Qwest Communications
International, Inc. 6,535,000(b)
407,700 SBC Communications, Inc. 21,862,913
160,000 Sprint Corp. (FON Group) 13,460,000
311,100 Sprint Corp. (PCS Group) 7,194,188(b)
254,300 Tele-Communications, Inc. 5,991,944(b)
120,000 Telecomunicacoes Brasileiras
S.A. ADR (USD) 8,722,500(b)
-------------
220,041,363
-------------
Textiles & Apparel - 0.6%
76,900 NIKE, Inc., Class B 3,119,256
88,800 Reebok International, Ltd. 1,320,900(b)
60,000 Timberland Co., Class A 2,733,750(b)
168,000 Tommy Hilfiger Corp. 10,080,000(b)
115,500 Wolverine World Wide, Inc. 1,530,375
-------------
18,784,281
-------------
Total Common Stocks
(cost $2,510,943,656) 3,133,813,694
-------------
CORPORATE BONDS - (c)
$ 3,250,000 Broadband Technologies, Inc.,
Convertible Subordinated
Notes 5.0%,
Due 5/15/2001 $ 1,202,500
-------------
Total Corporate Bonds
(cost $3,256,364) 1,202,500
-------------
SHORT-TERM SECURITIES - 5.5% (a)
Commercial Paper - 3.7%
48,100,000 American General Corp.,
5.0%, Due 1/4/1999 48,079,958
10,000,000 Centerior Fuel Corp.,
5.05%, Due 1/8/1999 9,990,181
4,815,000 Enterprise Funding Corp. ,
5.25%, Due 1/7/1999 4,810,787
5,000,000 Enterprise Funding Corp. ,
5.25%, Due 1/8/1999 4,994,896
22,100,000 Gillette Co., 5.12%,
Due 1/4/1999 22,090,571
4,026,000 Met-Life Funding, Inc.,
5.4%, Due 1/27/1999 4,010,299
18,000,000 Northern Illinois Gas Co .,
5.25%, Due 1/4/1999 17,992,125
10,000,000 President & Fellows
Harvard Co., 6.1%,
Due 1/5/1999 9,993,222
-------------
121,962,039
-------------
U.S. Government
Agency - 1.8%
20,000,000 Federal Home Loan Bank
Discount Notes, 5.13%,
Due 1/20/1999 19,945,850
20,000,000 Federal Home Loan
Mortgage Corp.
Discount Notes, 5.09%,
Due 1/8/1999 19,980,206
18,900,000 Federal National Mortgage
Association Discount Notes,
5.14%, Due 1/7/1999 18,883,809
--------------
58,809,865
--------------
Total Short-Term Investments
(at amortized cost) 180,771,904
--------------
Total Investments
(cost $2,694,971,924) $3,315,788,098(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) The market value of the denoted categories of investments
represents less than 0.1% of the total investments of the
Growth Portfolio.
(d) At December 31, 1998, Common Stocks valued at $1,400,598 were held
in escrow to cover call options written as follows:
Number of Exercise Expiration
Type Contracts Price Date Value
- ------ ------------ ---------- ------------ -------
Excite, Inc. 333 $45 1/15/99 $97,819
(e) At December 31, 1998, the aggregate cost of securities for federal
income tax purposes was $2,719,209,040 and the net unrealized
appreciation of investments based on that cost was $596,579,058 which
is comprised of $692,634,989 aggregate gross unrealized appreciation
and $96,055,931 aggregate gross unrealized depreciation.
(f) Miscellaneous Footnotes:
(ADS) - American Depository Shares
(ADR) - American Depository Receipts
(USD) - Denominated in U. S. Dollars
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC.
High Yield Portfolio
Portfolio of Investments
December 31, 1998
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- -------------- --------- ------------- --------------
<S> <C> <C> <C>
CORPORATE BONDS - 85.2% (a)
Aerospace - 0.8%
$ 3,000,000 BE Aerospace, Inc., Sr. Subordinated Notes, Series B 8.0% 3/1/2008 $ 2,985,000
3,600,000 Sabreliner Corp., Sr. Notes 11.0% 6/15/2008 3,186,000
3,600,000 Sequa Corp., Sr. Subordinated Notes 9.375% 12/15/2003 3,712,500
1,200,000 Transdigm, Inc., Sr. Subordinated Notes 10.375% 12/1/2008 1,212,000
----------------
11,095,500
----------------
Airlines - 1.6%
8,750,000 Continental Airlines, Inc., Sr. Notes 9.5% 12/15/2001 9,187,500
4,000,000 Northwest Airlines, Corp., Notes 8.375% 3/15/2004 4,075,100
4,500,000 Northwest Airlines, Corp., Sr. Notes 7.625% 3/15/2005 4,252,500
3,000,000 U.S. Air, Inc., Sr. Secured Equipment Trust,
Series 1993-A-3 10.375% 3/1/2013 3,403,005
----------------
20,918,105
----------------
Automotive - 0.3%
4,000,000 Safelite Glass Corp., Sr. Subordinated Notes 9.875% 12/15/2006 3,710,000
----------------
Bank & Finance - 6.3%
3,550,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 3,550,000
6,000,000 Dollar Financial Group, Inc., Sr. Notes, Series A 10.875% 11/15/2006 6,090,000
5,800,000 Emergent Group, Inc., Sr. Notes, Series B 10.75% 9/15/2004 2,929,000
4,200,000 FC CBO II, Ltd., Subordinated Debentures,
Series 1A, Class C 11.05% 9/9/2010 4,189,500
10,800,000 GS Escrow Corp., Sr. Notes 7.125% 5/1/2005 10,665,184
3,896,000 HomeSide, Inc., Sr. Notes, Series B 11.25% 5/15/2003 4,577,800
8,400,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 6,174,000
4,250,000 Metris Companies, Inc., Sr. Notes 10.0% 11/1/2004 4,228,750
4,800,000 Riggs Capital Trust II, Trust Preferred Securities 8.875% 3/15/2027 5,065,277
9,000,000 SIG Capital Trust I, Bond 9.5% 8/15/2027 7,470,000
8,530,000 Trizec Finance, Ltd., Sr. Notes 10.875% 10/15/2005 9,105,775
10,060,000 United Companies Financial Corp., Subordinated Notes 8.375% 7/1/2005 5,565,071
3,000,000 Veritas Capital Trust, Trust Preferred Securities 10.0% 1/1/2028 2,700,000
5,070,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 5,070,000
7,500,000 Williams Scotsman, Inc., Sr. Notes 9.875% 6/1/2007 7,743,750
6,500,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 1,950,000(d)
3,500,000 Wilshire Financial Services Group, Notes, Series B 13.0% 8/15/2004 1,050,000(d)
----------------
88,124,107
----------------
Broadcasting - 12.5%
1,200,000 Ackerley Group Inc., Sr. Sub Notes 9.0% 1/15/2009 1,224,000
6,300,000 Adelphia Communications Corp., Sr. Debentures 11.875% 9/15/2004 6,804,000
1,772,380 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 274,719
2,542,728 American Telecasting, Inc., Sr. Discount Notes, Series B Zero Coupon 8/15/2005 292,414
3,600,000 Australis Holdings Pty., Ltd., Sr. Discount Notes Zero Coupon 11/1/2002 189,000
24,594,230 Australis Media, Ltd., Sr. Discount Notes, Payment-In-Kind Zero Coupon 5/15/2003 368,913
12,400,000 Avalon Cable Holdings, LLP, Sr. Discount Notes Zero Coupon 12/1/2008 6,959,500
1,800,000 Avalon Cable of Michigan, Sr. Sub Notes 9.375% 12/1/2009 1,849,500
2,700,000 Chancellor Media Corp., Sr. Notes 8.0% 11/1/2008 2,774,250
3,600,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 3,609,000
2,400,000 Chancellor Media Corp., Sr. Subordinated Notes 9.0% 10/1/2008 2,544,000
1,200,000 Citadel Broadcasting, Co., Sr. Subordinated Notes 9.25% 11/15/2008 1,257,000
2,600,000 Classic Cable, Inc., Sr. Subordinated Notes 9.875% 8/1/2008 2,717,000
4,800,000 Classic Communications, Inc., Units Zero Coupon 8/1/2009 2,928,000
6,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2006 1,110,000
3,000,000 CSC Holdings, Inc., Sr. Notes 7.875% 12/15/2007 3,124,800
3,000,000 Cumulus Media, Inc., Sr. Subordinated Notes 10.375% 7/1/2008 3,195,000
1,850,000 Diamond Cable Communications plc, Sr. Discount Notes Zero Coupon 9/30/2004 1,831,500
6,000,000 Diamond Cable Communications plc, Sr. Discount Notes Zero Coupon 12/15/2005 4,995,000
12,000,000 DIVA Systems Corp. Zero Coupon 3/1/2008 4,530,000
1,200,000 EchoStar Communications Corp., Sr. Discount Notes Zero Coupon 6/1/2004 1,236,000
2,400,000 EchoStar DBS Corp., Sr. Secured Notes 12.5% 7/1/2002 2,772,000
4,800,000 EchoStar Satellite Broadcasting Corp., Sr. Secured
Discount Notes Zero Coupon 3/15/2004 4,812,000
6,450,000 Falcon Holding Group, L.P., Series B Debentures Zero Coupon 4/15/2010 4,450,500
1,500,000 Frontiervision Holdings, Sr. Discount Notes Zero Coupon 9/15/2007 1,261,875
8,400,000 Grupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 8,400,000
3,000,000 Grupo Televisa S.A., Sr. Notes, Series A 11.375% 5/15/2003 2,970,000
15,105,000 Intermedia Capital Partners, Sr. Notes 11.25% 8/1/2006 17,068,650
6,900,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 6,279,000
7,300,000 Jacor Communications, Inc., Convertible Preferred Zero Coupon 2/9/2018 3,531,375
3,240,000 Jones Intercable, Inc., Sr. Notes 9.625% 3/15/2002 3,499,200
3,600,000 Marcus Cable Operating Co., Sr. Subordinated Guaranteed
Discount Notes Zero Coupon 8/1/2004 3,645,000
4,200,000 NTL, Inc., Sr. Notes, Series B 10.0% 2/15/2007 4,326,000
4,000,000 NTL, Inc., Convertible Subordinated Notes 7.0% 12/15/2008 4,330,000
6,000,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 6,630,000
7,050,000 Rogers Cablesystems, Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 7,649,250
3,000,000 Rogers Cantel, Inc., Debentures 9.375% 6/1/2008 3,180,000
886,310 Scott Cable Communications, Inc., Jr. Subordinated Notes,
Payment-In-Kind 16.0% 7/18/2002 358,956
5,525,000 SFX Broadcasting, Inc., Sr. Subordinated Notes, Series B 10.75% 5/15/2006 6,077,500
6,000,000 Sinclair Broadcast Group, Inc., Sr. Subordinated Notes 9.0% 7/15/2007 6,150,000
8,000,000 Supercanal Holding S.A.., Sr. Notes 11.5% 5/15/2005 4,840,000
4,600,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 2,415,000
1,800,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series D Zero Coupon 5/15/2006 945,000
10,800,000 United International Holdings, Inc., Sr. Notes, Series B Zero Coupon 2/15/2008 5,886,000
4,900,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 759,500
7,850,000 Young Broadcasting Inc., Sr. Subordinated Notes 11.75% 11/15/2004 8,458,375
----------------
174,508,777
----------------
Building Products & Materials - 1.3%
4,200,000 American Standard Companies, Inc., Notes 7.375% 4/15/2005 4,252,907
6,600,000 American Standard Companies, Inc., Sr. Notes 7.375% 2/1/2008 6,633,000
6,000,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 6,660,000
----------------
17,545,907
----------------
Chemicals - 0.5%
6,450,000 Huntsman Polymers Corp., Sr. Notes 11.75% 12/1/2004 7,030,500
----------------
Computers & Office Equipment - 1.6%
5,500,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 4,152,500
4,200,000 MCMS, Inc., Subordinated Notes, Series B (Variable rate) Zero Coupon 3/1/2008 3,549,000
2,600,000 Samsung Electronics America, Notes 9.75% 5/1/2003 2,509,000
1,000,000 Samsung Electronics Co., Notes 7.45% 10/1/2002 884,440
3,600,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 4,050,000
6,000,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 6,990,000
----------------
22,134,940
----------------
Conglomerates - 0.3%
4,250,000 Eagle-Picher, Inc., Sr. Subordinated Notes 9.375% 3/1/2008 4,016,250
----------------
Construction & Home Building - 1.8%
6,000,000 M.D.C. Holdings, Inc., Sr. Notes 8.375% 2/1/2008 5,910,000
4,000,000 Mastec, Inc., Sr. Subordinated Notes, Series B 7.75% 2/1/2008 3,880,000
9,600,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 9,648,000
5,400,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 5,697,000
----------------
25,135,000
----------------
Containers & Packaging - 1.9%
6,000,000 Dimac Corp., Sr. Sub Notes 12.5% 10/1/2008 6,030,000
2,000,000 Fonda Group, Inc., Sr. Subordinated Notes, Series B 9.5% 3/1/2007 1,670,000
3,600,000 Graham Packaging Co.,Sr. Subordinated Notes (Variable rate) Zero Coupon 1/15/2008 3,546,000
4,750,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 4,797,500
6,250,000 SF Holdings Group, Inc., Sr. Discount Notes, Series B Zero Coupon 3/15/2008 2,218,750
2,866,000 Silgan Holdings, Inc., Subordinated Debentures,
Payment-In-Kind 13.25% 7/15/2006 3,224,250
5,900,000 Vicap, S.A. de C.V., Guaranteed Sr. Notes ADR 11.375% 5/15/2007 5,221,500
----------------
26,708,000
----------------
Cosmetics & Toiletries - 0.4%
4,000,000 Revlon Consumer Products Corp., Sr. Subordinated Notes 8.625% 2/1/2008 3,660,000
1,800,000 Revlon Consumer Products Corp., Sr. Notes 8.125% 2/1/2006 1,737,000
----------------
5,397,000
----------------
Drugs & Health Care - 1.7%
1,800,000 Biovail Corp. International, Sr. Notes 10.875% 11/15/2005 1,818,000
8,400,000 Dade International, Inc., Sr. Subordinated Notes, Series B 11.125% 5/1/2006 9,366,000
5,500,000 Global Health Sciences, Inc., Sr. Notes 11.0% 5/1/2008 3,657,500
4,800,000 ICN Pharmaceuticals, Inc., Sr. Notes 8.75% 11/15/2008 4,872,000
4,200,000 Total Renal Care Holdings, Inc., Convertible
Subordinated Notes 7.0% 5/15/2009 4,541,250
----------------
24,254,750
----------------
Electric Utilities - 2.8%
2,400,000 AES Corp., Sr. Subordinated Notes 8.5% 11/1/2007 2,442,000
3,000,000 CMS Energy Corp., Sr. Notes 7.625% 11/15/2004 3,048,897
6,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 6,156,738
4,200,000 CMS Energy Corp., Sr. Unsecured Notes 7.0% 1/15/2005 4,058,288
3,600,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 4,113,000
4,800,000 ESI Tractebel Acquisition Corp., Bonds 7.99% 12/30/2011 4,739,098
3,550,000 Midland Cogen Venture Fund II, Secured Lease Obligation
Bonds, Series A 11.75% 7/23/2005 4,182,436
4,450,000 Midland Cogen Venture Fund II, Subordinated Secured
Lease Obligation Bonds 13.25% 7/23/2006 5,552,772
2,400,000 Niagara Mohawk Power Corp., Sr. E Notes 7.375% 7/1/2003 2,469,310
3,600,000 Niagara Mohawk Power Corp., Sr. H Discount Notes Zero Coupon 7/1/2010 2,805,797
----------------
39,568,336
----------------
Electrical Equipment - 1.1%
5,000,000 Fisher Scientific International, Inc.,
Sr. Subordinated Notes 9.0% 2/1/2008 5,025,000
3,000,000 Jordan Telecommunication Products, Sr. Notes, Series B 9.875% 8/1/2007 2,985,000
4,200,000 Protection One Alarm Monitoring, Inc., Convertible
Sr. Subordinated Notes 6.75% 9/15/2003 4,310,250
3,120,000 Protection One Alarm Monitoring, Inc., Sr. Subordinated
Discount Notes 13.625% 6/30/2005 3,572,400
----------------
15,892,650
----------------
Food & Beverage - 2.7%
4,800,000 Ameriserve Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 4,464,000
4,200,000 Cott Corp., Sr. Notes 8.5% 5/1/2007 3,759,000
10,000,000 Grupo Azucarero Mexico S.A. DE C, Sr. Notes ADR 11.5% 1/15/2005 3,525,000
7,300,000 Imperial Holly Corp., Sr. Subordinated Notes 9.75% 12/15/2007 7,263,500
4,800,000 Packaged Ice, Inc., Sr. Notes, Series B 9.75% 2/1/2005 4,824,000
6,000,000 Smithfield Foods, Inc., Sr. Subordinated Notes 7.625% 2/15/2008 6,060,000
3,000,000 Southern Foods Group, L.P., Sr. Subordinated Notes 9.875% 9/1/2007 3,150,000
5,000,000 Sun World International, First Mortgage Notes, Series B 11.25% 4/15/2004 5,325,000
----------------
38,370,500
----------------
Hospital Management - 2.7%
6,500,000 Health Insurance Plan, Bonds, Series C 11.25% 7/1/2010 6,953,557
5,100,000 Healthsouth Rehab Corp., Sr. Subordinated Notes 9.5% 4/1/2001 5,233,875
3,500,000 Integrated Health Services, Inc., Convertible Sr.
Subordinated Debentures 5.75% 1/1/2001 3,115,000
3,000,000 Integrated Health Svcs, Inc., Sr. Subordinated Notes,
Series A 9.25% 1/15/2008 2,820,000
8,000,000 MedPartners, Inc., Sr. Notes 7.375% 10/1/2006 6,440,000
4,500,000 MedPartners, Inc., Sr. Subordinated Notes 6.875% 9/1/2000 3,982,500
4,200,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 1,979,250
3,000,000 Tenet Healthcare Corp., Sr. Notes 7.625% 6/1/2008 3,131,826
4,000,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.125% 12/1/2008 4,120,000
----------------
37,776,008
----------------
Household Products - 0.9%
3,000,000 AM Holdings, Inc., Sr. Discount Notes Zero Coupon 7/1/2009 1,365,000
7,800,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 8,151,000
3,000,000 Moll Industries, Inc., Sr. Subordinated Notes 10.5% 7/1/2008 2,955,000
----------------
12,471,000
----------------
Leisure & Entertainment - 3.4%
7,471,000 AMF Bowling Worldwide, Inc., Sr. Subordinated
Discount Notes, Series B Zero Coupon 3/15/2006 4,295,825
9,000,000 CapStar Hotel Company, Convertible Subordinated Notes 4.75% 10/15/2004 6,536,250
7,500,000 Discovery Zone, Inc., Sr. Notes 13.5% 8/1/2002 1,912,500
1,875,000 Discovery Zone, Inc., Units 13.5% 5/1/2005 1,884,375
2,200,000 HMH Properties, Inc., Sr. Notes, Series A 7.875% 8/1/2005 2,156,000
2,400,000 HMH Properties, Inc., Sr. Notes, Series B 7.875% 8/1/2008 2,328,000
4,000,000 HMH Properties, Inc., Sr. Notes, Series C 8.45% 12/1/2008 4,020,000
1,200,000 Imax Corp., Sr. Notes 7.875% 12/1/2005 1,218,000
5,400,000 Lodgenet Entertainment Corp., Sr. Notes 10.25% 12/15/2006 5,373,000
8,000,000 Premier Cruise Ltd., Sr. Notes 11.0% 3/15/2008 4,040,000
6,000,000 Production Resource Group LLC, Sr. Subordinated Notes 11.5% 1/15/2008 5,910,000
3,600,000 SFX Entertainment, Inc., Sr. Subordinated Notes 9.125% 12/1/2008 3,622,500
1,800,000 Signature Resorts, Inc., Sr. Subordinated Notes 9.75% 10/1/2007 1,539,000
3,000,000 Silverleaf Resorts, Inc., Sr. Subordinated Notes 10.5% 4/1/2008 2,587,500
----------------
47,422,950
----------------
Machinery & Equipment - 2.0%
6,000,000 Anthony Crane Rentals, L.P., Sr. Discount Notes Zero Coupon 8/1/2009 2,670,000
2,400,000 Motors & Gears, Inc., Sr. Notes, Series D 10.75% 11/15/2006 2,454,000
7,200,000 Navistar Financial Corp., Sr. Subordinated Notes, Series B 9.0% 6/1/2002 7,506,000
5,400,000 Navistar International Corp., Sr. Notes, Series B 7.0% 2/1/2003 5,454,000
3,000,000 Scotsman Group, Inc., Sr. Subordinated Notes 8.625% 12/15/2007 3,090,000
6,000,000 United Rentals, Inc., Sr. Subordinated Notes 9.25% 1/15/2009 6,045,000
----------------
27,219,000
----------------
Mining & Metals - 1.1%
6,500,000 AK Steel Corp., Sr. Notes 10.75% 4/1/2004 6,792,500
4,850,000 Altos Hornos de Mexico, Bonds, Series B 11.875% 4/30/2004 2,825,125
6,000,000 UCAR Global Enterprises, Inc., Sr. Subordinated Notes,
Series B 12.0% 1/15/2005 6,330,000
----------------
15,947,625
----------------
Oil & Gas - 3.2%
4,800,000 Abraxas Petroleum Corp., Sr. Notes, Series B 11.5% 11/1/2004 3,648,000
6,200,000 Belden & Blake Corp., Sr. Subordinated Notes, Series B 9.875% 6/15/2007 5,053,000
4,500,000 Conproca S.A. de C.V., Sr. Secured Bonds 12.0% 6/16/2010 4,196,250
4,050,000 Dailey International Inc., Sr. Notes, Series B 9.5% 2/15/2008 1,802,250
7,165,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures 9.625% 7/1/2005 7,182,913
9,000,000 National Energy Group, Inc., Sr. Notes, Series D 10.75% 11/1/2006 3,375,000(d)
5,500,000 Northern Offshore ASA, Sr. Notes 10.0% 5/15/2005 2,887,500
5,100,000 Pride Petroleum Services, Inc., Sr. Notes 9.375% 5/1/2007 4,768,500
4,500,000 RAM Energy, Inc., Sr. Notes 11.5% 2/15/2008 3,172,500
3,600,000 Snyder Oil Corp., Sr. Subordinated Notes 8.75% 6/15/2007 3,510,000
6,150,000 Trico Marine Services, Inc., Sr. Unsecured Notes, Series G 8.5% 8/1/2005 5,319,750
----------------
44,915,663
----------------
Paper & Forest Products - 1.5%
3,600,000 APP Finance (II) Mauritius Ltd., Guaranteed Preferred
Securities, Series B 12.0% 2/15/2004 2,061,000
3,000,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 577,500(d)
1,800,000 Indah Kiat Finance Mauritius, Guaranteed Sr. Notes 10.0% 7/1/2007 976,500
7,800,000 Malette, Inc., Sr. Secured Notes 12.25% 7/15/2004 8,463,000
3,600,000 Pindo Deli Finance Mauritius, Sr. Notes 10.25% 10/1/2002 2,025,000
6,600,000 S.D. Warren Co. Sr. Subordinated Notes 12.0% 12/15/2004 7,218,750
----------------
21,321,750
----------------
Pollution Control - 0.9%
7,000,000 Allied Waste, North America, Sr. Notes 7.625% 1/1/2006 7,070,000
5,500,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 13.5% 11/15/2005 6,077,500
----------------
13,147,500
----------------
Publishing & Printing - 1.3%
4,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 4,747,500
7,500,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 7,687,500
5,850,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 6,054,750
----------------
18,489,750
----------------
Retail - 1.2%
3,000,000 County Seat Stores, Inc., Units 12.75% 11/1/2004 2,100,000(d)
2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 34,375(d)
5,400,000 Hollywood Entertainment Corp., Sr. Subordinated Notes,
Series B 10.625% 8/15/2004 5,481,000
6,000,000 Lifestyle Furnishings International Ltd.,
Sr. Subordinated Notes 10.875% 8/1/2006 6,660,000
3,000,000 TravelCenters of America, Inc., Sr. Subordinated Notes 10.25% 4/1/2007 2,985,000
----------------
17,260,375
----------------
Retail - Food - 2.1%
6,210,000 Carr Gottstein Foods Co., Sr. Subordinated Notes 12.0% 11/15/05 7,157,025
5,100,000 Fleming Companies, Inc., Sr. Subordinated Notes, Series B 10.625% 7/31/2007 4,781,250
8,500,000 Jitney-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 9,520,000
7,600,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 8,017,962
----------------
29,476,237
----------------
Services - 0.6%
8,000,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes 9.5% 2/15/2009 8,000,000
----------------
Telecommunications - 23.4%
5,000,000 Advanced Radio Telecom, Sr. Notes 14.0% 2/15/2007 4,025,000
10,200,000 Allegiance Telecom, Inc., Sr. Discount Notes, Series B Zero Coupon 2/15/2008 4,947,000
6,500,000 American Mobile Satellite Corp., Sr. Notes, Series B 12.25% 4/1/2008 4,062,500
3,000,000 Birch Telecom, Inc., Units 14.0% 6/15/2008 2,782,500
3,300,000 Call-Net Enterprises, Inc., Sr. Discount Notes Zero Coupon 12/1/2004 3,217,500
4,900,000 CenCall Communications Corp., Sr. Redeemable Discount Notes Zero Coupon 1/15/2004 4,826,500
6,000,000 Centennial Cellular Operating Co., Sr. Subordinated Notes 10.75% 12/15/2008 6,000,000
6,000,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 5,160,000
5,400,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 5,751,000
7,500,000 Covad Communications Group, Inc., Sr. Discount Notes,
Series B Zero Coupon 3/15/2008 4,162,500
7,500,000 Dobson Wireline Co., Sr. Notes 12.25% 6/15/2008 6,975,000
3,000,000 Dobson/Sygnet Communications Corp., Sr. Notes 12.25% 12/15/2008 3,067,500
3,500,000 Dolphin Telecom plc, Sr. Discount Notes Zero Coupon 6/1/2008 1,417,500
5,000,000 DTI Holdings, Inc., Discount Notes, Series B Zero Coupon 3/1/2008 1,325,000
4,800,000 Esprit Telecom Group, plc, Sr. Notes 11.5% 12/15/2007 4,968,000
4,350,000 Exodus Communications, Inc., Sr. Notes 11.25% 7/1/2008 4,371,750
4,800,000 E.Spire Communications, Sr. Notes 13.75% 7/15/2007 4,500,000
6,700,000 GST Equipment Funding, Inc., Sr. Secured Notes 13.25% 5/1/2007 7,001,500
10,000,000 GST Telecommunications, Inc., Sr. Discount Notes Zero Coupon 5/1/2008 4,350,000
5,445,000 GST Telecommunications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 4,321,969
1,000,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 722,500
4,250,000 Hermes Europe Railtel B.V., Sr. Notes 11.5% 8/15/2007 4,526,250
4,000,000 HighwayMaster Communications, Inc., Sr. Notes, Series B 13.75% 9/15/2005 1,300,000
1,800,000 Hyperion Telecommunications, Inc., Sr. Notes, Series B 12.25% 9/1/2004 1,836,000
5,600,000 Hyperion Telecommunications, Inc., Sr. Discount Notes,
Series B Zero Coupon 4/15/2003 4,032,000
5,500,000 ICG Holdings, Inc., Sr. Discount Notes Zero Coupon 5/1/2006 4,125,000
4,200,000 ICO Global Communications, Units 15.0% 5/1/2005 3,150,000
3,700,000 IDT Corp., Sr. Notes 8.75% 2/15/2006 3,533,500
4,900,000 Intermedia Communications Inc., Sr. Notes, Series B 8.5% 1/15/2008 4,679,500
1,800,000 Intermedia Communications, Inc., Sr. Notes 8.6% 6/1/2008 1,719,000
4,200,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 1,533,000
4,200,000 Iridium LLC/Capital Corp., Sr. Notes, Series A 13.0% 7/15/2005 3,864,000
4,850,000 Iridium LLC/Capital Corp., Sr. Notes, Series B 14.0% 7/15/2005 4,631,750
1,200,000 Iridium LLC/Capital Corp., Sr. Notes, Series C 11.25% 7/15/2005 1,038,000
13,200,000 Level 3 Communications, Inc., Sr. Discount Notes Zero Coupon 12/1/2008 7,755,000
10,100,000 McCaw International Ltd., Sr. Discount Notes Zero Coupon 4/15/2007 5,529,750
3,500,000 Metrocall, Inc. Sr. Subordinated Notes 11.0% 9/15/2008 3,535,000
4,200,000 Metromedia Fiber Network, Inc., Sr. Notes 10.0% 11/15/2008 4,336,500
1,200,000 MetroNet Communications Corp., Sr. Notes 10.625% 11/1/2008 1,278,000
3,000,000 MetroNet Communications Corp.,Sr. Discount Notes Zero Coupon 6/15/2008 1,852,500
7,000,000 MGC Communications, Inc., Sr. Notes, Series B 13.0% 10/1/2004 4,690,000
7,800,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 5,830,500
13,500,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 9,618,750
6,000,000 MJD Communications, Inc., Notes, Series B 9.16% 5/1/2008 5,850,000
6,000,000 Mobile Telecommunications Technology, Sr. Notes 13.5% 2/15/2002 6,825,000
5,000,000 Netia Holdings B.V., Sr. Discount B Notes Zero Coupon 11/1/2007 2,862,500
3,000,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 10/31/2007 1,830,000
2,450,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 2/15/2008 1,463,875
4,900,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 9/15/2007 3,148,250
3,000,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 8/15/2004 2,925,000
4,800,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 5,208,000
1,200,000 NEXTLINK Communications, Inc., Sr. Notes 9.625% 10/1/2007 1,152,000
1,200,000 NEXTLINK Communications, Inc., Sr. Notes 10.75% 11/15/2008 1,227,000
2,400,000 Northeast Optic Network, Inc., Sr. Notes 12.75% 8/15/2008 2,364,000
6,000,000 OnePoint Communications Corp., Sr. Notes 14.5% 6/1/2008 3,210,000
9,000,000 Orion Network Systems, Inc., Sr. Discount Notes Zero Coupon 1/15/2007 5,670,000
13,000,000 Orion Network Systems, Inc., Sr. Notes 11.25% 1/15/2007 12,805,000
8,200,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 7,298,000
7,200,000 Pagemart Wireless, Inc., Sr. Discount Notes Zero Coupon 2/1/2008 3,348,000
4,200,000 Pathnet, Inc., Sr. Notes 12.25% 4/15/2000 2,961,000
4,200,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 1,554,000(d)
5,000,000 Poland Telecom Finance BV, Sr. B Notes 14.0% 12/1/2007 4,575,000
1,800,000 Price Communication Cellular, Sr. Notes (Payment-In-Kind) 11.25% 8/15/2008 1,710,000
3,050,000 Price Communications Wireless, Sr. Subordinated Notes 11.75% 7/15/2007 3,233,000
5,400,000 Primus Telecommunications Group, Inc., Sr. Notes 11.75% 8/1/2004 5,643,000
6,755,000 RSL Communications plc, Units 12.25% 11/15/2006 7,194,075
1,800,000 RSL Communications plc, Bonds 12.0% 11/1/2008 1,863,000
4,200,000 Splitrock Services, Inc., Notes, Series B 11.75% 7/15/2008 3,654,000
3,000,000 Startec Global Communications, Inc., Sr. Notes 12.0% 5/15/2008 2,595,000
2,100,000 Telegroup, Inc., Sr. Discount Notes Zero Coupon 11/1/2004 976,500
7,000,000 Teligent, Inc., Sr. Notes, Series B 14.0% 8/1/2007 3,990,000
4,800,000 Teligent, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2008 2,400,000
4,800,000 Teligent, Inc., Sr. Notes 11.5% 12/1/2007 4,512,000
9,000,000 UNIFI Communications, Inc., Sr. Notes 14.0% 3/1/2004 675,000
4,900,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 5,071,500
10,527,000 USN Communications, Inc., Sr. Discount Notes, Series B Zero Coupon 8/15/2004 684,255
7,000,000 Verio, Inc., Sr. Notes 11.25% 12/1/2008 7,070,000
4,200,000 VersaTel Telecom B.V., Units 13.25% 5/15/2008 4,284,000
5,500,000 VIALOG Corp., Sr. Notes 12.75% 11/15/2001 3,492,500
5,000,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 4/15/2008 2,975,000
7,000,000 Wam!Net, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2005 3,850,000
3,300,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 2,359,500
2,000,000 WinStar Communications, Inc., Sr. Subordinated Notes 15.0% 3/1/2007 1,870,000
3,000,000 WinStar Communications, Inc., Sr. Unsecured Notes Zero Coupon 10/15/2005 3,345,000
4,000,000 Worldwide Fiber, Inc., Sr. Notes 12.5% 12/15/2005 4,060,000
----------------
326,133,174
----------------
Textiles & Apparel - 1.5%
4,500,000 Brazos Sportswear, Inc., Sr. Notes 10.5% 7/1/2007 607,500(d)
6,050,000 CMI Industries, Inc., Sr. Subordinated Notes 9.5% 10/1/2003 5,989,500
8,700,000 Dan River, Inc., Sr. Subordinated Notes 10.125% 12/15/2003 9,156,750
1,800,000 Norton McNaughton, Inc., Sr. Notes 12.5% 6/1/2005 1,539,000
4,000,000 WestPoint Stevens, Inc., Sr. Notes 7.875% 6/15/2008 4,085,000
----------------
21,377,750
----------------
Transportation - 1.8%
7,300,000 Allied Holdings, Inc., Sr. Notes, Series B 8.625% 10/1/2007 7,446,000
6,000,000 Alpha Shipping, PLC, Sr. Notes, Series A 9.5% 2/15/2008 1,740,000
3,000,000 Cenargo International plc, First Mortgage 9.75% 6/15/2008 2,891,250
5,400,000 Equimar Shipholdings Ltd., First Priority Mtg 9.875% 7/1/2007 4,293,000
4,200,000 PanOceanic Bulk Carriers, Ltd., 1st Preferred
Ship Mortgage Notes 12.0% 12/15/2007 3,171,000
7,200,000 Windsor Petroleum, Notes 7.84% 1/15/2021 5,400,000
----------------
24,941,250
----------------
Total Corporate Bonds (cost $1,318,516,274) $1,190,310,354
----------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- -------------- ----------------
<S> <C>
PREFERRED STOCKS - 9.7% (a)
Convertible - 2.0%
60,000 CalEnergy Capital Trust III, Convertible Preferred Stock $ 2,910,000
69,000 Chesapeake Energy Corp., Convertible Preferred Stock 707,250
60,000 Echostar Communications Corp., Preferred Stock, Series C 5,910,000
140,000 Granite Broadcasting Corp., Convertible Preferred Stock 4,760,000
90,000 Host Marriott Financial Trust, Convertible Preferred Stock 3,645,000
50,000 Intermedia Communication, Convertible Preferred Stock 912,500
60,000 Owens - Illinois, Inc., Convertible Preferred Stock 2,550,000
45,500 Sinclair Broadcast Group, Inc., Convertible Preferred Stock 2,269,313
54,000 TIMET Capital Trust I, Convertible Preferred Stock 1,437,750
83,800 Treev, Inc., Convertible Preferred Stock, Series A 618,025
90,000 USX Corp. (Marathon Group), Convertible Preferred Stock 1,271,250
2,642 Viatel, Inc., Payment-In-Kind Convertible Preferred Stock 291,281
----------------
27,282,369
----------------
Non-Convertible - 7.7%
25,528 Century Maintenance Supply, Inc., Payment-In-Kind, Preferred Stock 2,629,384
105,000 Chevy Chase Capital Corp., Noncumulative Exchangeable Preferred Stock, Series A 5,505,938
30,000 Cluett American Corp., Preferred Stock 2,677,500
53,150 Communications & Power Industries, Inc., Preferred Stock, Series B 5,740,200
62,832 CSC Holdings, Inc., Payment-In-Kind, Preferred Stock 7,241,388
31,711 CSC Holdings, Inc., Preferred Stock 3,543,704
1,283 Cumulus Media Inc., Preferred Stock, Series A 1,385,640
2,434 EchoStar Communications Corp., Payment-in-Kind, Series B Preferred Stock 2,814,313
60,000 Global Crossing Holdings, Ltd., Payment-In-Kind, Preferred Stock 5,895,000
396,146 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 396,146(d)
8,652 ICG Holdings, Inc., Preferred Stock 8,825,040
3,700 Intermedia Communications, Inc., Preferred Stock 3,741,625
4,694 IXC Communications, Inc., Preferred Stock 4,740,940
1,800 J Crew Group, Preferred Stock 1,260,000
24,000 Jitney-Jungle Stores of America, Sr. Exchangeable Preferred Stock, Class A 3,216,000
136,164 Nebco Evans Holdings Co., Payment-In-Kind, Preferred Stock 6,842,241
4,945 Nextel Communications, Inc., Payment-In-Kind Preferred Stock, Series E 4,409,704
118,231 NEXTLINK Communications, Inc., Payment-In-Kind Preferred Stock 6,295,801
6,556 Paxson Communications Corp., Payment-In-Kind Preferred Stock 5,933,180
20,240 Petroleum Heat & Power Co., Inc., Jr. Preferred Stock 30,360
240,000 Petroleum Heat & Power, Inc., Preferred Stock, Series C 5,100,000
42,500 Primedia, Inc., Exchangeable Preferred Stock, Series H 4,101,250
33,000 Primedia, Inc., Preferred Stock, Series F 3,250,500
46,000 Primedia, Inc., Preferred Stock, Series D 4,807,000
147,500 River Bank Asset, Inc., Preferred Stock, Series A 2,599,688(c)
25,232 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock, Series E 3,053,072
1,700 WinStar Communications, Inc., Payment-In-Kind Preferred Stock, Series C 1,224,000
----------------
107,259,614
----------------
Total Preferred Stocks (cost $153,893,686) 134,541,983
----------------
COMMON STOCKS & STOCK WARRANTS - 3.1% (a, c)
10,200 Allegiance Telecom, Inc., Stock Warrants 52,275
6,500 American Mobile Satellite Corp., Stock Warrants 21,314
3,600 American Telecasting, Inc., Stock Warrants 36
34,000 American Telecasting, Inc., Stock Warrants 340
175,000 Arch Communications Group, Inc., Common Stock 251,563
3,600 Australis Holdings Pty., Ltd., Stock Warrants 36(e)
17,150 Australis Media Ltd., Stock Warrants 172(e)
100,000 Bell & Howell Co., Common Stock 3,781,250
35,475 Clearnet Communications, Inc., Stock Warrants 84,221
2,310 Communications & Power Industries, Inc., Common Stock 347,655(e)
10,989 Consolidated Hydro, Inc., Stock Warrants, Class B 2,747(e)
7,133 Consolidated Hydro, Inc., Stock Warrants, Class C 3,567(e)
7,500 Covad Communications Group, Inc., Stock Warrants 375,000
3,267 CS Wireless Systems, Inc., Common Stock 441(e)
7,500 Discovery Zone, Inc., Stock Warrants 8(e)
36,000 DIVA Systems Corp., Common Stock 576,000
25,000 DTI Holdings, Inc., Stock Warrants 4,375
16,800 E.Spire Communications, Stock Warrants 405,485
101,377 Gaylord Container Corp., Common Stock, Class A 620,934
127,902 Gaylord Container Corp., Stock Warrants 775,406
4,000 HighwayMaster Communications, Inc., Stock Warrants 1,740
13,800 Hyperion Telecommunications, Inc., Stock Warrants 848,079
140,000 IntelCom Group Communications, Inc., Common Stock 3,010,000
68,300 IntelCom Group (U.S.A.), Inc., Stock Warrants 936,092
5,900 Intermedia Communications of Florida, Stock Warrants 252,166
3,679 Intermedia Communications, Inc., Common Stock 63,463
14,800 Ionica plc, Stock Warrants 148
3,000 Iridium World Communications, Stock Warrants 375,375
95,000 Magellan Health Services, Inc., Common Stock 795,625
10,900 McCaw International Ltd., Stock Warrants 55,863
235,000 MCI Worldcom, Inc., Common Stock 16,861,250
4,850 MGC Communications, Inc., Stock Warrants 149,574
40,800 Microcell Telecommunications, Inc., Stock Warrants 739,500
3,750 NEXTEL Communications, Inc., Stock Warrants 0
6,000 OnePoint Communications Corp., Stock Warrants 60,000
33,250 PageMart Nationwide, Inc., Common Stock 149,625
168,000 PageMart Wireless, Inc., Common Stock, Class A 934,500
4,200 Pathnet, Inc., Stock Warrants 42,525
5,000 Poland Telecom Finance BV, Stock Warrants 280,000
120,000 Powertel, Inc., Common Stock 1,627,500
4,800 Primus Telecommunications Group, Inc., Stock Warrants 60,600
23,840 Protection One Alarm Monitoring, Stock Warrants 235,420
9,000 RSL Communications, Ltd., Stock Warrants 991,125
12,500 SF Holdings Group, Inc., Common Stock 25,000
4,200 Splitrock Services, Inc., Stock Warrants 46,200
3,000 Startec Global Communications, Inc., Stock Warrants 30,000
7,000 Teletrac Holdings, Inc., Stock Warrants 0
4,469 TREEV, Inc., Common Stock 7,402
7,400 UIH Australia/Pacific, Inc., Stock Warrants 8,325
9,000 UNIFI Communications, Inc., Stock Warrants 1,215(e)
118,000 United International Holdings, Inc., Common Stock, Class A 2,271,500
27,000 United International Holdings, Inc., Stock Warrants 408,375
66,000 USN Communications, Inc., Stock Warrants 37,950(e)
3,400 Vialog Corp., Stock Warrants 17,000
175,000 Viatel, Inc., Common Stock 4,003,125
22,200 Wam!Net, Inc., Stock Warrants 177,600
36,654 Wherehouse Entertainment, Inc., Stock Warrants, Class A 261,160
6,363 Wherehouse Entertainment, Inc., Stock Warrants, Class B 23,066
6,363 Wherehouse Entertainment, Inc., Stock Warrants, Class C 7,158
19,200 Wireless One, Inc., Stock Warrants 192
----------------
Total Common Stock & Stock Warrants (cost $30,005,154) 43,098,263
----------------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- -------------- ------ ------------ ----------------
<S> <C> <C> <C>
SHORT-TERM SECURITIES - 2.0% (a)
Commercial Paper
$ 10,000,000 Associates Corp. of North America 5.08% 1/4/1999 $ 9,995,767
14,900,000 General Electric Capital Corp. 5.0% 1/4/1999 14,893,792
3,000,000 Harvard University 6.1% 1/5/1999 2,997,967
----------------
Total Short-Term Securities (at amortized cost) 27,887,526
----------------
Total Investments (cost $1,530,302,640) $1,395,838,126(f)
================
Notes to Portfolio of Investments:
(a) The categories of investments are shown as a percentage of total
investments of the High Yield Portfolio.
(b) Denominated in U.S. dollars.
(c) Currently non-income producing.
(d) Currently non-income producing and in default.
(e) Denotes restricted securities. These securities have been valued
from the date of acquisition through December 31, 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 December 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
-------------------------------------------------------------------- ------------ ------------------
<S> <C> <C>
Australis Holdings Pty Ltd., Stock Warrants 10/29/1996 $ 0
Australis Media Ltd., Stock Warrants 1/2/1997 0
Communications & Power Industries, Inc., Common Stock 12/22/1995 211,287
Consolidated Hydro, Inc., Stock Warrants, Class B 11/18/1997 1,370,006
Consolidated Hydro, Inc., Stock Warrants, Class C 11/18/1997 691,659
CS Wireless Systems, Inc., Common Stock 12/11/1996 22,110
Discovery Zone, Inc., Stock Warrants 3/12/1998 838,524
UNIFI Communications, Inc., Stock Warrants 8/13/1997 123,449
USN Communications, Inc., Stock Warrants 12/12/1997 560
(f) At December 31, 1998, the aggregate cost of securities for federal tax
purposes was $1,534,781,925 and the net unrealized depreciation of
investments based on that cost was $138,943,799 which is comprised
of $54,858,453 aggregate gross unrealized appreciation and
$193,802,252 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB SERIES FUND, INC.
Income Portfolio
Portfolio of Investments
December 31, 1998
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- -------------- --------- ------------- --------------
<S> <C> <C> <C>
CORPORATE BONDS - 52.9% (a)
Aerospace - 1.4%
$ 6,000,000 Lockheed Martin Corp., Notes 7.45% 6/15/2004 $ 6,498,084
3,500,000 Raytheon Co., Notes 6.45% 8/15/2002 3,604,493
4,000,000 Raytheon Co., Notes 6.75% 8/15/2007 4,256,788
1,500,000 United Defense Industries, Inc., Sr. Subordinated Notes 8.75% 11/15/2007 1,526,250
----------------
15,885,615
----------------
Airlines - 0.6%
6,000,000 US Airways, Inc., P-T Certificates, Series 98-1A 6.85% 1/30/2018 6,081,810
----------------
Automotive - 2.2%
6,000,000 Ford Motor Credit Co., Notes 6.13% 4/28/2003 6,105,696
5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 5,083,180
9,000,000 Toyota Motor Credit Corp., Notes 5.625% 11/13/2003 9,052,947
3,000,000 Toyota Motor Credit Corp., Notes 5.5% 9/17/2001 2,999,949
----------------
23,241,772
----------------
Bank & Finance - 11.8%
3,000,000 Associates Corp. of North America, Sr. Notes 6.5% 8/15/2002 3,100,233
5,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 5,219,640
5,500,000 Banc One Corp., Subordinated Debentures 8.0% 4/29/2027 6,604,923
2,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 2,018,038
6,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 6,542,196
5,000,000 Chemical New York Corp., Debentures 9.75% 6/15/1999 5,085,860
15,000,000 Equitable Life Assurance Society of the United States,
Surplus Notes 6.95% 12/1/2005 15,887,505
4,500,000 First Union Corp., Subordinated Notes 6.875% 9/15/2005 4,784,508
7,000,000 General Electric Capital Corp., Debentures 8.75% 5/21/2007 8,512,854
6,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 7,659,724
1,500,000 GS Escrow Corp., Sr. Notes 6.75% 8/1/2001 1,479,297
6,000,000 Mellon Capital II, Capital Securities, Series B 7.995% 1/15/2027 6,688,686
8,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 8,884,864
4,000,000 NationsBank Corp., Sr. Notes 6.125% 7/15/2004 4,105,036
8,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 8,245,928
9,000,000 Prudential Insurance Co. of America, Capital Notes 6.875% 4/15/2003 9,326,223
3,500,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 4,265,419
4,000,000 Societe Generale Real Estate Investment Trust,
LIBOR Bonds, Series A 7.64% 12/29/2049 3,713,572
6,000,000 Wachovia Corp., Subordinated Notes 5.625% 12/15/2008 5,975,328
6,000,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 6,572,682
----------------
124,672,516
----------------
Broadcasting - 2.0%
300,000 Clear Channel Communications, Convertible Sr. Notes 2.625% 4/1/2003 321,375
3,000,000 Clear Channel Communications, Sr. Notes 6.625% 6/15/2008 3,045,828
3,000,000 CSC Holdings, Inc., Sr. Notes 7.25% 7/15/2008 3,012,900
6,000,000 Rogers Cablesystems, Ltd., Sr. Secured
Second Priority Notes 9.625% 8/1/2002 6,510,000
3,000,000 TKR Cable I, Inc., Sr. Debentures 10.5% 10/30/2007 3,266,388
5,000,000 Westinghouse Electric Corp., Notes 8.875% 6/1/2001 5,281,700
----------------
21,438,191
----------------
Chemicals - 0.6%
6,000,000 Monsanto Company, Bonds 6.5% 12/1/2018 5,990,268
----------------
Computers & Office Equipment - 0.2%
2,000,000 International Business Machines, Inc., Debentures 6.5% 1/15/2028 2,117,340
850,000 Xerox Corp., Convertible Subordinated Notes 0.57% 4/21/2018 520,625
----------------
2,637,965
----------------
Conglomerates - 1.0%
5,500,000 Dover Corp., Debentures 6.65% 6/1/2028 5,741,208
5,000,000 TYCO International Group, SA, Notes 5.875% 11/1/2004 4,976,435
----------------
10,717,643
----------------
Construction & Home Building - 0.3%
3,000,000 American Standard Co., Inc., Notes 7.375% 4/15/2005 3,037,791
----------------
Containers & Packaging - 0.4%
4,000,000 Owens-Illinois, Inc., Sr. Notes 7.85% 5/15/2004 4,186,636
----------------
Drugs & Health Care - 2.9%
5,000,000 Allegiance Corp., Debentures 7.8% 10/15/2016 5,463,060
700,000 Athena Neurosciences, Inc., Convertible Bonds 4.75% 11/15/2004 824,250
900,000 Athena Neurosciences, Inc., Convertible Notes 4.75% 11/15/2004 1,059,750
5,000,000 Becton, Dickinson, & Co., Debentures 6.7% 8/1/2028 5,284,455
5,750,000 Bristol Myers Squibb Co., Debentures 7.15% 6/15/2023 6,638,789
5,000,000 McKesson Corp., Notes 6.3% 3/1/2005 5,087,130
5,000,000 Merck & Co., Inc., Debentures 6.3% 1/1/2026 5,276,020
1,250,000 Roche Holdings, Inc., Convertible Notes Zero Coupon 4/20/2010 811,725
600,000 Swiss Life Finance, Ltd., Convertible Notes
(Convertible to Glaxo Wellcome plc) 2.0% 5/20/2003 679,500
----------------
31,124,679
----------------
Electric Utilities - 7.1%
2,000,000 AES Corp., Sr. Subordinated Notes 10.25% 7/15/2006 2,170,000
1,500,000 Calpine Corp., Sr. Notes 7.875% 4/1/2008 1,515,000
6,000,000 Cleveland Electric Illumination Co., First Mortgage Bonds 7.625% 8/1/2002 6,260,322
7,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,182,861
6,500,000 Commonwealth Edison Co., Notes 7.625% 1/15/2007 7,208,091
7,000,000 Connecticut Light & Power Co., First Refunding
Mortgage Bonds, Series 97C 7.75% 6/1/2002 7,230,790
5,000,000 Consolidated Edison Co. NY, Inc., Debentures 6.45% 12/1/2007 5,381,195
4,000,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 4,570,000
6,500,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 6,077,526
6,000,000 National Rural Utilities, Medium Term Notes 5.75% 12/1/2008 6,017,268
7,000,000 Niagara Mohawk Power Corp., Sr. Notes, Series C 7.125% 7/1/2001 7,143,759
5,000,000 NRG Energy, Inc., Sr. Notes 7.5% 6/15/2007 5,275,540
9,000,000 Texas Utilities Electric Co., Debentures 7.17% 8/1/2007 9,762,966
----------------
75,795,318
----------------
Food & Beverage - 1.5%
5,500,000 Archer Daniels Midland Co., Bonds 6.75% 12/15/2027 5,916,845
5,500,000 ConAgra, Inc., Sr. Notes 5.5% 10/15/2002 5,481,124
4,000,000 Safeway, Inc., Notes 5.875% 11/15/2001 4,013,948
----------------
15,411,917
----------------
Hospital Management - 0.3%
2,500,000 Tenet Healthcare Corp., Sr. Notes 8.625% 12/1/2003 2,640,503
1,000,000 Tenet Healthcare Corp., Sr. Notes 7.875% 1/15/2003 1,012,500
----------------
3,653,003
----------------
Household Products - 1.0%
3,500,000 Playtex Products Inc., Unsecured Sr. Notes, Series B 8.875% 7/15/2004 3,683,750
5,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 6,647,430
----------------
10,331,180
----------------
Leisure & Entertainment - 0.7%
6,000,000 Time Warner, Inc., Debentures 9.125% 1/15/2013 7,613,646
----------------
Media - 0.3%
3,000,000 Chancellor Media Corp., Sr. Notes 8.0% 11/1/2008 3,082,500
----------------
Oil Service - 0.1%
450,000 Diamond Offshore Drilling, Inc., Convertible Subordinated 3.75% 2/15/2007 419,063
650,000 Swiss Life Finance, Ltd., Convertible Bonds (Convertible to
Notes Royal Dutch Petroleum Co.) 2.0% 5/20/2005 628,875
----------------
1,047,938
----------------
Oil & Gas - 2.4%
2,000,000 Flores & Rucks, Inc., Sr. Subordinated Notes 9.75% 10/1/2006 2,050,000
3,500,000 Gulf Canada Resources, Ltd., Sr. Subordinated Debentures 9.625% 7/1/2005 3,508,750
1,500,000 Gulf Canada Resources, Ltd., Sr. Notes 8.375% 11/15/2005 1,485,000
2,914,796 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 2,982,976
3,000,000 Newfield Exploration Co., Sr. Notes, Series B 7.45% 10/15/2007 2,950,146
1,500,000 Ocean Energy, Inc., Sr. Subordinated Notes, Series B 8.375% 7/1/2008 1,402,500
4,000,000 Oryx Energy Co., Notes 8.375% 7/15/2004 4,306,972
2,000,000 Oryx Energy Co., Notes 8.125% 10/15/2005 2,149,900
5,000,000 Triton Energy, Ltd., Sr. Notes 8.75% 4/15/2002 4,475,000
----------------
25,311,244
----------------
Paper & Forest Products - 0.3%
3,500,000 Willamette Industries, Inc., Notes 6.45% 2/1/2005 3,567,897
----------------
Pollution Control - 1.2%
2,500,000 Allied Waste, North America, Sr. Notes 7.625% 1/1/2006 2,525,000
5,000,000 USA Waste Services, Inc., Notes 6.5% 12/15/2002 5,106,285
3,000,000 USA Waste Services, Inc., Sr. Notes 7.0% 10/1/2004 3,140,649
1,300,000 Waste Management, Inc., Convertible Subordinated Notes 4.0% 2/1/2002 1,558,375
----------------
12,330,309
----------------
Publishing & Printing - 0.2%
1,500,000 KIII Communications Corp., Sr. Notes 10.25% 6/1/2004 1,582,500
1,000,000 PRIMEDIA Inc., Sr. Notes 7.625% 4/1/2008 985,000
----------------
2,567,500
----------------
Railroads - 1.7%
5,500,000 Norfolk Southern Corp., Notes 6.875% 5/1/2001 5,674,202
5,000,000 Norfolk Southern Corp., Notes 6.95% 5/1/2002 5,209,195
7,000,000 Union Pacific Corp., Medium Term Notes, Series E 6.79% 11/9/2007 7,252,931
----------------
18,136,328
----------------
Retail - 4.9%
700,000 Costco Companies, Inc., Convertible Subordinated Notes Zero Coupon 8/19/2017 582,750
800,000 Costco Companies, Inc., Subordinated Notes Zero Coupon 8/19/2017 666,000
9,000,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 9,282,258
7,000,000 Dillards, Inc., Notes 6.43% 8/1/2004 7,079,233
5,000,000 Federated Department Stores, Sr. Notes 8.5% 6/15/2003 5,526,275
200,000 Home Depot, Inc., Convertible Subordinated Notes 3.25% 10/1/2001 528,000
3,500,000 Nordstrom, Inc. 6.95% 3/15/2028 3,701,446
8,000,000 Penney (J.C.) Co., Inc., Notes 6.95% 4/1/2000 8,119,152
1,200,000 Rite Aid Corp., Convertible Subordinated Notes 5.25% 9/15/2002 1,731,000
4,000,000 Rite Aid Corp., Notes 6.125% 12/15/2008 4,044,020
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes,
Series II 6.86% 7/3/2001 10,283,900
----------------
51,544,034
----------------
Retail - Food - 0.7%
2,500,000 Fred Meyer, Inc., Notes 7.375% 3/1/2005 2,650,520
4,000,000 Kroger Co. (The), Sr. Notes 8.15% 7/15/2006 4,525,788
----------------
7,176,308
----------------
Services - 1.3%
2,000,000 ARAMARK Services, Inc., Notes 7.0% 7/15/2006 2,028,966
500,000 Credit Suisse First Boston - NY, Convertible Medium
Term Notes (General Electric) 2.25% 5/5/2003 534,375
1,000,000 CUC International, Inc., Convertible Subordinated Notes 3.0% 2/15/2002 941,250
6,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 6,125,124
4,000,000 Service Corp. International, Notes 6.0% 12/15/2005 3,993,160
----------------
13,622,875
----------------
Telephone & Telecommunications - 4.5%
1,000,000 Bell Atlantic Financial Services Corp., Sr. Exchange Notes 5.75% 4/1/2003 1,035,000
10,000,000 Bell South Telecommunications, Bonds 6.375% 6/1/2028 10,510,490
4,000,000 Cable & Wireless Communications Corp., Notes 6.625% 3/6/2005 4,043,212
5,000,000 GTE Corp., Debentures 6.36% 4/15/2006 5,265,100
3,500,000 LCI International, Inc., Sr. Notes 7.25% 6/15/2007 3,599,516
4,500,000 Qwest Communications International, Inc., Sr. Notes 7.5% 11/1/2008 4,668,750
6,000,000 U.S. West Capital Funding, Inc., Notes 6.25% 7/15/2005 6,266,736
5,000,000 WorldCom, Inc., Sr. Notes 6.4% 8/15/2005 5,189,195
6,000,000 WorldCom, Inc., Sr. Notes 7.75% 4/1/2007 6,779,010
----------------
47,357,009
----------------
Textiles & Apparel - 0.8%
9,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 8,889,669
----------------
Transportation - 0.5%
5,000,000 Federal Express Corp., Series 1998-1-A, Class B 6.72% 1/15/2022 5,241,925
----------------
Total Corporate Bonds (cost $543,355,269) 561,695,486
----------------
FOREIGN GOVERNMENT BONDS - 3.0% (a,b)
3,000,000 British Columbia (Providence of), Unsubordinated Notes 5.375% 10/29/2008 2,991,210
4,500,000 Korea Development Bank, Bonds 7.375% 9/17/2004 4,107,780
5,000,000 Korea Development Bank, Unsecured Bonds 6.625% 11/21/2003 4,395,440
4,000,000 Korea (Republic of), Bonds 8.875% 4/15/2008 4,114,660
7,000,000 Ontario (Province of) Canada, Sr. Bonds 7.375% 1/27/2003 7,596,603
6,000,000 Ontario (Province of) Canada, Sr. Notes 5.5% 10/1/2008 6,043,200
2,500,000 Philippines (Republic of), Bonds 8.875% 4/15/2008 2,509,375
----------------
Total Foreign Government Bonds (cost $29,911,348) 31,758,268
----------------
ASSET-BACKED SECURITIES - 10.9% (a)
12,000,000 AESOP Funding II, L.L.C., Rental Car Notes, Series 1997-1,
Class A-2 6.4% 10/20/2003 12,295,260
11,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 11,071,665
4,040,493 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 4,092,797
6,000,000 Com-Ed Transitional Funding Trust, Series 1998-1-A6 5.63% 6/25/2009 6,041,970
5,000,000 CS First Boston Mortgage Security Corp., 1996-2 Class A4 6.62% 9/25/2009 5,029,225
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3 6.91% 5/25/2007 5,005,625
10,000,000 Discover Card Master Trust I, Series 1996-3A 6.05% 8/18/2008 10,243,950
5,000,000 Discover Card Master Trust I, Series 1998-7A 5.6% 5/15/2006 5,010,725
10,000,000 Proffitt's Credit Card Master Trust 6.5% 12/15/2005 10,326,195
12,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/2007 12,589,621
15,000,000 World Financial Network Credit Card Master Trust,
Series 1996-B 6.95% 4/15/2006 15,845,060
17,922,749 World Omni Auto Lease Trust 6.9% 6/25/2003 18,230,213
----------------
Total Asset-Backed Securities (cost $112,764,118) 115,782,306
----------------
MORTGAGE-BACKED SECURITIES - 6.2% (a)
22,066,587 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 7/1/2013 22,183,981
11,278,831 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 4/1/2011 11,345,827
5,940,193 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 3/1/2011 5,975,477
25,676,931 Government National Mortgage Association, Modified Pass
Through Certificates 6.5% 2/15/2027 25,969,905
----------------
Total Mortgage-Backed Securities (cost $63,170,861) 65,475,190
----------------
U.S. GOVERNMENT AGENCY - 4.0% (a)
7,000,000 Federal Home Loan Mortgage Corp., Notes 5.125% 10/15/2008 6,877,766
10,000,000 Federal National Mortgage Association, Notes 5.75% 4/15/2003 10,281,220
24,000,000 Federal National Mortgage Association, Notes 5.75% 2/15/2008 24,911,832
----------------
Total U.S. Government Agency (cost $41,115,971) 42,070,818
----------------
U.S. GOVERNMENT - 20.3% (a)
14,000,000 U.S. Treasury Bonds 7.5% 11/15/2016 17,412,500
70,000,000 U.S. Treasury Bonds 7.625% 11/15/2022 90,890,660
32,000,000 U.S. Treasury Notes 7.0% 7/15/2006 36,450,016
45,500,000 U.S. Treasury Notes 7.875% 11/15/2004 52,723,125(c)
16,500,000 U.S. Treasury Notes 6.25% 2/15/2003 17,443,602
----------------
Total U.S. Government (cost $213,721,152) 214,919,903
----------------
Shares
- --------------
COMMON STOCKS - 0.1% (a)
5,000 Federal National Mortgage Association, Common Stock 370,000
5,000 Simon Property Group, Inc., Common Stock 142,500
5,000 Spieker Properties, Inc., Common Stock 173,125
----------------
Total Common Stocks (cost $617,879) 685,625
----------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
PREFERRED STOCKS - 1.1% (a)
10,000 CVS Corp., Convertible Preferred Stock 1,001,875
13,500 El Paso Energy Capital Trust I, Convertible Preferred Stock 646,313
16,000 Estee Lauder Company, Convertible Preferred Stock 1,240,000
12,000 Houston Industries, Inc., Convertible Preferred Stock 1,276,500
30,000 Lincoln National Corp., Convertible Preferred Stock 706,875
11,000 McKesson Financing Trust, Convertible Preferred Stock 1,178,375
16,000 MediaOne Group, Inc., Convertible Premium Income Exchange Security 1,064,000
20,000 Monsanto Company, Convertible Preferred Stock 980,000
11,000 National Australia Banks, Convertible Preferred Stock 306,625
27,000 Newell Financial Trust I., Convertible Preferred Stock 1,424,250
3,000 Newell Financial Trust I., Convertible Preferred Stock 158,250
70,000 Philadelphia Consolidated Holding, Convertible Preferred Stock 700,000
12,500 Prologis Trust, Series B, Convertible Preferred Stock 329,688
5,000 Unocal Capital Trust, Convertible Preferred Stock 244,369
----------------
Total Preferred Stocks (cost $9,551,534) 11,257,120
----------------
OPTIONS ON U.S. TREASURY BOND FUTURES - (d)
U.S. Treasury Bond Futures, 100 call option contracts,
exercise price of $132, expires February, 1999 (cost $90,123) 57,813
----------------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date
- -------------- ------ ------------
<S> <C> <C> <C>
SHORT-TERM SECURITIES - 1.5% (a)
Commerical Paper
16,400,000 Koch Industries, Inc. (at amortized cost) 5.25% 1/4/1999 16,392,825
----------------
Total Investments (cost $1,030,691,080) $1,060,095,354(e)
================
Notes to Portfolio of Investments:
(a) The categories of investments are shown as a percentage of total
investments of the Income Portfolio.
(b) Denominated in U.S. dollars.
(c) At December 31, 1998, U.S. Treasury Notes valued at $2,027,813
were held in escrow or pledged as initial margin deposit to cover
open financial futures contracts and call options written as follows:
</TABLE>
<TABLE>
<CAPTION>
Notional
Number of Market Principal Unrealized
Financial Futures Contracts Contracts Expiration Position Value Amount Loss
- --------------------------- --------- ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bond Futures 120 March 1999 Long $15,333,750 $15,500,156 $166,406
Standard & Poors 500 11 March 1999 Short 3,425,125 3,309,230 115,895
<CAPTION>
Number of
Call Options Contracts Price Date Value
- --------------------------- --------- ----- --------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Bond Futures 400 $136 2/19/1999 $62,500
(d) The market value of the denoted categories of investments represents
less than 0.1% of the total investments of the Income Portfolio.
(e) At December 31, 1998, the aggregate cost of securities for federal
income tax purposes was $1,031,007,559 and the net unrealized
appreciation of investments based on that cost was $29,087,795
which is comprised of $32,042,854 aggregate gross unrealized
appreciation and $2,955,059 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB SERIES FUND, INC.
Money Market Portfolio
Portfolio of Investments
December 31, 1998
<TABLE>
<CAPTION>
Principal Yield to Maturity
Amount Maturity Date Value
- -------------- -------- ----------- ------------
<S> <C> <C> <C>
BANKER'S ACCEPTANCES - 0.5% (a)
$ 220,000 Citibank, N. A. 5.12% 3/25/1999 $ 217,439
129,276 Citibank, N. A. 5.71% 1/15/1999 128,994
210,975 Citibank, N. A. 5.09% 4/30/1999 207,488
500,000 Wachovia Bank, N.A. 4.96% 4/14/1999 493,033
------------
Total Banker's Acceptances 1,046,954
------------
BANK NOTES - 2.1% (a)
4,000,000 Wachovia Bank, N.A. 4.86% 4/26/1999 4,000,000
------------
COMMERCIAL PAPER - 90.0% (a)
Banking-Foreign - 1.0%
2,000,000 Glencore Finance (Bermuda), Ltd. (ABN AMRO, Direct Pay
Letter of Credit) 5.68% 1/29/1999 1,991,211
------------
Education - 15.1%
1,000,000 Duke University 4.97% 6/21/1999 977,008
2,000,000 Duke University 5.25% 1/27/1999 1,992,489
5,000,000 Duke University 5.27% 2/4/1999 4,975,256
2,400,000 Harvard University 5.25% 1/4/1999 2,398,950
5,000,000 Harvard University 6.01% 1/6/1999 4,995,833
2,000,000 Leland H. Stanford Junior University 5.18% 2/22/1999 1,985,209
2,500,000 Leland H. Stanford Junior University 5.07% 4/12/1999 2,465,351
1,000,000 Leland H. Stanford Junior University 5.33% 1/28/1999 996,175
1,000,000 Leland H. Stanford Junior University 4.97% 6/4/1999 979,253
3,000,000 Yale University 5.19% 4/9/1999 2,958,350
1,500,000 Yale University 5.13% 4/1/1999 1,481,063
3,000,000 Yale University 5.02% 5/7/1999 2,948,340
------------
29,153,277
------------
Electronics - 2.3%
2,500,000 Seibe plc 5.23% 2/16/1999 2,483,581
2,000,000 Seibe plc 5.03% 3/1/1999 1,983,808
------------
4,467,389
------------
Energy - 11.3%
2,000,000 American Petrofina Holding Co. (Guaranteed Petrofina S.A.) 5.32% 3/18/1999 1,977,960
1,000,000 American Petrofina Holding Co. (Guaranteed Petrofina S.A.) 5.17% 3/22/1999 988,756
3,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.00% 3/22/1999 2,967,333
1,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.04% 5/19/1999 981,063
1,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.11% 3/2/1999 991,600
2,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.34% 2/19/1999 1,985,790
1,500,000 Chevron Transport Corp. (Guaranteed Chevron Corp.) 5.02% 5/25/1999 1,470,600
5,600,000 Koch Industries, Inc. 5.25% 1/4/1999 5,597,550
401,000 Mobil Australia Finance Co., Inc. (Guaranteed Mobil
Oil Corp.) 5.71% 1/5/1999 400,746
2,000,000 Petrofina (Delaware), Inc. (Guaranteed Petrofina S.A.) 5.49% 1/13/1999 1,996,353
100,000 Petrofina (Delaware), Inc. (Guaranteed Petrofina S.A.) 5.87% 1/7/1999 99,903
2,000,000 Petrofina (Delaware), Inc. (Guaranteed Petrofina S.A.) 5.29% 3/12/1999 1,979,933
400,000 Petrofina (Delaware), Inc. (Guaranteed Petrofina S.A.) 5.86% 1/5/1999 399,740
------------
21,837,327
------------
Finance-Automotive - 5.0%
1,000,000 Ford Motor Credit Co. of Puerto Rico, Inc.
(Guaranteed Ford Motor Credit Co.) 5.72% 1/8/1999 998,929
1,000,000 Ford Motor Credit Co. of Puerto Rico, Inc.
(Guaranteed Ford Motor Credit Co.) 5.18% 1/15/1999 998,017
850,000 Ford Motor Credit Co. 5.53% 1/8/1999 849,058
2,000,000 Ford Motor Credit Co. 5.14% 1/27/1999 1,992,677
1,000,000 Ford Motor Credit Co. 5.42% 1/11/1999 998,503
500,000 Ford Motor Credit Co. 5.10% 5/3/1999 491,528
2,000,000 Ford Motor Credit Co. 5.23% 1/21/1999 1,994,289
1,250,000 General Motors Acceptance Corp. 5.16% 4/23/1999 1,255,191
------------
9,578,192
------------
Finance-Commercial - 9.9%
2,500,000 CIT Group, Inc. 5.09% 3/1/1999 2,479,514
1,500,000 CIT Group, Inc. 5.10% 4/6/1999 1,480,129
2,000,000 CIT Group, Inc. 5.09% 3/24/1999 1,977,177
400,000 General Electric Capital Corp. 5.35% 3/12/1999 395,940
2,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.) 5.62% 1/20/1999 1,994,205
1,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.) 5.35% 2/17/1999 993,172
2,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.) 5.16% 2/22/1999 1,985,411
2,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.) 5.48% 1/26/1999 1,992,542
2,000,000 Norwest Financial, Inc. 5.21% 3/5/1999 1,982,150
2,000,000 Norwest Financial, Inc. 5.16% 3/19/1999 1,978,183
2,000,000 Norwest Financial, Inc. 4.97% 3/17/1999 1,979,708
------------
19,238,131
------------
Finance-Consumer - 11.4%
2,000,000 American General Finance Corp. 5.12% 3/3/1999 1,982,818
1,500,000 Associates Corp. of North America 5.00% 3/19/1999 1,484,279
1,000,000 Associates Corp. of North America 5.08% 2/12/1999 994,167
2,000,000 Associates Financial Services Company of Puerto Rico, Inc.
(Guaranteed Associates Corp. of North America) 5.16% 3/22/1999 1,977,378
750,000 Associates Financial Services Company of Puerto Rico, Inc.
(Guaranteed Associates Corp. of North America) 5.19% 3/9/1999 742,853
2,000,000 Associates Financial Services Company of Puerto Rico, Inc.
(Guaranteed Associates Corp. of North America) 5.18% 3/29/1999 1,975,302
2,500,000 Commercial Credit Co. 5.22% 1/26/1999 2,491,024
2,000,000 Commercial Credit Co. 5.23% 2/9/1999 1,988,798
2,000,000 Household Finance Corp. 6.11% 1/8/1999 1,997,628
4,000,000 Household Finance Corp. 6.01% 1/7/1999 3,996,000
2,500,000 Transamerica Finance Corp. 5.08% 4/14/1999 2,464,308
------------
22,094,555
------------
Finance-Structured - 11.1%
2,500,000 Corporate Asset Funding Co. 5.33% 2/1/1999 2,488,676
2,500,000 CXC, Inc. 5.45% 2/8/1999 2,485,816
3,000,000 CXC, Inc. 5.36% 2/8/1999 2,983,217
1,134,000 Delaware Funding Corp. 5.27% 3/2/1999 1,124,172
3,039,000 Delaware Funding Corp. 5.68% 1/22/1999 3,028,984
2,000,000 Edison Asset Securitization, L.L.C. 5.66% 1/22/1999 1,993,572
1,000,000 Edison Asset Securitization, L.L.C. 5.29% 5/10/1999 981,510
2,500,000 Edison Asset Securitization, L.L.C. 5.37% 3/16/1999 2,472,918
384,000 Triple-A One Funding Corp. 5.44% 2/19/1999 381,183
617,000 Triple-A One Funding Corp. 5.52% 1/21/1999 615,118
1,020,000 Triple-A One Funding Corp. 5.57% 1/11/1999 1,018,430
2,000,000 Triple-A One Funding Corp. 5.59% 1/19/1999 1,994,440
------------
21,568,036
------------
Financial Services - 1.3%
2,000,000 American Express Credit Corp. 6.11% 1/8/1999 1,997,628
500,000 American Express Credit Corp. 5.03% 5/24/1999 490,228
------------
2,487,856
------------
Food & Beverage - 1.2%
2,400,000 Cargill, Inc. 5.01% 5/20/1999 2,354,686
------------
Insurance - 6.6%
3,840,000 A.I. Credit Corp. 5.25% 1/4/1999 3,838,320
2,000,000 Prudential Funding Corp. 4.95% 2/25/1999 1,985,150
3,000,000 USAA Capital Corp. 4.89% 3/23/1999 2,967,668
2,000,000 USAA Capital Corp. 5.07% 3/31/1999 1,975,278
2,000,000 USAA Capital Corp. 5.21% 2/26/1999 1,984,040
------------
12,750,456
------------
Services - 4.0%
1,500,000 Block Financial Corp. 5.27% 2/26/1999 1,487,867
1,000,000 Block Financial Corp. 5.38% 1/8/1999 998,969
191,000 Block Financial Corp. 5.47% 2/12/1999 189,790
1,500,000 Block Financial Corp. 5.35% 2/19/1999 1,489,220
2,500,000 Block Financial Corp. 5.40% 1/22/1999 2,492,213
1,000,000 Block Financial Corp. 5.33% 1/28/1999 996,040
------------
7,654,099
------------
Telecommunications - 1.3%
2,500,000 Motorola Credit Corp. (Guaranteed Motorola, Inc.) 5.10% 3/8/1999 2,476,946
100,000 Motorola, Inc. 5.20% 2/25/1999 99,213
------------
2,576,159
------------
Transportation - 0.4%
682,000 United Parcel Service of America, Inc. 5.23% 1/15/1999 680,634
------------
U.S. Municipal - 8.1%
2,500,000 California Pollution Control Finance Authority; Environmental
Improvement Revenue Bonds; Series 1996 (Guaranteed
Shell Oil Co.) 5.35% 1/29/1999 2,500,000
3,100,000 City of New York GO Bonds, Fiscal 1995, Series B
(Guaranteed FGIC, SPI) 5.32% 2/19/1999 3,100,000
1,000,000 City of Whiting, Indiana; Industrial Sewage & Solid Waste
Disposal; Series 1995 (Guaranteed Amoco Oil Co.) 5.20% 1/12/1999 1,000,000
1,900,000 City of Whiting, Indiana; Industrial Sewage & Solid Waste
Disposal; Series 1995 (Guaranteed Amoco Oil Co.) 5.15% 3/10/1999 1,900,000
4,020,000 Gulf Coast Waste Disposal Authority; Pollution Control Revenue
Bonds; Series 1995 (Guaranteed Amoco Oil Co.) 5.25% 3/10/1999 4,020,000
1,000,000 Gulf Coast Waste Disposal Authority; Pollution Control Revenue
Bonds; Series 1995 (Guaranteed Amoco Oil Co.) 5.50% 1/14/1999 1,000,000
2,200,000 Metrocrest Hospital Authority, Series 1989 (Bank of New York,
Direct Pay Letter of Credit) 5.36% 2/2/1999 2,189,666
------------
15,709,666
------------
Total Commercial Paper 174,141,674
------------
VARIABLE RATE NOTES - 5.8% (a,b)
3,000,000 Abbey National Treasury Service plc 5.07% 1/20/1999 2,998,694
2,000,000 Beneficial Corp. 5.23% 2/1/1999 2,000,000
2,000,000 Deutsche Bank, New York 5.32% 1/16/1999 1,999,142
300,000 Illinois Student Assistance Commission (Bank of America,
Illinois Direct Pay Letter of Credit) 5.52% 1/7/1999 300,000
2,000,000 Illinois Student Assistance Commission (Bank of America,
Illinois Direct Pay Letter of Credit) 5.52% 1/7/1999 2,000,000
2,000,000 Wachovia Bank, N.A. 5.50% 1/4/1999 1,999,915
------------
Total Variable Rate Notes 11,297,751
------------
U.S. GOVERNMENT AGENCY - 1.6% (a)
300,000 Federal Farm Credit Bank 5.38% 2/8/1999 298,353
2,000,000 Federal Home Loan Bank 5.09% 4/13/1999 2,008,047
363,000 Federal Home Loan Bank 5.11% 4/16/1999 357,780
414,000 Federal Home Loan Bank 5.16% 4/23/1999 407,663
------------
Total U.S. Government Agency 3,071,843
------------
Total Investments (at amortized cost) $193,558,222(c)
============
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) Also represents cost for federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $344,316,857) $371,691,082
Cash 76,526
Receivable for investment securities sold 648,122
Dividend and interest receivable 77,521
------------
Total assets 372,493,251
------------
LIABILITIES:
Payable for investment securities purchased 297,818
------------
NET ASSETS $372,195,433
============
NET ASSETS CONSIST OF:
Paid-in capital (33,659,283 shares of capital
stock outstanding) $392,838,107
Accumulated net realized loss from sale
of investments (48,016,899)
Unrealized net appreciation of investments 27,374,225
------------
NET ASSETS $372,195,433
============
Net asset value and public offering price per share
($372,195,433 divided by 33,659,283 shares of
capital stock outstanding) $11.06
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 1,009,336
Interest income 1,539,209
------------
Total income 2,548,545
------------
Expenses --
Investment advisory fee 1,453,614
------------
Net investment income 1,094,931
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (45,123,705)
Net change in unrealized appreciation of investments 30,584,366
------------
Net loss on investments (14,539,339)
------------
Net change in net assets resulting
from operations $(13,444,408)
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years ended December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,094,931 $ 2,117,275
Net realized gain (loss) on investments (45,123,705) 4,835,884
Net change in unrealized appreciation or depreciation
of investments 30,584,366 1,130,770
------------ ------------
Net change in net assets resulting from operations (13,444,408) 8,083,929
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS--
Net investment income (1,020,790) (2,117,275)
Net realized gain on investments (4,105,350) --
------------ ------------
Total distributions (5,126,140) (2,117,275)
------------ ------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 29,992,364 144,261,099
Reinvested dividend distributions 5,126,140 2,117,275
Cost of shares redeemed (35,816,306) (7,432,544)
------------ ------------
Net change in net assets from capital stock transactions (697,802) 138,945,830
------------ ------------
Net change in net assets (19,268,350) 144,912,484
NET ASSETS:
Beginning of period 391,463,783 246,551,299
------------ ------------
End of period $372,195,433 $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
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $86,101,089) $ 96,016,378
Cash 7,092
Receivable for investment securities sold 1,035,531
Dividend and interest receivable 37,969
------------
Total assets 97,096,970
------------
LIABILITIES:
Open options written, at value
(premium received $24,658) 26,800
Payable for investment securities purchased 1,400,194
------------
Total liabilities 1,426,994
------------
NET ASSETS $ 95,669,976
============
NET ASSETS CONSIST OF:
Paid-in capital (8,596,982 shares of capital
stock outstanding) $ 91,073,414
Accumulated net realized loss from sale
of investments (5,316,585)
Unrealized net appreciation of investments 9,913,147
------------
NET ASSETS $ 95,669,976
============
Net asset value and public offering price per share
($95,669,976 divided by 8,596,982 shares of
capital stock outstanding) $11.13
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period from January 30, 1998 (effective date)
to December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 270,002
Interest income 242,711
------------
Total income 512,713
------------
Expenses --
Investment advisory fee 196,436
------------
Net investment income 316,277
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (5,316,585)
Net change in unrealized appreciation of investments 9,913,147
------------
Net gain on investments 4,596,562
------------
Net increase in net assets resulting
from operations $ 4,912,839
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the period from
January 30, 1998
(effective date) to
December 31, 1998
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 316,277
Net realized loss on investments (5,316,585)
Net change in unrealized appreciation of investments 9,913,147
------------
Net increase in net assets resulting from operations 4,912,839
------------
DISTRIBUTIONS PAID TO SHAREHOLDERS--
Net investment income (316,277)
------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 95,921,660
Reinvested dividend distributions 316,277
Cost of shares redeemed (5,164,523)
------------
Net increase in net assets from capital stock transactions 91,073,414
------------
Net increase in net assets 95,669,976
NET ASSETS:
Beginning of period --
------------
End of period $ 95,669,976
============
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
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $310,959,260) $368,912,718
Cash (including foreign currency holdings
of $256,692) 295,051
Dividend and interest receivable 552,471
------------
Total assets 369,760,240
------------
LIABILITIES:
Payable for investment securities purchased 15,910
------------
NET ASSETS $369,744,330
============
NET ASSETS CONSIST OF:
Paid-in capital (29,187,004 shares of capital
stock outstanding) $319,059,583
Accumulated net realized loss from sale of
investments and foreign currency transactions (7,286,890)
Unrealized net appreciation of investments and
on translation of assets and liabilities in
foreign currencies 57,971,637
------------
NET ASSETS $369,744,330
============
Net asset value and public offering price per share
($369,744,330 divided by 29,187,004 shares of
capital stock outstanding) $12.67
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $705,238) $ 5,442,048
Interest income 829,467
------------
Total income 6,271,515
------------
Expenses --
Investment advisory fee 2,820,070
------------
Net investment income 3,451,445
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on investment transactions (2,217,176)
Net realized gain on foreign currency transactions 166,038
------------
Net realized loss on investments and foreign
currency transactions (2,051,138)
------------
Net change in unrealized appreciation of investments 47,600,258
Net change in unrealized appreciation on translation
of assets and liabilities in foreign currencies (18,039)
------------
Net change in unrealized appreciation of investments
and on translation of assets and liabilities in
foreign currencies 47,582,219
------------
Net gain on investments and foreign currency 45,531,081
------------
Net increase in net assets resulting
from operations $ 48,982,526
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years ended December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,451,445 $ 2,644,523
Net realized gain (loss) on investments
and foreign currency transactions (2,051,138) 766,226
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 47,582,219 47,641
------------ ------------
Net increase in net assets resulting from operations 48,982,526 3,458,390
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS--
Net investment income (6,100,889) (3,251,752)
Net realized gain on investments (2,480,808) (161,102)
------------ ------------
Total distributions (8,581,697) (3,412,854)
------------ ------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 48,521,478 112,489,907
Reinvested dividend distributions 8,581,697 3,412,854
Cost of shares redeemed (14,963,421) (2,837,098)
------------ ------------
Net increase in net assets from capital stock transactions 42,139,754 113,065,663
------------ ------------
Net increase in net assets 82,540,583 113,111,199
NET ASSETS:
Beginning of period 287,203,747 174,092,548
------------ ------------
End of period $369,744,330 $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
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $2,694,971,924) $3,315,788,098
Cash 83,914
Receivable for investment securities sold 52,446,484
Dividend and interest receivable 1,998,749
--------------
Total assets 3,370,317,245
--------------
LIABILITIES:
Open options written, at value (premium
received $134,098) 97,819
Payable for investment securities purchased 50,207,453
--------------
Total liabilities 50,305,272
--------------
NET ASSETS $3,320,011,973
==============
NET ASSETS CONSIST OF:
Paid-in capital (141,237,909 shares of capital
stock outstanding) $2,382,025,846
Accumulated net realized gain from sale
of investments 317,133,674
Unrealized net appreciation of investments 620,852,453
--------------
NET ASSETS $3,320,011,973
==============
Net asset value and public offering price per share
($3,320,011,973 divided by 141,237,909 shares
of capital stock interest outstanding) $23.51
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 28,044,194
Interest income 9,722,191
------------
Total income 37,766,385
------------
Expenses --
Investment advisory fee 11,282,299
------------
Net investment income 26,484,086
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 324,341,135
Net realized gain on closed or expired option
contracts written 983,678
------------
Net realized gain on investments 325,324,813
Net change in unrealized appreciation of investments 361,224,415
------------
Net gain on investments 686,549,228
------------
Net increase in net assets resulting
from operations $713,033,314
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years ended December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 26,484,086 $ 22,970,797
Net realized gain on investments 325,324,813 389,813,407
Net change in unrealized appreciation or depreciation
of investments 361,224,415 118,290,444
-------------- --------------
Net increase in net assets resulting from operations 713,033,314 531,074,648
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
Net investment income (26,297,317) (22,970,797)
Net realized gain on investments (382,615,151) (239,942,399)
-------------- --------------
Total distributions (408,912,468) (262,913,196)
-------------- --------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 271,027,313 268,095,815
Reinvested dividend distributions 408,912,468 262,913,195
Cost of shares redeemed (90,186,334) (31,613,719)
-------------- --------------
Net increase in net assets from capital stock transactions 589,753,447 499,395,291
-------------- --------------
Net increase in net assets 893,874,293 767,556,743
NET ASSETS:
Beginning of period 2,426,137,680 1,658,580,937
-------------- --------------
End of period $3,320,011,973 $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
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,530,302,640) $1,395,838,126
Cash 3,746,673
Receivable for investment securities sold 2,294,299
Interest and dividends receivable 29,120,796
--------------
Total assets 1,430,999,894
--------------
LIABILITIES:
Payable for investment securities purchased 3,683,292
------------
NET ASSETS $1,427,316,602
==============
NET ASSETS CONSIST OF:
Paid-in capital (155,872,541 shares of capital
stock outstanding) $1,571,726,626
Accumulated net realized loss from sale
of investments (9,945,509)
Unrealized net depreciation of investments (134,464,515)
--------------
NET ASSETS $1,427,316,602
==============
Net asset value and public offering price per share
($1,427,316,602 divided by 155,872,541 shares of
capital stock outstanding) $9.16
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $137,404,266
Dividend income 12,645,845
------------
Total income 150,050,111
------------
Expenses --
Investment advisory fee 5,747,550
------------
Net investment income 144,302,561
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (9,085,193)
Net change in unrealized depreciation of investments (162,813,026)
------------
Net loss on investments (171,898,219)
------------
Net change in net assets resulting
from operations $(27,595,658)
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years ended December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 144,302,561 $ 113,336,033
Net realized gain (loss) on investment transactions (9,085,193) 26,147,702
Net change in unrealized appreciation or depreciation
of investments (162,813,026) 18,136,291
-------------- --------------
Net change in net assets resulting from operations (27,595,658) 157,620,026
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
Net investment income (145,155,458) (112,483,136)
Net realized gain on investments (19,837,525) --
-------------- --------------
Total distributions (164,992,983) (112,483,136)
-------------- --------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 161,947,132 180,112,872
Reinvested dividend distributions 164,992,983 112,483,136
Cost of shares redeemed (51,597,568) (19,906,718)
-------------- --------------
Net increase in net assets from capital stock transactions 275,342,547 272,689,290
-------------- --------------
Net increase in net assets 82,753,906 317,826,180
NET ASSETS:
Beginning of period 1,344,562,696 1,026,736,516
-------------- --------------
End of period (including undistributed net investment
income of $0 and $852,897 respectively) $1,427,316,602 $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
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,030,691,080) $1,060,095,354
Cash 36,666
Interest and dividends receivable 14,275,443
--------------
Total assets 1,074,407,463
--------------
LIABILITIES:
Open options written, at value (premium
received $245,760) 62,500
Payable for variation margin on open
futures contracts 24,350
--------------
Total liabilities 86,850
--------------
NET ASSETS $1,074,320,613
==============
NET ASSETS CONSIST OF:
Paid-in capital (105,218,103 shares of capital
stock outstanding) $1,050,122,368
Accumulated net realized loss from sale
of investments (5,106,988)
Unrealized net appreciation of investments 29,305,233
--------------
NET ASSETS $1,074,320,613
==============
Net asset value and public offering price per share
($1,074,320,613 divided by 105,218,103 shares of
capital stock outstanding) $10.21
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 61,733,720
Dividend income 665,673
------------
Total income 62,399,393
------------
Expenses --
Investment advisory fee 3,861,771
------------
Net investment income 58,537,622
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 13,555,086
Net realized gain on closed or expired option
contracts written 342,770
Net realized loss on closed futures contracts (524,904)
------------
Net realized gain on investments 13,372,952
Net change in unrealized appreciation of investments 14,894,893
------------
Net gain on investments 28,267,845
------------
Net increase in net assets resulting
from operations $ 86,805,467
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years ended December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 58,537,622 $ 55,084,746
Net realized gain on investment transactions 13,372,952 7,344,236
Net change in unrealized appreciation or depreciation
of investments 14,894,893 7,183,565
-------------- ------------
Net increase in net assets resulting from operations 86,805,467 69,612,547
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
Net investment income (58,495,759) (55,084,746)
-------------- ------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 134,532,247 65,602,599
Reinvested dividend distributions 58,495,759 55,084,746
Cost of shares redeemed (27,456,669) (55,935,562)
-------------- ------------
Net increase in net assets from capital stock transactions 165,571,337 64,751,783
-------------- ------------
Net increase in net assets 193,881,045 79,279,584
NET ASSETS:
Beginning of period 880,439,568 801,159,984
-------------- ------------
End of period $1,074,320,613 $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
December 31, 1998
<S> <C>
ASSETS:
Investments in securities, at amortized cost
and value $193,558,222
Cash 8,863
Interest receivable 241,620
------------
Total assets 193,808,705
------------
NET ASSETS $193,808,705
============
NET ASSETS CONSIST OF:
Paid-in capital (193,808,705 shares of capital
stock outstanding) $193,808,705
============
Net asset value and public offering price per share
($193,808,705 divided by 193,808,705 shares of
capital stock outstanding) $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 7,991,172
------------
Expenses --
Investment advisory fee 574,733
------------
Net investment income $ 7,416,439
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years ended December 31, 1998 and 1997
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,416,439 $ 5,959,136
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
Net investment income (7,416,439) (5,959,136)
------------ ------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 130,085,700 76,690,617
Reinvested dividend distributions 7,416,439 5,959,136
Cost of shares redeemed (64,860,589) (65,403,224)
------------ ------------
Net increase in net assets from capital stock transactions 72,641,550 17,246,529
------------ ------------
Net increase in net assets 72,641,550 17,246,529
NET ASSETS:
Beginning of period 121,167,155 103,920,626
------------ ------------
End of period $193,808,705 $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)
For the period from
January 18, 1996
(effective date) to
OPPORTUNITY GROWTH PORTFOLIO 1998 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 0.03 0.06 0.02
Net realized and unrealized gain
(loss) on investments (b) (0.37) 0.05 1.90
-------- -------- --------
Total from investment operations (0.34) 0.11 1.92
-------- -------- --------
Less Distributions --
Dividends from net investment income (0.03) (0.06) (0.02)
Distributions from net realized
gain on investments (0.12) -- (0.40)
-------- -------- --------
Total distributions (0.15) (0.06) (0.42)
-------- -------- --------
Net asset value, end of period $11.06 $11.55 $11.50
======== ======== ========
Total investment return at net asset value (c) (2.99%) 0.93% 19.17%
Net assets, end of period ($ millions) $372.2 $391.5 $246.6
Ratio of expenses to average net assets 0.40% 0.40% 0.40%(d)
Ratio of net investment income to
average net assets 0.30% 0.65% 0.27%(d)
Portfolio turnover rate 134% 147% 155%
</TABLE>
<TABLE>
<CAPTION>
For the period from
January 18, 1996
(effective date) to
MID CAP GROWTH PORTFOLIO December 31, 1996
--------------------
<S> <C>
Net asset value, beginning of period $10.00
--------
Income From Investment Operations --
Net investment income 0.04
Net realized and unrealized gain
on investments (b) 1.13
--------
Total from investment operations 1.17
--------
Less Distributions --
Dividends from net investment income (0.04)
--------
Net asset value, end of period $11.13
========
Total investment return at net asset value (c) 11.62%
Net assets, end of period ($ millions) $95.7
Ratio of expenses to average net assets 0.40%(d)
Ratio of net investment income to
average net assets 0.64%(d)
Portfolio turnover rate 125%
See accompanying notes to the Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
For the period from
January 18, 1996
(effective date) to
WORLD GROWTH PORTFOLIO 1998 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 0.12 0.10 0.08
Net realized and unrealized gain
on investments (b) 1.74 0.21 0.96
-------- -------- --------
Total from investment operations 1.86 0.31 1.04
-------- -------- --------
Less Distributions --
Dividends from net investment income (0.21) (0.13) (0.09)
Distributions from net realized
gain on investments (0.10) (0.01) --
-------- -------- --------
Total distributions (0.31) (0.14) (0.09)
-------- -------- --------
Net asset value, end of period $12.67 $11.12 $10.95
======== ======== ========
Total investment return at net asset value (c) 16.75% 2.81% 10.41%
Net assets, end of period ($ millions) $369.7 $287.2 $174.1
Ratio of expenses to average net assets 0.85% 0.85% 0.85%(d)
Ratio of net investment income to
average net assets 1.04% 1.08% 1.34%(d)
Portfolio turnover rate 19% 19% 9%
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C >
Net asset value, beginning of period $21.58 $19.32 $18.27 $13.51 $14.76
-------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.19 0.21 0.24 0.24 0.20
Net realized and unrealized gain
(loss) on investments (b) 5.28 4.97 3.43 4.76 (0.87)
-------- -------- -------- -------- --------
Total from investment operations 5.47 5.18 3.67 5.00 (0.67)
-------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.19) (0.21) (0.24) (0.24) (0.20)
Distributions from net realized
gain on investments (3.35) (2.71) (2.38) -- (0.38)
-------- -------- -------- -------- --------
Total distributions (3.54) (2.92) (2.62) (0.24) (0.58)
-------- -------- -------- -------- --------
Net asset value, end of period $23.51 $21.58 $19.32 $18.27 $13.51
======== ======== ======== ======== ========
Total investment return at net asset value (c) 28.38% 30.18% 22.44% 37.25% (4.66%)
Net assets, end of period ($ millions) $3,320.0 $2,426.1 $1,658.6 $1,173.1 $721.8
Ratio of expenses to average net assets 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 0.94% 1.11% 1.41% 1.53% 1.52%
Portfolio turnover rate 152% 193% 223% 184% 135%
See accompanying notes to the Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
HIGH YIELD PORTFOLIO 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C >
Net asset value, beginning of period $10.44 $10.06 $ 9.94 $ 9.18 $10.76
-------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.99 0.98 0.98 0.96 0.97
Net realized and unrealized gain
(loss) on investments (b) (1.12) 0.37 0.12 0.76 (1.40)
-------- -------- -------- -------- --------
Total from investment operations (0.13) 1.35 1.10 1.72 (0.43)
-------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (1.00) (0.97) (0.98) (0.96) (0.97)
Distributions from net realized
gain on investments (0.15) -- -- -- (0.18)
-------- -------- -------- -------- --------
Total distributions (1.15) (0.97) (0.98) (0.96) (1.15)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.16 $10.44 $10.06 $ 9.94 $ 9.18
======== ======== ======== ======== ========
Total investment return at net asset value (c) (1.50%) 14.10% 11.55% 19.62% (4.38%)
Net assets, end of period ($ millions) $1,427.3 $1,344.6 $1,026.7 $792.5 $595.6
Ratio of expenses to average net assets 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 10.04% 9.58% 9.83% 9.94% 9.75%
Portfolio turnover rate 71% 105% 107% 67% 44%
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C >
Net asset value, beginning of period $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36
-------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.61 0.65 0.63 0.65 0.64
Net realized and unrealized gain
(loss) on investments (b) 0.29 0.17 (0.33) 1.04 (1.11)
-------- -------- -------- -------- --------
Total from investment operations 0.90 0.82 0.30 1.69 (0.47)
-------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.61) (0.65) (0.63) (0.65) (0.64)
Distributions from net realized
gain on investments -- -- -- -- (0.21)
-------- -------- -------- -------- --------
Total distributions (0.61) (0.65) (0.63) (0.65) (0.85)
-------- -------- -------- -------- --------
Net asset value, end of period $10.21 $ 9.92 $ 9.75 $10.08 $ 9.04
======== ======== ======== ======== ========
Total investment return at net asset value (c) 9.37% 8.75% 3.21% 19.36% (4.68%)
Net assets, end of period ($ millions) $1,074.3 $880.4 $801.2 $762.1 $608.2
Ratio of expenses to average net assets 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 6.06% 6.68% 6.54% 6.81% 6.78%
Portfolio turnover rate 86% 117% 150% 132% 139%
See accompanying notes to the Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
MONEY MARKET PORTFOLIO 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C >
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Net investment income from investment operations 0.05 0.05 0.05 0.06 0.04
Less: Dividends from net investment income (0.05) (0.05) (0.05) (0.06) (0.04)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return (c) 5.32% 5.43% 5.20% 5.71% 4.00%
Net assets, end of period ($ millions) $193.8 $121.2 $103.9 $66.1 $41.9
Ratio of expenses to average net assets 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 5.16% 5.27% 5.07% 5.55% 4.03%
NOTES TO FINANCIAL HIGHLIGHTS:
(a) All per share amounts have been rounded to the nearest cent.
(b) The amount shown is a balancing figure and may not accord with the change in aggregate gains and losses of
portfolio securities due to the timing of sales and redemption of fund shares.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of a sales charge.
(d) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB SERIES FUND, INC.
Notes to Financial Statements
December 31, 1998
(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 the Portfolio 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.
It is the policy of the Fund to reclassify the net effect of permanent
differences between book and taxable income to capital accounts on the
statements of assets and liabilities. As a result of permanent book-to-
tax differences for the year ended December 31, 1998, accumulated net
realized gain or loss from the sale of investments was increased
(decreased) by $74,141, ($2,649,444), $186,769, and $41,863,
respectively, for the Opportunity Growth,World Growth, Growth, and
Income Portfolios; undistributed net investment income was increased
(decreased) by ($74,141) $2,649,444, ($186,769), and ($41,863),
respectively, for the Opportunity Growth, World Growth, Growth, and
Income Portfolios. These reclassifications have no effect on net
assets, net asset value per share, the change in net assets resulting
from operations, or on the amount of income available for distribution
to shareholders.
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 $251,680 from such fees for the year ended December 31, 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 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 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 absorbed 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 year ended December 31, 1998, distributions from net realized
capital gains of $4,105,350, $2,480,808, $382,615,151 and $19,837,525
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, 1998, the Opportunity Growth, Mid Cap Growth, World
Growth, High Yield, and Income Portfolios had accumulated net realized
capital loss carryovers expiring as follows:
Expiration Opportunity Mid Cap World
Year Growth Growth Growth
---------- ----------- ---------- ----------
2006 $38,177,716 $4,231,061 $3,750,242
----------- ---------- ----------
$38,177,716 $4,231,061 $3,750,242
=========== ========== ==========
Expiration High Yield Income
Year Portfolio Portfolio
---------- ---------- ----------
2002 -- $1,019,053
2004 -- 3,667,020
2006 $4,536,501 --
---------- ----------
$4,536,501 $4,686,073
========== ==========
To the extent these Portfolios realize future net capital gains,
taxable distributions will be reduced by any unused capital loss
carryovers. Temporary timing differences of $9,839,182, $1,085,524,
$3,536,647, $24,769,321, $5,409,008, and $420,914 existed between
accumulated net realized capital gains or losses for financial
statement and tax purposes as of December 31, 1998 for the Opportunity
Growth, Mid Cap Growth, World Growth, Growth, High Yield, and Income
Portfolios, respectively. These differences are due primarily to
deferral of capital losses for tax purposes.
(6) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities
For the year ended December 31, 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 $ 460,325 $ 453,484
Mid Cap Growth 154,381 67,171
World Growth 94,157 58,722
Growth 4,176,107 3,998,513
High Yield 1,227,574 976,039
Income 487,142 408,171
Purchases and sales of U.S. Government securities were:
In thousands
Portfolio Purchases Sales
- ------------------- ---------- ----------
Growth $ 17,844 $ 15,420
Income 541,119 399,710
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 $393,790 at December 31, 1998, which
represented 0.03% 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 of companies 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 year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Mid Cap Growth Portfolio Growth Portfolio Income Portfolio
---------------------------- ---------------------------- ----------------------------
Number of Premium Number of Premium Number of Premium
Contracts Amount Contracts Amount Contracts Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 -- $ -- -- $ -- -- $ --
Opened 81 24,658 26,844 5,425,900 4,775 1,873,366
Closed -- (12,815) (3,329,049) (3,595) (1,344,873)
Expired -- -- (5,991) (484,454) (780) (282,733)
Exercised -- -- (7,705) (1,478,299) -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 81 $24,658 333 $ 134,098 400 $ 245,760
============ ============ ============ ============ ============ ============
</TABLE>
(7) 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.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
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 2,767,211 9,154,232 3,959,733 12,852,681 15,926,615 13,351,834 130,085,700
Shares issued on
reinvestment of dividends
and distributions 441,302 28,428 686,747 20,455,417 16,628,892 5,817,896 7,416,439
Shares redeemed (3,446,650) (585,678) (1,286,464) (4,476,400) (5,514,257) (2,734,184) (64,860,589)
------------ ---------- ---------- ----------- ----------- ----------- -------------
Shares outstanding at
December 31, 1998 33,659,283 8,596,982 29,187,004 141,237,909 155,872,541 105,218,103 193,808,705
============ ========= ========== =========== =========== =========== =============
</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
Herbert F. Eggerding, Jr.
Noel K. Estenson
Jodi L. Harpstead
Richard A. Hauser
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
OFFICERS
Rolf F. Bjelland Brenda J. Pederson
Chairman and President Vice President
Wade M. Voigt Richard B. Ruckdashel
Treasurer Vice President
Otis F. Hilbert John C. Bjork
Secretary and Vice President Assistant Secretary
Randall L. Boushek James M. Odland
Vice President Assistant Secretary
Frederick P. Johnson Rand E. Mattsson
Vice President Assistant Treasurer
James R. Olson
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
Back Cover:
GRAPHIC OMITTED: LUTHERAN BROTHERHOOD LOGO
Bulk Rate
U.S. Postage
PAID
Minneapolis, MN
Permit No. 1202
VP 54 (12/98)
[GRAPHIC OMITTED: PRINTED WITH SOY INK]
<PAGE>
LB Series Fund, Inc. Exhibit (i)
625 Fourth Avenue South
Minneapolis, Minnesota 55415
February 25, 1999
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentlemen:
As counsel to LB Series Fund, Inc., a corporation organized under the laws
of the State of Minnesota (the "Fund"), I have been asked to render an
opinion in connection with Post-Effective Amendment No. 23 under the
Securities Act of 1933 to the Registration Statement on Form N-1A
(Securities Act File No. 33-3677) to be filed by the Fund with the
Securities and Exchange Commission (as amended, the "Registration
Statement").
I wish to advise you that I have examined such documents and questions of
law as I have deemed necessary for purposes of this opinion. Based upon the
foregoing, I am of the opinion that:
1. The Fund has been duly organized and is validly existing pursuant to the
laws of the State of Minnesota;
2. In its pre-effective registration statement, the Fund elected to
register an indefinite number of shares pursuant to the provision of Rule
24f-2; and
3. The shares of capital stock of the Fund which are described in the
foregoing Registration Statement will, when sold in accordance with the
terms of the Prospectus and Statement of Additional Information in effect at
the time of the sale, be legally issued, fully paid and non-assessable by
the Fund.
I consent to this opinion being filed as an exhibit to the foregoing
Registration Statement.
Sincerely,
/s/ John C. Bjork
John C. Bjork
Counsel
#24042
<PAGE>
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-
Effective Amendment No. 23 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 10, 1999 relating to
the financial statements and financial highlights appearing in the the
December 31, 1998 Annual Report of the LB Series Fund, Inc., which is also
incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights" in the
Prospectus and under the heading "Independent Accountants" in the Statement
of Additional Information.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 24, 1999
#24043
<PAGE>
EXHIBIT (h)
REIMBURSEMENT AGREEMENT
THIS AGREEMENT made this 31st day of January, 1994, by and between LB
Series Fund, Inc., a Minnesota corporation (the "Fund"), Lutheran
Brotherhood, a Minnesota fraternal benefit society ("LB"), and Lutheran
Brotherhood Variable Insurance Products Company, a Minnesota corporation
("LBVIP").
WITNESSETH:
-----------
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, LBVIP has established and maintains LBVIP Variable Insurance
Account, LBVIP Variable Insurance Account II, and LBVIP Variable Annuity
Account I (the LBVIP "Variable Accounts"), as separate accounts pursuant to
the laws of Minnesota for the purpose of selling variable life and variable
annuity contracts to commence after the effectiveness of Registration
Statements relating thereto filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, LB has established and maintains LB Variable Insurance
Account I and LB Variable Annuity Account I (the LB "Variable Accounts"), as
separate accounts pursuant to the laws of Minnesota for the purpose of
selling variable life and variable annuity to commence after the
effectiveness of Registration Statements relating thereto filed with the
Securities and Exchange Commission pursuant to the 1933 Act; and
WHEREAS, the Variable Accounts are and will be registered as unit
investment trusts under the 1940 Act upon the effectiveness of the
Registration Statements under the 1940 Act; and
WHEREAS, each Subaccount of the Variable Accounts will invest in the
shares of a corresponding portfolio of the Fund; and
WHEREAS, pursuant to an Investment Advisory Agreement dated January 31,
1994, between the Fund and LB, also operating as a registered investment
adviser (the "Adviser"), the Fund agrees to pay or provide for the payment
of all of its own expenses; and
WHEREAS, LBVIP and LB are willing to pay or to reimburse the Fund for
the payment of all expenses except the advisory fee associated with
operating the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1: DUTIES OF LBVIP AND LB. LBVIP and LB shall pay or
provide for payment of all of the expenses of the Fund except the
advisory fee, including, without limitation, compensation of Directors
not affiliated with the Adviser, Lutheran Brotherhood or governmental
fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Fund, fees and expenses of
independent auditors, of legal counsel and of any transfer agent,
registrar and dividend disbursing agent of the Fund, expenses of
preparing, printing and mailing prospectuses, shareholders' reports,
notices, proxy statements and reports to governmental officers and
commissions, expenses connected with the execution, recording and
settlement of portfolio security transactions, insurance premiums, fees
and expenses of the Custodian for all services to the Fund, including
safekeeping of funds and securities and keeping of books and
calculating the net asset value of shares of the Fund, expenses of
shareholders' meetings, and expenses relating to the issuance,
registration and qualification of shares of the Fund. LBVIP and LB
agree to pay or to provide for such payment in such a manner so that
the net asset value of the Fund will not be reduced as a result of the
payment of any expenses.
ARTICLE 2: COVENANTS OF THE FUND. The Fund may, in the future,
sell shares to other separate accounts supporting variable insurance
products (including variable annuity products) issued by LBVIP, LB or
an affiliated company. If the Fund does sell such shares to other
separate accounts, LBVIP and LB shall have the right to seek
reimbursement from sources other than the Fund for Fund expenses
incurred on behalf of such other separate accounts. The Fund agrees
not to sell to other separate accounts unless arrangements have been
made between and among the Fund, LBVIP, LB and the sponsors of such
other separate accounts for an equitable allocation of Fund expenses
payable by LBVIP and LB under this Agreement.
ARTICLE 3: ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.
LBVIP and LB reserve the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are
held in the Variable Accounts or that the Variable Accounts may
purchase. If the shares of a Portfolio of the Fund are no longer
available for investment or if in the judgment of LB and LBVIP further
investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Accounts, LBVIP and LB may redeem the shares,
if any, of that Portfolio and substitute shares of another registered
open-end investment company. LBVIP and LB will not substitute any
shares attributable to LBVIP and LB variable contact interests in a
Subaccount of the Variable Accounts without notice and prior approval
of the SEC and state insurance authorities, to the extent required by
the 1940 Act or other applicable law.
LBVIP and LB also reserve the right to establish additional
Subaccounts of the Variable Accounts, each of which would invest in
shares corresponding to a new Portfolio of the Fund or in shares of
another investment company having a specified investment objective.
Subject to applicable law and any required SEC approval, LBVIP and LB
may, in their sole discretion, establish new Subaccounts or eliminate
one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant.
ARTICLE 4: DURATION, TERMINATION AND AMENDMENTS OF THIS
AGREEMENT. This Agreement shall become effective on the date of its
execution and shall govern the relations between the parties hereto
thereafter. This Agreement may be amended only by a written agreement
signed by the parties hereto.
ARTICLE 5: MISCELLANEOUS. This Agreement shall be construed in
accordance with the laws of the State of Minnesota, contains the entire
understanding among the parties with respect to the matters covered
hereby, and may be executed in several counterparts, each of which
shall be deemed to be an original and one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first
above written.
LB SERIES FUND, INC.
By: /s/ Rolf F. Bjelland
-----------------------------
Rolf F. Bjelland, President
LUTHERAN BROTHERHOOD
By: /s/ Robert P. Gandrud
-----------------------------
Robert P. Gandrud, President
LUTHERAN BROTHERHOOD VARIABLE
INSURANCE PRODUCTS COMPANY
By: /s/ Robert P. Gandrud
-----------------------------
Robert P. Gandrud, President
#11869
<PAGE>
EXHIBIT (b)
BYLAWS
OF
LB SERIES FUND, INC.(4)
Effective June 10, 1998
SHAREHOLDERS
Section 1.01. PLACE OF MEETINGS. Each meeting of the shareholders
shall be held at the principal executive office of the Corporation or at
such other place as may be designated by the Board of Directors or the Chief
Executive Officer; provided, however, that any meeting called by or at the
demand of a shareholder or shareholders shall be held in the county where
the principal executive office of the Corporation is located.
SECTION 1.02. REGULAR MEETINGS. Regular meetings of the shareholders
may be held on an annual or other less frequent basis as determined by the
Board of Directors; provided, however, that if a regular meeting has not
been held during the immediately preceding fifteen months, a shareholder or
shareholders holding 3% or more of the voting power of all shares entitled
to vote may demand a regular meeting of shareholders by written demand given
to the Chief Executive Officer or Chief Financial Officer of the
Corporation. At each regular meeting the shareholders shall elect qualified
successors for directors who serve for an indefinite term or whose terms
have expired or are due to expire within six months after the date of the
meeting and may transact any other business, provided, however, that no
business with respect to which special notice is required by law shall be
transacted unless such notice shall have been given.
Section 1.03. SPECIAL MEETINGS. A special meeting of the shareholders
may be called for any purpose or purposes at any time by the Chief Executive
Officer; by the Chief Financial Officer; by the Board of Directors or any
two or more members thereof; or by one or more shareholders holding not less
than 10% of the voting power of all shares of the Corporation entitled to
vote, who shall demand such special meeting by written notice given to the
Chief Executive Officer or the Chief Financial Officer of the Corporation
specifying the purposes of such meeting.
Section 1.04. MEETINGS HELD UPON SHAREHOLDER DEMAND. Within thirty
days of receipt of a demand by the Chief Executive Officer or the Chief
Financial Officer from any shareholder or shareholders entitled to call a
meeting of the shareholders, it shall be the duty of the Board of Directors
of the Corporation to cause a special or regular meeting of shareholders, as
the case may be, to be duly called and held on notice no later than ninety
days after receipt of such demand. If the Board of Directors fails to cause
such a meeting to be called and held as required by this Section, the
shareholder or shareholders making the demand may call the meeting by giving
notice as provided in Section 1.06 hereof at the expense of the Corporation.
Section 1.05. ADJOURNMENTS. Any meeting of the shareholders may be
adjourned from time to time to another date, time and place. If any meeting
of the shareholders is so adjourned, no notice as to such adjourned meeting
need be given if the date, time and place at which the meeting will be
reconvened are announced at the time of adjournment.
Section 1.06. NOTICE OF MEETINGS. Except as otherwise specified in
Section 1.05 or required by law, written notice of each meeting of the
shareholders, stating the date, time and place and, in the case of a special
meeting, the purpose or purposes, shall be given at least ten days and not
more than sixty days prior to the meeting to every holder of shares entitled
to vote at such meeting. The business transacted at a special meeting of
shareholders is limited to the purposes stated in the notice of the meeting.
Section 1.07. WAIVER OF NOTICE. A shareholder may waive notice of the
date, time, place and purpose or purposes of a meeting of shareholders. A
waiver of notice by a shareholder entitled to notice is effective whether
given before, at or after the meeting, and whether given in writing, orally
or by attendance. Attendance by a shareholder at a meeting is a waiver of
notice of that meeting, unless the shareholder objects at the beginning of
the meeting to the transaction of business because the meeting is not
lawfully called or convened, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of the item at that meeting.
Section 1.08. QUORUM; ACTS OF SHAREHOLDERS. Subdivision 1. Except as
otherwise required by law, the Articles of Incorporation of the Corporation
or these Bylaws, the holders of a majority of the voting power of the shares
entitled to vote at a shareholders meeting are a quorum for the transaction
of business. If a quorum is present when a duly called or held meeting is
convened, the shareholders present may continue to transact business until
adjournment, even though the withdrawal of a number of the shareholders
originally present leaves less than the proportion or number otherwise
required for a quorum. Except as otherwise required by law or specified in
the Articles of Incorporation of the Corporation, the shareholders shall
take action by the affirmative vote of the holders of a majority of the
voting power of the shares present and entitled to vote at a duly held
meeting of shareholders.
Subdivision 2. The absence from any meeting, in person or by proxy, of
holders of the number of shares in excess of a majority thereof which may be
required by the laws of the State of Minnesota, the Investment Company Act
of 1940 or other applicable statute, the Articles of Incorporation of the
Corporation or these Bylaws for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting if there shall be present thereat, in
person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such matter or matters.
Section 1.09. VOTING RIGHTS. Subdivision 1. A shareholder shall have
the voting rights set forth in the Articles of Incorporation of the
Corporation. Except as otherwise required by law, a holder of shares
entitled to vote may vote any portion of the shares in any way the
shareholder chooses. If a shareholder votes without designating the
proportion or number of shares voted in a particular way, the shareholder is
deemed to have voted all of the shares in that way.
Subdivision 2. The Board may fix a date not more than sixty days
before the date of a meeting of shareholders as the date for the
determination of the holders of shares entitled to notice of and entitled to
vote at the meeting. When a date is so fixed, only shareholders on that date
are entitled to notice of and permitted to vote at that meeting of
shareholders.
Section 1.10. PROXIES. A shareholder may cast or authorize the
casting of a vote by filing a written appointment of a proxy with an officer
of the Corporation at or before the meeting at which the appointment is to
be effective.
Section 1.11. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the shareholders of the Corporation
may be taken without a meeting by written action signed by all of the
shareholders entitled to vote on that action. The written action is
effective when it has been signed by all of those shareholders, unless a
different effective time is provided in the written action.
DIRECTORS
Section 2.01. NUMBER; QUALIFICATIONS. Except as authorized by the
shareholders pursuant to a shareholder control agreement or unanimous
affirmative vote, the business and affairs of the Corporation shall be
managed by or under the direction of a Board of one or more directors.
Directors shall be natural persons. The shareholders at each regular
meeting shall determine the number of directors to constitute the Board,
provided that thereafter the authorized number of directors may be increased
by the shareholders or the Board and decreased by the shareholders.
Directors need not be shareholders.
Section 2.02. TERM. Each director shall serve for an indefinite term
that expires at the next regular meeting of the shareholders. A director
shall hold office until a successor is elected and has qualified or until
the earlier death, resignation, removal or disqualification of the director.
No person shall serve as a Director beyond the earlier of the end of the
month in which he or she attains the age of 70 years, or the end of the
month in which he or she completes 15 continuous years of service as a
Director, except that the limitation on 15 continuous years of service shall
not apply to Rolf F. Bjelland, Bruce, J. Nicholson, Charles W. Arnason, and
Ruth E. Randall, or any person who is an interested person of the LB Series
Fund, Inc. as defined in section 2(a) (19) of the Investment Company Act of
1940. (2)(7)
A vacancy on the Board may be declared by a majority of the Board upon
the happening of any of the following events: (1) death, (2) resignation,
or (3) disability of a Director. Disability may involve either physical or
mental disability which seriously affects the ability of a Director to
participate in the meetings of the Board. Such physical or mental
disability shall be certified to after examination by one or more physicians
selected by majority vote of the remaining directors. A Director shall be
deemed to be disabled if he or she is unable to attend three (3) consecutive
regular meetings of the Board of Directors because of such disability.(3)
Section 2.03. VACANCIES. Vacancies on the Board of Directors
resulting from the death, resignation, removal or disqualification of a
director may be filled by the affirmative vote of a majority of the
remaining members of the Board, though less than a quorum. Vacancies on the
Board resulting from newly created directorships may be filled by the
affirmative vote of a majority of the directors serving at the time such
directorships are created. Each person elected to fill a vacancy shall hold
office until a qualified successor is elected by the shareholders at the
next regular meeting or at any special meeting duly called for that purpose.
Section 2.04. PLACE OF MEETINGS. Each meeting of the Board of
Directors shall be held at the principal executive office of the Corporation
or at such other place as may be designated from time to time by a majority
of the members of the Board.
Section 2.05. REGULAR MEETINGS. Regular meetings of the Board of
Directors for the election of officers and the transaction of any other
business shall be held without notice at the place of and immediately after
each regular meeting of the shareholders.
Section 2.06. SPECIAL MEETINGS. A special meeting of the Board of
Directors may be called for any purpose or purposes at any time by any
member of the Board by giving not less than two nor more than ten days'
notice to all directors of the date, time and place of the meeting. The
notice need not state the purpose of the meeting.
Section 2.07. WAIVER OF NOTICE; PREVIOUSLY SCHEDULED MEETINGS.
Subdivision 1. A director of the Corporation may waive notice of the date,
time and place of a meeting of the Board. A waiver of notice by a director
entitled to notice is effective whether given before, at or after the
meeting, and whether given in writing, orally or by attendance. Attendance
by a director at a meeting is a waiver of notice of that meeting, unless the
director objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and
thereafter does not participate in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting
have been provided herein or announced at a previous meeting of the Board,
no action is required. Notice of an adjourned meeting need not be given
other than by announcement at the meeting at which adjournment is taken of
the date, time and place at which the meeting will be reconvened.
Section 2.08. QUORUM; ACTS OF BOARD. The presence in person of a
majority of the directors currently holding office shall be necessary to
constitute a quorum for the transaction of business. In the absence of a
quorum, a majority of the directors present may adjourn a meeting from time
to time without further notice until a quorum is present. If a quorum is
present when a duly held meeting is convened, the directors present may
continue to transact business until adjournment, even though the withdrawal
of a number of the directors originally present leaves less than the
proportion or number otherwise required for a quorum. Except as otherwise
required by law, the Articles of Incorporation of the Corporation or these
Bylaws, the Board shall take action by the affirmative vote of a majority of
the directors present at a duly held meeting; provided, however, that the
approval of any contract with an investment adviser or principal
underwriter, as such terms are defined in the Investment Company Act of 1940
or any renewal or amendment thereof, the approval of the fidelity bond
required by the Investment Company Act of 1940, and the selection of the
Corporation's independent public accountants shall each require the
affirmative vote of a majority of the directors who are not parties to such
contract or interested persons of such party.
Section 2.09. ELECTRONIC COMMUNICATIONS. A conference among directors
by any means of communication through which the directors may simultaneously
hear each other during the conference constitutes a Board meeting, if the
same notice is given of the conference as would be required for a meeting,
and if the number of directors participating in the conference would be
sufficient to constitute a quorum at a meeting. A director may participate
in a Board meeting not described in the immediately preceding sentence by
any means of communication through which the director, other directors so
participating and all directors physically present at the meeting may
simultaneously hear each other during the meeting. Participation in a
meeting by any means referred to in this Section 2.09 constitutes a presence
in person at the meeting.
Section 2.10. ABSENT DIRECTORS. A director of the Corporation may
give advance written consent or opposition to a proposal to be acted on at a
Board meeting. If the director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered
in the minutes or other record of action at the meeting, if the proposal
acted on at the meeting is substantially the same or has substantially the
same effect as the proposal to which the director has consented or objected.
Section 2.11. ACTION WITHOUT A MEETING. An action required or
permitted to be taken at a Board meeting may be taken without a meeting by
written action signed by all of the directors. Any action, other than an
action requiring shareholder approval, if the Articles of Incorporation so
provide, may be taken by written action signed by the number of directors
that would be required to take the same action at a meeting of the Board at
which all directors were present. The written action is effective when
signed by the required number of directors, unless a different effective
time is provided in the written action. When written action is permitted to
be taken by less than all directors, all directors shall be notified
immediately of its text and effective date.
Section 2.12. COMMITTEES. Subdivision 1. A resolution approved by
the affirmative vote of a majority of the Board may establish committees
having the authority of the Board in the management of the business of the
Corporation only to the extent provided in the resolution. Committees shall
be subject at all times to the direction and control of the Board, except as
provided in Section 2.13.
Subdivision 2. A committee shall consist of one or more natural
persons, who need not be directors, appointed by affirmative vote of a
majority of the directors present at a duly held Board meeting.
Subdivision 3. Section 2.04 and Sections 2.06 to 2.11 hereof shall
apply to committees and members of committees to the same extent as those
sections apply to the Board and directors.
Subdivision 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
Section 2.13. COMMITTEE OF DISINTERESTED PERSONS. Pursuant to the
procedure set forth in Section 2.12, the Board may establish a committee
composed of two or more disinterested directors or other disinterested
persons to determine whether it is in the best interests of the Corporation
to pursue a particular legal right or remedy of the Corporation and whether
to cause the dismissal or discontinuance of a particular proceeding that
seeks to assert a right or remedy on behalf of the Corporation. The
committee, once established, is not subject to the direction or control of,
or termination by, the Board. A vacancy on the committee may be filled by a
majority vote of the remaining committee members. The good faith
determinations of the committee are binding upon the Corporation and its
directors, officers and shareholders. The committee terminates when it
issues a written report of its determinations to the Board.
Section 2.14. COMPENSATION. The Board may fix the compensation, if
any, of directors.
OFFICERS
Section 3.01. NUMBER AND DESIGNATION. The Corporation shall have one
or more natural persons exercising the functions of the offices of Chief
Executive Officer and Chief Financial Officer. The Board of Directors may
elect or appoint such other officers or agents as it deems necessary for the
operation and management of the Corporation, with such powers, rights,
duties and responsibilities as may be determined by the Board, including,
without limitation, a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall have the powers,
rights, duties and responsibilities set forth in these Bylaws unless
otherwise determined by the Board. Any of the offices or functions of those
offices may be held by the same person.
Section 3.02. CHAIRMAN OF THE BOARD. Unless otherwise determined by
the Board of Directors, the Chairman of the Board shall be the Chief
Executive Officer of the Corporation. The Chairman of the Board shall
perform such executive and other duties as the Board of Directors may, from
time to time, prescribe.
Section 3.03. CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Executive officer
(a) shall have general active management of the business of the Corporation;
(b) shall, when present, preside at all meetings of the shareholders and
Board of Directors; (c) shall see that all orders and resolutions of the
Board are carried into effect; (d) may maintain records of and certify
proceedings of the Board and shareholders; and (e) shall perform such other
duties as may from time to time be assigned by the Board.
Section 3.04. CHIEF FINANCIAL OFFICER. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Financial officer
(a) shall keep accurate financial records for the Corporation; (b) shall
deposit all monies, drafts and checks in the name of and to the credit of
the Corporation in such banks and depositories as the Board of Directors
shall designate from time to time; (c) shall endorse for deposit all notes,
checks and drafts received by the Corporation as ordered by the Board,
making proper vouchers therefor; (d) shall disburse corporate funds and
issue checks and drafts in the name of the Corporation, as ordered by the
Board; (e) shall render to the Chief Executive Officer and the Board of
Directors, whenever requested, an account of all of his transactions as
Chief Financial Officer and of the financial condition of the Corporation;
and (f) shall perform such other duties as may be prescribed by the Board of
Directors or the Chief Executive Officer from time to time.
Section 3.05. PRESIDENT. The President shall perform such duties as
may from time to time be assigned by the Board of Directors.
Section 3.06. VICE PRESIDENTS. Any one or more Vice Presidents, if
any, may be designated by the Board of Directors as Executive Vice
Presidents or Senior Vice Presidents. During the absence or disability of
the President, it shall be the duty of the highest ranking Executive Vice
President, and, in the absence of any such Vice President, it shall be the
duty of the highest ranking Senior Vice President or other Vice President,
who shall be present at the time and able to act, to perform the duties of
the President. The determination of who is the highest ranking of two or
more persons holding the same office shall, in the absence of specific
designation of order of rank by the Board of Directors, be made on the basis
of the earliest date of appointment or election, or, in the event of
simultaneous appointment or election, on the basis of the longest continuous
employment by the Corporation.
Section 3.07. SECRETARY. The Secretary, unless otherwise determined
by the Board, shall attend all meetings of the shareholders and all meetings
of the Board of Directors, shall record or cause to be recorded all
proceedings thereof in a book to be kept for that purpose, and may certify
such proceedings. Except as otherwise required or permitted by law or by
these Bylaws, the Secretary shall give or cause to be given notice of all
meetings of the shareholders and all meetings of the Board of Directors.
Section 3.08. TREASURER. Unless otherwise determined by the Board,
the Treasurer shall be the Chief Financial Officer of the Corporation. If
an officer other than the Treasurer is designated Chief Financial Officer,
the Treasurer shall perform such duties as may from time to time be assigned
to him by the Board.
Section 3.09. AUTHORITY AND DUTIES. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively
have such authority and perform such duties in the management of the
business of the Corporation as may be designated from time to time by the
Board of Directors. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected
or appointed by the Board may, without the approval of the Board, delegate
some or all of the duties and powers of an office to other persons.
Section 3.10. TERM. Subdivision 1. All officers of the Corporation
shall hold office until their respective successors are chosen and have
qualified or until their earlier death, resignation or removal.
Subdivision 2. An officer may resign at any time by giving written
notice to the Corporation. The resignation is effective without acceptance
when the notice is given to the Corporation, unless a later effective date
is specified in the notice.
Subdivision 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in
the office of Chief Executive Officer or Chief Financial Officer shall, be
filled for the unexpired portion of the term by the Board.
Section 3.11. SALARIES. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors or by the Chief
Executive Officer if authorized by the Board.
INDEMNIFICATION
Section 4.01. INDEMNIFICATION. The Corporation shall indemnify such
persons, for such expenses and liabilities, in such manner, under such
circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
Section 4.02. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against
any liability asserted against and incurred by such person in or arising
from that capacity, whether or not the Corporation would otherwise be
required to indemnify the person against the liability.
SHARES
Section 5.01. CERTIFICATED AND UNCERTIFICATED SHARES. Subdivision 1.
The shares of the Corporation shall be either certificated shares or
uncertificated shares. Each holder of duly issued certificated shares is
entitled to a certificate of shares.
Subdivision 2. Each certificate of shares of the Corporation shall
bear the corporate seal, if any, and shall be signed by the Chief Executive
Officer, or the President or any Vice President, and the Chief Financial
Officer, or the Secretary or any Assistant Secretary, but when a certificate
is signed by a transfer agent or a registrar, the signature of any such
officer and the corporate seal upon such certificate may be facsimiles,
engraved or printed. If a person signs or has a facsimile signature placed
upon a certificate while an officer, transfer agent or registrar of the
Corporation, the certificate may be issued by the Corporation, even if the
person has ceased to serve in that capacity before the certificate is
issued, with the same effect as if the person had that capacity at the date
of its issue.
Subdivision 3. A certificate representing shares issued by the
Corporation shall, if the Corporation is authorized to issue shares of more
than one class or series, set forth upon the face or back of the
certificate, or shall state that the Corporation will furnish to any
shareholder upon request and without charge, a full statement of the
designations, preferences, limitations and relative rights of the shares of
each class or series authorized to be issued, so far as they have been
determined, and the authority of the Board to determine the relative rights
and preferences of subsequent classes or series.
Subdivision 4. A resolution approved by the affirmative vote of a
majority of the directors present at a duly held meeting of the Board may
provide that some or all of any or all classes and series of the shares of
the Corporation will be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until the certificate is
surrendered to the Corporation.
Section 5.02. DECLARATION OF DIVIDENDS AND OTHER DISTRIBUTIONS. The
Board of Directors shall have the authority to declare dividends and other
distributions upon the shares of the Corporation to the extent permitted by
the Articles of Incorporation of the Corporation and by law.
Section 5.03. TRANSFER OF SHARES. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by his attorney. In the case of certificated shares, shares shall
be transferred only upon surrender and cancellation of certificates for a
like number of shares. The Board of Directors, however, may appoint one or
more transfer agents and registrars to maintain the share records of the
Corporation and to effect transfers of shares.
Section 5.04. RECORD DATE. The Board of Directors may fix a time, not
exceeding sixty days preceding the date fixed for the payment of any
dividend or other distribution, as a record date for the determination of
the shareholders entitled to receive payment of such dividend or other
distribution, and in such case only shareholders of record on the date so
fixed shall be entitled to receive payment of such dividend or other
distribution, notwithstanding any transfer of any shares on the books of the
Corporation after any record date so fixed.
INVESTMENT OBJECTIVES AND RESTRICTIONS
Section 6.01. INVESTMENT OBJECTIVES. The investment objectives of
each Portfolio of the Corporation are fundamental and may not be changed
without the approval of the holders of a majority of the outstanding shares
of the Portfolio affected (which for this purpose and under the Investment
Company Act of 1940 means the lesser of (a) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented
or (b) more than 50% of the outstanding shares). The investment objectives
of the Portfolios of the Corporation are as follows:
Money Market Portfolio. The objective of this Portfolio is to
----------------------
achieve the maximum current income that is consistent with stability of
capital and maintenance of liquidity through investment in high
quality, short-term debt obligations.
Income Portfolio. The objective of this Portfolio is to achieve a
----------------
high level of income over the longer term while providing reasonable
safety of capital through investment primarily in readily marketable
intermediate and long-term fixed income securities.
Growth Portfolio. The objective of this Portfolio is to achieve
----------------
long-term growth of capital through investment primarily in common
stocks of established corporations that appear to offer attractive
prospects of a high total return from dividends and capital
appreciation.
High Yield Portfolio. The objective of the Portfolio is to obtain
--------------------
high current income through investment primarily in a diversified
portfolio of professionally managed high yield securities, many of
which involve greater risks than higher quality investments, which a
secondary objective of growth of capital.(1)
Opportunity Growth Portfolio. The objective of the Portfolio is
----------------------------
to obtain long term growth of capital through investment primarily in a
diversified portfolio of professionally managed smaller capitalization
common stocks.(5)
World Growth Portfolio. The objective of the Portfolio is to
----------------------
obtain long term growth of capital through investment primarily in a
diversified portfolio of professionally managed common stocks of
established, non-U.S. companies.(5)
Mid Cap Growth Portfolio. The objective of the Portfolio is to
------------------------
obtain long term growth of capital through investment primarily in a
diversified portfolio of professionally managed medium market
capitalization common stocks.(6)
Section 6.02. INVESTMENT RESTRICTIONS. The investment restrictions
set forth below are fundamental and may not be changed without the approval
of the holders of a majority of the outstanding shares of the Portfolio or
Portfolios affected (as defined in Section 6.01 hereof).
None of the Portfolios will:
1. Buy or sell real estate, mortgages, commodities or commodity
contracts, although the Portfolios may buy and sell securities which
are secured by real estate and securities of real estate investment
trusts and of other issuers that engage in real estate operations.
2. Buy or sell the securities of other investment companies,
except by purchases in the open market involving only customary
brokerage commissions and as a result of which not more than 5% of the
Corporation's total assets (taken at current value) would be invested
in such securities, or except as part of a merger, consolidation or
other acquisition.
3. Acquire securities for the purpose of exercising control or
management of any company except in connection with a merger,
consolidation, acquisition or reorganization.
4. Make short sales.
5. Purchase securities on margin or otherwise borrow money or
issue senior securities except that a Portfolio, in accordance with its
investment objectives and policies, may enter into reverse repurchase
agreements and purchase securities on a when-issued and delayed
delivery basis, within the limitations set forth in the current
Prospectus of the Corporation filed with the Securities and Exchange
Commission under the Securities Act of 1933. The Corporation may also
obtain such short-term credit as it needs for the clearance of
securities transactions, and may borrow from a bank, for the account of
any Portfolio, as a temporary measure to facilitate redemptions (but
not for leveraging or investment) an amount that does not exceed 5% of
the value of the Portfolio's total assets (including the amount
borrowed) less liabilities (not including the amount owed as a result
of the borrowing) at the time the borrowing is made. Investment
securities will not be purchased while borrowings are outstanding.
Interest paid on borrowings will not be available for investment.
6. Enter into reverse repurchase agreements if, as a result, the
Portfolio's obligations with respect to reverse repurchase agreements
would exceed 10% of the Portfolio's net assets (defined to mean total
assets at market value less liabilities other than reverse repurchase
agreements).
7. Pledge or mortgage assets, except that not more than 10% of
the value of any Portfolio may be pledged (taken at the time the pledge
is made) to secure borrowings made in accordance with paragraph 5
above, and that a Portfolio may enter into reverse repurchase
agreements in accordance with paragraph 6 above.
8. Lend money, except that loans of up to 10% of the value of
each Portfolio may be made through the purchase of privately placed
bonds, debentures, notes and other evidences of indebtedness of a
character customarily acquired by institutional investors that may or
may not be convertible into stock or accompanied by warrants or rights
to acquire stock. Repurchase agreements and the purchase of publicly
traded debt obligations are not considered to be "loans" for this
purpose and may be entered into or purchased by a Portfolio in
accordance with its investment objectives and policies.
9. Underwrite the securities of other issuers, except where the
Corporation may be deemed to be an underwriter for purposes of certain
Federal securities laws in connection with the disposition of portfolio
securities and with loans that a Portfolio may make pursuant to
paragraph 8 above.
10. Make an investment unless, when considering all its other
investments, 75% of the value of a Portfolio's assets would consist of
cash, cash items, obligations of the U.S. Government, its agencies or
instrumentalities, and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not more
than 5% of the value of a Portfolio's assets and to not more than 10%
of the issuer's outstanding voting securities held by the Corporation
as a whole.
11. Purchase securities of a company in any industry if as a
result of the purchase a Portfolio's holdings of securities issued by
companies in that industry would exceed 25% of the value of the
Portfolio, except that this restriction does not apply to purchases of
obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities, or issued by domestic banks. For purposes of
this restriction, neither finance companies as a group nor utility
companies as a group are considered to be a single industry and will be
grouped instead according to their services; for example, gas, electric
and telephone utilities will each be considered a separate industry.
12. Invest in securities (including repurchase agreements
maturing in more than seven days) that are subject to legal or
contractual restrictions on resale or for which no readily available
market exists, or in the securities of issuers (other than U.S.
Government agencies or instrumentalities) having a record, together
with predecessors, of less than three years' continuous operation, if,
regarding all such securities, more than 10% of the Portfolio's total
assets would be invested in them.
Certain additional investment restrictions are applicable only to the
Money Market Portfolio. That Portfolio will not:
1. Invest in oil and gas interests, common stock, preferred
stock, warrants or other equity securities.
2. Invest in any security with a remaining maturity in excess of
one year, except that securities held pursuant to repurchase agreements
may have a remaining maturity of more than one year.
MISCELLANEOUS
Section 7.01. EXECUTION OF INSTRUMENTS. Subdivision 1. All deeds,
mortgages, bond, checks, contracts and other instruments pertaining to the
business and affairs of the Corporation shall be signed on behalf of the
Corporation by the Chief Executive Officer, the President or any Vice
President, or by such other person or persons as may be designated from time
to time by the Board of Directors.
Subdivision 2. If a document must be executed by persons holding
different offices or functions and one person holds such offices or
exercises such functions, that person may execute the document in more than
one capacity if the document indicates each such capacity.
Section 7.02. ADVANCES. The Corporation may, without a vote of the
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
Section 7.03. CORPORATE SEAL. The seal of the Corporation, if any,
shall be a circular embossed seal having inscribed thereon the name of the
Corporation and the following words:
"Corporate Seal Minnesota".
Section 7.04. FISCAL YEAR. The fiscal year of the Corporation shall
be determined by the Board of Directors.
Section 7.05. AMENDMENTS. The Board of Directors shall have the power
to adopt, amend or repeal the Bylaws of the Corporation, subject to the
power of the shareholders to change or repeal the same, provided, however,
that the Board shall not adopt, amend or repeal any Bylaw fixing a quorum
for meetings of shareholders, prescribing procedures for removing directors
or filling vacancies in the Board, or fixing the number of directors or
their classifications, qualifications or terms of office, but may adopt or
amend a Bylaw that increases the number of directors, and provided further,
however, that the investment objectives contained in Section 6.01 hereof and
the investment restrictions in Section 6.02 hereof may be changed only with
the approval of the holders of a majority of the outstanding shares of the
Portfolio or Portfolios affected (as defined in Section 6.01 hereof).
<PAGE>
NOTES TO BY-LAWS
OF
LB SERIES FUND, INC.
(1) Entire paragraph added as amendment by action of Board of Directors on
June 2, 1987.
(2) As amended by action of Board of Directors on December 5, 1989.
(3) Entire paragraph added as amendment by action of Board of Directors on
December 5, 1989.
(4) Name change from LBVIP Series Fund, Inc. to LB Series Fund, Inc.
approved by a vote of the holders of a majority shares of stock on
October 28, 1993, at a regular meeting of shareholders. Filed with
Minnesota Secretary of State on January 31, 1994.
(5) Entire paragraph added as amendment by action of Board of Directors on
September 7, 1995.
(6) Entire paragraph added as amendment by action of Board of Directors on
September 10, 1997.
(7) Maximum years of term amended from 10 to 15 years and exception
modified to include all interested persons by action of Board of
Directors on June 10, 1998.
#22635
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> LB SERIES FUND, INC. - GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,694,972
<INVESTMENTS-AT-VALUE> 3,315,788
<RECEIVABLES> 54,445
<ASSETS-OTHER> 84
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,370,317
<PAYABLE-FOR-SECURITIES> 50,207
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98
<TOTAL-LIABILITIES> 50,305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,382,026
<SHARES-COMMON-STOCK> 141,238
<SHARES-COMMON-PRIOR> 112,406
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 317,134
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 620,852
<NET-ASSETS> 3,320,012
<DIVIDEND-INCOME> 28,044
<INTEREST-INCOME> 9,722
<OTHER-INCOME> 0
<EXPENSES-NET> 11,282
<NET-INVESTMENT-INCOME> 26,484
<REALIZED-GAINS-CURRENT> 325,325
<APPREC-INCREASE-CURRENT> 361,224
<NET-CHANGE-FROM-OPS> 731,033
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,297
<DISTRIBUTIONS-OF-GAINS> 382,615
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,853
<NUMBER-OF-SHARES-REDEEMED> 4,476
<SHARES-REINVESTED> 20,455
<NET-CHANGE-IN-ASSETS> 893,874
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 374,237
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,282
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,282
<AVERAGE-NET-ASSETS> 2,820,575
<PER-SHARE-NAV-BEGIN> 21.58
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 5.28
<PER-SHARE-DIVIDEND> 0.19
<PER-SHARE-DISTRIBUTIONS> 3.35
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.51
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> LB SERIES FUND, INC. - INCOME PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,030,691
<INVESTMENTS-AT-VALUE> 1,060,095
<RECEIVABLES> 14,275
<ASSETS-OTHER> 38
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,074,408
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87
<TOTAL-LIABILITIES> 87
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,050,122
<SHARES-COMMON-STOCK> 105,218
<SHARES-COMMON-PRIOR> 88,783
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,107)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,306
<NET-ASSETS> 1,074,321
<DIVIDEND-INCOME> 666
<INTEREST-INCOME> 61,734
<OTHER-INCOME> 0
<EXPENSES-NET> 3,862
<NET-INVESTMENT-INCOME> 58,538
<REALIZED-GAINS-CURRENT> 13,373
<APPREC-INCREASE-CURRENT> 14,895
<NET-CHANGE-FROM-OPS> 86,805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 58,496
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,352
<NUMBER-OF-SHARES-REDEEMED> 2,734
<SHARES-REINVESTED> 5,818
<NET-CHANGE-IN-ASSETS> 193,881
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (18,522)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,862
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,862
<AVERAGE-NET-ASSETS> 965,443
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> LB SERIES FUND, INC. - MONEY MARKET PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 193,558
<INVESTMENTS-AT-VALUE> 193,558
<RECEIVABLES> 242
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193,809
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 193,809
<SHARES-COMMON-STOCK> 193,809
<SHARES-COMMON-PRIOR> 121,167
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 193,809
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,991
<OTHER-INCOME> 0
<EXPENSES-NET> 575
<NET-INVESTMENT-INCOME> 7,416
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,416
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,416
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 130,086
<NUMBER-OF-SHARES-REDEEMED> 64,861
<SHARES-REINVESTED> 7,416
<NET-CHANGE-IN-ASSETS> 72,642
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 575
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 575
<AVERAGE-NET-ASSETS> 143,683
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> LB SERIES FUND, INC. - HIGH YIELD PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,530,303
<INVESTMENTS-AT-VALUE> 1,395,838
<RECEIVABLES> 31,415
<ASSETS-OTHER> 3,747
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,431,000
<PAYABLE-FOR-SECURITIES> 3,683
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,683
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,571,727
<SHARES-COMMON-STOCK> 155,873
<SHARES-COMMON-PRIOR> 128,831
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,946)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (134,465)
<NET-ASSETS> 1,427,317
<DIVIDEND-INCOME> 12,646
<INTEREST-INCOME> 137,405
<OTHER-INCOME> 0
<EXPENSES-NET> 5,748
<NET-INVESTMENT-INCOME> 144,303
<REALIZED-GAINS-CURRENT> (9,085)
<APPREC-INCREASE-CURRENT> (162,813)
<NET-CHANGE-FROM-OPS> (27,596)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 145,155
<DISTRIBUTIONS-OF-GAINS> 19,838
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,927
<NUMBER-OF-SHARES-REDEEMED> 5,514
<SHARES-REINVESTED> 16,629
<NET-CHANGE-IN-ASSETS> 82,754
<ACCUMULATED-NII-PRIOR> 853
<ACCUMULATED-GAINS-PRIOR> 18,977
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,748
<AVERAGE-NET-ASSETS> 1,436,888
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> 0.99
<PER-SHARE-GAIN-APPREC> (1.12)
<PER-SHARE-DIVIDEND> 1.00
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.16
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> LB SERIES FUND, INC. - OPPORTUNITY GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 344,317
<INVESTMENTS-AT-VALUE> 371,691
<RECEIVABLES> 726
<ASSETS-OTHER> 76
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 372,493
<PAYABLE-FOR-SECURITIES> 298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 392,838
<SHARES-COMMON-STOCK> 33,659
<SHARES-COMMON-PRIOR> 33,897
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (48,017)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,374
<NET-ASSETS> 372,195
<DIVIDEND-INCOME> 1,009
<INTEREST-INCOME> 1,539
<OTHER-INCOME> 0
<EXPENSES-NET> 1,454
<NET-INVESTMENT-INCOME> 1,095
<REALIZED-GAINS-CURRENT> (45,124)
<APPREC-INCREASE-CURRENT> 30,584
<NET-CHANGE-FROM-OPS> (13,444)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,021
<DISTRIBUTIONS-OF-GAINS> 4,105
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,767
<NUMBER-OF-SHARES-REDEEMED> 3,447
<SHARES-REINVESTED> 441
<NET-CHANGE-IN-ASSETS> (19,268)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,138
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,454
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,454
<AVERAGE-NET-ASSETS> 363,403
<PER-SHARE-NAV-BEGIN> 11.55
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.37)
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> LB SERIES FUND, INC. - WORLD GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 310,959
<INVESTMENTS-AT-VALUE> 368,913
<RECEIVABLES> 552
<ASSETS-OTHER> 295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369,760
<PAYABLE-FOR-SECURITIES> 16
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 16
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 319,060
<SHARES-COMMON-STOCK> 29,187
<SHARES-COMMON-PRIOR> 25,827
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,287)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,972
<NET-ASSETS> 369,744
<DIVIDEND-INCOME> 5,442
<INTEREST-INCOME> 829
<OTHER-INCOME> 0
<EXPENSES-NET> 2,820
<NET-INVESTMENT-INCOME> 3,451
<REALIZED-GAINS-CURRENT> (2,051)
<APPREC-INCREASE-CURRENT> 47,583
<NET-CHANGE-FROM-OPS> 48,983
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,101
<DISTRIBUTIONS-OF-GAINS> 2,481
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,960
<NUMBER-OF-SHARES-REDEEMED> 1,286
<SHARES-REINVESTED> 687
<NET-CHANGE-IN-ASSETS> 82,541
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (105)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,820
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,820
<AVERAGE-NET-ASSETS> 331,773
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.74
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 0.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1998
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> LB SERIES FUND, INC. - MID CAP GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 86,101
<INVESTMENTS-AT-VALUE> 96,016
<RECEIVABLES> 1,074
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97,097
<PAYABLE-FOR-SECURITIES> 1,427
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,427
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,073
<SHARES-COMMON-STOCK> 8,597
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,317)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,914
<NET-ASSETS> 95,670
<DIVIDEND-INCOME> 270
<INTEREST-INCOME> 242
<OTHER-INCOME> 0
<EXPENSES-NET> 196
<NET-INVESTMENT-INCOME> 316
<REALIZED-GAINS-CURRENT> (5,317)
<APPREC-INCREASE-CURRENT> 9,913
<NET-CHANGE-FROM-OPS> 4,913
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 316
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,154
<NUMBER-OF-SHARES-REDEEMED> 586
<SHARES-REINVESTED> 28
<NET-CHANGE-IN-ASSETS> 95,670
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 196
<AVERAGE-NET-ASSETS> 53,507
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.13
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
