-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C15OJ7KDLqHorAc3KNHsuC1xOrN1WagHkTZIj6v4O0yO+znDZ4/fIpMdQJN7IlHR P4E4ZEoalHh0i33lpFBjCQ== 0000790166-98-000019.txt : 19980428 0000790166-98-000019.hdr.sgml : 19980428 ACCESSION NUMBER: 0000790166-98-000019 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19980427 EFFECTIVENESS DATE: 19980427 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LB SERIES FUND INC/ CENTRAL INDEX KEY: 0000790166 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-03677 FILM NUMBER: 98601965 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-04603 FILM NUMBER: 98601966 BUSINESS ADDRESS: STREET 1: 625 FOURTH AVE SOUTH CITY: MINNEAPOLIS STATE: MN ZIP: 55415 BUSINESS PHONE: 6123407215 MAIL ADDRESS: STREET 1: 625 FOURTH AVE SOUTH CITY: MINNEAPOLIS STATE: MN ZIP: 55415 FORMER COMPANY: FORMER CONFORMED NAME: LBVIP SERIES FUND INC/ DATE OF NAME CHANGE: 19940824 FORMER COMPANY: FORMER CONFORMED NAME: LBVIP SERIES FUND INC DATE OF NAME CHANGE: 19920703 485BPOS 1 REGISTRATION STMT 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. __22__ X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X Amendment No. __24__ 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 __X__ on May 1, 1998(date) pursuant to paragraph (b) of Rule 485 _____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485 _____ on (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. ============================================================================ Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940, and: __X__ filed the Notice required by that Rule on March 25, 1998; or _____ intends to file the Notice required by that Rule on or about date); or _____ during the most recent fiscal year did not sell any securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need not file the Notice. LB SERIES FUND, INC. Cross Reference Sheet Pursuant to Rule 485(b) Under the Securities Act of 1933 Part A ------ Item Number and Caption Location 1. Cover Page Cover Page 2. Synopsis Summary 3. Condensed Financial Information Summary 4. General Description of Registrant Summary; Investment Objectives and Policies of the Portfolios 5. Management of the Fund Management of the Fund 5A. Management's Discussion of Fund Management's Discussion of Performance Portfolio Performance; Annual Report to Shareholders. 6. Capital Stock and Other Securities Other Information Concerning the Fund -- Incorporation and Authorized Stock; Dividends, Distributions and Taxes 7. Purchase of Securities Being Purchase and Redemption of Shares; Offered Determination of Net Asset Value 8. Redemption or Repurchase Purchase and Redemption of Shares 9. Legal Proceedings Not Applicable PART B 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History The Fund 13. Investment Objectives and Policies Investment Objectives and Policies 14. Management of the Fund Management of the Fund -- Directors and Officers of the Fund 15. Control Persons and Principal Control Persons and Principal Holders of Securities Holders of Securities 16. Investment Advisory and Other Investment Advisory and Other Services Services 17. Brokerage Allocation Portfolio Brokerage and Related Practices 18. Capital Stock and Other Securities Capital Stock 19. Purchase, Redemption and Pricing Control Persons and Principal of Securities Being Offered Holders of Securities; Capital Stock; Determination of Net Asset Value 20. Tax Status Tax Status 21. Underwriters Not Applicable 22. Calculations of Performance Data Calculation of Performance 23. Financial Statements Report of Independent Accountants and Financial Statements PART C Information required to be included in Part C is set forth under the appropriate Item, so numbered in Part C to this Registration Statement. PROSPECTUS LB SERIES FUND, INC. 625 Fourth Avenue South * Minneapolis, Minnesota 55415 (800) 423-7056 * (612) 340-7210 LB Series Fund, Inc. (the "Fund") is a diversified, open-end management investment company (commonly known as a "mutual fund") that is intended to provide a range of investment alternatives through its seven separate Portfolios, each of which is in effect a separate fund. A separate class of capital stock will be issued for each Portfolio. Shares of the Fund are currently sold only to separate accounts (the "Accounts") of Lutheran Brotherhood and Lutheran Brotherhood Variable Insurance Products Company ("LBVIP") to fund benefits under variable life insurance and variable annuity contracts issued by Lutheran Brotherhood and LBVIP (the "Contracts"). The Accounts invest in shares of the Fund through subaccounts that correspond to the Portfolios. The Accounts will redeem shares of the Fund to the extent necessary to provide benefits under the Contracts or for such other purposes as may be consistent with the Contracts. The investment objectives of the Portfolios are: Growth Portfolio. 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. Opportunity Growth Portfolio. To achieve long term growth of capital by investing primarily in a professionally managed diversified portfolio of smaller capitalization common stocks. Mid Cap Growth Portfolio. 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. World Growth Portfolio. 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. High Yield Portfolio. 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. See the description of such risks in the section of this Prospectus entitled, "High Yield Portfolio". The Portfolio will also consider growth of capital as a secondary objective. Income Portfolio. 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. Money Market Portfolio. 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. Investments in the Money Market Portfolio are neither insured nor guaranteed by the U.S. Government. There can be no assurance that the Portfolio will be able to maintain a stable net asset value of $1.00 per share. There can be no assurance that the objectives of any Portfolio will be realized. This Prospectus sets forth concisely the information about the Fund that a prospective investor ought to know before investing. This Prospectus should be read and kept for future reference. Additional information about the Fund, contained in a Statement of Additional Information dated May 1, 1998 has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to LB Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota 55415. The Statement of Additional Information relating to the Fund having the same date as this Prospectus is incorporated by reference into this Prospectus. The Statement of Additional Information is not a Prospectus. The Securities and Exchange Commission maintains a Web site (http://www.sec.gov) that contains the Statement of Additional Information, material incorporated by reference, and other information regarding the Fund. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------------------- The date of this Prospectus is May 1, 1998. TABLE OF CONTENTS Page SUMMARY The Fund Financial Highlights Management's Discussion of Portfolio Performance The Accounts and the Contracts Investment Objectives Investment Adviser Purchase and Redemption of Shares Transfer Agent and Dividend Disbursing Agent Certain Factors to Consider INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS Money Market Portfolio Income Portfolio High Yield Portfolio Growth Portfolio Opportunity Growth Portfolio Mid Cap Growth Portfolio World Growth Portfolio Put and Call Options Financial Futures and Options on Futures Hybrid Investments Risks of Transactions in Options and Futures Investment Restrictions Applicable to the Portfolios PURCHASE AND REDEMPTION OF SHARES DETERMINATION OF NET ASSET VALUE DIVIDENDS, DISTRIBUTIONS AND TAXES MANAGEMENT OF THE FUND Directors of the Fund Investment Adviser OTHER INFORMATION CONCERNING THE FUND Incorporation and Authorized Stock Voting Rights Calculation of Performance Comparative Performance Portfolio Reports Transfer Agent and Dividend Disbursing Agent Shareholder Inquiries DESCRIPTION OF DEBT RATINGS ADDITIONAL INFORMATION No person is authorized to give any information or to make any representations other than those contained in this Prospectus or the accompanying prospectus relating to the Contracts and, if given or made, such information or representations must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the registered securities to which it relates. This Prospectus does not constitute an offer or solicitation in any circumstances in which such offer or solicitation would be unlawful. SUMMARY The Fund LB Series Fund, Inc. (the "Fund"), a diversified open-end management investment company, is 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 Money Market Portfolio, the Income Portfolio, the High Yield Portfolio, the Growth Portfolio, the Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, and the World Growth Portfolio. Each Portfolio is in effect a separate investment fund, and a separate class of capital stock will be issued with respect to each Portfolio. Financial Highlights The tables below for each of the Portfolios of LB Series Fund, Inc. to the extent and for the periods indicated in its report have been examined by Price Waterhouse LLP, independent accountants, whose reports are included in the Annual Reports to Shareholders for the year ended December 31, 1997. The tables should be read in conjunction with the financial statements and notes thereto that appear in such reports, which are incorporated by reference into the Statement of Additional Information.
Net asset value, beginning of period..... $19.32 $18.27 $13.51 $14.76 $13.89 $14.85 $10.72 $11.70 $9.43 $8.92 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Income From Investment Operations-- Net investment income..... 0.21 0.24 0.24 0.20 0.29 0.23 0.27 0.28 0.22 0.22 Net realized and unrealized gain (loss) on investments.(f)..... 4.97 3.43 4.76 (0.87) 1.08 0.85 4.13 (0.51) 2.27 0.51 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Total from investment operations.... 5.18 3.67 5.00 (0.67) 1.37 1.08 4.40 (0.23) 2.49 0.73 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Less Distributions -- Dividends from net investment income....... (0.21) (0.24) (0.24) (0.20) (0.29) (0.23) (0.27) (0.28) (0.22) (0.22) Distributions from net realized gain on investments.......... (2.71) (2.38) -- (0.38) (0.21) (1.81) -- (0.47) -- -- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Total distributions.... (2.92) (2.62) (0.24) (0.58) (0.50) (2.04) (0.27) (0.75) (0.22) (0.22) ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Net asset value, end of period........... $21.58 $19.32 $18.27 $13.51 $14.76 $13.89 $14.85 $10.72 $11.70 $9.43 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Total investment return at net asset value (c)... 30.18% 22.44% 37.25% -4.66% 10.10% 8.13% 41.35% -1.97% 26.57% 8.31% Net assets, end of period (millions).............. $2,426.1 $1,658.6 $1,173.1 $721.8 $534.5 $231.0 $96.2 $35.2 $17.5 $4.3 Ratio of expenses to average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% Ratio of net investment income to average net assets.... 1.11% 1.41% 1.53% 1.52% 2.17% 1.90% 2.24% 2.79% 2.37% 2.64% Portfolio turnover rate.... 193% 223% 184% 135% 243% 230% 247% 195% 167% 116% Average Commission Rate (e) $0.0600 $0.0629 N/A N/A N/A N/A N/A N/A N/A N/A
High Yield Portfolio - ---------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Net asset value, beginning of period..... $10.06 $ 9.94 $ 9.18 $10.76 $ 9.62 $ 9.07 $ 7.62 $ 9.00 $ 9.94 $ 9.93 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Income From Investment Operations-- Net investment income..... 0.98 0.98 0.96 0.97 0.96 1.02 1.08 1.08 1.25 1.21 Net realized and unrealized gain (loss) on investments.(f)..... 0.37 0.12 0.76 (1.40) 1.16 0.71 1.45 (1.37) (0.94) 0.05 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Total from investment operations.... 1.35 1.10 1.72 (0.43) 2.12 1.73 2.53 (0.29) 0.31 1.26 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Less Distributions -- Dividends from net investment income....... (0.97) (0.98) (0.96) (0.97) (0.96) (1.02) (1.08) (1.08) (1.25) (1.21) Distributions from net realized gain on investments.......... -- -- -- (0.18) (0.02) (0.16) -- (0.01) -- (0.04) ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Total distributions.... (0.97) (0.98) (0.96) (1.15) (0.98) (1.18) (1.08) (1.09) (1.25) (1.25) ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Net asset value, end of period........... $10.44 $10.06 $ 9.94 $9.18 $10.76 $9.62 $9.07 $7.62 $9.00 $9.94 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Total investment return at net asset value (c)... 14.10% 11.55% 19.62% -4.38% 22.91% 20.08% 35.32% -3.72% 3.13% 13.33% Net assets, end of period (millions).............. $1,344.6 $1,026.7 $792.5 $595.6 $444.5 $154.3 $56.7 $25.9 $20.1 $6.3 Ratio of expenses to average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% Ratio of net investment income to average net assets.... 9.58% 9.83% 9.94% 9.75% 9.29% 10.69% 12.62% 13.04% 12.96% 12.12% Portfolio turnover rate.... 105% 107% 67% 44% 68% 80% 145% 111% 79% 63%
Income Portfolio - ---------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Net asset value, beginning of period..... $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87 $10.01 $ 9.10 $ 9.40 $ 9.19 $ 9.25 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Income From Investment Operations-- Net investment income..... 0.65 0.63 0.65 0.64 0.63 0.73 0.81 0.84 0.86 0.77 Net realized and unrealized gain (loss) on investments.(f)..... 0.17 (0.33) 1.04 (1.11) 0.49 0.15 0.91 (0.24) 0.21 (0.06) ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Total from investment operations.... 0.82 0.30 1.69 (0.47) 1.12 0.88 1.72 0.60 1.07 0.71 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Less Distributions -- Dividends from net investment income....... (0.65) (0.63) (0.65) (0.64) (0.63) (0.73) (0.81) (0.84) (0.86) (0.77) Distributions from net realized gain on investments.......... -- -- -- (0.21) -- (0.29) -- (0.06) -- -- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Total distributions.... (0.65) (0.63) (0.65) (0.85) (0.63) (1.02) (0.81) (0.90) (0.86) (0.77) ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Net asset value, end of period........... $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87 $10.01 $ 9.10 $ 9.40 $ 9.19 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Total investment return at net asset value (c)... 8.75% 3.21% 19.36% -4.68% 11.66% 9.23% 19.76% 6.91% 12.22% 8.07% Net assets, end of period (millions).............. $880.4 $801.2 $762.1 $608.2 $566.9 $254.7 $100.0 $43.5 $19.8 $3.5 Ratio of expenses to average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% Ratio of net investment income to average net assets.... 6.68% 6.54% 6.81% 6.78% 6.23% 7.29% 8.43% 9.25% 9.33% 8.46% Portfolio turnover rate.... 117% 150% 132% 139% 153% 115% 137% 164% 165% 102%
Money Market Portfolio - -------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - -------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Net asset value, beginning of period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Income From Investment Operations-- Net investment income..... 0.05 0.05 0.06 0.04 0.03 0.03 0.06 0.08 0.09 0.07 ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Less Distributions -- Dividends from net investment income....... (0.05) (0.05) (0.06) (0.04) (0.03) (0.03) (0.06) (0.08) (0.09) (0.07) ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- Net asset value, end of period........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Total investment return at net asset value (c)... 5.43% 5.20% 5.71% 4.00% 2.87% 3.53% 5.89% 8.00% 9.07% 7.31% Net assets, end of period (millions).............. $121.2 $103.9 $66.1 $41.9 $24.9 $26.6 $23.0 $20.0 $10.4 $3.9 Ratio of expenses to average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% Ratio of net investment income to average net assets.... 5.27% 5.07% 5.55% 4.03% 2.83% 3.45% 5.72% 7.76% 8.69% 7.16%
Opportunity Growth Portfolio - ---------------------------------------------------------------------------------- Period Ended December 31, 1997 1996(g) ------------------------------ Net asset value, beginning of period $11.50 $10.00 ------ ------ Income From Investment Operations - Net investment income 0.06 0.02 Net realized and unrealized gain on investments.(e) 0.05 1.90 ------ ------ Total from investment operations 0.11 1.92 ------ ------ Less Distributions -- Dividends from net investment income (0.06) (0.02) Distributions from net realized gain on investments -- (0.40) ------ ------ Total Distributions (0.06) (0.42) ------ ------ Net asset value, end of period $11.55 $11.50 ====== ====== Total investment return at net asset value (c) 0.93% 19.17% Net assets, end of period ($ millions) $391.5 $246.6 Ratio of expenses to average net assets 0.40%(d) 0.40%(d) Ratio of net investment income to average net assets 0.65%(d) 0.27%(d) Portfolio turnover rate 147% 155% Average commission rate (e) $0.0531 $0.0342 ____________________________
World Growth Portfolio - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Period Ended December 31, 1997 1996(g) ------------------------------ Net asset value, beginning of period $10.95 $10.00 ------ ------ Income From Investment Operations - Net investment income 0.10 0.08 Net realized and unrealized gain on investments.(e) 0.21 0.96 ------ ------ Total from investment operations 0.31 1.04 ------ ------ Less Distributions -- Dividends from net investment income (0.13) (0.09) Distributions from net realized gain on investments (0.01) -- ------ ------ Total Distributions (0.14) (0.09) ------ ------ Net asset value, end of period $11.12 $10.95 ====== ====== Total investment return at net asset value (c) 2.81% 10.41% Net assets, end of period ($ millions) $287.2 $174.1 Ratio of expenses to average net assets 0.85%(d) 0.85%(d) Ratio of net investment income to average net assets 1.08%(d) 1.34%(d) Portfolio turnover rate 19% 9% Average commission rate (e) $0.0245 $0.0265 ____________________________ (a) For a share outstanding from January 9, 1987 (effective date) through December 31, 1987. (b) For a share outstanding from November 21, 1987 (effective date) through December 31, 1987. (c) Total investment return is based on the change in net asset value during the period and assumes reinvestment of all distributions and does not reflect any charges that would normally occur at the separate account level. (d) Computed on an annualized basis. (e) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that were subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities purchased, or reduce the proceeds of securities sold. (f) 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. (g) For a share outstanding from January 18, 1996 (effective date) through December 31, 1996. Management's Discussion of Portfolio Performance The discussion by management of the performance of each of the Fund's Portfolios is contained in the Fund's Annual Report to Shareholders, which may be obtained without charge by writing to LB Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota 55415. The Accounts and the Contracts Shares in the Fund are currently sold only to separate accounts of Lutheran Brotherhood and Lutheran Brotherhood Variable Insurance Products Company ("LBVIP") (the "Accounts"), to fund benefits under variable life insurance and variable annuity contracts issued by Lutheran Brotherhood and LBVIP (the "Contracts"). Each Contract owner allocates the premiums and the assets relating to his or her Contract, within the limitations described in the Contract, among the seven subaccounts of that Contract's Account, which in turn invests in the corresponding Portfolios of the Fund. A prospectus for one type of Contract accompanies this Prospectus and describes that type of Contract and the relationship between changes in the value of shares of each Portfolio and changes in the benefits payable under that type of Contract. The rights of the Accounts as shareholders should be distinguished from the rights of Contract owners which are described in the Contracts. The terms "shareholder" or "shareholders" as used in this Prospectus refer to the Accounts. The Fund is designed to provide an investment vehicle for variable life insurance and variable annuity contracts. Therefore, shares of the Fund will be sold to more than one insurance company separate accounts of Lutheran Brotherhood and LBVIP or any of their affiliates. It is conceivable that in the future it may be disadvantageous for both variable life insurance separate accounts and variable annuity separate accounts to invest simultaneously in the Fund, although Lutheran Brotherhood and LBVIP do not foresee any such disadvantage to either variable life insurance or variable annuity contract owners. The management of the Fund intends to monitor events in order to identify any material conflicts between such Contract owners and to determine what action, if any, should be taken in response. In addition, if Lutheran Brotherhood and LBVIP believe the Fund's response to any such events or conflicts insufficiently protects Contract owners, they will take appropriate action of their own. Investment Objectives The investment objective of each of the seven Portfolios is set forth on the cover page of this Prospectus. See also "Investment Objectives and Policies of the Portfolios". Investment Adviser Lutheran Brotherhood (the "Adviser") is the investment adviser of the Fund. The Adviser was founded in 1917 as a fraternal benefit society, owned by and operated for its members, under the laws of Minnesota The Adviser has been engaged in the investment advisory business since 1970, either directly or through the indirect ownership of Lutheran Brotherhood Research Corp. ("LBRC"), the Fund's investment adviser prior to January 31, 1994. LBVIP is an indirect subsidiary of Lutheran Brotherhood. For its services, the Adviser receives from the Fund a daily investment advisory fee equal to an annual rate of .40% of the aggregate average daily net assets of the Money Market, Income, High Yield, Growth, Mid Cap Growth, and Opportunity Growth Portfolios. Lutheran Brotherhood also receives an annual investment advisory fee from the Fund equal to .85% of the aggregate average daily net assets of the World Growth Portfolio. Lutheran Brotherhood has engaged T. Rowe Price Associates, Inc. ("T. Rowe Price") as investment sub-advisor for the Opportunity Growth Portfolio. T. Rowe Price was founded in 1937 and has its principal offices in Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its affiliates managed over $124 billion. Richard T. Whitney, Managing Director of T. Rowe Price, is primarily responsible for day-to-day management of the Opportunity Growth Portfolio and developing and executing the Portfolio's investment program. Lutheran Brotherhood pays the Sub-advisor for the Opportunity Growth Portfolio 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 has engaged Rowe Price-Fleming International, Inc., ("Price-Fleming") as investment sub-advisor for the World Growth Portfolio. Price-Fleming was founded in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings Limited ("Flemings"). Price-Fleming is one of the world's largest international mutual fund asset managers with approximately the U.S. equivalent of $30 billion under management as of December 31, 1997 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 World Growth Portfolio and developing and executing the Portfolio's investment program. Lutheran Brotherhood pays Price-Fleming an annual sub-advisory fee for the performance of sub-advisory services for the World Growth Portfolio. The fee payable is equal to a percentage of the Portfolio's average daily net assets. The percentage varies with the size of Portfolio's net assets, decreasing as the Portfolio's assets increase. The formula for determining the sub-advisory fee is described fully in the section of the Prospectus entitled, "Management of the Fund--Investment Adviser". The Portfolio managers of the Money Market, Income, High Yield, Growth, and Mid Cap Growth Portfolios, as well as the Portfolio manager from T. Rowe Price for the Opportunity Growth Portfolio and the members of the Price- Fleming advisory group for the World Growth Portfolio are listed in the "Management of the Fund--Investment Adviser" section of the Prospectus. Purchase and Redemption of Shares Shares are currently offered, without sales charge, at prices equal to the respective per share net asset values of the Portfolios. The Fund is required to redeem all full and fractional shares of the Fund at the net asset value per share next determined after the initial receipt of proper notice of redemption. See "Purchase and Redemption of Shares". Transfer Agent and Dividend Disbursing Agent State Street Bank and Trust Company is the Fund's transfer agent and dividend disbursing agent, and is also custodian of the assets of the Fund. See "Other Information Concerning the Fund--"Transfer Agent and Dividend Disbursing Agent". Certain Factors to Consider Certain investment practices that may, to a limited extent, be employed by the Fund in support of its basic investment objectives may involve certain special risks. See, for example, the discussion of repurchase agreements, reverse repurchase agreements and when-issued and delayed delivery securities under "Investment Objectives and Policies of the Portfolios--Money Market Portfolio"; certain other risks that may be associated with investments by the Fund are described in the Statement of Additional Information. INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS Each of the seven Portfolios seeks to achieve a different investment objective. Accordingly, each Portfolio can be expected to have different investment results and to be subject to different financial and market risks. Financial risk refers to the ability of an issuer of a debt security to pay principal and interest, and to the earnings stability and overall financial soundness of an issuer of an equity security. Market risk refers to the degree to which the price of a security will react to changes in conditions in securities markets in general, and, with particular reference to debt securities, to changes in the overall level of interest rates. The investment objectives of each Portfolio 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 policies by which a Portfolio seeks to achieve its investment objectives, however, are not fundamental. They may be changed by the Board of Directors of the Fund without the approval of the shareholders. The investment objectives of the Portfolios are discussed below. Money Market Portfolio The objective of this Portfolio is to achieve, through investment in high-quality, short-term debt obligations, the maximum current income that is consistent with stability of capital and maintenance of liquidity. The Money Market Portfolio seeks to achieve this objective by following the policy of investing primarily in money market instruments denominated in U.S. dollars that mature in one year or less from the date the Portfolio acquires them. Money market instruments include short-term obligations of the U.S. Government, its agencies or instrumentalities, foreign governments, their agencies and instrumentalities, and of banks and corporations. They include certificates of deposit, commercial paper and other obligations, including variable amount demand master notes. This Portfolio may also enter into repurchase and reverse repurchase agreements and may purchase and sell securities on a when-issued and delayed delivery basis; these securities are described in detail below. A detailed description of the money market instruments in which this Portfolio may invest and of the risks associated with those instruments may be found in the Statement of Additional Information. The dollar-weighted average life to maturity of the securities held by the Portfolio will not exceed 90 days. Variable amount demand master notes purchased by the Money Market Portfolio are issued by domestic or foreign governments, their agencies and instrumentalities, and corporations which, at the date of investment, either (a) have an outstanding senior long-term debt issue rated "Aa" or better by Moody's Investors Service, Inc. ("Moody's") or "AA" or better by Standard & Poor's Corporation ("S&P"), or (b) do not have rated long-term debt outstanding but have commercial paper rated at least Prime-2 by Moody's or A-2 by S&P. The Money Market Portfolio may also invest in variable amount demand master notes if (a) such securities have a high quality short-term debt rating from an unaffiliated, nationally recognized statistical rating organization or, if not rated, such securities are of comparable quality as determined by management of the Fund, and (b) the demand feature of such securities described below is unconditional, that is, exercisable even in the event of a default in the payment of principal or interest on the underlying securities. Variable amount demand master notes are unsecured obligations with no stated maturity date that permit the investment by the Portfolio of amounts that may fluctuate daily, at varying rates of interest pursuant to direct arrangements between the Portfolio and the issuer. The Portfolio may, on demand, require the issuer to redeem the notes; however, these obligations are not readily marketable to third parties. They will not be purchased unless the Adviser has determined that the issuer's liquidity is such as to enable it to pay the principal and interest immediately upon demand. These notes generally will not be backed by bank letters of credit, and will be valued by the Adviser on an amortized cost basis (see "Determination of Net Asset Value"). The liquidity of the issuers of such notes held by the Portfolio will be continually assessed by the Adviser for purposes of determining whether the Portfolio should continue to hold such notes. When the Money Market Portfolio purchases money market securities of the types described above, it may on occasion enter into a repurchase agreement with the seller wherein the seller and the buyer agree at the time of sale to a repurchase of the security at a mutually agreed upon time and price. The period of maturity is usually quite short, possibly overnight or a few days, although it may extend over a number of months. The resale price is in excess of the purchase price, reflecting an agreed-upon market rate of interest effective for the period of time the Portfolio's money is invested in the security, and is not related to the coupon rate of the purchased security. Repurchase agreements may be considered loans of money to the seller of the underlying security, which are collateralized by the securities underlying the repurchase agreements. The Fund will not enter into a repurchase agreement unless the agreement is "fully collateralized", i.e., the value of the securities is, and during the entire term of the agreement remains, at least equal to the amount of the "loan" including accrued interest. The Portfolio will take possession of the securities underlying the agreement and will value them periodically to assure that this condition is met. Possession may include entries made in favor of the Portfolio in a book-entry system. The Fund has adopted standards for the parties with whom it will enter into repurchase agreements which it believes are reasonably designed to assure that such a party presents no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase agreement. In the event that a seller defaults on a repurchase agreement, the Fund may incur a loss on disposition of the collateral; and, if a party with whom the Fund had entered into a repurchase agreement becomes involved in bankruptcy proceedings, the Fund's ability to realize on the collateral may be limited or delayed. The Fund will not enter into repurchase agreements with the Adviser or its affiliates. This will not affect the Fund's ability to maximize its opportunities to engage in repurchase agreements. The Portfolio may enter into reverse repurchase agreements, which agreements have the characteristics of borrowing and involve the sale of securities held by the Portfolio with an agreement to repurchase the securities at an agreed-upon price and date, which reflect a rate of interest paid for the use of funds for the period. Generally, the effect of such a transaction is that the Portfolio can recover all or most of the cash invested in the securities involved during the term of the reverse repurchase agreement, while in many cases it will be able to keep some of the interest income associated with those securities. Such transactions are only advantageous if the Portfolio has an opportunity to earn a greater rate of interest on the cash derived from the transaction than the interest cost of obtaining that cash. The Portfolio may be unable to realize a return from the use of the proceeds equal to or greater than the interest required to be paid. Opportunities to achieve this advantage may not always be available, and the Portfolio intends only to use the reverse repurchase technique when it appears to be to its advantage to do so. The use of reverse repurchase agreements may magnify any increase or decrease in the value of the Portfolio's securities. When effecting reverse repurchase agreements and delayed delivery transactions (see the following paragraph), assets of the Fund in a dollar amount sufficient to make payment for the obligations to be purchased are segregated on the Fund's records at the trade date and maintained until the transaction is settled. The value of the securities subject to reverse repurchase agreements will not exceed 10% of the value of the Portfolio's net assets. From time to time, in the ordinary course of business, the Money Market Portfolio may purchase securities on a when-issued or delayed delivery basis, i.e., delivery and payment can take place as much as a month or more after the date of transaction. The purchase price and the interest rate payable on the securities are fixed on the transaction date. The securities so purchased are subject to market fluctuation, and no interest accrues to the Portfolio until delivery and payment take place. At the time the Portfolio makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction and thereafter reflect the value, each day, of such securities in determining its net asset value. The Portfolio will make commitments for when-issued transactions with the intention of actually acquiring the securities or for the purpose of generating incremental income. In some instances, the third party seller of the when-issued or delayed-delivery securities may determine prior to the settlement date that it will be unable or unwilling to meet its existing transaction commitments without borrowing securities. If advantageous from a yield perspective, the Portfolio may, in that event, agree to resell its purchase commitment to a third-party seller at the current market price on the date of sale and concurrently enter into another purchase commitment for such securities at a later date. As an inducement for the Portfolio to "roll over" its purchase commitment, the Portfolio may receive a negotiated fee. If the Portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other obligation, incur a gain or loss due to market fluctuation. No when- issued commitments will be made if, as a result, more than 15% of the Portfolio's net assets would be so committed. Because of the high-quality, short-term nature of the Money Market Portfolio's holdings, increases in the value of an investment in this Portfolio will be derived almost entirely from interest on the securities held by it. 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. The Income Portfolio seeks to achieve this objective by purchasing primarily investment grade debt securities or, if not rated, securities of comparable quality in the opinion of the Adviser. Investment grade debt securities are bonds, notes, debentures, mortgage-backed securities, and other debt obligations rated "Baa" or higher by Moody's, "BBB" or higher by S&P, or a similar rating by a nationally-recognized statistical rating organization. A description of the ratings that are given to debt securities by Moody's and S&P and the standards applied by them in assigning these ratings may be found at the end of this Prospectus. The Income Portfolio may also invest, without limitation, in obligations of the U.S. Government and its agencies and instrumentalities. The Portfolio may from time to time invest in debt securities that are not rated as investment grade. For a description of the risks of investing in such securities, see the section of this Prospectus entitled "High Yield Securities Investment Risks." It may also invest in convertible debt securities, preferred stock, or convertible preferred stock. Occasionally, debt securities are offered in units together with common stock or warrants for the purchase of common stock. These securities may be purchased for this Portfolio, but only when the debt security meets the Portfolio's investment criteria and the value of the warrants is relatively small. If a warrant becomes valuable, it will ordinarily be sold rather than exercised. The Portfolio may, however, occasionally acquire some common stock through the conversion of convertible securities, the exercise of warrants, or as part of an offering of units which include both debt securities and common stocks. No more than 10% of the value of the total assets of this Portfolio will be held in common stocks, and those will usually be sold as soon as favorable opportunity is available. Furthermore, no more than 25% of the value of the total assets of this Portfolio will be held in securities described in this paragraph. The Portfolio may engage in repurchase agreements, reverse repurchase agreements, and when-issued and delayed delivery transactions in pursuit of its investment objectives. (See the section above on the investment objectives and policies of the Money Market Portfolio for a description of such transactions.) The Portfolio may also invest in common stocks, warrants to purchase stocks, bonds or preferred stock convertible into common stock, and other equity securities. Investments in such securities will be made in pursuit of the income and preservation of capital objectives of the Portfolio, but at no time will the Portfolio invest more than 20% of its total assets in equity securities. The Portfolio may as a hedge engage in certain options and financial futures transactions (see "Put and Call Options" and "Financial Futures and Options on Futures"). From time to time the Portfolio may invest in short-term debt obligations of the kind held in the Money Market Portfolio in order to make effective use of cash reserves pending investment in other securities or as a defensive investment strategy to protect the value of portfolio assets during periods of rising interest rates. The annual portfolio turnover rates for the Portfolio for the fiscal years ended December 31, 1997 and December 31, 1996 were 117% and 150%, respectively. In order to help minimize credit risk, the Portfolio diversifies its holdings among many issuers. As of December 31, 1997, the Portfolio held securities of 120 corporate and government issuers, and the Portfolio's holdings had the following credit quality characteristics: Percent of Investment Net Assets Short-term securities-- Aaa equivalent................................ 7.1% Government obligations............................... 22.9 Corporate obligations AAA/Aaa....................................... 15.8 AA/Aa......................................... 5.3 A/A........................................... 18.9 BBB/Baa....................................... 13.9 BB/Ba......................................... 13.4 B/B........................................... 3.5 CCC/Caa....................................... -- CC/Ca......................................... -- D/D........................................... -- Not rated..................................... -- Other Net Assets/Liabilities.................. -0.8 Total 100.0% High Yield Portfolio The primary objective of this Portfolio is to achieve a higher level of income by investing primarily in a diversified portfolio of high yield securities, many of which involve greater risks than higher quality investments. The Portfolio will also consider growth of capital as a secondary objective. The High Yield Portfolio seeks to achieve its objectives by investing primarily in high yield bonds, notes, debentures, and other income producing debt obligations and dividend paying preferred stock. The Portfolio will ordinarily invest in securities that are rated "Ba" or lower by Moody's, "BB" or lower by S&P, a similar rating by any other nationally-recognized statistical rating organization, or, if not rated, securities having comparable quality in the opinion of the Advisor. The Portfolio will use no minimum quality rating. Securities having a quality rating of BB or Ba and lower are considered to be speculative and have a greater degree of risk than investment grade securities. See "High Yield Portfolio Investment Risks" below. A description of the ratings that are given to debt securities by Moody's and S&P and the standards applied by them in assigning these ratings may be found at the end of this Prospectus. The Portfolio may also invest in common stocks, warrants to purchase stocks, bonds or preferred stock convertible into common stock, and other equity securities. Investments in such securities will be made in pursuit of the income and capital growth objectives of the Portfolio, but at no time will the Portfolio invest more than 20% of its total assets in equity securities. When, in the opinion of the investment adviser, economic or market conditions are such that high yield investments do not offer the most attractive means of achieving the Portfolio's objectives of producing income or growth of capital, the Portfolio may, without limitation, make temporary defensive investments in cash, obligations of the U.S. Government, debt obligations that may be rated higher than "Ba" or "BB", or short-term money market obligations. The Portfolio may invest in cash and short-term money market obligations on a temporary basis, when awaiting the availability of suitable high yield securities. The Portfolio may also invest without limit in short-term money market instruments when, in the opinion of the investment adviser, such investments provide a better opportunity for achieving the Portfolio's objectives than do longer term investments. When making short-term money market investments for the defensive purpose of avoiding the high yield investment market, the Portfolio will use instruments rated A-1 or A-2 by Standard & Poor's Corporation, Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-1 or F-2 by Fitch Investors Service, or unrated instruments that are determined by the Board of Directors or its designee to be of a comparable level of quality. When making short-term money market investments for other purposes described above, the Portfolio will not be limited to a minimum quality level and may use unrated instruments. Types of short-term money market instruments may include repurchase agreements, certificates of deposit, Eurodollar certificates of deposit, commercial paper and bankers' acceptances. The Fund's Board of Directors or their designee will evaluate the creditworthiness of the parties before entering into repurchase agreements. The Portfolio may as a hedge engage in certain options and financial futures transactions (see "Put and Call Options" and "Financial Futures and Options on Futures"). The Portfolio may also engage in repurchase agreements, reverse repurchase agreements, and when-issued and delayed delivery transactions in pursuit of its investment objectives. (See the section above on the investment objectives and policies of the Money Market Portfolio for a description of such transactions.) The Portfolio may make investments in a particular industry that would result in up to 25% of its total assets being invested in such industry. The Portfolio does not intend to engage in short-term trading but may dispose of securities held for a short period if the Fund's investment adviser believes such disposition to be advisable. The Portfolio may purchase securities having maturities that are short term (one year or less), intermediate term (one year to ten years), or long term (more than ten years). The Portfolio will not be limited in the amount of assets it may hold at any level of maturity. As market interest rates rise, the market value of fixed rate debt obligations drops; as market interest rates drop, the market value of such obligations rise. Debt obligations with longer maturities will be subject to greater changes in market value if market interest rates change, than will debt obligations with relatively shorter maturities. Changes in the market value of securities owned by the Portfolio will not affect cash income but will affect the net asset value of the Portfolio's shares. The annual portfolio turnover rates for the Portfolio for the fiscal years ended December 31, 1997 and December 31, 1996 were 105% and 107%, respectively. In order to help minimize credit risk, the Portfolio diversifies its holdings among many issuers. As of December 31, 1997, the Portfolio held securities of 239 corporate issuers, and the Portfolio's holdings had the following credit quality characteristics: Percent of Investment Net Assets Short-term securities-- Aaa equivalent.............................. 4.2 Government obligations............................ -- Corporate obligations AAA/Aaa..................................... -- AA/Aa....................................... -- A/A......................................... -- BBB/Baa..................................... 1.4 BB/Ba....................................... 10.8 B/B......................................... 52.2 CCC/Caa..................................... 7.7 CC/Ca....................................... 0.2 D/D......................................... 0.5 Not rated................................... 7.2 Other Net Assets............................ 15.8 Total 100.0% High Yield Portfolio Investment Risks Investment in high yield securities (sometimes referred to as "junk bonds") involves a greater degree of risk than investment in high quality securities. Investment in high yield securities involves increased financial risk due to the higher risk of default by the issuers of bonds and other debt securities having quality ratings of "Ba" or lower by Moody's or "BB" or lower by Standard & Poor's. The higher risk of default may be due to higher debt leverage ratios, a history of low profitability or losses, or other fundamental factors that weaken the ability of the issuer to service its debt obligations. In addition to the factors of issuer creditworthiness described above, high yield securities generally involve a number of additional market risks. These risks include: Youth and Growth of High Yield Market. The high yield bond market is relatively new and many of the high yield issues currently outstanding have not endured a major business recession. In terms of total return on investment, high yields from lower-rated bonds in diversified portfolios have usually more than compensated for the higher default rates of such securities. However, there can be no assurance that this will be true in the event of increased interest rates or widespread defaults brought about by a sustained economic downturn. Sensitivity to Interest Rate and Economic Changes. The market value of high yield securities has been found to be less sensitive to interest rate changes on a short-term basis than higher-rated investments, but more sensitive to adverse economic developments or individual corporate developments. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may be more likely to experience financial stress which would impair their ability to service their principal and interest payment obligations or obtain additional financing. In the event the issuer of a bond defaults on payments, the Portfolio may incur additional expenses in seeking recovery. In periods of economic change and uncertainty, market values of high yield securities and the Portfolio's asset value may become more volatile. Furthermore, in the case of zero coupon or payment-in-kind high yield securities, market values tend to be more greatly affected by interest rate changes than securities which pay interest periodically and in cash. Payment Expectations. High yield securities may contain redemption or call provisions, which allow the issuer to redeem a security in the event interest rates drop. In this event, the Fund would have to replace the issue with a lower yielding security, resulting in a decreased yield for investors. Liquidity and Valuation. High Yield securities tend to be more thinly traded and are less likely to have an estimated retail secondary market than investment grade securities. This may adversely impact the Portfolio's ability to dispose of particular issues and to accurately value securities in the Portfolio. Also, adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease market values and liquidity, especially on thinly traded issues. Taxation. High yield securities structured as zero coupon or payment- in-kind issues may require the Portfolio to report interest on such securities as income even though the Portfolio receives no cash interest on such securities until the maturity or payment date. An investor (in this case a separate account investing in the Portfolio) would be taxed on this interest even though the Portfolio may not have received a cash payment or made a cash distribution. Reducing Risks of Lower-Rated Securities: The Portfolio's investment adviser believes that the risks of investing in high yield securities can be reduced by the use of professional portfolio management techniques including: Credit Research. The Portfolio's investment adviser will perform its own credit analysis in addition to using recognized rating agencies and other sources, including discussions with the issuer's management, the judgment of other investment analysts and its own judgment. The adviser's credit analysis will consider such factors as the issuer's financial soundness, its responsiveness to changes in interest rates and business conditions, its anticipated cash flow, asset values, interest or dividend coverage and earnings. Diversification. The Portfolio invests in a widely diversified portfolio of securities to minimize the impact of a loss in any single investment and to reduce portfolio risk. Economic and Market Analysis. The Portfolio's investment adviser will analyze current developments and trends in the economy and in the financial markets. The Portfolio may invest in higher quality securities in the event that investment in high yield securities is deemed to present unacceptable market or financial risk. 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. The Growth Portfolio seeks to achieve this objective by following the policy of investing primarily in common stocks listed on the New York Stock Exchange and on other national securities exchanges and, to a lesser extent, in stocks that are traded over the counter. These stocks will be selected principally for their potential appreciation over the longer term. The effort to achieve a higher return necessarily involves accepting a greater risk of declining values than does participation in certain of the other Portfolios. During periods when stock prices decline generally, it can be expected that the value of this Portfolio will also decline. A portion of the Growth Portfolio may be invested in short-term debt obligations of the kind held in the Money Market Portfolio as described in the Statement of Additional Information in order to make effective use of cash reserves pending investment in common stocks. The Portfolio may as a hedge engage in certain options and financial futures transactions (see "Put and Call Options" and "Financial Futures and Options on Futures"). The annual portfolio turnover rates for the Portfolio for the fiscal years ended December 31, 1997 and December 31, 1996 were 193% and 223%, respectively. Opportunity Growth Portfolio The investment objective of this Portfolio is to achieve long-term growth of capital. The Opportunity Growth Portfolio seeks to achieve this objective principally by seeking capital gains through the active management of a portfolio consisting primarily of common stocks issued by smaller capitalization companies. Such active management may involve a high level of portfolio turnover. The Portfolio will invest primarily in common stocks of domestic and foreign companies that in the opinion of T. Rowe Price have a potential for above average sales and earnings growth that is expected to lead to capital appreciation. T. Rowe Price believes that over a long period of time, smaller companies that have a competitive advantage will be able to grow faster than larger companies, leading to a higher rate of growth in capital. A description of the risks associated with investments in such companies is set forth below. The Portfolio may also invest in bonds and preferred stocks, convertible bonds, convertible preferred stocks, warrants, American Depository Receipts (ADR's), foreign stocks and other debt or equity securities. In addition, the Portfolio may invest in U.S. Government securities or cash. The Portfolio will not use any minimum level of credit quality. At no time will the Portfolio invest more than 5% of its net assets in debt obligations (excluding cash and U.S. Government Securities). 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 are considered to be speculative and involve certain risks, including a higher risk of default and greater sensitivity to interest rate and economic changes. T. Rowe Price will use a number of proprietary quantitative models to seek out those companies that have a competitively superior product or service in an unsaturated market with large potential for growth and measure the major characteristics of stocks in the small capitalization growth sector. These will often be companies with shorter histories and less seasoned operations. Based on these models, stocks are selected in a "top down" manner so that the portfolio as a whole reflects the specific characteristics that the sub-adviser considers important, such as valuation and projected earnings growth. Many of such companies will have market capitalizations that are less than $1.5 billion, with lower daily trading volume in their stocks and less overall liquidity than larger, more well established companies. T. Rowe Price anticipates that the common stocks of such companies may increase in market value more rapidly than the stocks of other companies. The Portfolio will focus primarily on companies that possess superior earnings prospects. The stocks that the Portfolio invests in may be traded on national exchanges or in the over-the-counter market ("OTC"). There will be no limit on the proportion of the Portfolio's investment portfolio that may consist of OTC stocks. The Portfolio may dispose of securities held for a short period if T. Rowe Price believes such disposition to be advisable. The Portfolio will not generally trade in securities for short-term profits, but when circumstances warrant, securities may be purchased and sold without regard to the length of time held. The Portfolio may as a hedge engage in certain options and financial futures transactions (see "Put and Call Options" and "Financial Futures and Options on Futures"). The Portfolio may also engage in repurchase agreements, reverse repurchase agreements, and when-issued and delayed delivery transactions in pursuit of its investment objectives. (See the section above on the investment objectives and policies of the Money Market Portfolio for a description of such transactions.) The portfolio turnover rates for the Opportunity Growth Portfolio for the fiscal year ended December 31, 1997 and the period January 18, 1996 through December 31, 1996 were 147% and 155% respectively. Opportunity Growth Portfolio Investment Risks The Opportunity Growth Portfolio is aggressively managed and invests primarily in the stocks of smaller, less seasoned companies many of which are traded on an over-the-counter basis, rather than on a national exchange. These companies represent a relatively higher degree of risk than do the stocks of larger, more established companies. The companies the Opportunity Growth Portfolio invests in also tend to be more dependent on the success of a single product line and have less experienced management. They tend to have smaller market shares, smaller capitalization, and less access to sources of additional capital. As a result, these companies tend to have less ability to cope with problems and market downturns and their shares of stock tend to be less liquid and more volatile in price. Mid Cap Growth Portfolio The investment objective of this Portfolio is to achieve long term growth of capital. The Mid Cap Growth Portfolio seeks to achieve this objective by investing primarily in a professionally managed diversified portfolio of common stocks of companies with medium market capitalizations. Lutheran Brotherhood defines companies with medium market capitalizations ("mid cap companies") as those with market capitalizations that fall within the capitalization range of companies included in the Standard & Poor's MidCap 400 Index at the time of the Portfolio's investment. The Portfolio will seek to invest in companies that have a track record of earnings growth or the potential for continued above average growth. The Portfolio will normally invest at least 65% of its total assets in common stocks of mid cap companies. The Portfolio will invest its remaining assets in other securities, including common stocks of companies that fall outside the medium capitalization range and debt obligations, subject to the limitations discussed below. Lutheran Brotherhood will use both fundamental and technical investment research techniques to seek out these companies. The stocks that the Portfolio invests in may be traded on national exchanges or in the over-the-counter market ("OTC"). There will be no limit on the proportion of the Portfolio's investment portfolio that may consist of OTC stocks. Many mid cap companies have lower daily trading volume in their stocks and less overall liquidity than larger, more well established companies. The common stocks of such companies may have greater price volatility than the stocks of other larger companies. A description of these and other risks associated with investments in such companies is set forth below. . The Portfolio may also invest in other types of securities, including bonds, preferred stocks, convertible bonds, convertible preferred stocks, warrants, American Depository Receipts (ADR's), common stocks of companies falling outside the medium market capitalization range, and other debt or equity securities. In addition, the Portfolio may invest in U.S. Government securities or cash. The Portfolio will not use any minimum level of credit quality. At no time will the Portfolio invest more than 5% of its net assets in debt obligations. 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 Portfolio may dispose of securities held for a short period if the Portfolio's investment adviser believes such disposition to be advisable. While Lutheran Brotherhood does not intend to select portfolio securities for the specific purpose of trading them within a short period of time, it does intend to use an active method of management which will result in the sale of some securities after a relatively brief holding period. This method of management necessarily results in higher cost to the Portfolio due to the fees associated with portfolio securities transactions. A higher portfolio turnover rate may also result in taxes on realized capital gains to be borne by shareholders. However, it is Lutheran Brotherhood's belief that this method of management can produce added value to the Portfolio and its shareholders that exceeds the additional costs of such transactions. The Portfolio may as a hedge engage in certain options and financial futures transactions (see "Put and Call Options" and "Financial Futures and Options on Futures"). The Portfolio may also engage in repurchase agreements, reverse repurchase agreements, and when-issued and delayed delivery transactions in pursuit of its investment objectives. (See the section above on the investment objectives and policies of the Money Market Portfolio for a description of such transactions.) The portfolio turnover rate for the Mid Cap Growth Portfolio is expected to be no higher than 100% in its first year of operation. Mid Cap Growth Portfolio Investment Risks Stocks in mid cap companies entail greater risk than the stocks of larger, well-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. Also, mid cap companies usually reinvest a high portion of their earnings in their own businesses and therefore lack a predictable dividend yield. Since investors frequently buy these stocks because of their expected above average earnings growth, earnings levels that fail to meet expectations often result in sharp price declines of such stocks. In addition, in many instances, the frequency and volume of trading of mid cap companies is substantially less than is typical of larger companies. Therefore, the securities of such companies may be subject to wider price fluctuations. The spreads between the bid and asked prices of the securities of these companies in the over-the-counter market typically are larger than the spreads for more actively-traded companies. As a result, the Portfolio could incur a loss if it determined to sell such a security shortly after its acquisition. When making large sales, the Portfolio may have to sell portfolio holdings at discounts from quoted prices or may have to make a series of small sales over an extended period of time due to the trading volume of such securities. Investors should be aware that, based on the foregoing factors, an investment in the Portfolio may be subject to greater price fluctuations than an investment in a fund that invests primarily in larger more established companies. World Growth Portfolio The investment objective of this Portfolio is to achieve long-term growth of capital. The World Growth Portfolio seeks to achieve this objective principally through investments in common stocks of established, non-U.S. companies. Total return consists of capital appreciation or depreciation, dividend income, and currency gains or losses. The Portfolio intends to diversify investments broadly among countries and to normally have at least three different countries represented in the Portfolio. The Portfolio may invest in countries of the Far East and Western Europe as well as South Africa, Australia, Canada and other areas (including developing countries). As a temporary defensive measure, the Portfolio may invest substantially all of its assets in one or two countries. In seeking its objective, the Portfolio will invest primarily in common stocks of established foreign companies which have the potential for growth of capital. In order to increase total return, the Portfolio may also invest in bonds and preferred stocks, convertible bonds, convertible preferred stocks, warrants, American Depository Receipts (ADR's) and other debt or equity securities. In addition, the Portfolio may invest in U.S. Government securities or cash. The Portfolio will not use any minimum level of credit quality. At no time will the Portfolio invest more than 5% of its net assets in debt obligations or other securities that may be converted to debt obligations (excluding cash and U.S. Government securities). 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"). Debt obligations rated "Baa" or "BBB" are considered to have speculative characteristics. For a description of Moody's and S&P's ratings, see "Description of Debt Ratings". Securities rated below investment grade are considered to be speculative and involve certain risks, including a higher risk of default and greater sensitivity to interest rate and economic changes. In determining the appropriate distribution of investments among various countries and geographic regions, Price-Fleming considers the following factors: prospects for relative economic growth between foreign countries; 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. In analyzing companies for investment, Price-Fleming looks for one or more of the following characteristics: an above-average earnings growth per share; high return on invested capital; healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; efficient service; pricing flexibility; strength of management; and general operating characteristics which will enable the companies to compete successfully in their market place. While current dividend income is not a prerequisite in the selection of portfolio companies, the companies in which the Portfolio invests normally will have a record of paying dividends, and will generally be expected to increase the amounts of such dividends in future years as earnings increase. The Portfolio's investments also may include, but are not limited to, European Depository Receipts ("EDRs"), other debt and equity securities of foreign issuers, and the securities of foreign investment funds or trusts (including passive foreign investment companies). A discussion of the risks involved in foreign investing is located below. The Portfolio may hold up to 100% of its assets in cash or short-term debt securities for temporary defensive position when, in the opinion of the Investment Adviser or Price-Fleming such a position is more likely to provide protection against unfavorable market conditions than adherence to the Portfolio's other investment policies. The types of short-term instruments in which the Portfolio 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, the 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 the Investment Adviser or Price-Fleming to be of a comparable level of quality. When the Portfolio adopts a temporary defensive position its investment objective may not be achieved. The Portfolio may engage in certain forms of options and futures transactions that are commonly known as derivative securities transactions. These derivative securities transactions are identified and described in the sections of this Prospectus entitled "Put and Call Options" and "Financial Futures and Options on Futures." The Portfolio may use foreign currency exchange-related securities including foreign currency warrants, principal exchange rate linked securities, and performance indexed paper. The Portfolio does not expect to hold more than 5% of its total assets in foreign currency exchange-related securities. The Portfolio will normally conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. The Portfolio will generally not enter into a forward contract with a term of greater than one year. The Portfolio will generally enter into forward foreign currency exchange contracts only under two circumstances. First, when the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. Second, when Price-Fleming believes that the currency of a particular foreign country may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell or buy the former foreign currency (or another currency which acts as a proxy for that currency) approximating the value of some or all of the Portfolio's securities denominated in such foreign currency. Under certain circumstances, the Portfolio may commit a substantial portion of the entire value of its portfolio to the consummation of these contracts. Price-Fleming will consider the effect such a commitment of its portfolio to forward contracts would have on the investment program of the Portfolio and the flexibility of the Portfolio to purchase additional securities. Although forward contracts will be used primarily to protect the Portfolio from adverse currency movements, they also involve the risk that anticipated currency movements will not be accurately predicted and the Portfolio's total return could be adversely affected as a result. A discussion of foreign currency contracts and the risks involved therein is set forth below. The Portfolio may also engage in repurchase agreements, reverse repurchase agreements, and when-issued and delayed delivery transactions in pursuit of its investment objectives. (See the section above on the investment objectives and policies of the Money Market Portfolio for a description of such transactions.) The Portfolio will not generally trade in securities for short-term profits, but, when circumstances warrant, securities may be purchased and sold without regard to the length of time held. The portfolio turnover rates for the World Growth Portfolio for the fiscal year ended December 31, 1997 and for the period January 18, 1996 through December 31, 1996 were 19% and 9% respectively. World Growth Portfolio Investment Risks Special risks are associated with investments in the World Growth Portfolio, beyond the standard level of risks. These risks are described below. An investor should take into account his or her investment objectives and ability to absorb a loss or decline in his or her investment when considering an investment in the Portfolio. Investors in the Portfolio assume an above average risk of loss, and should not consider an investment the Portfolio to be a complete investment program. The Portfolio, may invest in stocks of foreign issuers and in "ADRs" "EDRs" of foreign stocks. When investing in foreign stocks, ADRs and EDRs, the Portfolio assumes certain additional risks that are not present with investments in stocks of domestic companies. These risks include political and economic developments such as possible expropriation or confiscatory taxation that might adversely affect the market value of such stocks, ADRs and EDRs. In addition, there may be less publicly available information about such foreign issuers than about domestic issuers, and such foreign issuers may not be subject to the same accounting, auditing and financial standards and requirements as domestic issuers. Foreign Securities: Investments in securities of foreign issuers may involve risks that are not present with domestic investments. While investments in foreign securities are intended to reduce risk by providing further diversification, such investments involve sovereign risk in addition to credit and market risks. Sovereign risk includes local political or economic developments, potential nationalization, withholding taxes on dividend or interest payments, and currency blockage (which would prevent cash from being brought back to the United States). Compared to United States issuers, there is generally less publicly available information about foreign issuers and there may be less governmental regulation and supervision of foreign stock exchanges, brokers and listed companies. Fixed brokerage commissions on foreign securities exchanges are generally higher than in the United States. Foreign issuers are not generally subject to uniform accounting and auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic issuers. Securities of some foreign issuers are less liquid and their prices are more volatile than securities of comparable domestic issuers. In some countries, there may also be the possibility of expropriation or confiscatory taxation, limitations on the removal of funds or other assets, difficulty in enforcing contractual and other obligations, political or social instability or revolution, or diplomatic developments which could affect investments in those countries. Settlement of transactions in some foreign markets may be delayed or less frequent than in the United States, which could affect the liquidity of investments. For example, securities which are listed on foreign exchanges or traded in foreign markets may trade on days (such as Saturday) when the Portfolio does not compute its price or accept orders for the purchase, redemption or exchange of its shares. As a result, the net asset value of the Portfolio may be significantly affected by trading on days when shareholders cannot make transactions. Further, it may be more difficult for the Fund's agents to keep currently informed about corporate actions which may affect the price of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., increasing the risk of delayed settlements or loss of certificates for portfolio securities. Investments by the Portfolio in foreign companies may require the Portfolio to hold securities and funds denominated in a foreign currency. Foreign investments may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. Thus, the Portfolio's net asset value per share will be affected by changes in currency exchange rates. Changes in foreign currency exchange rates may also affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders of the Portfolio. They generally are determined by the forces of supply and demand in foreign exchange markets and the relative merits of investment in different countries, actual or perceived changes in interest rates or other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention by U.S. or foreign governments or central banks or the failure to intervene, or by currency controls or political developments in the U.S. or abroad. In addition, the Portfolio may incur costs in connection with conversions between various currencies. Investors should understand and consider carefully the special risks involved in foreign investing. These risks are often heightened for investments in emerging or developing countries. Developing Countries: Investing in developing countries involves certain risks not typically associated with investing in U.S. securities, and imposes risks greater than, or in addition to, risks of investing in foreign, developed countries. These risks include: the risk of nationalization or expropriation of assets or confiscatory taxation; currency devaluations and other currency exchange rate fluctuations; social, economic and political uncertainty and instability (including the risk of war); more substantial government involvement in the economy; higher rates of inflation; less government supervision and regulation of the securities markets and participants in those markets; controls on foreign investment and limitations on repatriation of invested capital and on the Portfolio's ability to exchange local currencies for U.S. dollars; unavailability of currency hedging techniques in certain developing countries; the fact that companies in developing countries may be smaller, less seasoned and newly organized companies; the difference in, or lack of, auditing and financial reporting standards, which may result in unavailability of material information about issuers; the risk that it may be more difficult to obtain and/or enforce a judgment in a court outside the United States; and greater price volatility, substantially less liquidity and significantly smaller market capitalization of securities markets. American Depository Receipts (ADRs) and European Depository Receipts (EDRs): ADRs are dollar-denominated receipts generally issued by a domestic bank that represents the deposit of a security of a foreign issuer. ADRs may be publicly traded on exchanges or over-the-counter in the United States. EDRs are receipts similar to ADRs and are issued and traded in Europe. ADRs and EDRs may be issued as sponsored or unsponsored programs. In sponsored programs, the issuer makes arrangements to have its securities traded in the form of ADRs or EDRs. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, the issuers of unsponsored ADRs or EDRs are not obligated to disclose material information in the United States and, therefore, the import of such information may not be reflected in the market value of such securities. Currency Fluctuations: Investment in securities denominated in foreign currencies involves certain risks. A change in the value of any such currency against the U.S. dollar will result in a corresponding change in the U.S. dollar value of a Portfolio's assets denominated in that currency. Such changes will also affect a Portfolio's income. Generally, when a given currency appreciates against the dollar (the dollar weakens) the value of a Portfolio's securities denominated in that currency will rise. When a given currency depreciates against the dollar (the dollar strengthens) the value of a Portfolio's securities denominated in that currency would be expected to decline. Put and Call Options (All Portfolios except the LB Money Market Portfolio) Selling ("Writing") Covered Call Options: The Portfolios may from time to time sell ("write") covered call options on any portion of their portfolios as a hedge to provide partial protection against adverse movements in the prices of securities in such Portfolio 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, the 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, the Portfolio will generally not be called upon to deliver the security. The 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 the 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: The Portfolios may also from time to time purchase call options on securities in which such Portfolio may invest. As the holder of a call option, the Fund 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). The 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, the 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. The 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. In instances involving the purchase of call options, the Portfolio will hold cash or cash equivalents in its portfolio in an amount equal to the exercise value of the options. "Cash or cash equivalents" may include cash, government securities, or liquid high quality debt obligations. Buying Put Options: The Portfolios may from time to time purchase put options on any portion of their portfolios. 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. The 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, the 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. The 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 Fund 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 their options transactions, 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: The Portfolios may dispose of an option which it has written by entering into a "closing purchase transaction". A Portfolio may dispose of an option which it has purchased by entering into a "closing sale transaction". 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. The 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. The 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. The 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-advisor's perception of anticipated market movements. Negotiated Transactions: The Growth Portfolio, the Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, and the World Growth Portfolio will generally purchase and sell options traded on a national securities or options exchange. Those Portfolios may also purchase and sell options in negotiated transactions. The High Yield Portfolio, the Income Portfolio and the Money Market Portfolio will generally purchase and sell options in negotiated transactions. The High Yield Portfolio, the Income Portfolio and the Money Market Portfolio may also purchase and sell options traded on a national securities or options exchange. A Portfolio will effect negotiated transactions only with investment dealers and other financial institutions deemed creditworthy by its Investment Adviser or Sub-advisor. Despite the investment adviser's or sub-advisor'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 Fund. This risk is described more completely in the section of this Prospectus entitled, "Risks of Transactions in Options and Futures". Options written or purchased by the Portfolios in negotiated transactions are illiquid and there is no assurance that the Portfolios will be able to effect a closing purchase or closing sale transaction at a time when the Fund's Investment Adviser believes it would be advantageous to do so. In the event the Portfolios are unable to effect a closing purchase transaction with the holder of a call option written by the Portfolios, the Portfolios may not sell the security underlying the option until the call written by the Portfolios expires or is exercised. Negotiated options transactions are subject to a 10% illiquid securities limitation. Limitations: A Portfolio will not purchase any option if, immediately thereafter, the aggregate cost of all outstanding options purchased and held by such Portfolio would exceed 5% of the market value of the Portfolio's total assets. A Portfolio will not write any option if, immediately thereafter, the aggregate value of the Portfolio's securities subject to outstanding options would exceed 30% of the market value of the Portfolio's total assets. Financial Futures and Options on Futures (All Portfolios except the LB Money Market Portfolio) Selling Futures Contracts: The Portfolios may sell the financial futures contracts ("futures contracts") as a hedge against adverse movements in the prices of securities in such Portfolio. 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 specific 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 the 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 the Portfolio and its broker, but rather is a "good faith deposit" by the Portfolio to secure its obligations under a futures contract or an option. Each day during the term of certain futures transactions, the 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: The Portfolios may purchase financial futures contracts as a hedge against adverse movements in the prices of securities which such Portfolio intends 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 the 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, the 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 the Portfolio intends to purchase. The 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 the Portfolio intends to purchase. Options on Futures Contracts: 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. The Portfolios 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 the Portfolio intends to purchase. Currency Futures Contracts and Options: The Fund 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 Fund will not use such contracts or options for leveraging purposes. Limitations: 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, the 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 and will be held in a segregated account maintained solely for such purpose. Hybrid Investments As part of its investment program and to maintain greater flexibility, the Fund 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. The Fund does not expect to hold more than 5% of its total assets in hybrid instruments. For a discussion of hybrid investments and the risks involved therein, see the Trust's Statement of Additional Information under "Additional Information Concerning Certain Investment Techniques". 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 the Fund's hedging strategy unsuccessful and could result in losses. The loss from investing in futures transactions is potentially unlimited. There is a risk that the Fund's Investment Adviser or Sub-advisor could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In such a case the Fund 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 the Fund'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 the Fund's Investment Adviser's or Sub-advisor's accuracy in predicting the future changes in interest rate levels and securities price movements. The Fund will generally purchase and sell options traded on a national securities or options exchange. Where options are not readily available on such exchanges the Fund may purchase and sell options in negotiated transactions. When the Fund 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, the Fund 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 Fund 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 Fund to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, a Fund'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, the Fund could lose all or part of 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, the Fund could experience delays and might not be able to trade or exercise options or futures purchased through that broker or clearing member. In addition, the Fund 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. Investment Restrictions Applicable to the Portfolios None of the Portfolios will: 1. 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 under "Money Market Portfolio". The Fund 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 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. The deposit or payment by a Portfolio of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. 2. 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). Reverse repurchase agreements are further discussed under "Money Market Portfolio." 3. 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 1 above, and the Portfolio may enter into reverse repurchase agreements in accordance with paragraph 2 above. Margin deposits for the purchase and sale of financial futures contracts and related options are not deemed to be a pledge. 4. 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. 5. 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 Fund as a whole. 6. 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. All of the investment restrictions set forth above are fundamental to the operations of the Fund and may not be changed except with the approval of a majority vote (as defined above in the second paragraph under "Investment Objectives and Risks of the Portfolios") of the persons participating in the affected Portfolio. PURCHASE AND REDEMPTION OF SHARES Shares in the Fund are currently offered continuously, without sales charge, at prices equal to the respective per share net asset values of the Portfolios (based on the next calculation of net asset value after the order is placed), only to the Accounts to fund benefits payable under the Contracts. The Fund may at some later date also offer its shares to other separate accounts of LBVIP, Lutheran Brotherhood (the parent of LBVIP) or other subsidiaries of Lutheran Brotherhood. The Fund is required to redeem all full and fractional shares of the Fund for cash within seven days of receipt of proper notice of redemption. The redemption price is the net asset value per share next determined after the initial receipt of proper notice of redemption. The right to redeem shares or to receive payment with respect to any redemption may be suspended only for any period during which trading on the New York Stock Exchange is restricted as determined by the Securities and Exchange Commission or when such exchange is closed (other than customary weekend and holiday closings), for any period during which an emergency exists as defined by the Securities and Exchange Commission as a result of which disposal of a Portfolio's securities or determination of the net asset value of each Portfolio is not reasonably practicable, and for such other periods as the Securities and Exchange Commission may by order permit for the protection of shareholders of each Portfolio. DETERMINATION OF NET ASSET VALUE The net asset value of the shares of each Portfolio is determined once daily by the Adviser, immediately after the declaration of dividends, if any, at 4:00 P.M., Eastern time, on each day during which the New York Stock Exchange is open for business, and on any other day in which there is a sufficient degree of trading in the Portfolio's securities such that the current net asset value of its shares might be materially affected. The net asset value per share of each Portfolio except the Money Market Portfolio is computed by adding the sum of the value of the securities held by that Portfolio plus any cash or other assets it holds, subtracting all its liabilities, and dividing the result by the total number of shares outstanding of that Portfolio at such time. Expenses, including the investment advisory fee payable to the Adviser, are accrued daily. The assets belonging to any Portfolio will be charged with the liabilities in respect to such Portfolio, and will also be charged with their shares of the general liabilities of the Fund in proportion to the asset values of the respective Portfolios. In determining the net asset value of the Income, High Yield, Growth, Opportunity Growth, Mid Cap Growth, and World Growth Portfolios, securities are generally valued based on market quotations. Securities or assets for which market quotations are not readily available will be valued at fair value as determined by the Adviser under the direction of the Board of Directors of the Fund. The amortized cost accounting method of valuation will be used for short-term investments maturing in 60 days or less that are held by the Income, High Yield, Growth, Opportunity Growth, Mid Cap Growth, or World Growth Portfolios. The net asset value of shares of the Money Market Portfolio will normally remain at $1.00 per share, because the net investment income of this Portfolio (including realized gains and losses on Portfolio holdings) will be declared as a dividend each time the Portfolio's net income is determined (see "Dividends, Distributions and Taxes"). If, in the view of the Board of Directors of the Fund, it is inadvisable to continue to maintain the net asset value of the Money Market Portfolio at $1.00 per share, the Board reserves the right to alter the procedure. The Fund will notify shareholders of any such alteration. The Fund values all short-term debt obligations in the Money Market Portfolio on an amortized cost basis. DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund intends to qualify as a Regulated Investment Company under certain provisions of the Internal Revenue Code of 1986, as amended (the "Code"). Under such provisions, the Fund will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains that it distributes to the Account. Generally, each Portfolio will be treated as a separate corporation for Federal income tax purposes. This means that the investment results of each Portfolio will determine whether the Portfolio qualifies as a Regulated Investment Company and will determine the net ordinary income (or loss) and net realized capital gains (or losses) of the Portfolio. The Fund intends to distribute as dividends substantially all the net investment income, if any, of each Portfolio. For dividend purposes, net investment income of each Portfolio, other than the Money Market Portfolio, will consist of all payments of dividends (other than stock dividends) or interest received by such Portfolio less the estimated expense of such Portfolio (including fees payable to the Adviser). Net investment income of the Money Market Portfolio consists of (i) interest accrued and/or discount earned (including both original issue and market discount), (ii) plus or minus all realized gains and losses, (iii) less the expenses of the Portfolio (including the fees payable to the Adviser). Dividends on each of the Portfolios will be declared and reinvested in additional full and fractional shares of that Portfolio. Shares will begin accruing dividends on the day following the date on which they are issued. Dividends will be declared and reinvested daily on the Income Portfolio, on the High Yield Portfolio and on the Money Market Portfolio, quarterly on the Growth Portfolio, and annually on the Opportunity Growth Portfolio, Mid Cap Growth Portfolio, and the World Growth Portfolio, although the Fund may make distribution of dividends on any Portfolio more frequently. The Fund will also declare and distribute annually all net realized capital gains of the Fund, other than short-term gains of the Money Market Portfolio, which are declared as dividends daily. A capital gain distribution will usually be made in February. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and these Regulations are subject to change by legislative or administrative actions. MANAGEMENT OF THE FUND Directors of the Fund The business and affairs of the Fund are managed under the direction of its Board of Directors. Investment Adviser Lutheran Brotherhood (the "Adviser") has served as the investment adviser of the Fund since January, 1994. The Adviser, founded in 1917 as a fraternal benefit society, is owned by and operated for its members, under the laws of Minnesota. The Adviser has been engaged in the investment advisory business since 1970, either directly or through the indirect ownership of Lutheran Brotherhood Research Corp. ("LBRC"), the Fund's investment adviser prior to January 31, 1994. Lutheran Brotherhood has managed its own portfolio of investment assets since its inception in 1917. Lutheran Brotherhood's assets as of December 31, 1997 were $13.2 billion. Additionally, through an indirect subsidiary, Lutheran Brotherhood Research Corp., Lutheran Brotherhood also manages $4.10 billion of assets of eight other mutual funds. LBVIP is also an indirect subsidiary of Lutheran Brotherhood. Lutheran Brotherhood's principal business address is 625 Fourth Avenue South, Minneapolis, Minnesota 55415. Prior to the time Lutheran Brotherhood was named investment adviser to the Fund, Lutheran Brotherhood Research Corp. (LBRC), an indirect subsidiary of Lutheran Brotherhood, served as investment adviser to the Fund. All of the personnel employed by Lutheran Brotherhood to perform investment advisory services for the Fund are substantially the same as the personnel that performed such services on behalf of LBRC. The Fund's Portfolio Managers and their experience and qualifications are described as follows: Brian L. Thorkelson, Portfolio Manager of Lutheran Brotherhood, serves as the Portfolio Manager of Mid Cap Growth Portfolio. Mr. Thorkelson has been with Lutheran Brotherhood since 1987. Scott A. Vergin, Portfolio Manager of Lutheran Brotherhood, has been the Portfolio Manager of the Growth Portfolio of the Fund since October 31, 1994. Mr. Vergin has been with Lutheran Brotherhood since 1984. Thomas N. Haag, Assistant Vice President of Lutheran Brotherhood, has been the Portfolio Manager of the Fund's High Yield Portfolio Fund since 1992. Mr. Haag has been with Lutheran Brotherhood since 1986. Charles E. Heeren, Vice President and Manager of the Lutheran Brotherhood Bond Department, has been the Portfolio Manager of the Fund's Income Portfolio since 1987. Mr. Heeren has been with Lutheran Brotherhood since 1976. Gail R. Onan, Portfolio Manager of Lutheran Brotherhood, has been the portfolio manager of the Fund's Money Market Portfolio since January, 1994. Ms. Onan has been with Lutheran Brotherhood since 1986. Lutheran Brotherhood has engaged T. Rowe Price Associates, Inc. ("T. Rowe Price") as investment sub-advisor for the Opportunity Growth Portfolio. T. Rowe Price was founded in 1937 and has its principal offices in Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its affiliates managed over $124 billion. Richard T. Whitney, Managing Director of T. Rowe Price, is primarily responsible for day-to-day management of the Opportunity Growth Portfolio and developing and executing the Portfolio's investment program. T. Rowe Price has an Investment Advisory Committee for the Opportunity Growth Portfolio composed of the following members: Richard T. Whitney, Chairman, Marc L. Baylin, Kristen F. Culp, John H. Laporte, and Donald J. Peters. The committee chairman has day-to-day responsibility for managing the portfolio and works with the committee in developing and executing the portfolio's investment program. Mr. Whitney is chairman of the portfolio's committee. Mr. Whitney joined T. Rowe Price in 1985 and has been managing investments since 1986. Lutheran Brotherhood has engaged Rowe Price-Fleming International, Inc. ("Price-Fleming") as investment sub-advisor for the World Growth Portfolio. Price-Fleming was founded in 1979 as a joint venture between T. Rowe Price Associates, Inc. ("T. Rowe Price") and Robert Fleming Holdings Limited ("Flemings"). The common stock of Price-Fleming is 50% owned by a wholly- owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings and 25% by Jardine Fleming Group Limited ("Jardine Fleming"). (Half of Jardine Fleming is owned by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of the board of directors of Price-Fleming, and Flemings has the right to elect the remaining directors, one of whom will be nominated by Jardine Fleming. Price-Fleming is one of the world's largest international mutual fund asset managers with the U.S. equivalent of approximately $30 billion under management as of December 31, 1997 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 World Growth Portfolio and developing and executing the Portfolio's investment program. The members of the advisory group are listed below: Martin G. Wade, Mark J.T. Edwards, John R. Ford, James B.M. Seddon, Mark Bickford-Smith and David J.L. Warren. Martin Wade joined Price-Fleming in 1979 and has 29 years of experience with the Fleming Group in research, client service and investment management, including assignments in the Far East and the United States. (Fleming Group includes Flemings and/or Jardine Fleming.) Mark Edwards joined Price-Fleming in 1987 and has 16 years of experience in financial analysis, including three years in Fleming European research. John Ford joined Price-Fleming in 1982 and has 18 years of experience with the Fleming Group in research and portfolio management, including assignments in the Far East and the United States. James Seddon joined Price-Fleming in 1987 and has 11 years of experience in investment management. Mark Bickford-Smith joined Price-Fleming in 1995 and has 13 years of experience with the Fleming Group in research and financial analysis. David Warren joined Price-Fleming in 1983 and has 17 years experience in equity research, fixed income research and portfolio management. The Fund has entered into an Investment Advisory Agreement with the Adviser under which the Adviser will, subject to the direction of the Board of Directors of the Fund, carry on the day-to-day management of the Fund, and provide advice and recommendations with respect to investments and the purchase and sale of securities in accordance with the Fund's investment objectives, policies and restrictions. 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 Investment Advisory Agreement provides that the Fund will pay, or provide for the payment of, all of its own expenses including, without limitation, the compensation of the directors who are not affiliated with Lutheran Brotherhood or LBVIP, 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, including safekeeping of funds and securities and keeping of books and calculating the net asset value of the shares of the Portfolios 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 Fund and its Adviser have conducted a review of their computer systems to identify the internal systems that could be affected by the "Year 2000" problem and are developing an implementation plan to resolve the issue. The Year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Fund's and its Adviser's computer programs that have time- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Fund and its Adviser presently believe that, with modifications to existing software and conversions to new software, the Year 2000 problem will not pose significant operational problems for their computer systems as so modified and converted. However, if such modifications and conversions are not completed timely, the Year 2000 problem may have a material impact on the operations of the Fund and its Adviser. The Year 2000 readiness of other third parties whose system failures could have an impact on the Fund's and its Adviser's operations is currently being evaluated. The potential materiality of any such impact is not known at this time. 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, Mid Cap Growth, and Opportunity Growth Portfolios and .85% of the aggregate average daily net assets of the World Growth Portfolio. Lutheran Brotherhood pays T. Rowe Price an annual sub-advisory fee for the performance of sub-advisory services for the Opportunity Growth Portfolio. The fee payable is equal to .30% of the average daily net assets for that Portfolio. Lutheran Brotherhood pays Price-Fleming an annual sub-advisory fee for the performance of sub-advisory services or the World Growth Portfolio. The fee payable is equal to a percentage of the 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 Price-Fleming also provides sub-advisory services. The sub- advisory fee Lutheran Brotherhood pays Price-Fleming 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, 1997, the combined assets of the World Growth Portfolio and World Growth Fund totaled $363.3 million. OTHER INFORMATION CONCERNING THE FUND Incorporation and Authorized Stock The Fund was incorporated under Minnesota law on February 24, 1986. The shares of capital stock of the Fund are divided into seven classes: Money Market Portfolio Capital Stock, Income Portfolio Capital Stock, High Yield Portfolio Capital Stock, Growth Portfolio Capital Stock, Opportunity Growth Portfolio Capital Stock, Mid Cap Growth Portfolio Capital Stock, and World Growth Portfolio Capital Stock. Unissued shares of any of the classes of capital stock may be reallocated to any new or existing class or classes as determined by the Fund's Board of Directors. The Fund may in the future issue shares of additional classes through the creation of one or more new portfolios. Each share of stock will have a pro rata interest in the assets of the Portfolio to which the stock of that class relates and will have no interest in the assets of any other Portfolio. Holders of shares of any Portfolio are entitled to redeem their shares as set forth under "Purchase and Redemption of Shares". Voting Rights The voting rights of Contract owners, and limitations on those rights, are explained in the accompanying prospectus relating to the 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 it will generally do so in accordance with the instructions of Contract owners. Any such 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 or 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 accompanying Contract prospectus, however, Lutheran Brotherhood and LBVIP may disregard voting instructions received from Contract owners. Shareholders are entitled to one vote for each share held. Because the per share purchase price of shares of different Portfolios will not, generally, be the same (initial purchase price for shares of the Growth Portfolio, the High Yield Portfolio and the Income Portfolio was $10 per share, as compared to $1 per share for the Money Market Portfolio), the number of votes obtained as a result of a particular amount invested will generally vary depending on which Portfolio's shares are purchased (for example, using the initial purchase prices set forth above, a $100 investment in the Money Market Portfolio would result in 100 votes, whereas the same investment in any one of the other Portfolios would result in only 10 votes). The Fund's Bylaws provide that regular meetings of the shareholders of the Fund may be held on an annual or less frequent basis as determined by the Board of Directors of the Fund; provided, however, that if a regular meeting has not been held during the immediately preceding 15 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 Fund. Calculation of Performance From time to time the Fund advertises the Money Market Portfolio's "yield" and "effective yield". Both yield figures are based on historical earnings and are not intended to indicate future performance. The "yield" of the Portfolio refers to the income generated by an investment in the Portfolio over a seven-day period (which period will be stated in the advertisement). This income is then "annualized". That is, the, amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in the Portfolio is assumed to be reinvested. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. The annualized current yield and effective yield for the seven-day base period ended December 31, 1997, was 5.60% and 5.76%, respectively. For more information, see the Statement of Additional Information. Also, the Fund may advertise for the Portfolios other than the Money Market Portfolio a yield quotation based on a 30-day (or one month) period computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period. The current yield for the 30-day base period ended December 31, 1997 for the High Yield Portfolio was 9.23%. The current yield for the same 30- day base period for the Income Portfolio was 6.50%. For more information, see the Statement of Additional Information. From time to time, the Fund advertises the average annual total return quotations for the Portfolios for the 1, 5 and 10-year periods (or such shorter time period during which the Portfolio's shares have been offered), computed by finding the average annual compounded rates of return over the 1, 5 and 10-year periods (or such shorter time period during which the Portfolio's shares have been offered) that would equate the initial amount invested to the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10-year periods (or such shorter time period during which the Portfolio's shares have been offered). The average annual total returns for the 1-year, 5-year and 10-year periods for the Portfolios, or for such shorter period from the Portfolio's effective date through December 31, 1997 are as follows: 1 5 10 From Year Years Years Inception Opportunity Growth Portfolio (1/18/96) 0.93% N/A N/A 9.90% World Growth Portfolio 1/18/96) 2.81% N/A N/A 6.69% Growth Portfolio (1/9/87) 30.18% 18.09% 16.78% N/A High Yield Portfolio (11/2/87) 14.10% 12.33% 12.58 N/A Income Portfolio (1/9/87) 8.75% 7.35% 9.24% N/A Money Market Portfolio (1/9/87) 5.43% 4.64% 5.68% N/A Average annual total return quotations assume a steady rate of growth. Actual performance fluctuates and will vary from the quoted results for periods of time within the quoted periods. For more information, see the Statement of Additional Information. Quotations of yield or total return for the Fund will not take into account charges or deductions against any Account to which the Fund shares are sold or charges and deductions against the Contracts issued by Lutheran Brotherhood or LBVIP. The Portfolios' yield and total return should not be compared with mutual funds that sell their shares directly to the public since the figures provided do not reflect charges against the Account or the Contract. Performance information for any Portfolio reflects only the performance of a hypothetical investment in the Portfolio during the particular time period on which the calculations are based. Performance information should be considered in light of the Portfolios' investment objectives and policies, characteristics and quality of the portfolios, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine yield and total return for the Portfolios, see the Statement of Additional Information. Comparative Performance The Portfolios' performance reported from time to time in advertisements and sales literature may be compared to generally accepted indices or analyses such as those provided by Lipper Analytical Service, Inc., Standard & Poor's and Dow Jones. Performance ratings reported periodically in financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, FORTUNE, FINANCIAL PLANNING and the WALL STREET JOURNAL will be used. Portfolio Reports The Fund will send each shareholder, at least annually, reports showing as of a specified date the number of shares in each Portfolio credited to the shareholder. The Fund will also send Contract owners' reports semiannually showing the financial condition of the Portfolios and the investments held in each. The annual report may take the form of an updated copy of this Prospectus. Transfer Agent and Dividend Disbursing Agent State Street Bank and Trust Company, Boston, Massachusetts, is the transfer agent and dividend disbursing agent for the Fund. The Bank is also custodian of the assets of the Fund. Shareholder Inquiries Shareholder inquiries with respect to the Fund should be addressed to LB Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota 55415, attention: Secretary. 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: * Leading market positions in well-established industries. * High rates of return of funds employed. * Conservative capitalization structures with moderate reliance on debt and ample asset protection. * Broad margins in earnings coverage of fixed financial charges and high internal cash generation. * 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 of the obligation in this category than in higher rated categories. BB,B, CCC, CC,C Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 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 BBB credits 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. ADDITIONAL INFORMATION This Prospectus does not contain all the information included in the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Registration Statement including the exhibits filed therewith may be examined at the office of the Securities and Exchange Commission in Washington, D.C. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference. STATEMENT OF ADDITIONAL INFORMATION LB SERIES FUND, INC. 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, 1998. Much of the information contained in this Statement of Additional Information expands upon subjects discussed in the Prospectus. No investment in shares of the Fund should be made without first reading the Prospectus for the Fund. A copy of the Prospectus for the Fund may be obtained from LB Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota 55415. TABLE OF CONTENTS PAGE THE FUND INVESTMENT OBJECTIVES AND POLICIES Securities in Which the Portfolios May Currently Invest Additional Investment Restrictions Applicable to the Portfolios Loans of Portfolio Securities Portfolio Turnover Policy FOREIGN FUTURES AND OPTIONS - WORLD GROWTH PORTFOLIO FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES HYBRID INSTRUMENTS INVESTMENT RISKS - WORLD GROWTH PORTFOLIO MANAGEMENT OF THE FUND Directors and Officers of the Fund COMPENSATION OF DIRECTORS AND OFFICERS CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES INVESTMENT ADVISORY AND OTHER SERVICES Investment Adviser Custodian Independent Accountants PORTFOLIO BROKERAGE AND RELATED PRACTICES BROKERAGE COMMISSIONS AFFILIATED TRANSACTIONS OF THE SUB-ADVISORS CAPITAL STOCK DETERMINATION OF THE NET ASSET VALUE CALCULATION OF PERFORMANCE Money Market Portfolio Other Portfolios TAX STATUS ADDITIONAL INFORMATION REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS The date of this Statement of Additional Information is May 1, 1998. THE FUND LB Series Fund, Inc. (the "Fund"), a diversified open-end management investment company, is 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 Money Market Portfolio, the Income Portfolio, the High Yield Portfolio, the Growth Portfolio, the Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, and the World Growth 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 OBJECTIVES AND POLICIES The following information supplements the discussion under "Investment Objectives and Policies of the Portfolios" in the Fund's Prospectus. Securities in Which the Portfolios May Currently Invest The Money Market Portfolio, and the other Portfolios to the extent their investment policies so provide, as discussed in the Prospectus, may invest in the following liquid, short-term debt securities regularly bought and sold by financial institutions: 1. U.S. Treasury Bills and other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. These are debt securities (including bills, certificates of indebtedness, notes and bonds) issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. Government that is established under the authority of an act of Congress. Such agencies or instrumentalities include, but are not limited to, the Federal National Mortgage Association, the Export--Import Bank, the Federal Farm Credit Bank and the Federal Home Loan Bank. Although all obligations of agencies and instrumentalities are not direct obligations of the U.S. Treasury, payment of the interest and principal of them is generally backed directly or indirectly by the U.S. Government. This support can range from the backing of the full faith and credit of the United States, to U.S. Treasury guarantees, or to the backing solely of the issuing instrumentality itself. 2. U.S. dollar denominated obligations (including certificates of deposit, bankers' acceptances, letters of credit and time deposits) of any United States bank, savings and loan association or savings bank or foreign branches thereof, or U.S. dollar denominated obligations of banks organized under the laws of Australia, Canada, France, Germany, Japan, the Netherlands, Switzerland or the United Kingdom, provided that such bank or savings and loan association has, at the time of the Portfolio's investment, total assets of at least $1 billion or the equivalent. The term "certificates of deposit" includes both Eurodollar certificates of deposit, which are traded in the over--the--counter market, and Eurodollar time deposits, for which there is generally not a market. "Eurodollars" are dollars deposited in banks outside the United States. Also included within the term "certificates of deposit" are U.S. dollar denominated certificates of deposit issued by U.S. branches of foreign banks held in the United States (Yankee-Dollar Certificates of Deposit). "Certificates of deposit" are certificates evidencing the indebtedness of a commercial bank to repay funds deposited with it for a definite period of time (usually from 14 days to one year). "Bankers' acceptances" are credit instruments evidencing the obligation of a bank to pay a draft which has been drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. "Time deposits" are non-negotiable deposits in a bank for a fixed period of time. 3. Commercial paper issued by domestic corporations which at the date of investment have been found by the Portfolio's Adviser to have minimal credit risk and, except as noted below, are rated "high quality" by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), or any other similar nationally recognized statistical rating organization ("NRSRO"), provided that in no event will the Portfolio invest in commercial paper rated lower than Prime-2 by Moody's or A-2 by S&P or any comparable rating by any other NRSRO or, if not rated, issued by domestic corporations which have an outstanding senior long-term debt issue rated A or lower by Moody's or A or lower by S&P. In the case where commercial paper has received different ratings from different services, such commercial paper is an acceptable investment so long as at least one rating is a top quality rating and provided the commercial paper presents minimal credit risk. When a security has received ratings by two or more different NRSROs and at least two of the ratings are the highest rating given by such NRSROs, the security will be considered "high quality". When a security has received ratings by two or more different NRSROs and only one of the ratings is the highest rating given by such NRSROs, the security will not be considered "high quality". The Portfolio will not invest more than 5% of its assets in securities that have received ratings from two or more different NRSROs and less than two of the ratings are the highest rating given by such NRSROs, and will invest no more than 1% of its assets in the securities of any one issuer, when the issuer's securities have received ratings from two or more different NRSROs and less than two of the ratings are the highest rating given by such NRSROs. Long term corporate debt issues having less than 397 days to maturity are deemed to be commercial paper and to have a credit risk equal to the issuer's commercial paper rating. See "Description of Debt Ratings" for an explanation of the ratings issued by Moody's and S&P. "Commercial paper" consists of short-term (usually from one to 270 days) unsecured promissory notes issued by corporations in order to finance their current operations. 4. Other corporate obligations issued by domestic corporations which at the date of investment are rated Baa or better by Moody's or BBB or better by S&P, except that the High Yield Portfolio may invest in corporate obligations that are rated Ba or lower by Moody's, BB or lower by S&P, rated similarly by any other nationally-recognized statistical rating organization, or, if not rated, such securities may be of comparable quality in the opinion of the Fund's investment adviser. See "Description of Debt Ratings" for rating information. "Corporate obligations" are bonds and notes issued by corporations and other business organizations, including business trusts, in order to finance their long-term credit needs. 5. Variable amount demand master notes issued by domestic corporations which, at the date of investment, either (a) have an outstanding senior long-term debt issue rated Baa or better by Moody's (Aa or better if purchased by the Money Market Portfolio) or BBB or better by S&P (AA or better if purchased by the Money Market Portfolio), or (b) do not have rated long-term debt outstanding but have commercial paper rated at least Prime-2 by Moody's or A-2 by S&P. Additionally, ratings on such variable amount demand master notes held by the High Yield Portfolio may carry a long term rating of Ba or lower by Moody's or BB or lower by S&P. The Money Market Portfolio may also invest in variable amount demand master notes if (a) such securities have a high quality short-term debt rating from an unaffiliated, nationally-recognized statistical rating organization or, if not rated, such securities are of comparable quality as determined by management of the Fund, and (b) the demand feature of such securities described below is unconditional, that is, exercisable even in the event of a default in the payment of principal or interest on the underlying securities. Variable amount demand master notes are unsecured obligations that permit the investment by the Portfolio of amount that may fluctuate daily, at varying rates of interest pursuant to direct arrangements between the Portfolio and the issuing corporation. Although callable on demand by the Portfolio, these obligations are not marketable to third parties. They will not be purchased unless the Fund's investment adviser (the "Adviser") has determined that the issuer's liquidity is such as to enable it to pay the principal and interest immediately upon demand. The Money Market Portfolio, in accordance with the requirements of the Securities and Exchange Commission rule that permits the use of the amortized cost accounting method of valuation (see "Determination of Net Asset Value"), will limit its investments to those U.S. dollar-denominated instruments which management of the Fund determines present minimal credit risks and which are of "high quality" as determined by any major rating service (Aa or better by Moody's, AA or better by S&P for corporate debt securities; Prime-2 or better by Moody's, A-2 or better by S&P for commercial paper; see the preceding paragraph with regard to variable amount demand master notes) or, in the case of any instrument that is not rated, of comparable quality as determined by management of the Fund. A description of repurchase agreements, reverse repurchase agreements and when-issued and delayed delivery securities appears in the Fund's Prospectus under "Investment Objectives and Policies of the Prospectus-- Money Market Portfolio". The Fund may invest in the securities of foreign issuers including, as noted above, certain obligations of foreign banks and foreign branches of U.S. banks. Investments in such securities involve risks that are different in some respects from an investment in obligations of domestic issuers, including future political and economic developments such as possible expropriation or confiscatory taxation that might adversely affect the payment of principal and interest on such securities. In addition, there might be less publicly available information about such foreign issuers than about domestic issuers, and such foreign issuers may not be subject to the same accounting, auditing and financial standards and requirements as domestic issuers. Finally, in the event of default, judgments against a foreign issuer might be difficult to obtain or enforce. Additional information concerning the risks of foreign investing that applies to the World Growth Portfolio is stated below. Additional Investment Restrictions Applicable to the Portfolios In addition to the investment restrictions applicable to the Portfolios described in the Prospectus, 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, 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 contract, if such transactions are for purposes of hedging the Fund's portfolio. 2. Acquire securities for the purpose of exercising control or management of any company except in connection with a merger, consolidation, acquisition or reorganization. 3. Make short sales. 4. 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 Prospectus under "Investment Objectives and Policies of the Portfolios--Money Market Portfolio". 5. 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 trade 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. 6. 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. 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. 8. Buy or sell the securities of other investment companies, except by purchases in the open market involving only customary brokerage commissions, or except as part of a merger, consolidation or other acquisition. 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. All of the investment restrictions set forth above are fundamental to the operations of the Fund and may not be changed except with 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 policies by which a Portfolio seeks to achieve its investment objectives, however, are not fundamental. They may be changed by the Board of Directors of the Fund without the approval of the shareholders. Investment limitations may also arise under the insurance laws and regulations of certain states which may impose additional restrictions on the Portfolios. Loans of Portfolio Securities The Income, High Yield, Growth, Opportunity Growth, Mid Cap Growth, and World Growth Portfolios may from time to time lend the securities they hold 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, or irrevocable standby letters of credit in an amount at all times equal to at least the market value of the loaned securities plus the accrued interest and dividends. During the time securities are on loan, the lending Portfolio will continue to receive the interest and dividends, or amounts equivalent thereto, on the loaned securities while receiving a fee from the borrower or earning 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 lender securities identical to the loaned securities. The lending Portfolio will not have the right to vote securities on loan, but would likely terminate the loan and retain the right to vote if that were considered important with respect to the investment. The primary risk in lending securities is that the borrower may become insolvent on a day on which the loaned security is rapidly advancing in price. In such event, if the borrower fails to return the loaned securities, 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 the Adviser. This will not affect a Portfolio's ability to maximize its securities lending opportunities. Portfolio Turnover Policy The portfolio turnover rate is, generally, the percentage computed by dividing the lesser of portfolio purchases or sales by the average value of the portfolio, in each case excluding securities with maturities of one year or less. A higher portfolio turnover rate generally indicates a greater number of purchases or sales by a portfolio, resulting in greater expense to the portfolio in the form of brokerage commissions and underwriters' concessions. For a description of how each of the portfolios conducts sale and purchase transactions see the section below entitled, "Portfolio Brokerage and Related Practices." The annual portfolio turnover rates for the Opportunity Growth Portfolio, World Growth Portfolio, Income Portfolio, High Yield Portfolio, and Growth Portfolio for the fiscal years ended December 31, 1996 and 1997 are as follows: Fiscal Years Ended December 31, 1996 1997 Opportunity Growth Portfolio* 155% 147% World Growth Portfolio* 9% 19% Growth Portfolio 223% 193% High Yield Portfolio 107% 105% Income Portfolio 150% 117% * The portfolio turnover rate shown for the Opportunity Growth Portfolio and the World Growth Portfolio for 1996 are for the period January 18, 1996 through December 31, 1996. The portfolio turnover rate for the Mid Cap Growth Portfolio is expected to be no higher than 100% in its first year of operation. FOREIGN FUTURES AND OPTIONS - WORLD GROWTH PORTFOLIO 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 your 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. HYBRID INSTRUMENTS Hybrid Instruments (a type of potentially high risk derivative) have recently been developed and combine the elements of futures contracts or options with those of debt, preferred equity or a depository instrument (hereinafter "Hybrid Instruments"). Often these Hybrid Instruments are indexed to the price of a commodity, particular currency, or a domestic foreign debt or equity securities index. Hybrid Instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. The risks of investing in Hybrid Instruments reflect a combination of the risks from investing in securities, options, futures and currencies, including volatility and lack of liquidity. Reference is made to the discussion of futures, options, and forward contracts herein for a discussion of these risks. Further, the prices of the Hybrid Instrument and the related commodity or currency may not move in the same direction or at the same time. Hybrid Instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). 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 Fund and the seller of the Hybrid Instrument, the creditworthiness of the contra party to the transaction would be a risk factor which the Fund 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. INVESTMENT RISKS - WORLD GROWTH PORTFOLIO There are special risks in investing in the World Growth Portfolio, as discussed in the Prospectus. Certain of these risks are inherent in any international mutual fund while others relate more to the countries in which the Portfolio will invest ("Portfolio Companies"). Many of the risks are more pronounced for investments in developing or emerging countries. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a per capita gross national product of less than $8,000. Investors should understand that all investments have a risk factor. There can be no guarantee against loss resulting from an investment in the Portfolio, and there can be no assurance that the Portfolio's investment policies will be successful, or that its investment objective will be attained. The Portfolio is designed for individual and institutional investors seeking to diversify beyond the United States in an actively researched and managed portfolio, and is intended for long-term investors who can accept the risks entailed in investment in foreign securities. In addition to the general risks of foreign investing described in the Fund's Prospectus, other risks include: INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the securities markets of certain foreign countries is restricted or controlled in varying degrees. These restrictions may at times limit or preclude investment in certain of such countries and may increase the cost and expenses of a Fund. Investments by foreign investors are subject to a variety of restrictions in many developing countries. These restrictions may take the form of prior governmental approval, limits on the amount or type of securities held by foreigners, and limits on the types of companies in which foreigners may invest. Additional or different restrictions may be imposed at any time by these or other countries in which a Fund invests. In addition, the repatriation of both investment income and capital from several foreign countries is restricted and controlled under certain regulations, including in some cases the need for certain government consents. Although these restrictions may in the future make it undesirable to invest in these countries, the Advisor and Sub-advisor do not believe that any current repatriation restrictions would affect its decision to invest in these countries. MARKET CHARACTERISTICS. Foreign securities may be purchased in over-the- counter markets or on stock exchanges located in the countries in which the respective principal offices of the issuers of the various securities are located, if that is the best available market. Foreign stock markets are generally not as developed or efficient as, and may be more volatile than, those in the United States. While growing in volume, they usually have substantially less volume than U.S. markets and a Fund's portfolio securities may be less liquid and more volatile than securities of comparable U.S. companies. Equity securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. Fixed commissions on foreign stock exchanges are generally higher than negotiated commissions on United States exchanges, although a Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the United States. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets, and may include delays beyond periods customary in the United States. POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain countries may differ favorably or unfavorably from the United States' economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. The internal politics of certain foreign countries are not as stable as in the United States. For example, in 1991, the existing government in Thailand was overthrown in a military coup. In addition, significant external political risks currently affect some foreign countries. Both Taiwan and China still claim sovereignty of one another and there is a demilitarized border between North and South Korea. Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economics. Action by these governments could have a significant effect on market prices of securities and payment of dividends. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and economic conditions of their trading partners. The enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries. INFORMATION AND SUPERVISION. There is generally less publicly available information about foreign companies comparable to reports and ratings that are published about companies in the United States. Foreign companies are also generally not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to United States companies. TAXES. The dividends and interest payable on certain of a Fund's foreign portfolio securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to the Fund's shareholders. COSTS. Investors should understand that the expense ratio of the World Growth Portfolio can be expected to be higher than investment companies investing in domestic securities since the cost of maintaining the custody of foreign securities and the rate of advisory fees paid by the Portfolio are higher. OTHER. With respect to certain foreign countries, especially developing and emerging ones, there is the possibility of adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of funds or other assets of the Portfolio, political or social instability, or diplomatic developments which could affect investments by U.S. persons in those countries. EASTERN EUROPE. Changes occurring in Eastern Europe and Russia today could have long-term potential consequences. As restrictions fall, this could result in rising standards of living, lower manufacturing costs, growing consumer spending, and substantial economic growth. However, investment in the countries of Eastern Europe and Russia is highly speculative at this time. Political and economic reforms are too recent to establish a definite trend away from centrally-planned economies and state owned industries. In many of the countries of Eastern Europe and Russia, there is no stock exchange or formal market for securities. Such countries may also have government exchange controls, currencies with no recognizable market value relative to the established currencies of western market economies, little or no experience in trading in securities, no financial reporting standards, a lack of a banking and securities infrastructure to handle such trading, and a legal tradition which does not recognize rights in private property. In addition, these countries may have national policies which restrict investments in companies deemed sensitive to the country's national interest. Further, the governments in such countries may require governmental or quasi-governmental authorities to act as custodian of the Fund's assets invested in such countries and these authorities may not qualify as a foreign custodian under the Investment Company Act of 1940 and exemptive relief from such Act may be required. All of these considerations are among the factors which could cause significant risks and uncertainties to investment in Eastern Europe and Russia. The Fund will only invest in a company located in, or a government of, Eastern Europe or Russia, if the Sub-advisor believes the potential return justifies the risk. To the extent any securities issued by companies in Eastern Europe and Russia are considered illiquid, the Portfolio will be required to include such securities within its 10% restriction on investing in illiquid securities. It is contemplated that most foreign securities will be purchased in over-the-counter markets or on stock exchanges located in the countries in which the respective principal offices of the issuers of the various securities are located, if that is the best available market. The Portfolio may invest in investment portfolios which have been authorized by the governments of certain countries specifically to permit foreign investment in securities of companies listed and traded on the stock exchanges in these respective countries. The Portfolio's investment in these portfolios is subject to the provisions of the 1940 Act discussed below. If the Portfolio invests in such investment portfolios, the Portfolio's shareholders will bear not only their proportionate share of the expenses of the Portfolio (including operating expenses and the fees of the Investment Manager), but also will bear indirectly similar expenses of the underlying investment portfolios. In addition, the securities of these investment portfolios may trade at a premium over their net asset value. Apart from the matters described herein, the Fund is not aware at this time of the existence of any investment or exchange control regulations which might substantially impair the operations of the Fund as described in the Fund's Prospectus and this Statement. It should be noted, however, that this situation could change at any time. FOREIGN CURRENCY TRANSACTIONS. The World Growth Portfolio will generally enter into forward foreign currency exchange contracts under two circumstances. First, when the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. Second, when the Sub-advisor believes that the currency of a particular foreign country may suffer or enjoy a substantial movement against another currency, including the U.S. dollar, it may enter into a forward contract to sell or buy the amount of the former foreign currency, approximating the value of some or all of the Portfolio's portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the Portfolio may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the Portfolio may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Portfolio. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Other than as set forth above, and immediately below, the Portfolio will also not enter into such forward contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's portfolio securities or other assets denominated in that currency. The Portfolio, however, in order to avoid excess transactions and transaction costs, may maintain a net exposure to forward contracts in excess of the value of the Portfolio's portfolio securities or other assets to which the forward contracts relate (including accrued interest to the maturity of the forward on such securities) provided the excess amount is "covered" by liquid, high-grade debt securities, denominated in any currency, at least equal at all times to the amount of such excess. For these purposes "the securities or other assets to which the forward contracts relate may be securities or assets denominated in a single currency, or where proxy forwards are used, securities denominated in more than one currency. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, the Sub-advisor believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the Portfolio will be served. At the maturity of a forward contract, the Portfolio may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract obligating it to purchase, on the same maturity date, the same amount of the foreign currency. As indicated above, it is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward contract. Accordingly, it may be necessary for the Portfolio to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Portfolio is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Portfolio is obligated to deliver. However, as noted, in order to avoid excessive transactions and transaction costs, the Portfolio may use liquid, high-grade debt securities denominated in any currency, to cover the amount by which the value of a forward contract exceeds the value of the securities to which it relates. If the Portfolio retains the portfolio security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Portfolio's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Portfolio will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Portfolio will suffer a loss to the extent of the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. The Portfolio's dealing in forward foreign currency exchange contracts will generally be limited to the transactions described above. However, the Portfolio reserves the right to enter into forward foreign currency contracts for different purposes and under different circumstances. Of course, the Portfolio is not required to enter into forward contracts with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by the Sub-advisor. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result from an increase in the value of that currency. Although the Portfolio values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio at one rate, while offering a lesser rate of exchange should the Portfolio desire to resell that currency to the dealer. In addition to the restrictions described above, some foreign countries limit, or prohibit, all direct foreign investment in the securities of their companies. However, the governments of some countries have authorized the organization of investment portfolios to permit indirect foreign investment in such securities. For tax purposes these portfolios may be known as Passive Foreign Investment Companies. The Portfolio is subject to certain percentage limitations under the 1940 Act and certain states relating to the purchase of securities of investment companies, and may be subject to the limitation that no more than 10% of the value of the Portfolio's total assets may be invested in such securities. For an additional discussion of certain risks involved in foreign investing, see this Statement and the Fund's Prospectus under "World Growth Portfolio Investment Risks". MANAGEMENT OF THE FUND Directors and Officers of The Fund The names of all directors and officers of the Fund, the position each holds with the Fund and the principal occupation of each are shown below. Name and Address, Position with the Fund, Age, Principal Occupation During Past 5 Years Rolf F. Bjelland*, President, Director and Chairman, 625 Fourth Ave. S., Minneapolis, MN, Age 60 Investment Officer, Lutheran Brotherhood; President and Director, Lutheran Brotherhood Research Corp.; Director and Vice President--Investments, Lutheran Brotherhood Variable Insurance Products Company; Director and Executive Vice President, Lutheran Brotherhood Financial Corporation; Director, Lutheran Brotherhood Securities Corp.; Director, Lutheran Brotherhood Real Estate Products Company; President, Trustee and Chairman of The Lutheran Brotherhood Family of Funds Funds**. Charles W. Arnason, Director, 101 Judd Street, Suite 1, Marine-On-St. Croix, MN, Age 69 Attorney-At-Law; formerly Partner, Head, Hempel, Seifert & Vander Weide; formerly Executive Director of Minnesota Technology Corridor; formerly Senior Vice President, Secretary and General Counsel of Cowles Media Company; Trustee of The Lutheran Brotherhood Family of Funds**. Herbert F. Eggerding, Jr., Director, 12587 Glencroft Dr., St. Louis, MO, Age 60 Retired Executive Vice President and Chief Financial Officer, Petrolite Corporation; Director, Wheat Ridge Foundation; Director, Lutheran Charities Association; Trustee of the Lutheran Brotherhood Family of Funds**. Noel K. Estenson, Director, CENEX, Inc., P.O. Box 64089, St. Paul, MN, Age 59 Chairman, CENEX, Inc. Trustee of the Lutheran Brotherhood Family of Funds** Connie M. Levi, Director, PO Box 675325, Rancho Santa Fe, CA, Age 58 Retired President of the Greater Minneapolis Chamber of Commerce; Directors or member of numerous governmental, public service and non-profit boards and organizations; Trustee of The Lutheran Brotherhood Family of Funds**. Bruce J. Nicholson*, Director, 625 Fourth Ave. S., Minneapolis, MN, Age 51 Executive Vice President and Chief Financial Officer, Lutheran Brotherhood; Director, Executive Vice President and Chief Financial Officer, Lutheran Brotherhood Financial Corporation; Director, Lutheran Brotherhood Research Corp.; Director, Lutheran Brotherhood Securities Corp.; Director and Chief Financial Officer, Lutheran Brotherhood Variable Insurance Products Company; Director, Lutheran Brotherhood Real Estate Products Company; Trustee, The Lutheran Brotherhood Family of Funds**. Ruth E. Randall, Director, 25 Coolidge Road, West Hartford, CT, Age 69 Retired Interim Dean, Division of Continuing Studies, University of Nebraska-Lincoln; formerly Associate Dean and Professor, Department of Educational Administration, Teachers College, University of Nebraska- Lincoln; Commissioner of Education for the State of Minnesota; formerly Superintendent of Schools, Independent School District #196, Rosemount, Minnesota; Director or member of numerous governmental, public service and non-profit boards and organizations; Trustee of The Lutheran Brotherhood Family of Funds**. James M. Walline, Vice President, 625 Fourth Ave. S., Minneapolis, MN, Age 52 Vice President, Lutheran Brotherhood; Vice President, Lutheran Brotherhood Research Corp.; Vice President, Lutheran Brotherhood Variable Insurance Products Company; Vice President of The Lutheran Brotherhood Family of Funds**. Richard B. Ruckdashel, Vice President, 625 Fourth Ave. S., Minneapolis, MN, Age 42 Vice President, Lutheran Brotherhood; Assistant Vice President, Lutheran Brotherhood Variable Insurance Products Company; Assistant Vice President, Lutheran Brotherhood Securities Corp.; Vice President of The Lutheran Brotherhood Family of Funds**. Wade M. Voigt, Treasurer, 625 Fourth Ave. S., Minneapolis, MN, Age 42 Assistant Vice President, Mutual Fund Accounting, Lutheran Brotherhood; Treasurer of The Lutheran Brotherhood Family of Funds**. Otis F. Hilbert, Vice President and Secretary, 625 Fourth Ave. S., Minneapolis, MN, Age 61 Vice President, Lutheran Brotherhood; Counsel, Vice President and Secretary, Lutheran Brotherhood Securities Corp.; Counsel and 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; Vice President and Secretary of The Lutheran Brotherhood Family of Funds**. James R. Olson, Vice President, 625 Fourth Ave. S., Minneapolis, MN, Age 55 Vice President, Lutheran Brotherhood; Vice President, Lutheran Brotherhood Securities Corp.; Vice President, Lutheran Brotherhood Research Corp.; Vice President, Lutheran Brotherhood Variable Insurance Products Company; Vice President of The Lutheran Brotherhood Family of Funds**. *The Investment Company Act of 1940 provides that no registered investment company shall have a board of directors more than 60% of the members of which are persons who are interested persons of the Adviser or the Fund. The membership of the Board complies with this requirement. Certain actions of the Board, including the annual continuance of the Investment Advisory Agreement between the Fund and the Adviser, must be approved by a majority of the members of the Board who are not interested persons of the Adviser or the Fund. Mr. Bjelland and Mr. Nicholson are the only two of the six members of the Board who are interested persons of the Adviser or the Fund as that term is defined in the Investment Company Act of 1940. ** The Lutheran Brotherhood Family of Funds is a series mutual fund that includes the following separate funds: Lutheran Brotherhood Opportunity Growth Fund, Lutheran Brotherhood World Growth Fund, Lutheran Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund, and Lutheran Brotherhood Money Market Fund. COMPENSATION OF DIRECTORS AND OFFICERS The Fund make 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 $21,500 and an annual fee of $9,000 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, 1997, the Directors of the Fund received the following amounts of compensation either directly or in the form of payments into a deferred compensation plan: Total Aggregate Compensation Name and Position Compensation Paid by Fund and of Person From Fund Fund Complex(1) - ----------------- ------------ ----------------- Rolf F. Bjelland(2) $0 $0 Chairman and Director Charles W. Arnason $14,630 $31,500 Director Herbert F. Eggerding, Jr. $14,630 $31,500 Director Noel K. Estenson $ 7,179 $16,250 Director Connie M. Levi $14,630 $31,500 Director Bruce J. Nicholson(2) $0 $0 Director Ruth E. Randall $14,630 $31,500 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. CONTROL PERSONS AND PRINCIPAL HOLDERS 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 AND OTHER SERVICES Investment Adviser 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 "Management of the Fund--Directors and Officers of the Fund". Investment decisions for the Opportunity Growth Portfolio are made by T. Rowe Price Associates, Inc. ("T. Rowe Price"), which Lutheran Brotherhood and the Fund have engaged as the sub-advisor for the Opportunity Growth Portfolio. T. Rowe Price manages the Opportunity Growth Portfolio in accordance with the Fund's investment objectives, policies and restrictions, subject to the supervision of Lutheran Brotherhood and the Fund's Board of Directors. T. Rowe Price was founded in 1937 and has its principal offices in Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its affiliates managed over $124 billion. Investment decisions for the World Growth Portfolio are made by Rowe Price-Fleming International, Inc. ("Price-Fleming"), which Lutheran Brotherhood and the Fund have engaged as the sub-advisor for the World Growth Portfolio. Price-Fleming manages the World Growth Portfolio of Lutheran Brotherhood and the Fund's Board of Directors. Price-Fleming was founded in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings Limited ("Flemings"). Price-Fleming is one of the world's largest international mutual fund asset managers with approximately the U.S. equivalent of $30 billion under management as of December 31, 1997 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, 1997, 1996, and 1995, the Adviser earned $20,167,422, $13,945,681, and $9,372,835, respectively, as gross advisory fees. Lutheran Brotherhood pays T. Rowe Price, the sub-advisor, for the Opportunity Growth Portfolio, 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 the Sub-advisor for the World Growth Portfolio an annual sub-advisory fee for the performance of sub-advisory services. The fee payable is equal to a percentage of the 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-advisor also provides sub-advisory services. The sub-advisory fee Lutheran Brotherhood pays the Sub-advisor 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, 1997, the combined assets of the World Growth Portfolio and the World Growth Fund totaled $363.3 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 Investment Advisory Agreement specifically provides that the Adviser, including its directors, officers and employees, shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of reckless disregard of its obligations and duties under the Agreement. 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, Boston, Massachusetts, 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 The independent accountant for the Fund is Price Waterhouse LLP. PORTFOLIO BROKERAGE AND RELATED PRACTICES Except for the Opportunity Growth Portfolio and the World Growth Portfolio, the Adviser is responsible for decisions to buy and sell securities for the Portfolios, the selection of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any. T. Rowe Price and Price-Fleming (each, a "Sub-advisor") are responsible for such functions for the Opportunity Growth Porfolio and the World Growth Portfolio, respectively. Transactions on a stock exchange in equity securities for the Growth Portfolio, the Mid Cap Growth Portfolio, the Opportunity Growth Portfolio and the World Growth Portfolio will be executed primarily through brokers that will receive a commission paid by the Portfolio. The Money Market, High Yield and Income Portfolios, on the other hand, will not normally incur any brokerage commissions. Fixed income securities, as well as equity securities traded in the over-the-counter market, are generally traded on a "net" basis with dealers acting as principals for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price that includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. Certain of these securities may also be purchased directly from an issuer, in which case neither commissions nor discounts are paid. In placing orders for securities transactions, the Adviser and the Sub- advisor give primary consideration to obtaining the most favorable price and efficient execution. The Adviser and the Sub-advisor seek to effect each transaction at a price and commission, if any, that provides the most favorable total cost or proceeds reasonably attainable in the circumstances. The Adviser and the Sub-advisor may, however, pay a higher commission than would otherwise be necessary for a particular transaction when, in the Adviser's or Sub-advisor's opinion, to do so will further the goal of obtaining the best available execution. In connection with any securities transaction that involves a commission payment, the Adviser or the Sub-advisor negotiates the commission with the broker on the basis of the quality and quantity of execution services that the broker provides, in light of generally prevailing commission rates. When selecting a broker or dealer in connection with a transaction for any Portfolio, the Adviser or the Sub-advisor gives consideration to whether the broker or dealer has furnished the Adviser or the Sub-advisor with certain services, provided this does not jeopardize the objective of obtaining the best price and execution. These services, which include statistical and economic data and research reports on particular companies and industries, are services that brokerage houses customarily provide to institutional investors. The Adviser or the Sub-advisor uses these services in connection with all of its investment activities, and some of the data or services obtained in connection with the execution of transactions for a Portfolio may be used in managing other investment accounts. Conversely, brokers and dealers furnishing such services may be selected for the execution of transactions of such other accounts, while the data or service may be used by the Adviser or the Sub-advisor in providing investment management for the Fund. Although the Adviser's and the Sub- advisor's present policies are not to pay higher commissions on transactions in order to secure research and statistical services from brokers or dealers, the Adviser or the Sub-advisor might in the future pay higher commissions, if the Adviser or the Sub-advisor determines that the higher commissions are necessary in order to secure desired research and are reasonable in relation to all of the services that the broker or dealer provides. T. Rowe Price and Price-Fleming receive a wide range of research services from brokers and dealers. These services include information on the economy, industries, groups of securities, individual companies, statistical information, accounting and tax law interpretations, political developments, legal developments affecting portfolio securities, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance analysis, and analysis of corporate responsibility issues. These services provide both domestic and international perspective. Research services are received primarily in the form of written reports, computer generated services, telephone contacts and personal meetings with security analysts. In addition, such services may be provided in the form of meetings arranged with corporate and industry spokespersons, economists, academicians and government representatives. In some cases, research services are generated by third parties but are provided to T. Rowe Price and Price- Fleming by or through broker-dealers. Research services received from brokers and dealers are supplemental to T. Rowe Price's own research effort and, when utilized, are subject to internal analysis before being incorporated by T. Rowe Price into its investment process. As a practical matter, it would not be possible for T. Rowe Price's Equity Research Division to generate all of the information presently provided by brokers and dealers. T. Rowe Price pays cash for certain research services received from external sources. T. Rowe Price also allocates brokerage for research services which are available for cash. While receipt of research services from brokerage firms has not reduced T. Rowe Price's normal research activities, the expenses of T. Rowe Price could be materially increased if it attempted to generate such additional information through its own staff. To the extent that research services of value are provided by brokers or dealers, T. Rowe Price may be relieved of expenses which it might otherwise bear. T. Rowe Price and Price-Fleming have a policy of not allocating brokerage business in return for products or services other than brokerage or research services. In accordance with the provisions of Section 28(e) of the Securities Exchange Act of 1934, T. Rowe Price and Price-Fleming may from time to time receive services and products which serve both research and non-research functions. In such event, T. Rowe Price and Price-Fleming make a good faith determination of the anticipated research and non-research use of the product or services and allocate brokerage only with respect to the research component. Certain brokers and dealers who provide quality brokerage and execution services also furnish research services to T. Rowe Price and Price-Fleming. With regard to the payment of brokerage commissions, T. Rowe Price and Price-Fleming have adopted a brokerage allocation policy embodying the concepts of Section 28(e) of the Securities Act of 1934, which permits an investment adviser to cause an account to pay commission rates in excess of those another broker or dealer would have charged for effecting the same transaction, if the adviser determines in good faith that the commission paid is reasonable in relation to the value of the brokerage and research services provided. The determination may be viewed in terms of either the particular transaction involved or the overall responsibilities of the adviser with respect to the accounts over which it exercises investment discretion. Accordingly, T. Rowe Price and Price-Fleming may assess the reasonableness of commissions in light of the total brokerage and research services provided by each particular broker. T. Rowe Price may receive research, as defined in Section 28(e), in connection with selling concessions and designations in fixed price offerings in which the Funds participate. The Adviser or the Sub-advisor may employ an affiliated broker to execute brokerage transactions on behalf of the Portfolios, as long as the Adviser or the Sub-advisor obtains a price and execution as favorable as that which would be available through the use of an unaffiliated broker, and no less favorable than the affiliated broker's contemporaneous charges to its other most favored, but unaffiliated, customers. The Fund may not engage in any transactions in which the Adviser or the Sub-advisor or their affiliates acts as principal, including over-the-counter purchases and negotiated trades in which such a party acts as a principal. The Adviser or the Sub-advisor may enter into business transactions with brokers or dealers other than using them to execute Portfolio securities transactions for accounts the Adviser or the Sub-advisor manages. These other transactions will not affect the Adviser's or the Sub-advisor's selection of brokers or dealers in connection with Portfolio transactions for the Fund. BROKERAGE COMMISSIONS During the last three fiscal years, the Fund paid the following brokerage fees: 12/31/97 12/31/96 12/31/95 Opportunity Growth Portfolio $ 789,032 $ 353,407 $ -- World Growth Portfolio 492,771 441,571 -- Growth Portfolio 6,961,631 6,346,524 3,876,957 High Yield Portfolio 8,418 44,558 60,767 Income Portfolio 135,832 89,581 35,118 Money Market Portfolio -- -- -- Of the brokerage fee amounts stated above, the following percentages were paid to firms which provided research, statistical, or other services to the Fund's Adviser or Sub-advisor in connection with the management of the Fund: 12/31/97 12/31/96 12/31/95 Opportunity Growth Portfolio 5.52% 0.30% -- World Growth Portfolio 1.90% 1.30% -- Growth Portfolio 18.19% 9.79% 10.21% High Yield Portfolio -- -- 19.00% Income Portfolio 3.29% 4.78% 8.37% Money Market Portfolio -- -- -- ROWE PRICE-FLEMING AFFILIATED TRANSACTIONS Subject to applicable SEC rules, as well as other regulatory requirements, the sub-advisor of the World Growth Portfolio may allocate orders to brokers or dealers affiliated with such sub-advisor. Such allocation shall be in such amounts and proportions as the sub-advisor shall determine and the sub-advisor 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. For the fiscal period ended December 31, 1997, the Fund paid $11,272 to brokers or dealers affiliated with the sub-advisor of the World Growth Portfolio. 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 rate 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. DETERMINATION OF THE NET ASSET VALUE The net asset value of the shares of each Portfolio is determined once daily by the Adviser immediately after the declaration of dividends, if any, at 4:00 P.M., Eastern time, on each day during which the New York Stock Exchange is open for business and on any other day in which there is a sufficient degree of trading in the Portfolio's portfolio securities such that the current net asset value of its shares might be materially. The net asset value per share of each Portfolio except the Money Market Portfolio is computed by adding the sum of the value of the securities held by that Portfolio plus any cash or other assets it holds, subtracting all its liabilities, and dividing the result by the total number of shares outstanding of that Portfolio at such time. Expenses, including the investment advisory fee payable to the Adviser, are accrued daily. In determining the net asset value of the Portfolios other than the Money Market Portfolio, securities will be valued at prices provided by an independent pricing service. Securities traded on national securities exchanges are generally valued at the last quoted sales price at the close of each business day. Securities traded on the over-the-counter market, securities listed on a national exchange for which no price is readily available or for which the available price is determined to not represent fair value, and securities or assets for which adequate market quotations are not readily available are valued at a price within the range of current bid and asked prices considered to best represent value under the circumstances as determined by the Adviser under the direction of the Board of Directors of the Fund. In determining fair value the Advisor may consider institutional trading in similar groups of securities, yield, quality, coupon rate, maturities, etc. The amortized cost accounting method of valuation will be used for short-term investments maturing in 60 days or less that are held by any of the Portfolios, other than the Money Market Portfolio. The net asset value of shares of the Money Market Portfolio will normally remain at $1.00 per share, because the net investment income of this Portfolio (including realized gains and losses on Portfolio holdings) will be declared as a dividend each time the Portfolio's net income is determined. If, in the view of the Board of Directors of the Fund, it is inadvisable to continue to maintain the net asset value of the Money Market Portfolio at $1.00 per share, the Board reserves the right to alter the procedure. The Fund will notify shareholders of any such alteration. The Fund values all short-term debt obligations held in the Money Market Portfolio on an amortized cost basis. This means that each obligation will be valued initially at its purchase price and thereafter by amortizing any discount or premium uniformly to maturity, regardless of the impact of fluctuating interest rates on the market value of the obligation. This highly practical method of valuation is in widespread use and almost always results in a value that is extremely close to the actual market value. As a result of the rule of the Securities and Exchange Commission that permits the use of amortized cost valuation for the Money Market Portfolio, it is the policy of the Fund that the Money Market Portfolio may not purchase any security with a remaining maturity of more than one year and must maintain a dollar-weighted average of portfolio maturity of 90 days or less. In the event of sizeable changes in interest rates, however, the value determined by this method may be higher or lower than the price that would be received if the obligation were sold. The Board of Directors has established procedures to determine whether, on these occasions, if any should occur, the deviation might be enough to affect the value of shares in the Money Market Portfolio by more than 1/2 of one percent, and, if it does, an appropriate adjustment will be made in the value of the obligations. CALCULATION OF PERFORMANCE Money Market Portfolio The Prospectus contains information with respect to the yield and effective yield of a hypothetical pre-existing account having a balance of one Money Market Portfolio share at the beginning of a specified seven-day period. Such yield quotations have been calculated by determining the net change, exclusive of capital changes, in the value of a hypothetical pre- existing account having a balance of one share of the Portfolio at the beginning of the period, dividing the net change by the value of the account at the beginning of the period to obtain the period return, and multiplying the period return by 365/7. The effective yield has been calculated by compounding the yield quotation for such period by adding 1 and raising the sum to a power equal to 365/7, and subtracting 1 from the result. This example illustrates the yield quotation for the Money Market Portfolio for the seven-day period ended December 31, 1997: Value of hypothetical pre-existing account with exactly one share at the beginning of the period $1.000000000 Value of same account (excluding capital changes) at end of the seven-day period* $1.001072198 Net change in account value $0.001072198 Base Period Return Net change in account value divided by beginning account value = 0.001072198 Annualized Current Yield [0.001072198 x (365/7)] 5.60% Effective Yield** [0.001072198 + 1)365/7 - 1 5.76% * This value includes the value of any additional shares purchased with dividends from the original share, and all dividends declared on both the original share and any such additional shares. ** This value may change to include shares purchased with dividends reinvested on a less frequent basis. The annualization of a seven-day average yield is not a representation of future actual yield. Other Portfolios The Prospectus contains information with respect to yield quotations by Portfolios other than the Money Market Portfolio. These yield quotations are based on a 30-day (or one month) period computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, by setting yield equal to two times the difference between the sixth power of one plus the designated ratio and one, where the designated ratio is the difference between the net investment income earned during the period and the expenses accrued for the period (net of reimbursement) divided by the product of the average daily number of shares outstanding during the period and the maximum offering price per share on the last day of the period. The following example illustrates the annualized current yield calculation for the High Yield Portfolio for the 30-day base period ended December 31, 1997: Dividends and interest earned by the High Yield Portfolio during the base period $10,476,003 Expenses accrued for the base period $ (436,706) $10,039,297 (A) Product of the maximum public offering price on the last day of the base period and the average daily number of shares outstanding during the base period that were entitled to receive dividends ($10.429549 x 127,577,905 shares) = $1,330,580,012 (B) Quotient of dividends and interest earned minus expenses accrued divided by product of maximum public offering price multiplied by average shares outstanding (A divided by B) = 0.00754505(C) Adding one and raising total to the 6th power (C + 1)6 = 1.046133(D) Annualized current yield [2(D - 1) x 100] = 9.23% The following example illustrates the annualized current yield calculation for the Income Portfolio for the 30-day base period ended December 31, 1997: Dividends and interest earned by the Income Portfolio during the base period $4,960,503 Expenses accrued for the base period $ (286,915) $4,673,588 (A) Product of the maximum public offering price on the last day of the base period and the average daily number of shares outstanding during the base period that were entitled to receive dividends (9.916808 x 88,212,199 shares) = $874,783,441 (B) Quotient of dividends and interest earned minus expenses accrued divided by product of maximum public offering price multiplied by average shares outstanding (A divided by B) = 0.005343 (C) Adding one and raising total to the 6th power (C + 1)6 = 1.0324866 (D) Annualized current yield [2(D - 1) x 100] = 6.50% Annualized current yield of any specific base period is not a representation of future actual yield. The Prospectus contains information with respect to performance data for the Portfolios of the Fund. Such performance data includes average annual total return quotations for the 1, 5 and 10-year periods (or such shorter time period during which the Portfolios have been offered) ended on the date of the most recent balance sheet of the Fund included in the Prospectus or Statement of Additional Information, computed by finding the average annual compounded rates of return over the 1, 5 and 10-year periods (or such shorter time period during which the Portfolios have been offered) that would equate the initial amount invested to the ending redeemable value, by equating the ending redeemable value to the product of a hypothetical initial payment of $1,000, and one plus the average annual total return raised to a power equal to the applicable number of years. Such performance data assumes that any applicable charges have been deducted from the initial $1,000 payment and includes all recurring fees that are charged to the Fund's shareholders. Average annual total return for any specific period is not a representation of future actual results. Average annual total return assumes a steady rate of growth. Actual performance fluctuates and will vary from the quoted results for periods of time within the quoted periods. The following example illustrates the average annual total return for the Opportunity Growth Portfolio from the date of inception through December 31, 1997: Hypothetical $1,000 initial investment on January 18, 1996 $1,000 Ending redeemable value of the investment on December 31, 1997 1,203 Total return for the period is the difference between the ending redeemable value and the hypothetical $1,000 initial investment divided by the hypothetical $1,000 initial investment; the result is expressed in terms of a percentage (For example, 2 equals 200%) 20.27% Average annual total return from inception through December 31, 1997 is the sum of the total return calculated above plus one; such sum is raised to the power of 1/n where n is expressed as one year and 347 days; the result is reduced by one and is expressed in terms of a percentage (For example, 0.2 equals 20%) 9.90% The following example illustrates the average annual total return for the World Growth Portfolio from the date of inception through December 31, 1997: Hypothetical $1,000 initial investment on January 18, 1996 $1,000 Ending redeemable value of the investment on December 31, 1997 1,135 Total return for the period is the difference between the ending redeemable value and the hypothetical $1,000 initial investment divided by the hypothetical $1,000 initial investment; the result is expressed in terms of a percentage (For example, 2 equals 200%) 13.51% Average annual total return from inception through December 31, 1997 is the sum of the total return calculated above plus one; such sum is raised to the power of 1/n where n is expressed as one year and 347 days; the result is reduced by one and is expressed in terms of a percentage (For example, 0.2 equals 20%) 6.69% The following example illustrates the average annual total return for the Growth Portfolio from the date of inception through December 31, 1997: Hypothetical $1,000 initial investment on January 9, 1987 $1,000 Ending redeemable value of the investment on December 31, 1997 4,228 Total return for the period is the difference between the ending redeemable value and the hypothetical $1,000 initial investment divided by the hypothetical $1,000 initial investment; the result is expressed in terms of a percentage (For example, 2 equals 200%) 322.76% Average annual total return from inception through December 31, 1997 is the sum of the total return calculated above plus one; such sum is raised to the power of 1/n where n is expressed as ten years and 356 days; the result is reduced by one and is expressed in terms of a percentage (For example, 0.2 equals 20%) 14.03% The following example illustrates the average annual total return for the High Yield Portfolio from the date of inception through December 31, 1997: Hypothetical $1,000 initial investment on November 2, 1987 $1,000 Ending redeemable value of the investment on December 31, 1997 3,433 Total return for the period is the difference between the ending redeemable value and the hypothetical $1,000 initial investment divided by the hypothetical $1,000 initial investment; the result is expressed in terms of a percentage (For example, 2 equals 200%) 243.30% Average annual total return from inception through December 31, 1997 is the sum of the total return calculated above plus one; such sum is raised to the power of 1/n where n is expressed as ten years and 59 days; the result is reduced by one and is expressed in terms of a percentage (For example, 0.2 equals 20%) 12.89% The following example illustrates the average annual total return for the Income Portfolio from the date of inception through December 31, 1997: Hypothetical $1,000 initial investment on January 9, 1987 $1,000 Ending redeemable value of the investment on December 31, 1997 2,410 Total return for the period is the difference between the ending redeemable value and the hypothetical $1,000 initial investment divided by the hypothetical $1,000 initial investment; the result is expressed in terms of a percentage (For example, 2 equals 200%) 141.04% Average annual total return from inception through December 31, 1997 is the sum of the total return calculated above plus one; such sum is raised to the power of 1/n where n is expressed as ten years and 356 days; the result is reduced by one and is expressed in terms of a percentage (For example, 0.2 equals 20%) 8.34% The following example illustrates the average annual total return for the Money Market Portfolio from the date of inception through December 31, 1997: Hypothetical $1,000 initial investment on January 9, 1987 $1,000 Ending redeemable value of the investment on December 31, 1997 1,845 Total return for the period is the difference between the ending redeemable value and the hypothetical $1,000 initial investment divided by the hypothetical $1,000 initial investment; the result is expressed in terms of a percentage (For example, 2 equals 200%) 84.55% Average annual total return from inception through December 31, 1997 is the sum of the total return calculated above plus one; such sum is raised to the power of 1/n where n is expressed as ten years and 356 days; the result is reduced by one and is expressed in terms of a percentage (For example, 0.2 equals 20%) 5.74% TAX STATUS The Fund intends to qualify as a Regulated Investment Company under certain provisions of the Internal Revenue Code of 1986, as amended, (the "Code"). Under such provisions, the Fund will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains that it distributes to the Account. Generally, each of the Portfolios will be treated as a separate corporation for Federal income tax purposes. This means that the investment results of each Portfolio will determine whether the Portfolio qualifies as a Regulated Investment Company and will determine the net ordinary income (or loss) and net realized capital gains (or losses) of the Portfolio. To qualify for treatment as a Regulated Investment Company, each Portfolio must, among other things, derive in each taxable year at least 90% of its gross income from dividends, interest (including tax-exempt interest) and gains from the sale or other disposition of securities, and must derive less than 30% of its gross income in each taxable year from the sale or disposition of securities held for less than three months. At least 50% of its assets quarterly must be in cash items or "other securities". "Other securities" cannot include securities of one issuer greater in value than 5% of total Portfolio assets nor represent more than 10% of the voting power of the issuer. Not more than 25% in value of the Portfolio's assets quarterly can be invested in securities (excluding governments) of any one issuer (including affiliates). The Fund intends to distribute as dividends substantially all the net investment income, if any, of each Portfolio. For dividend purposes, net investment income of each Portfolio, other than the Money Market Portfolio, will consist of all payments of dividends (other than stock dividends) or interest received by such Portfolio less the estimated expenses of such Portfolio (including fees payable to the Adviser). Net investment income of the Money Market Portfolio consists of (i) interest accrued and/or discount earned (including both original issue and market discount), (ii) plus or minus all realized gains and losses, (iii) less the expenses of the Portfolio (including the fees payable to the Adviser). Dividends on the Income Portfolio, the High Yield Portfolio and Money Market Portfolio will be declared and reinvested daily in additional full and fractional shares of the Portfolio. Shares will begin accruing dividends on the day following the date on which they are issued. Dividends from investment income of the Growth Portfolio will be declared and reinvested in additional full and fractional shares quarterly, although the Fund may make distribution more frequently. Dividends from investment income of the Opportunity Growth Portfolio, Mid Cap Growth Portfolio and the World Growth Portfolio will be declared and reinvested in additional full and fractional shares annually, although the Fund may make distribution more frequently. The Fund will also declare and distribute annually all net realized capital gains of each Portfolio, other than short-term gains of the Money Market Portfolio which are declared as dividends daily. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and these Regulations are subject to change by legislative or administrative actions. ADDITIONAL INFORMATION The Prospectus of the Fund and this Statement of Additional Information do not contain all information included in the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Registration Statement including the exhibits filed therewith may be examined at the office of the Securities and Exchange Commission in Washington, D.C. Statements contained in the Prospectus and this Statement of Additional Information as to the contents of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which the Prospectus and this Statement of Additional Information form a part, each such statement being qualified in all respects by such reference. 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, 1997 of the Fund are a separate report to be furnished with this Statement of Additional Information and are incorporated herein by reference. LB SERIES FUND, INC. PART C OTHER INFORMATION ----------------- Item 24. Financial Statements and Exhibits - ------------------------------------------- (a) Financial Statements (1) Part A: Financial Highlights for Growth Portfolio, Income Portfolio, High Yield Portfolio, Money Market Portfolio, Opportunity Growth Portfolio, World Growth Portfolio and Mid Cap Growth Portfolio (6) (2) Part B: Financial Statements for Growth Portfolio, Income Portfolio, High Yield Portfolio, Money Market Portfolio, Opportunity Growth Portfolio, World Growth Portfolio and Mid Cap Growth Portfolio (6) (b) Exhibits (1) Articles of Incorporation of the Registrant (6) (2) By-Laws of the Registrant (3), (6) (3) Not applicable (4) Not applicable (5)(a) Investment Advisory Contract between the Registrant and Lutheran Brotherhood Research Corp. (6) (5)(b) Investment Advisory Contract between the Registrant and Lutheran Brotherhood. (6) (5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood, the Registrant and Rowe Price-Fleming International, Inc. (1) (5)(d) Form of Investment Advisory Contract between the Registrant and Lutheran Brotherhood. (3) (5)(e) Form of Sub-Advisory Agreement between Lutheran Brotherhood, the Registrant and T. Rowe Price Associates, Inc. (5) (6) Not Applicable (7) Not applicable (8)(a) Custodian Contract between the Registrant and State Street Bank and Trust Company (6) (8)(b) Transfer Agency Agreement between the Registrant and State Street Bank and Trust Company (6) (8)(c) Amendment to Custodian Contract dated February 1, 1989 (1) (8)(d) Amendment to Custodian Contract dated January 11, 1990 (1) (8)(e) Amendment to Custodian Contract (1) (8)(f) Letter Agreement between the Registrant and State Street Bank and Trust Company (2) (8)(g) Form of Letter Agreement between the Registrant and State Street Bank and Trust Company (3) (9) Not applicable (10)(a) Opinion and consent of counsel in connection with the issuance of shares of the Opportunity Growth Portfolio and the World Growth Portfolio (1) (10)(b) Opinion and consent of counsel in connection with the issuance of shares of the Mid Cap Growth Portfolio (3) (10)(c) Opinion and consent of counsel in connection with Post-Effective Amendment No. 22 (6) (11) Consent of independent accountants (6) (12) Not applicable (13)(a) Letter from Lutheran Brotherhood Variable Insurance Products Company ("LBVIP")with respect to providing initial capital. (6) (13)(b) Letter from Lutheran Brotherhood with respect to providing initial capital Letter with respect to the Opportunity Growth Portfolio and the World Growth Portfolio. (1) (13)(c) Letter from Lutheran Brotherhood with respect to providing initial capital Letter with respect to the Opportunity Growth Portfolio (2) (13)(d) Letter from Lutheran Brotherhood with respect to providing initial capital Letter with respect to the World Growth Portfolio (2) (13)(e) Letter from Lutheran Brotherhood Variable Insurance Products Company with respect to providing initial capital Letter with respect to the Opportunity Growth Portfolio (2) (13)(f) Letter from Lutheran Brotherhood Variable Insurance Products Company with respect to providing initial capital Letter with respect to the World Growth Portfolio (2) (13)(g) Letter from Lutheran Brotherhood with respect to providing initial capital Letter with respect to the Mid Cap Growth Portfolio (3) (13)(h) Form of Letter from Lutheran Brotherhood Variable Insurance Products Company with respect to providing initial capital Letter with respect to the Mid Cap Growth Portfolio (3) (14) Not applicable (15) Not applicable (16) Schedule of computation of performance data provided in response to Item 22 of this Registration Statement (6) (i) Total Return -- Growth Portfolio (ii) Current Yield -- Income Portfolio (iii) Current Yield -- Money Market Portfolio (17) Financial Data Schedules (6) (18)(a) Reimbursement Agreement between the Registrant and LBVIP. (6) (18)(b) Powers of Attorney for Rolf F. Bjelland, Charles W. Arnason, Herbert F. Eggerding, Jr. and Ruth E. Randall. (6) (18)(c) Power of Attorney for Wade M. Voigt (6) (18)(d) Power of Attorney for Bruce J. Nicholson (1) (18)(e) Power of Attorney for Noel K. Estenson (3) 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) Enclosed Item 25. Persons Controlled by or under Common Control with Registrant - ---------------------------------------------------------------------- None. LBVIP, a Minnesota stock life insurance company, has purchased shares of Common Stock of Registrant for the purpose of providing the initial capital of Registrant. LBVIP is an indirect subsidiary of Lutheran Brotherhood, a fraternal benefit society founded under the laws of the State of Minnesota. Lutheran Brotherhood's other direct and indirect subsidiaries are Lutheran Brotherhood Financial Corporation, a Minnesota corporation, and the Adviser and Lutheran Brotherhood Securities Corp., both of which are Pennsylvania corporations. Item 26. Number of Holders of Securities - ---------------------------------------- As of February 27, 1998 the numbers of record holders of shares of the Registrant was as follows: (1) (2) Title of Class Number of Record Holders Money Market Portfolio Capital Stock Two Income Portfolio Capital Stock Two Growth Portfolio Capital Stock Two High Yield Portfolio Capital Stock Two Opportunity Growth Portfolio Capital Stock Two World Growth Portfolio Capital Stock Two Mid Cap Growth Portfolio Capital Stock Two Item 27. Indemnification - ------------------------ Filed as part of the initial Registration Statement filed on March 3, 1986, and incorporated herein by reference. Item 28. 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 $13.2 billion on December 31, 1997. The Adviser also has owned a subsidiary investment advisory company since 1970 that acts as investment adviser to eight registered investment companies with combined net assets of approximately $4.1 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. 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 Paul R. Ramseth, 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 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 Craig R. Darrington, Vice President Pamela H. Desnick, Vice President Mitchell F. Felchle, Vice President Charles E. Heeren, Vice President Wayne A. Hellbusch, Vice President Otis F. Hilbert, Vice President 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 Daniel G. Walseth, 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 29. Principal Underwriters - ------------------------------- Not Applicable Item 30. 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 31. Management Services - ---------------------------- Not Applicable. Item 32. Undertakings - --------------------- 1. The Registrant includes in its Annual Report to Shareholder a discussion of Portfolio performance as required by Item 5A of this Form and incorporates such discussion in this Amended Registration Statement on Form N-1A by reference. The Registrant hereby undertakes to make such Annual Report to Shareholders available without charge to anyone so requesting it, and further undertakes to make such fact know by including in its Prospectus a statement to that effect. 2. The Registrant hereby undertakes to file a post-effective amendment to its registration for the purposes of filing updated financial statements with respect to the Opportunity Growth Portfolio and the World Growth Portfolio (which need not be audited) within the time limit specified by Item 32(b) of Form N-1A. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Registrant has duly caused this amendment to Registration Statement on Form N-1A to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Minneapolis and State of Minnesota, on the 27th day of April, 1998. LB SERIES FUND, INC. By: /s/ Randall L. Wetherille ------------------------- Randall L. Wetherille, 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 April 27, 1998 - ------------------------ (Principal Executive Officer) Rolf F. Bjelland * Treasurer April 27, 1998 - ------------------------ (Principal Financial and Wade M. Voigt Accounting Officer) * Director April 27, 1998 - ------------------------ Charles W. Arnason * Director April 27, 1998 - ------------------------- Herbert F. Eggerding, Jr. * Director April 27, 1998 - ------------------------ Noel K. Estenson * Director April 27, 1998 - ------------------------ Bruce J. Nicholson * Director April 27, 1998 - ------------------------ Ruth E. Randall By: /s/ Randall L. Wetherille ------------------------- Randall L. Wetherille, Attorney-in-Fact under Powers of Attorney filed herewith and incorporated by reference from Post-Effective Amendment Nos. 14 and 18. INDEX TO EXHIBITS EXHIBIT NUMBER Item 24(a) - ---------- (1) Part A: Financial Highlights for Growth Portfolio, Income Portfolio, High Yield Portfolio, Money Market Portfolio, Opportunity Growth Portfolio, World Growth Portfolio and Mid Cap Growth Portfolio (2) Part B: Financial Statements for Growth Portfolio, Income Portfolio, High Yield Portfolio, Money Market Portfolio, Opportunity Growth Portfolio, World Growth Portfolio and Mid Cap Growth Portfolio Item 24(b) - ---------- (1) Articles of Incorporation of the Registrant (2) By-Laws of the Registrant (5)(a) Investment Advisory Contract between the Registrant and Lutheran Brotherhood Research Corp. (5)(b) Investment Advisory Contract between the Registrant and Lutheran Brotherhood. (8)(a) Custodian Contract between the Registrant and State Street Bank and Trust Company (8)(b) Transfer Agency Agreement between the Registrant and State Street Bank and Trust Company (10)(c) Opinion and consent of counsel in connection with Post-Effective Amendment No. 22 (11) Consent of independent accountants (13)(a) Letter from Lutheran Brotherhood Variable Insurance Products Company ("LBVIP")with respect to providing initial capital. (16) Schedule of computation of performance data provided in response to Item 22 of this Registration Statement (i) Total Return -- Growth Portfolio (ii) Current Yield -- Income Portfolio (iii) Current Yield -- Money Market Portfolio (17) Financial Data Schedules (18)(a) Reimbursement Agreement between the Registrant and LBVIP. (18)(b) Powers of Attorney for Rolf F. Bjelland, Charles W. Arnason, Herbert F. Eggerding, Jr. and Ruth E. Randall. (18)(c) Power of Attorney for Wade M. Voigt
EX-24 2 ANNUAL REPORT [GRAPHIC OMITTED: 7 SQUARE BULLETS CENTERED UNDER SOLID BLACK BAR] - ------------------------------------------------------ LB SERIES FUND, INC. - ------------------------------------------------------ [GRAPHIC OMITTED: LARGE SQUARE FRAME WITH A COMPASS INSIDE POINTING NORTH Inside the compass reads: CHOICE [BULLET] PROTECTION [BULLET] ACCUMULATION] Annual Report for Variable Products December 31, 1997 [LUTHERAN BROTHERHOOD LOGO OMITTED] [GRAPHIC OMITTED: PHOTO OF ROLF F. BJELLAND] Our Message To You December 31, 1997 Dear Shareholder: Enclosed is the Annual Report for the LB Series Fund, Inc., which is the underlying investment vehicle for all variable annuity and variable life insurance contracts issued by Lutheran Brotherhood and Lutheran Brotherhood Variable Insurance Products Company. The report covers the 12-months ended December 31, 1997. Inside, you'll find an overview of the economic and market climate that drove returns from stocks, bonds, and money market instruments during the year. There are also commentaries by individual portfolio managers that describe the strategies used to make the most of this environment. Financial statements for each portfolio follow at the end of the report. In 1997, investors once again earned exceptional returns from stocks and bonds that far outpaced historical averages. Market volatility increased during the year, however, as investors second guessed trends in economic growth, inflation and interest rates. Because the economic climate remained ideal for most of the year, the markets rebounded quickly from each period of weakness. This was the case in October of 1997, when currency and economic problems in Asia rocked stock markets across the globe. On October 27, the Dow Jones Industrial Average fell 7% -- an eerie reminder of the one-day price drop of 23% that had occurred in October of 1987. In 1987, as in 1997, stock prices quickly regained lost ground -- providing substantial rewards for investors who stayed in the market. From their low in October 1987 to their high in August 1997, stock prices, as measured by the Standard & Poor's 500 Index, gained more than 350%. In recent years, Lutheran Brotherhood has made several moves to give you greater control over your investments. As part of our commitment to provide a broad range of investment options, we introduced the new Mid Cap Growth Portfolio to the LB Series Fund, Inc. Launched on January 30, 1998, the Portfolio invests primarily in common stocks of medium-sized companies. The earnings of these companies tend to be more stable than earnings of smaller companies and have greater growth potential than earnings of larger firms. The Mid Cap Portfolio looks for quality companies with records of superior growth, market leadership, proven business concepts, sound management and strong financials. In addition, we've developed two computer software programs to simplify your financial planning. The Lutheran Brotherhood AssetMatchsm program allows you and your LBSC registered representative to blend a diversified portfolio of investments suited to your specific objectives, time horizon and tolerance for risk. The Lutheran Brotherhood Retirement Planner, available from your LBSC Registered Representative, can help you 1) identify how much income you'll need to retire, 2) decide whether you're on track for that goal, and 3) take the actions necessary to turn your goal into reality. If you'd like more information on AssetMatch, the Lutheran Brotherhood Retirement Planner, or the Mid Cap Growth Portfolio, please call us toll-free at 1-800-423-7056. Sincerely, /S/ ROLF F. BJELLAND Rolf F. Bjelland President and Chairman LB Series Fund, Inc. [GRAPHIC OMITTED: SMALL SQUARE FRAME WITH A COMPASS INSIDE POINTING NORTH Inside the compass reads: CHOICE [BULLET] PROTECTION [BULLET] ACCUMULATION] Economic and Market Overview Investors were again well rewarded in 1997. With a nearly ideal economic mixture of moderate growth, healthy corporate earnings and low inflation, returns for stocks and bonds remained well above historical averages. Although inflation jitters and a financial "earthquake" in Asia raised market volatility around the world, the Standard & Poor's 500 Index posted a total return of 33.36%, and the Lehman Brothers Aggregate Bond Index returned 9.65%. A Nurturing Environment The U.S. economy is closer to achieving the textbook goals of full employment, growth and price stability than it has been in over three decades. Real Gross Domestic Product grew in 1997 by 3.9%, while inflation, as measured by the Consumer Price Index, fell to 1.7% and the unemployment rate finished at 4.7%. After raising short-term interest rates a modest 0.25% in March, the Federal Reserve left rates unchanged for the rest of the year. This, plus stronger demand for bonds and tighter supplies of U.S. Treasury issues in the midst of falling inflation, pushed down the yield for 30-year Treasuries from 6.64% to 5.92% at year end. Meanwhile, corporate earnings remained better than analysts expected. Stocks also benefited from a positive balance of market supply and demand. As cash continued to flow into stock mutual funds, heavy corporate merger activity and widespread stock repurchase programs far outpaced the addition of new shares from an active market in initial public offerings. Stock returns were more modest overseas, with Morgan Stanley Capital International's Europe, Australia, Far East (EAFE) Index earning a 12- month total return of 2.06%. Although stocks in Europe earned strong returns as economies in that region improved, stocks in Japan, the rest of the Far East, and emerging markets suffered significant setbacks from worsening currency and debt problems in Asia. Sector Performance The rally in U.S. stock prices benefited some market sectors more than others. Concerned that either higher inflation or lower exports might curb corporate earnings, investors tended to favor stocks of larger companies whose earnings are more reliable. In the second and third quarters, however, when prices for large-company issues had grown quite expensive, investors discovered value in many small-company shares. This helped the Russell 2000 Index, a market benchmark for small-cap stocks, return 22.36% for the year. In the bond market, U.S. Treasury issues outperformed corporate securities. This was due, in part, to uncertainty about corporate earnings and, in part, to the "flight to quality" that occurred late in the year, as Asia's troubles drove foreign investors to markets with greater stability. During the year, yields for long-term corporate bonds fell an average of 0.45%, versus a drop of 0.72% for long-term Treasuries. Because the benefits of lower inflation are greater for long-term issues than short-term issues, long-term bonds outperformed for the year. Slower Growth Ahead Although the world's financial markets have mostly digested Asia's recent woes, we expect further adjustments as the long-term effects of those problems unfold. As in recent months, the greatest impact on investments will probably take place in the Far East -- with markets like Thailand, Malaysia and Indonesia continuing to bear most of the burden. Although emerging markets in Latin America may also suffer, the overall strength of their economies should make them relatively resilient. In the United States and Europe, there should be even less fallout from Asia's problems. U.S. exports to the Far East account for only 5% of domestic goods and services. In addition, real (inflation-adjusted) earnings and income are rising and should improve further if inflation continues to fall. This should support additional spending by U.S. businesses and consumers. Lower exports may reduce earnings for some U.S. companies, keeping stock prices volatile. However, the market has made adjustments over the past several quarters in anticipation of slower corporate earnings. As Asia's problems cut import costs for many U.S. firms, inflation and interest rates could continue to fall. This might set the stage for further gains in stock prices. These gains should be more modest than the outstanding advances of recent years. In a climate of low inflation, falling budget deficits, and a positive balance of demand and supply, prices for bonds may also continue to rise. Opportunity Growth Portfolio Review LB Series Fund, Inc. [GRAPHIC OMITTED: PHOTO OF MICHAEL A. BINGER] Michael A. Binger is a Chartered Financial Analyst and portfolio manager for the Opportunity Growth Portfolio. He has been with Lutheran Brotherhood since 1987. Investment Objective: To seek long-term growth of capital by investing primarily in common stocks of small companies. Portfolio Facts Inception Date: 1/18/96 Total Assets (in millions): $391.5 The stock market's advance in 1997 greatly benefited stocks of small companies, which earned returns far above their historical averages. Throughout the year, however, investors worried frequently that future earnings might not meet analysts' expectations. When investors were most concerned about earnings, they tended to favor stocks of larger companies with strong earnings records. This caused large-company issues to outperform small companies in the first and last quarters of the year. However, early in the second quarter, as large issues became expensive, investors turned to shares of smaller firms. This helped small-company issues outperform large companies in the second and third quarters of the year. [GRAPHIC OMITTED: TOP 10 HOLDINGS] Top 10 Holdings % of Portfolio - -------------------------------------------------------------- FPA Medical Management, Inc. 1.9% Signature Resorts, Inc. 1.8% Steiner Leisure Ltd. 1.7% Horizon Health Corp. 1.4% Coach USA, Inc. 1.4% AXENT Technologies, Inc. 1.4% Silverleaf Resorts, Inc. 1.4% US Office Products Company 1.4% Atrix Laboratories, Inc. 1.3% ICN Pharmaceuticals, Inc. 1.3% These holdings represent 15% of the Fund's total investment portfolio. Within the small-cap sector, investors tended to favor stocks whose prices were particularly attractive compared with the earnings potential of their companies. As a result, "value" stocks in the sector outperformed "growth" stocks, where the Opportunity Growth Portfolio focuses its investments. During the year, we managed the Portfolio to minimize the adverse effects of this investment climate, while maintaining the basic investment strategies that have outperformed over time. However, the strong preference for value by investors caused the Portfolio to underperform significantly for the year. For the 12- months ended December 31, 1997, the Portfolio had a total return (based on NAV) of 0.93%, versus 22.36% for the Russell 2000 Index. [GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)] Portfolio Composition (% of Portfolio) Common Stocks 89.0% Corporate Bonds 0.7% Short-Term Securities 10.3% Focus on Earnings Throughout 1997 we continued to emphasize stocks in industries with above-average potential for growth over time. This included companies with strong earnings, quality management and unique products. With investors very concerned about earnings, we examined every holding for any sign of long-term earnings problems. Believing that technology and health care stocks enjoy some of the best opportunities for growth in the American economy, we chose to remain overweighted in those sectors. [GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS] Top 10 Sectors Consumer Growth 36.7% Technology 20.7% Financial 15.4% Energy 6.5% Capital Goods 6.3% Consumer Cyclical 3.9% Basic Industry 3.9% Credit Cyclical 2.8% Transportation 2.4% Consumer Staples 1.4% Footnote reads: These sectors represent 100% of the Fund's total investment portfolio. To give the Portfolio further diversification, however, we trimmed some positions in technology and health care firms in favor of shares in energy and financial firms whose prices were especially attractive. In the financial sector, we emphasized purchases of real estate investment trusts. In the energy sector, we focused on oil exploration and production companies. As part of the natural evolution for a small-company stock fund whose assets are increasing, we began to de-emphasize micro-cap issues ($200 million or less in market capitalization), and added investments in firms with market capitalizations over $500 million. Over time, this should help to reduce volatility in the Portfolio, but should have little effect on its potential for long-term growth. [GRAPHIC WORM CHART OMITTED: Performance Through December 31, 1997 GROWTH OF $10,000 INVESTED SINCE 1/31/96] Performance Through December 31, 1997 Growth of $10,000 Invested Since 1/31/96 Russell 2000 Opp. Growth w/ reinvest CPI Valued Month End Total Total Total Date Value Value Value - --------------------------------------------------------------------- 1/31/96 $10,000 $10,000 $10,000 2/28/96 10,416 10,312 10,032 3/31/96 10,722 10,525 10,084 4/30/96 11,944 11,089 10,123 5/31/96 12,716 11,525 10,142 6/30/96 11,871 11,052 10,149 7/31/96 10,855 10,087 10,168 8/31/96 11,499 10,673 10,188 9/30/96 12,342 11,090 10,220 10/31/96 11,364 10,920 10,253 11/30/96 10,954 11,369 10,272 12/31/96 11,302 11,667 10,272 1/31/97 11,528 11,901 10,304 2/28/97 10,533 11,613 10,337 3/31/97 9,415 11,065 10,363 4/30/97 9,009 11,095 10,376 5/31/97 10,338 12,329 10,369 6/30/97 10,887 12,858 10,382 7/31/97 11,454 13,456 10,395 8/31/97 11,721 13,764 10,415 9/30/97 13,018 14,772 10,440 10/31/97 12,246 14,123 10,466 11/30/97 11,776 14,032 10,460 12/31/97 11,407 14,277 10,447 INSET LEGEND READS: Opportunity Growth Portfolio $11,407 Russell 2000 Index $14,277 Consumer Price Index $10,447 INSET BOX ON CHART READS: Opportunity Growth Portfolio Annualized Total Returns* - ----------------------------------------------------------- Since Inception 1/18/96 9.90% 1 Year 0.93% Footnote reads: *See accompanying notes to Portfolio Management Reviews. Looking Homeward If investors remain concerned about earnings, prices for stocks of small companies may remain quite choppy. Prices for technology stocks may be especially volatile, since many technology companies have a large export business with Asia. With continued growth and low inflation, however, small-cap stocks could perform relatively well. Small-cap stocks remain much cheaper than stocks of larger companies, and smaller companies tend to focus more on domestic sales which, with the exception of technology firms, makes them less vulnerable to the Asian economic crisis. As before, we will emphasize stocks with above-average potential for long-term growth -- stressing shares of companies that concentrate their businesses in the United States. We plan to remain cautious about the technology sector, given its greater exposure to problems in Asia. World Growth Portfolio Review LB Series Fund, Inc. [GRAPHIC OMITTED: PHOTO OF MARTIN G. WADE] Martin G. Wade is president of Rowe Price-Fleming, the investment subadvisor for the World Growth Portfolio. He leads a team of 12 portfolio managers who have managed the assets of the World Growth Portfolio since its inception. Martin has been working in research and investment management since 1968 and has been with Rowe Price-Fleming since 1979. Investment Objective: To seek long-term capital growth by investing primarily in common stocks issued by established companies outside the United States.** Portfolio Facts Inception Date: 1/18/96 Total Assets (in millions): $287.2 During 1997 there were exceptional performances by many stocks in Europe and Latin America. These gains offset sharp losses from stocks in Asia, and the return-dampening affects of a stronger U.S. dollar, to provide modest returns for U.S. investors venturing abroad. European stocks in Morgan Stanley Capital International's Europe, Australia, Far East (EAFE) Index returned 38% in local currency terms - -- benefiting from increased European economic strength and a wave of mergers and acquisitions. Despite a fourth-quarter slump in sympathy with plummeting Asian markets, stocks in Latin America also returned 38% in local currency terms, as investors recognized the attractive stock market values there. [GRAPHIC OMITTED: PORTFOLIO COMPOSITION TOP 10 COUNTRIES] Portfolio Composition Top 10 Countries - ----------------------------- Japan 18.6% United Kingdom 17.7% Netherlands 10.8% France 9.0% Switzerland 6.9% Germany 5.8% Italy 3.9% Sweden 3.5% Brazil 2.4% Spain 2.4% These holdings represent 81.0% of the Fund's total investment portfolio. Already shackled by a fragile economy, stocks in Japan were hit hard as the currencies and economies of other Asian nations deteriorated. For the year, the Japanese market lost 14% when measured in local currency terms and 24% when measured in U.S. dollars. Other Asian markets (excluding Japan) lost 19% in local currency terms and 31% in U.S. dollar terms. [GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)] Portfolio Composition (% of Portfolio) Common Stocks & Warrants 94.1% Preferred Stocks 0.6% Short-Term Securities 5.3% During the year, we under-weighted the World Growth Portfolio in Japanese stocks in comparison to the EAFE Index. We overweighted holdings in Latin America, which is not represented in the Index. This helped the Portfolio earn a total return (based on NAV) of 2.81% for the 12-months ended December 31, 1997, versus a return of 2.06% for the Index. [GRAPHIC OMITTED: TOP 10 HOLDINGS] % of Top 10 Holdings Country Portfolio - -------------------------------------------------------------------- Royal Dutch Petroleum Netherlands 2.6% National Westminster Bank United Kingdom 2.4% Novartis AG Switzerland 2.2% SmithKline Beecham plc United Kingdom 2.0% Wolters Kluwer Netherlands 1.7% Telecomunicacoes Brasilias ADR (USD) Brazil 1.6% Eaux Cie Generale France 1.5% Roche Holdings Switzerland 1.5% Reed International plc United Kingdom 1.4% Shell Transport & Trading United Kingdom 1.4% These holdings represent 18.3% of the Fund's total investment portfolio. Less Emphasis on Asia At the start of 1997, Japanese stocks represented 21% of Portfolio assets, compared with 32% of the EAFE Index. Because the Japanese economy was weak, we favored stocks of companies that do a large portion of their business outside of Japan -- such as Sony, TDK and Honda. These issues outperformed other Japanese stocks for most of the year. Although we started the year with an overweighting in the emerging markets of Asia, such as Malaysia and Singapore, we reduced positions there as the outlook for their stocks worsened. By the end of 1997 the Portfolio was underweighted in emerging Asian markets compared to the EAFE Index. European stocks accounted for 54% of Portfolio assets at the start of the year, versus a representation in the EAFE Index of 57%. We maintained a similar weighting in Europe for most of the year. Throughout 1997 we looked for European issues with strong potential for long-term earnings growth at attractive valuations. Although these issues lagged earlier in the year, especially in the Netherlands and Germany, they made positive contributions in the months that followed. [GRAPHIC WORM CHART OMITTED: Performance Through December 31, 1997 GROWTH OF $10,000 INVESTED SINCE 1/31/96] Performance Through December 31, 1997 Growth of $10,000 Invested Since 1/31/96 MSCI EAFE World Growth w/ reinvest CPI Valued Month End Total TOTAL TOTAL Date Value VALUE VALUE - -------------------------------------------------------------------- 1/31/96 $10,000 $10,000 $10,000 2/28/96 9,974 10,036 10,032 3/31/96 10,098 10,252 10,084 4/30/96 10,355 10,552 10,123 5/31/96 10,336 10,360 10,142 6/30/96 10,468 10,421 10,149 7/31/96 10,137 10,119 10,168 8/31/96 10,290 10,143 10,188 9/30/96 10,534 10,415 10,220 10/31/96 10,481 10,311 10,253 11/30/96 10,965 10,723 10,272 12/31/96 11,025 10,588 10,272 1/31/97 10,871 10,220 10,304 2/28/97 10,983 10,389 10,337 3/31/97 10,967 10,430 10,363 4/30/97 11,035 10,487 10,376 5/31/97 11,738 11,172 10,369 6/30/97 12,239 11,791 10,382 7/31/97 12,568 11,985 10,395 8/31/97 11,433 11,092 10,415 9/30/97 12,195 11,715 10,440 10/31/97 11,306 10,816 10,466 11/30/97 11,276 10,708 10,460 12/31/97 11,335 10,805 10,447 INSET LEGEND READS: World Growth Portfolio $11,335 MSCI EAFE Index $10,805 Consumer Price Index $10,447 INSET BOX ON CHART READS: World Growth Portfolio Annualized Total Returns* - ---------------------------------------------------------- Since Inception 1/18/96 6.69% 1 Year 2.81% Footnote reads: *See accompanying notes to Portfolio Management Reviews. For most of the year we kept 4% to 6% of the Portfolio's assets in Latin America. We focused these investments on Brazil -- emphasizing large utility stocks, like Telecomunicacoes Brasilias, which are major beneficiaries of that country's privatization reform. Mexico represented our second largest allocation in the region. Becoming More Selective We believe that Asia's economic troubles may remain a drag on world stock prices through the first half of 1998. Because investors are concerned about the impact of these troubles on exports and earnings in other regions of the world, stock evaluation and selection will be even more important than it was in 1997. Because European companies tend to have a more limited exposure to Asia, we believe stocks in Europe should continue to perform well. While equity markets in Latin America may be volatile, they could also thrive on further economic growth. By remaining focused on Europe and Latin America, cautiously optimistic in Asia, and very selective in the stocks that we hold, we hope to help the Portfolio make the most of this investment climate. Growth Portfolio Review LB Series Fund, Inc. [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. Investment Objective: To seek long-term growth of capital by investing primarily in common stocks of established corporations. Portfolio Facts Inception Date: 1/9/87 Total Assets (in millions): $2,426.1 In another year of outstanding gains for stocks, investors increasingly favored shares with exceptional earnings potential. By emphasizing such issues, the Growth Portfolio performed well in this environ-ment. For the 12-months ended December 31, 1997, the Portfolio earned a total return (based on NAV) of 30.18%. Over the same period, the Standard & Poor's 500 Index returned 33.36%. Sticking with Technology and Health Care As in 1996, we found many opportunities for above-average growth in the technology and health care sectors. During 1997, the Portfolio also enjoyed strong performances from pharmaceutical stocks like Pfizer, Bristol-Myers and Eli Lilly. Although technology stocks were quite volatile, there were solid returns from shares of companies like Cisco Systems, Microsoft, BMC Software, and Peoplesoft. Though disappointing in the second half of 1997, oil-services stocks like Halliburton and Baker Hughes performed well in the first half. After lagging earlier in 1997, retail stocks like Dayton Hudson and Wal-mart made positive contributions later in the year. [GRAPHIC OMITTED: TOP 10 HOLDINGS] Top 10 Holdings % of Portfolio - -------------------------------------------------------------- General Electric Co. 1.6% Merck & Co., Inc. 1.6% Cisco Systems, Inc. 1.5% International Business Machines 1.3% Disney (Walt) Co. 1.3% Procter & Gamble Co. 1.3% Coca-Cola Co. 1.3% Gillette Co. 1.2% Bristol-Myers Squibb Co. 1.2% Eli Lilly & Co. 1.1% Footnote reads: These holdings represent 13.4% of the Fund's total investment portfolio. [GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)] Portfolio Composition (% of Portfolio) Common Stocks 92.1% Short-Term Securities 7.4% Preferred Stocks 0.3% Corporate Bonds 0.2% Over the year we increased investments in financial stocks -- which benefited from falling interest rates, as well as mergers and acquisitions in the industry. We enhanced diversification in this sector by adding shares of real estate investment trusts. We also boosted investments in transportation shares -- adding positions in airlines like American, United and Continental. To make these purchases we took profits in oil-services stocks that had performed well. We also reduced shares of technology and basic materials companies. In these, and other sectors, we eliminated firms whose dependence on exports to Asia might jeopardize future earnings growth. [GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS] Top 10 Sectors Technology 22.2% Consumer Growth 21.8% Financial 19.5% Consumer Staples 9.5% Energy 5.7% Capital Goods 4.7% Basic Industry 4.2% Consumer Cyclical 4.1% Utilities 4.0% Conglomerates 2.5% Footnote reads: These sectors represent 98.2% of the Fund's total investment portfolio. Further Selectivity Likely If Asia's troubles persist, and the growth in earnings slows, stock prices could remain quite volatile. After an unprecedented three years of market returns in excess of 20%, gains for U.S. stocks will probably be more modest in 1998. In a choppy market environment, the selection of individual stocks may become much more important than the weightings of industry sectors -- as investors give increasing scrutiny to company earnings reliability and exposure to Asia. [GRAPHIC WORM CHART OMITTED: Performance Through December 31, 1997 GROWTH OF $10,000 INVESTED SINCE 12/31/87] Performance Through December 31, 1997 Growth of $10,000 Invested Since 12/31/87 S & P 500 Growth w/ reinvest CPI Valued Month End Total Total Total Date Value Value Value - -------------------------------------------------------------------- 12/31/87 $10,000 $10,000 $10,000 1/31/88 10,168 10,434 10,026 2/29/88 10,786 10,900 10,052 3/31/88 10,821 10,569 10,095 4/30/88 10,686 10,701 10,147 5/31/88 10,561 10,770 10,182 6/30/88 10,986 11,273 10,225 7/31/88 10,793 11,244 10,269 8/31/88 10,453 10,846 10,312 9/30/88 10,734 11,312 10,381 10/31/88 10,791 11,640 10,416 11/30/88 10,585 11,454 10,425 12/31/88 10,831 11,657 10,442 1/31/89 11,520 12,522 10,494 2/28/89 11,302 12,190 10,537 3/31/89 11,590 12,480 10,598 4/30/89 12,168 13,145 10,667 5/31/89 12,641 13,650 10,728 6/30/89 12,424 13,583 10,754 7/31/89 13,479 14,823 10,780 8/31/89 14,013 15,098 10,797 9/30/89 14,087 15,037 10,832 10/31/89 13,376 14,701 10,884 11/30/89 13,668 14,985 10,910 12/31/89 13,709 15,346 10,927 1/31/90 12,642 14,330 11,040 2/28/90 12,935 14,489 11,092 3/31/90 13,360 14,882 11,153 4/30/90 13,164 14,525 11,170 5/31/90 14,565 15,912 11,196 6/30/90 14,672 15,817 11,256 7/31/90 14,376 15,778 11,300 8/31/90 13,188 14,337 11,404 9/30/90 12,353 13,642 11,499 10/31/90 12,328 13,598 11,568 11/30/90 13,087 14,460 11,594 12/31/90 13,439 14,864 11,594 1/31/91 14,304 15,527 11,664 2/28/91 15,357 16,610 11,681 3/31/91 15,762 17,018 11,698 4/30/91 15,762 17,075 11,716 5/31/91 16,606 17,786 11,750 6/30/91 15,764 16,980 11,785 7/31/91 16,625 17,792 11,802 8/31/91 17,221 18,192 11,837 9/30/91 17,070 17,889 11,889 10/31/91 17,452 18,153 11,906 11/30/91 16,866 17,398 11,941 12/31/91 18,995 19,390 11,950 1/31/92 18,957 19,050 11,967 2/28/92 19,138 19,273 12,010 3/31/92 18,666 18,898 12,071 4/30/92 18,737 19,477 12,088 5/31/92 18,894 19,543 12,106 6/30/92 18,472 19,257 12,149 7/31/92 19,087 20,069 12,175 8/31/92 18,686 19,637 12,210 9/30/92 18,944 19,865 12,244 10/31/92 19,433 19,958 12,288 11/30/92 20,409 20,608 12,305 12/31/92 20,540 20,867 12,296 1/31/93 20,895 21,060 12,357 2/28/93 20,839 21,324 12,400 3/31/93 21,419 21,775 12,444 4/30/93 21,027 21,273 12,478 5/31/93 21,569 21,807 12,496 6/30/93 21,590 21,879 12,513 7/31/93 21,529 21,814 12,513 8/31/93 22,320 22,620 12,548 9/30/93 22,525 22,446 12,574 10/31/93 22,724 22,933 12,626 11/30/93 22,113 22,690 12,634 12/31/93 22,615 22,974 12,634 1/31/94 23,326 23,771 12,669 2/28/94 22,695 23,103 12,712 3/31/94 21,593 22,101 12,756 4/30/94 21,565 22,403 12,773 5/31/94 21,592 22,733 12,782 6/30/94 20,856 22,176 12,825 7/31/94 21,353 22,927 12,860 8/31/94 22,325 23,851 12,912 9/30/94 21,963 23,265 12,946 10/31/94 22,273 23,807 12,955 11/30/94 21,397 22,923 12,972 12/31/94 21,561 23,260 12,972 1/31/95 22,036 23,882 13,024 2/28/95 22,903 24,794 13,076 3/31/95 23,555 25,535 13,120 4/30/95 24,238 26,299 13,163 5/31/95 24,987 27,311 13,189 6/30/95 26,080 27,947 13,215 7/31/95 27,478 28,895 13,215 8/31/95 27,562 28,953 13,250 9/30/95 28,424 30,172 13,276 10/31/95 28,502 30,084 13,319 11/30/95 29,546 31,381 13,310 12/31/95 29,596 31,986 13,302 1/31/96 30,313 33,096 13,380 2/29/96 30,946 33,381 13,423 3/31/96 31,053 33,708 13,492 4/30/96 32,164 34,220 13,544 5/31/96 32,872 35,066 13,570 6/30/96 32,444 35,202 13,579 7/31/96 31,047 33,661 13,605 8/31/96 32,267 34,361 13,631 9/30/96 34,230 36,288 13,674 10/31/96 34,815 37,312 13,718 11/30/96 37,028 40,117 13,744 12/31/96 36,229 39,323 13,744 1/31/97 38,624 41,804 13,787 2/28/97 38,137 42,110 13,830 3/31/97 36,342 40,375 13,865 4/30/97 38,032 42,801 13,882 5/31/97 40,728 45,374 13,873 6/30/97 42,461 47,411 13,891 7/31/97 46,220 51,185 13,908 8/31/97 44,383 48,308 13,934 9/30/97 46,839 50,970 13,969 10/31/97 45,282 49,288 14,003 11/30/97 46,507 51,550 13,995 12/31/97 47,162 52,437 13,995 INSET LEGEND READS: Growth Portfolio $47,162 S & P 500 Index $52,437 Consumer Price Index $13,995 INSET BOX ON CHART READS: Growth Portfolio Annualized Total Returns* - ---------------------------------------------------------- 10 Years 16.78% 5 Years 18.09% 1 Year 30.18% *See accompanying notes to Portfolio Management Reviews. In this climate, we will continue to be highly selective in our choice of holdings for the Growth Portfolio. As always, we will look for the "cherry picking" opportunities that accompany most periods of market weakness -- focusing on companies that can benefit from near-term catalysts for long-term growth, such as new products or improving industry conditions. High Yield Portfolio Review LB Series Fund, Inc. [GRAPHIC OMITTED: PHOTO OF THOMAS N. HAAG] Thomas N. Haag, assistant vice president, is a Chartered Financial Analyst and portfolio manager for the High Yield Portfolio. He has managed the Portfolio since January 1992. Tom has been with Lutheran Brotherhood since 1986. Investment Objective: To seek high current income and growth of capital by investing primarily in high-yielding ("junk") corporate bonds.*** Portfolio Facts Inception Date: 11/2/87 Total Assets (in millions): $1,344.6 In a nearly perfect investment climate of falling interest rates and continued economic growth, high-yield corporate bonds outperformed other income-oriented securities in 1997. Although high-yield issues underperformed when bond prices fell between February and April, and when Asia's economic troubles threatened stock prices at year-end, the sector benefited for 1997 as a whole from positive earnings growth and strong investor demand for issues with higher yields. [GRAPHIC BAR CHART OMITTED: MOODY'S BOND QUALITY RATING DISTRIBUTION] Moody's Bond Quality Rating Distribution Aaa 0.0% Aa 0.0% A 0.0% Baa 1.7% Ba 13.5% B 65.3% Caa 9.6% Ca 0.2% C 0.0% D 0.7% Not Rated 9.0% Within the high-yield sector, longer-term bonds and issues of media/telecommunications firms performed especially well. By remaining overweighted in these securities, the High Yield Portfolio made the most of the bond market rally and outperformed its benchmark. For the 12-months ended December 31, 1997, the Portfolio earned a total return (based on NAV) of 14.10%. That compares with a return of 12.76% for the Lehman Brothers High-Yield Index. [GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)] Portfolio Composition (% of Portfolio) Non-Convertible Preferred Stocks 8.2% Short-Term Securities 4.3% Corporate Bonds 80.9% Common Stocks & Warrants 2.4% Convertible Preferred Stocks 4.2% Boosting Quality and Diversification The Portfolio has been heavily invested in media/telecommunications and zero-coupon issues for several years -- believing that industry deregulation, among other factors -- can enhance the long-term performance potential for those securities. Although the somewhat lower credit quality and longer maturities of these issues further increases their upside potential, it also makes them more vulnerable to the kind of price corrections that took place early in 1997. To decrease the Portfolio's overall volatility, we took advantage of market strength between April and October, trimming the Portfolio's media/telecommunications holdings when their prices rebounded, simultaneously locking in current profits on those issues. For further stability, we bought bonds with higher credit ratings and shorter maturities. Among the investments we added were issues of energy and financial firms -- as well as companies with earnings tied to a growing economy. These issues performed well as oil prices rose, interest rates fell, and the economy continued to expand. In the final months of the year we also added debt of utility firms, which benefited from the worldwide "flight to quality" that resulted from the economic turmoil in Asia. [GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS] Top 10 Sectors Consumer Growth 23.8% Technology 22.9% Financial 10.6% Consumer Staples 9.5% Energy 6.9% Basic Industry 6.1% Utilities 3.7% Consumer Cyclical 3.4% Transportation 3.1% Credit Cyclical 2.5% Footnote reads: These sectors represent 92.5% of the Fund's total investment portfolio. Despite these changes, the Portfolio remained strongly committed to media/telecommunications bonds, as well as investments with longer maturities. By year's end, the Portfolio was underweighted in zero- coupon bonds with an increased weighting of firms in "light cyclical" industries that can thrive in a slower-growing economy. [GRAPHIC WORM CHART OMITTED: Performance Through December 31, 1997 GROWTH OF $10,000 INVESTED SINCE 12/31/87] Performance Through December 31, 1997 Growth of $10,000 Invested Since 12/31/87 Lehman High Series HYLD Yield Index CPI Valued Month End Total Total Total Date Value Value Value - -------------------------------------------------------------------- 12/31/87 $10,000 $10,000 $10,000 1/31/88 10,410 10,334 10,026 2/29/88 10,827 10,669 10,052 3/31/88 10,679 10,558 10,095 4/30/88 10,678 10,638 10,147 5/31/88 10,663 10,654 10,182 6/30/88 10,909 10,810 10,225 7/31/88 10,965 10,881 10,269 8/31/88 10,960 10,865 10,312 9/30/88 11,069 11,002 10,381 10/31/88 11,190 11,135 10,416 11/30/88 11,179 11,200 10,425 12/31/88 11,333 11,253 10,442 1/31/89 11,598 11,451 10,494 2/28/89 11,677 11,476 10,537 3/31/89 11,598 11,387 10,598 4/30/89 11,539 11,435 10,667 5/31/89 11,850 11,656 10,728 6/30/89 12,168 11,801 10,754 7/31/89 12,144 11,786 10,780 8/31/89 12,252 11,826 10,797 9/30/89 12,034 11,627 10,832 10/31/89 11,711 11,351 10,884 11/30/89 11,744 11,329 10,910 12/31/89 11,688 11,347 10,927 1/31/90 11,463 11,103 11,040 2/28/90 11,255 10,874 11,092 3/31/90 11,348 11,159 11,153 4/30/90 11,358 11,140 11,170 5/31/90 11,715 11,355 11,196 6/30/90 11,886 11,630 11,256 7/31/90 12,091 11,943 11,300 8/31/90 11,708 11,263 11,404 9/30/90 11,247 10,441 11,499 10/31/90 10,900 9,893 11,568 11/30/90 11,087 10,201 11,594 12/31/90 11,254 10,259 11,594 1/31/91 11,370 10,541 11,664 2/28/91 12,120 11,694 11,681 3/31/91 12,649 12,383 11,698 4/30/91 13,079 12,890 11,716 5/31/91 13,223 12,914 11,750 6/30/91 13,580 13,296 11,785 7/31/91 13,940 13,721 11,802 8/31/91 14,164 14,037 11,837 9/30/91 14,399 14,232 11,889 10/31/91 14,912 14,707 11,906 11/30/91 15,139 14,784 11,941 12/31/91 15,229 14,997 11,950 1/31/92 15,856 15,525 11,967 2/28/92 16,299 15,908 12,010 3/31/92 16,583 16,105 12,071 4/30/92 16,732 16,166 12,088 5/31/92 17,017 16,394 12,106 6/30/92 17,117 16,548 12,149 7/31/92 17,466 16,798 12,175 8/31/92 17,721 17,018 12,210 9/30/92 17,928 17,192 12,244 10/31/92 17,576 16,950 12,288 11/30/92 17,901 17,163 12,305 12/31/92 18,287 17,359 12,296 1/31/93 19,023 17,864 12,357 2/28/93 19,332 18,178 12,400 3/31/93 19,751 18,413 12,444 4/30/93 19,869 18,573 12,478 5/31/93 20,222 18,794 12,496 6/30/93 20,908 19,189 12,513 7/31/93 21,115 19,375 12,513 8/31/93 21,285 19,538 12,548 9/30/93 21,284 19,588 12,574 10/31/93 22,008 19,984 12,626 11/30/93 22,098 20,080 12,634 12/31/93 22,477 20,329 12,634 1/31/94 23,171 20,770 12,669 2/28/94 23,088 20,716 12,712 3/31/94 22,211 19,933 12,756 4/30/94 21,926 19,798 12,773 5/31/94 22,037 19,807 12,782 6/30/94 22,130 19,869 12,825 7/31/94 21,969 20,038 12,860 8/31/94 22,139 20,180 12,912 9/30/94 22,025 20,182 12,946 10/31/94 22,088 20,230 12,955 11/30/94 21,616 19,976 12,972 12/31/94 21,489 20,123 12,972 1/31/95 21,558 20,397 13,024 2/28/95 22,400 21,097 13,076 3/31/95 22,623 21,325 13,120 4/30/95 23,179 21,866 13,163 5/31/95 23,674 22,478 13,189 6/30/95 23,788 22,629 13,215 7/31/95 24,543 22,914 13,215 8/31/95 24,647 22,985 13,250 9/30/95 24,881 23,268 13,276 10/31/95 24,998 23,412 13,319 11/30/95 25,289 23,618 13,310 12/31/95 25,700 23,989 13,302 1/31/96 26,299 24,411 13,380 2/28/96 26,963 24,431 13,423 3/31/96 26,708 24,414 13,492 4/30/96 26,889 24,467 13,544 5/31/96 27,189 24,614 13,570 6/30/96 26,971 24,818 13,579 7/31/96 26,780 24,933 13,605 8/31/96 27,210 25,202 13,631 9/30/96 28,141 25,809 13,674 10/31/96 28,063 26,008 13,718 11/30/96 28,354 26,520 13,744 12/31/96 28,668 26,711 13,744 1/31/97 29,012 26,973 13,787 2/28/97 29,436 27,397 13,830 3/31/97 28,498 26,988 13,865 4/30/97 28,503 27,272 13,882 5/31/97 29,595 27,855 13,873 6/30/97 30,443 28,243 13,891 7/31/97 31,489 29,019 13,908 8/31/97 31,593 28,952 13,934 9/30/97 32,576 29,526 13,969 10/31/97 32,287 29,552 14,003 11/30/97 32,391 29,836 13,995 12/31/97 32,709 30,099 13,995 INSET LEGEND READS: High Yield Portfolio $32,709 Lehman High Yield Index $30,099 Consumer Price Index $13,995 INSET BOX ON CHART READS: High Yield Portfolio Annualized Total Returns* - ---------------------------------------------------------- 10 Years 12.58% 5 Years 12.33% 1 Year 14.10% *See accompanying notes to Portfolio Management Reviews. Solid Returns, Greater Stability The extra attention to quality and stability should serve the Portfolio well in 1998 -- especially if Asia's economic problems cause further concern about U.S. growth. For the most part, however, we expect high-yield issues to earn solid returns in an environment of continued growth, low inflation, and stable interest rates. If the prices of media/telecommunications issues become more attractive, we may add to investments in that sector. Conversely, if prices in that sector rise significantly, we may take further profits there. In either case, we expect to remain overweighted in these issues -- believing that they continue to offer added performance potential. Income Portfolio Review LB Series Fund, Inc. [GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN] Charles E. Heeren, vice president, is a Chartered Financial Analyst and portfolio manager for the Income Portfolio. He has managed the Portfolio since its inception in January 1987. Chuck has been with Lutheran Brotherhood since 1976. Investment Objective: To seek 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 Assets (in millions): $880.4 Even as bonds rallied in 1997, investors remained nervous about future growth and inflation. This caused frequent changes in the spreads between yields of different sectors of the bond market. During the year we adjusted the investment mix of the Income Portfolio to make the most of these changes. We also gave greater attention to longer- term issues -- which enjoy added benefit from lower inflation. With these strategies, the Portfolio earned a total return (based on NAV) of 8.75% for the 12-months ended December 31, 1997. Over the same time, the Lehman Aggregate Bond Index returned 9.65%. [GRAPHIC OMITTED: TOP 10 HOLDINGS] % of Top 10 Holdings Security Portfolio - ------------------------------------------------------------------- Government National Mortgage Association Mortgage-backed 4.3% Federal National Mortgage Association Mortgage-backed 3.5% U.S. Treasury Note U.S. Government 3.3% U.S. Treasury Bond U.S. Government 2.9% Deutsche Floorplan Receivables Master Trust, Series 1994-1-A Asset-backed 2.2% World Omni Auto Lease Trust Asset-backed 2.0% U.S. Treasury Bond U.S. Government 1.8% World Financial Network Credit Card Master Trust, Series 1996-B Asset-backed 1.7% Federal Home Loan Mortgage Corp., Participation Certificates Mortgage-backed 1.5% Equitable Life Assurance Society of the United States, Surplus Notes Corporate Bonds 1.4% Footnote reads: These holdings represent 24.6% of the Fund's total investment portfolio. Greater Commitment to Corporates Early in 1997, strong economic growth rekindled fears that inflation would lead to higher interest rates. As a result, bond prices declined to levels that made them attractive for purchase. In this environment, we bought longer-term corporate issues -- focusing on the debt of banks, insurance firms and utilities. These issues performed well in the months that followed, as falling interest rates led to higher bond prices. [GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)] Portfolio Composition (% of Portfolio) Foreign Government Bonds 3.3% U.S. Government 11.0% Asset-Backed Securities 14.6% Common Stocks 0.4% Mortgage-Backed Securities 11.3% Corporate Bonds 50.9% Preferred Stocks 1.6% Short-Term Securities 6.9% We trimmed corporates somewhat in March and April, concerned that the sector might be especially vulnerable to new fears of inflation. Subsequently, we made some selective purchases of attractively-priced bonds. In doing so, we continued to favor debt of utility and financial firms. When their prices were especially appealing, we bought corporate issues with slightly lower credit ratings -- believing the issues might benefit from rating upgrades as the economy continued to grow. In the final months of the year, the economic crisis in Asia created a "flight to quality" that favored U.S. Treasury securities over corporate bonds. With investors growing nervous about future corporate earnings, we traded some corporates in the Portfolio for longer-term Treasuries and gave greater attention to corporates with strong credit quality. We also reduced investments in mortgage-backed securities -- especially those with higher coupons -- due to an increased level of home loan prepayments as interest rates fell. [GRAPHIC BAR CHART OMITTED: MOODY'S BOND QUALITY RATING DISTRIBUTION] Moody's Bond Quality Rating Distribution Government/Aaa 41.3% Aa 5.7% A 20.2% Baa 14.8% Ba 14.3% B 3.7% Caa 0.0% Ca 0.0% C 0.0% We continued to hold dollar-denominated "yankee" bonds issued in the United States by foreign firms and governments. Some of these bonds were from Asian issuers, and underperformed in the last quarter. Nonetheless, they had excellent credit ratings when the Asian crisis began and we believe they could rebound strongly as the crisis is resolved. [GRAPHIC WORM CHART OMITTED: Performance Through December 31, 1997 GROWTH OF $10,000 INVESTED SINCE 12/31/87] Performance Through December 31, 1997 Growth of $10,000 Invested Since 12/31/87 Lehman Aggregate Series Income Bond Index CPI Valued Month End Total Total Total Date Value Value Value - -------------------------------------------------------------------- 12/31/87 $10,000 $10,000 $10,000 1/31/88 10,372 10,352 10,026 2/29/88 10,500 10,475 10,052 3/31/88 10,331 10,377 10,095 4/30/88 10,244 10,321 10,147 5/31/88 10,147 10,252 10,182 6/30/88 10,385 10,499 10,225 7/31/88 10,330 10,443 10,269 8/31/88 10,351 10,470 10,312 9/30/88 10,632 10,708 10,381 10/31/88 10,870 10,909 10,416 11/30/88 10,739 10,776 10,425 12/31/88 10,807 10,788 10,442 1/31/89 10,971 10,943 10,494 2/28/89 10,814 10,864 10,537 3/31/89 10,876 10,911 10,598 4/30/89 11,088 11,139 10,667 5/31/89 11,328 11,432 10,728 6/30/89 11,686 11,780 10,754 7/31/89 11,887 12,031 10,780 8/31/89 11,780 11,853 10,797 9/30/89 11,793 11,913 10,832 10/31/89 11,967 12,206 10,884 11/30/89 12,098 12,322 10,910 12/31/89 12,128 12,355 10,927 1/31/90 12,002 12,208 11,040 2/28/90 12,042 12,247 11,092 3/31/90 12,082 12,256 11,153 4/30/90 11,926 12,143 11,170 5/31/90 12,291 12,503 11,196 6/30/90 12,480 12,704 11,256 7/31/90 12,632 12,879 11,300 8/31/90 12,427 12,707 11,404 9/30/90 12,349 12,812 11,499 10/31/90 12,466 12,975 11,568 11/30/90 12,758 13,254 11,594 12/31/90 12,967 13,460 11,594 1/31/91 13,138 13,627 11,664 2/28/91 13,436 13,743 11,681 3/31/91 13,598 13,838 11,698 4/30/91 13,793 13,987 11,716 5/31/91 13,953 14,069 11,750 6/30/91 13,974 14,062 11,785 7/31/91 14,157 14,257 11,802 8/31/91 14,483 14,565 11,837 9/30/91 14,797 14,861 11,889 10/31/91 14,957 15,026 11,906 11/30/91 15,061 15,164 11,941 12/31/91 15,529 15,614 11,950 1/31/92 15,472 15,402 11,967 2/28/92 15,574 15,502 12,010 3/31/92 15,584 15,415 12,071 4/30/92 15,637 15,526 12,088 5/31/92 15,937 15,820 12,106 6/30/92 16,157 16,038 12,149 7/31/92 16,534 16,365 12,175 8/31/92 16,697 16,530 12,210 9/30/92 16,895 16,727 12,244 10/31/92 16,623 16,505 12,288 11/30/92 16,688 16,508 12,305 12/31/92 16,961 16,770 12,296 1/31/93 17,314 17,092 12,357 2/28/93 17,677 17,391 12,400 3/31/93 17,782 17,465 12,444 4/30/93 17,913 17,587 12,478 5/31/93 17,945 17,610 12,496 6/30/93 18,315 17,928 12,513 7/31/93 18,479 18,031 12,513 8/31/93 18,812 18,346 12,548 9/30/93 18,869 18,396 12,574 10/31/93 19,038 18,464 12,626 11/30/93 18,834 18,307 12,634 12/31/93 18,940 18,406 12,634 1/31/94 19,220 18,654 12,669 2/28/94 18,804 18,330 12,712 3/31/94 18,185 17,877 12,756 4/30/94 17,990 17,734 12,773 5/31/94 18,024 17,732 12,782 6/30/94 17,891 17,693 12,825 7/31/94 18,278 18,045 12,860 8/31/94 18,324 18,067 12,912 9/30/94 18,002 17,801 12,946 10/31/94 17,936 17,785 12,955 11/30/94 17,940 17,746 12,972 12/31/94 18,053 17,868 12,972 1/31/95 18,380 18,222 13,024 2/28/95 18,801 18,656 13,076 3/31/95 18,907 18,770 13,120 4/30/95 19,231 19,032 13,163 5/31/95 20,064 19,769 13,189 6/30/95 20,229 19,913 13,215 7/31/95 20,112 19,870 13,215 8/31/95 20,365 20,110 13,250 9/30/95 20,561 20,305 13,276 10/31/95 20,878 20,569 13,319 11/30/95 21,203 20,878 13,310 12/31/95 21,547 21,170 13,302 1/31/96 21,671 21,310 13,380 2/28/96 21,214 20,939 13,423 3/31/96 21,005 20,792 13,492 4/30/96 20,875 20,676 13,544 5/31/96 20,862 20,634 13,570 6/30/96 21,122 20,911 13,579 7/31/96 21,164 20,967 13,605 8/31/96 21,087 20,932 13,631 9/30/96 21,498 21,296 13,674 10/31/96 21,997 21,769 13,718 11/30/96 22,451 22,141 13,744 12/31/96 22,246 21,935 13,744 1/31/97 22,315 22,003 13,787 2/28/97 22,421 22,058 13,830 3/31/97 22,091 21,813 13,865 4/30/97 22,350 22,140 13,882 5/31/97 22,585 22,351 13,873 6/30/97 22,911 22,617 13,891 7/31/97 23,588 23,227 13,908 8/31/97 23,339 23,030 13,934 9/30/97 23,714 23,371 13,969 10/31/97 23,904 23,710 14,003 11/30/97 24,011 23,819 13,995 12/31/97 24,192 24,059 13,995 INSET LEGEND READS: Income Portfolio $24,192 Lehman Aggregate Bond Index $24,059 Consumer Price Index $13,995 INSET BOX ON CHART READS: Income Portfolio Annualized Total Returns* - ---------------------------------------------------------- 10 Years 9.24% 5 Years 7.35% 1 Year 8.75% Footnote reads: *See accompanying notes to Portfolio Management Reviews. Getting Defensive Bonds should continue to perform well in the months ahead. If growth slows, and inflation remains low, as we expect, bond prices could rally further. Bonds should also benefit as the anticipated federal budget surplus shrinks supplies of new Treasury issues. In addition, budget surpluses generally result in declines in interest rates. Given the attractive yield spreads between corporates and Treasuries, we expect to remain slightly overweighted in corporates. We may, however, increase the weighting of Treasuries in the Portfolio if the economy slows or relative yields in these two sectors change. Although credit ratings for corporate bonds should remain intact, further concern about earnings could cause some corporates to underperform. To protect the Portfolio against this event, we will give more attention to higher-quality issues and to debt of firms whose earnings can grow in a slowing economy. Money Market Portfolio Review LB Series Fund, Inc. [GRAPHIC PHOTO OMITTED: GAIL R. ONAN] Gail R. Onan was named portfolio manager for the Money Market Portfolio in January 1994. She has been with Lutheran Brotherhood since 1969. Prior to her appointment as manager of the Portfolio, she served as associate manager for the Portfolio. Gail has been with Lutheran Brotherhood since 1969. Investment Objective: To seek current income with stability of principal by investing in high quality, short-term debt securities.**** Portfolio Facts Inception Date: 1/9/87 Total Assets (in millions): $121.2 While yields for other fixed-income sectors trended downward in 1997, yields for money market funds ended the year slightly higher. Nevertheless, money market yields fluctuated during the period, as investors tried to predict the Federal Reserve's management of short- term interest rates. After starting 1997 with an average yield of 4.89%, money market funds in the IBC Donoghue's Index rose to 5.06% after the Fed boosted short-term rates in March. Money market yields remained steady for the rest of 1997, but moved higher during December, ending the year at 5.12%. [GRAPHIC OMITTED: TOP 10 HOLDINGS] % of Top 10 Holdings Industry Portfolio - ------------------------------------------------------------------- Merck and Co., Inc. Industrial 4.3% IBM Credit Corp. Computer & Office Equipment 4.1% Gulf Coast Waste Disposal Authority U.S. Municipal 3.3% Metrocrest Hospital Authority, Series 1989 Banking-Domestic 3.0% City of New York Government Bonds, Fiscal 1995, Series B U.S. Municipal 2.6% U.S. Prime Property, Inc. Banking-Foreign 1.8% Abbey National Treasury Service PLC Banking-Foreign 1.7% Bank of America, National Trust & Savings Association Banking-Domestic 1.7% Illinois Student Assistance Commission U.S. Municipal 1.7% California Pollution Control Finance Authority U.S. Municipal 1.7% Footnote reads: These holdings represent 25.9% of the Fund's total investment portfolio. Throughout this time there were also changes in spreads between yields of different instruments. By adjusting the mix of investments and maturities in the Money Market Portfolio to optimize these changes, and the general fluctuation in yields, we helped the Portfolio earn a total return of 5.43% for the 12-months ended December 31, 1997. [GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)] Portfolio Composition (% of Portfolio) Bank Notes 3.3% Medium Term Notes 1.7% Certificates of Deposit 0.8% Commercial Paper 86.1% Variable Rate Notes 7.5% Other 0.6% Maximizing Yield Opportunities With strong economic growth and the prospect of higher interest rates, we emphasized shorter-maturity issues in the first half of the year. This let us invest more quickly in higher yields as they became available. To maintain a solid yield as we waited for rates to rise, we balanced issues having shorter maturities of 30 days or less with issues having longer maturities of six to 12 months. We also invested in floating-rate issues, whose interest rates reset frequently. We continued this strategy through the summer. Even though interest rates stabilized, we did not feel the yields for longer maturities were especially attractive. In the fall, we let the Portfolio's maturity structure shorten -- preparing to take advantage of the higher yields that commonly occur late in a calendar year. As yields became more attractive in November and December, we locked them in with longer maturities. Balancing liquidity needs of the Portfolio and attractive yields for longer investments, at year-end the Portfolio had a weighted average investment maturity of 47 days. During the year we also enhanced the Portfolio's yield by adding taxable municipal paper, which is issued by state and local governments for commercial projects with credit enhancements from major corporations and banks. In addition, the Portfolio enjoyed strong returns from U.S. dollar-denominated investments of foreign issuers. None of these instruments represented credits from Asia, however, shielding the Portfolio from exposure to the Asian economic crisis in the final quarter. [GRAPHIC OMITTED: MONEY MARKET PORTFOLIO] Money Market Portfolio Annualized Total Returns* Period Ending 12/31/97 - ---------------------------------------------------------- 10 Years 5.68% 5 Years 4.64% 1 Year 5.43% Seven-Day Yields+ - ---------------------------------------------------------- Current 5.60% Effective 5.76% A Good Mix for the Months Ahead We expect to maintain the current maturity structure and asset mix in the months ahead. As before, we'll look for opportunities to lock in attractive yields with longer maturities. Although inflation may remain low, we do not expect a substantial decrease in short-term interest rates. If rising wages put upward pressure on inflation, and it looks like market rates might rise, we would probably reduce maturities once again. 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. These 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 LB representative.) Since performance varies, the annualized total returns, which assume a steady rate of growth, differ from the Portfolios' actual total returns for the years indicated. All returns represent past performance. The value of an investment fluctuates so that shares, when redeemed, may be worth more or less than the original investment. **International investing has special risks, including currency fluctuation and political volatility. ***High-yield bonds carry greater volatility and risk than investment-grade bonds. ****Investments in the Money Market Portfolio are neither guaranteed nor insured by the U.S. Government and there is no assurance that the Portfolio will maintain a stable net asset value. +Seven-day yields of the LB Money Market Portfolio refer to the income generated by an investment in the Portfolio over a specified seven-day period. Effective yields reflect the reinvestment of income. Yields are subject to daily fluctuation and should not be considered an indication of future results. This report must be preceded or accompanied by a current prospectus. 3100 Multifoods Tower 33 South Sixth Street Minneapolis, MN 55402-3795 Price Waterhouse LLP [GRAPHIC OMITTED] LOGO 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, World Growth, Growth, High Yield, Income and Money Market) comprising the LB Series Fund, Inc. (hereafter referred to as the "Fund") at December 31, 1997, the results of each of their operations for the year 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 and 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, 1997 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. /S/PRICE WATERHOUSE LLP Price Waterhouse LLP February 11, 1998
LB SERIES FUND, INC. OPPORTUNITY GROWTH PORTFOLIO Portfolio of Investments December 31, 1997 Shares Value ------------ -------------- COMMON STOCKS - 89.0% (a) Airlines - 0.2% 35,800 America West Holdings Corp. $666,775 (b) -------------- Automotive - 2.3% 42,400 Aftermarket Technology Corp. 768,500 (b) 48,000 Exide Corp. 1,242,000 86,500 Group 1 Automotive, Inc. 783,906 (b) 338,000 Lithia Motors, Inc. 4,985,500 (b) 26,000 Stoneridge, Inc. 416,000 (b) 32,800 Tower Automotive, Inc. 1,379,650 (b) -------------- 9,575,556 -------------- Bank & Finance - 9.0% 28,500 Affiliated Managers Group, Inc. 826,500 (b) 120,000 Annaly Mortgage Management, Inc. 1,320,000 11,600 Berkley (WR) Corp. 508,950 33,100 CMAC Investment Corp. 1,998,412 5,800 Community First Bank Shares, Inc. 308,850 34,900 Delta Financial Corp. 466,787 71,800 Dime Bancorp, Inc. 2,171,950 7,800 FirstFed Financial Corp. 302,250 144,000 Franchise Mortgage Acceptance Co. LLC 2,646,000 (b) 30,000 Fremont General Corp. 1,642,500 53,400 Frontier Insurance Group, Inc. 1,221,525 67,500 IMC Mortgage Co. 801,563 (b) 131,300 Imperial Credit Commercial Mortgage Investment Corp. 1,920,262 37,100 IPC Holdings Ltd. 1,194,156 115,700 New Century Financial Corp. 1,185,925 58,000 North Fork Bancorporation, Inc. 1,946,625 (c) 42,900 Peoples Heritage Financial Group, Inc. 1,973,400 13,000 Provident Financial Group, Inc. 630,500 137,260 Resource Bancshares Mortgage Group, Inc. 2,239,054 283,500 Southern Pacific Funding Corp. 3,720,937 34,800 Sovereign Bancorp, Inc. 722,100 29,100 Sterling Financial Corp. 632,925 35,400 TIG Holdings, Inc. 1,174,838 29,600 Union Planters Corp. 2,010,950 85,300 UST Corp. 2,367,075 23,400 Vesta Insurance Group, Inc. 1,389,375 -------------- 37,323,409 -------------- Broadcasting - 1.4% 20,900 Chancellor Media Corp. 1,559,663 (b) 15,800 Emmis Broadcasting Corp., Class A 720,875 138,100 Four Media Co. 1,242,900 (b) 33,400 Sinclair Broadcast Group, Inc. 1,557,275 15,800 Westwood One, Inc. 586,575 -------------- 5,667,288 -------------- Building Products & Materials - 2.3% 66,600 Advanced Lighting Technologies, Inc. 1,265,400 (b) 240,000 Dayton Superior Corp., Class A 3,960,000 (b) 31,300 Shaw Group, Inc. 719,900 (b) 18,600 Texas Industries, Inc. 837,000 (b) 113,400 Watsco, Inc. 2,799,563 -------------- 9,581,863 -------------- Chemicals - 0.6% 32,200 Crompton & Knowles Corp. 853,300 17,900 Cytec Industries, Inc. 840,181 (b) 27,900 Lilly Industries, Inc. 575,438 -------------- 2,268,919 -------------- Computer Software - 4.5% 72,400 Activision, Inc. 1,294,150 54,300 Autodesk, Inc. 2,009,100 329,200 AXENT Technologies, Inc. 5,678,700 (b) 72,200 Cognicase, Inc. 875,425 (b) 46,800 Electronic Arts, Inc. 1,769,625 175,000 Macromedia, Inc. 1,454,687 29,400 Mercury Interactive Corp. 786,450 96,800 MicroProse, Inc. 211,750 (b) 105,000 Midway Games, Inc. 1,909,688 78,700 Rational Software Corp. 895,213 73,700 Summit Design, Inc. 764,638 (b) 20,300 Viasoft, Inc. 857,675 -------------- 18,507,101 -------------- Computers & Office Equipment - 3.3% 57,100 CHS Electronics, Inc. 977,837 (b) 101,300 CKS Group, Inc. 1,430,862 (b) 51,800 FORE Systems, Inc. 789,950 (b) 28,300 Gateway 2000, Inc. 923,288 (b) 64,700 Harbinger Corp. 1,819,687 136,700 Hypercom Corporation 1,930,888 (b) 52,000 Integrated Measurement Systems, Inc. 890,500 (b) 43,500 MRV Communications, Inc. 1,038,563 (b) 133,400 System Software Associates, Inc. 1,167,250 (b) 37,700 Waters Corp. 1,418,462 (b) 86,300 Western Digital Corp. 1,386,194 (b,c) -------------- 13,773,481 -------------- Construction - 0.1% 30,500 UNIFAB International, Inc. 587,125 (b) -------------- Drugs & Health Care - 5.8% 95,100 ADAC Labs, Inc. 1,878,225 369,500 Atrix Laboratories, Inc. 5,450,125 (b) 209,600 DepoTech Corp. 746,700 (b) 369,000 Eclipse Surgical Technologies, Inc. 2,167,875 (b) 111,200 ICN Pharmaceuticals, Inc. 5,427,950 248,600 IRIDEX Corp. 1,895,575 18,900 Isis Pharmaceuticals, Inc. 232,706 (b) 130,800 Kendle International, Inc. 2,190,900 373,600 Matritech, Inc. 1,821,300 (b) 48,200 Miravant Medical Technologies 1,928,000 (b) -------------- 23,739,356 -------------- Electrical Equipment - 0.9% 30,900 Chicago Miniature Lamp, Inc. 1,042,875 (b) 51,300 Elsag Bailey Process Automation N.V. 846,450 (b) 113,000 OSI Systems, Inc. 1,384,250 (b) 27,900 Power-One, Inc. 383,625 (b) -------------- 3,657,200 -------------- Electronics - 3.9% 146,300 Cypress Semiconductor Corp. 1,243,550 (b) 54,300 DII Group, Inc. 1,479,675 (b) 155,700 ESS Technology, Inc. 1,182,347 (b) 11,400 Etec Systems, Inc. 530,100 (b) 34,400 GenRad, Inc. 1,038,450 (b) 28,500 Integrated Circuit Systems, Inc. 812,250 (b) 204,200 Integrated Silicon Solution 1,557,025 (b) 174,000 International Manufacturing Services, Inc. 1,261,500 (b) 38,300 IFR Systems, Inc. 593,650 (c) 98,900 Kulicke & Soffa Industries, Inc. 1,842,012 (b) 48,900 National Semiconductor Corp. 1,268,344 (b) 46,100 Semitool, Inc. 602,181 78,400 Sensormatic Electronics Corp. 1,288,700 12,700 Speedfam International, Inc. 336,550 (b) 50,300 ThermoQuest Corp. 911,687 (b) -------------- 15,948,021 -------------- Food & Beverage - 0.5% 43,100 Authentic Specialty Foods, Inc. 587,237 (b) 41,400 J & J Snack Foods Corp. 677,925 (b) 58,000 Worthington Foods, Inc. 812,000 -------------- 2,077,162 -------------- Healthcare Management - 4.5% 95,900 American Oncology Resources, Inc. 1,534,400 (b) 269,250 Complete Management, Inc. 3,769,500 (b) 408,900 FPA Medical Management, Inc. 7,615,762 (b) 301,150 Home Health Corp. of America, Inc. 3,124,431 (b) 158,700 Renex Corp. 833,175 (b) 422,100 U.S. Diagnostic Labs, Inc. 1,556,494 (b) -------------- 18,433,762 -------------- Hospital Management - 2.0% 253,700 Horizon Health Corp. 5,898,525 144,600 PhyMatrix Corp. 2,277,450 -------------- 8,175,975 -------------- Household Products - 0.5% 49,900 Benckiser NV 2,052,137 (b) -------------- Industrial - 0.8% 48,300 Innovative Valve Technologies, Inc. 978,075 (b) 118,900 TETRA Technologies, Inc. 2,504,331 -------------- 3,482,406 -------------- Leisure & Entertainment - 6.6% 247,650 Cannondale Corp. 5,386,387 (b) 33,734 Fairfield Communities, Inc. 1,488,493 (b) 60,300 Preview Travel, Inc. 456,019 (b) 334,700 Signature Resorts, Inc. 7,321,563 (b) 228,800 Silverleaf Resorts, Inc. 5,605,600 231,500 Steiner Leisure Ltd. 7,147,562 -------------- 27,405,624 -------------- Machinery & Equipment - 1.6% 170,200 Denison International plc 2,935,950 10,000 Input/Output, Inc. 296,875 215,500 Miller Industries, Inc. 2,316,625 49,300 Stewart & Stevenson Services, Inc. 1,257,150 -------------- 6,806,600 -------------- Manufacturing - 1.2% 194,800 BMC Industries, Inc. 3,141,150 181,500 Zomax Optical Media, Inc. 1,678,875 (b) -------------- 4,820,025 -------------- Medical Products - 0.4% 74,800 Physician Sales & Service, Inc. 1,608,200 (b) -------------- Mining & Metals - 2.3% 237,400 Battle Mountain Gold Co. 1,394,725 48,100 Birmingham Steel Corp. 757,575 113,000 Cambior, Inc. 663,875 17,400 Carpenter Technology Corp. 836,288 282,600 Dayton Mining Corp. 547,537 (b) 14,600 Getchell Gold Corp. 350,400 (b) 118,600 Greenstone Resources Ltd. 578,175 (b) 226,100 Meridian Gold, Inc. 664,169 (b) 42,600 Placer Dome, Inc. 540,487 32,700 Reliance Steel & Aluminum Co. 972,825 46,400 Steel Dynamics, Inc. 742,400 (b) 46,000 Titanium Metals Corp. 1,328,250 (b) 12,700 Universal Stainless & Alloy Products, Inc. 184,150 (b) -------------- 9,560,856 -------------- Natural Gas - 0.6% 90,200 The Meridian Resource Corp. 862,538 (b) 57,200 United Meridian Corp. 1,608,750 (b) -------------- 2,471,288 -------------- Oil & Oil Service - 5.7% 19,400 Cooper Cameron Corp. 1,183,400 (b) 218,100 Domain Energy Corp. 3,435,075 117,900 Eagle Geophysical, Inc. 1,532,700 22,800 EVI Inc. 1,179,900 (b) 82,000 Forcenergy, Inc. 2,147,375 45,200 Global Marine, Inc. 1,107,400 (b) 117,400 Lomak Petroleum, Inc. 1,907,750 54,300 Marine Drilling Companies, Inc. 1,126,725 (b) 35,800 Nuevo Energy Co. 1,458,850 30,300 Ocean Energy, Inc. 1,494,169 31,600 Pool Energy Services Co. 703,100 (b) 45,300 Pride International, Inc. 1,143,825 (b) 34,200 Rowan Companies, Inc. 1,043,100 (b) 129,060 Swift Energy Co. 2,718,326 62,500 Vintage Petroleum, Inc. 1,187,500 -------------- 23,369,195 -------------- Paper & Forest Products - 0.4% 57,200 Mead Corp. 1,601,600 -------------- Pollution Control - 3.0% 90,800 Allied Waste Industries, Inc. 2,116,775 431,100 IDM Environmental Corp. 3,017,700 (b) 381,400 Recycling Industries, Inc. 2,288,400 (b) 169,800 U.S. Filter Corp. 5,083,388 -------------- 12,506,263 -------------- Real Estate Investment Trust - 4.7% 106,900 American General Hospitality Corp. 2,859,575 27,700 Apartment Investment & Management Co. 1,017,975 38,500 First Industrial Realty Trust, Inc. 1,390,812 103,800 Glimcher Realty Trust 2,341,988 44,900 Highwoods Properties, Inc. 1,669,719 156,600 InnKeepers USA Trust 2,427,300 132,600 Kilroy Realty Corp. 3,812,250 130,181 Patriot American Hospitality, Inc. 3,750,840 -------------- 19,270,459 -------------- Restaurants - 1.2% 57,500 Apple South, Inc. 754,687 163,700 Buffets, Inc. 1,534,688 17,300 Dave & Busters, Inc. 389,250 (b) 319,700 New World Coffee 599,438 (b) 37,400 Outback Steakhouse, Inc. 1,075,250 (b) 36,600 Planet Hollywood International, Inc. 484,950 (b) -------------- 4,838,263 -------------- Retail - 5.0% 10,800 Consolidated Stores Corp. 474,525 (b) 29,000 Dole Food, Inc. 1,326,750 35,100 Dollar General Corp. 1,272,375 19,700 Dominicks Supermarkets, Inc. 719,050 (b) 132,300 Food Lion, Inc. 1,091,475 48,100 Hot Topic, Inc. 1,094,275 139,400 Paul Harris Stores, Inc. 1,402,712 33,000 Ross Stores, Inc. 1,200,375 41,200 Stein Mart, Inc. 1,102,100 (b) 237,800 Sunglass Hut International 1,501,113 102,200 The Children's Place Retail Stores, Inc. 523,775 129,200 Travis Boats & Motors, Inc. 3,116,950 284,000 US Office Products Company. 5,573,500 224,300 West Coast Entertainment Corp. 336,450 (b) -------------- 20,735,425 -------------- Services - 8.1% 174,600 Coach USA, Inc. 5,849,100 29,000 Computer Horizons Corp. 1,305,000 (b) 67,600 CORESTAFF, Inc. 1,791,400 268,500 Corporate Express, Inc. 3,456,938 148,000 Cotelligent Group, Inc. 2,830,500 (b) 99,900 F.Y.I., Inc. 2,297,700 (b) 111,100 Gartner Group, Inc. 4,138,475 (b) 42,800 ImageMAX,, Inc. 433,350 (b) 196,900 NovaCare Employee Services, Inc. 1,575,200 (b) 68,800 OfficeMax, Inc. 980,400 144,900 PharMerica, Inc. 1,503,337 (b) 133,200 PMT Services, Inc. 1,848,150 126,000 Professional Staff plc 2,142,000 65,500 SPR, Inc. 1,113,500 (b) 34,500 Syntel, Inc. 491,625 70,100 Vestcom International, Inc. 1,568,488 -------------- 33,325,163 -------------- Telecommunications Equipment - 2.5% 126,200 DSC Communications Corp. 3,028,800 57,500 Gilat Satellite Networks Ltd. 1,645,938 211,100 Larscom, Inc. 2,005,450 (b) 29,900 Nice - Systems Ltd. 1,255,800 (b) 128,200 Orckit Communications Ltd. 2,387,725 (b) -------------- 10,323,713 -------------- Telephone & Telecommunications - 2.3% 197,700 Aerial Communications, Inc. 1,408,612 72,600 LCC International, Inc., Class A 1,052,700 (b) 127,800 LCI International, Inc. 3,929,850 99,500 STARTEC Global Communications Corp. 2,226,313 (b) 57,500 Teledata Communications Ltd. 1,049,375 (b) -------------- 9,666,850 -------------- Textiles & Apparel - 0.2% 43,200 Tefron Ltd. 993,600 -------------- Trucking - 0.6% 51,700 Heartland Express, Inc. 1,389,438 (b) 30,200 USFreightways Corp. 981,500 -------------- 2,370,938 -------------- Total Common Stocks (cost $369,785,286) 367,191,598 -------------- Principal Amount -------------- CORPORATE BONDS - 0.7% (a) $ 2,675,000 Complete Management, Inc., Convertible Subordinated Debentures, 8%, Due 8/15/2003 (cost $3,451,953) $ 2,835,500 -------------- SHORT-TERM SECURITIES - 10.3% (a) Commercial Paper 4,900,000 American Express Credit Corp., 6.15%, Due 1/7/1998 4,894,977 10,000,000 Centerior Fuel Corp., 6.25%, Due 1/5/1998 9,993,056 6,800,000 Disney (Walt) Co., 6.6%, Due 1/2/1998 6,798,753 1,000,000 Enterprise Funding Corp., 5.75%, Due 1/30/1998 995,368 8,800,000 Ford Motor Credit Co., 6.75%, Due 1/2/1998 8,798,350 10,600,000 Koch Industries, Inc., 6.75%, Due 1/2/1998 10,598,012 501,000 Triple-A One Funding Corp., 6.35%, Due 1/5/1998 500,647 -------------- Total Short-Term Securities (at amortized cost) 42,579,163 -------------- Total Investments (cost $415,816,402) $412,606,261 ============== 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, 1997 (d) At December 31, 1997, the aggregate cost of securities for federal income tax purposes was $418,268,235 and the net unrealized depreciation of investments based on that cost was $5,661,974 which is comprised of $35,673,692 aggregate gross unrealized appreciation and $41,335,666 aggregate gross unrealized depreciation. The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. WORLD GROWTH PORTFOLIO Portfolio of Investments December 31, 1997 Shares Value ------------ -------------- ARGENTINA - 1.0% (a) COMMON STOCKS 10,613 Banco de Galicia Buenos Aires 'B' ADR (USD) $273,285 10,799 Banco Frances del Rio de la Plata ADR (USD) 295,623 72,535 Naviera Perez 'B' 517,998 16,490 Telefonica de Argentina ADR (USD) 614,253 36,566 YPF Sociedad Anonima ADR (USD) 1,250,100 -------------- Total Argentina 2,951,259 -------------- AUSTRALIA - 1.8% (a) COMMON STOCKS 73,528 Australia Gas & Light 512,764 8,000 Brambles Industries Ltd. 158,766 57,849 Broken Hill Proprietary 537,269 25,684 Colonial Ltd., Options Expiring 2/2/98 1,205 (b) 58,400 Commonwealth Bank of Australia 669,895 78,000 FXF Trust 13,217 (b) 111,000 John Fairfax Holdings Ltd. 231,502 19,485 Lend Lease Corp. 380,980 22,868 National Australia Bank Ltd. 319,397 92,401 News Corp. 510,083 78,000 Publishing & Broadcasting 351,483 190,000 Telstra Corp. Ltd. 401,217 (b) 50,700 Western Mining 176,784 57,000 Westpac Banking 364,662 55,000 Woodside Petroleum 387,856 -------------- 5,017,080 -------------- PREFERRED STOCKS 29,830 News Corp. 147,640 -------------- Total Australia 5,164,720 -------------- BELGIUM - 1.4% (a) COMMON STOCKS 2,693 Credit Communal Holding/Dexia 361,601 2,091 Generale de Banque S.A. 910,026 81 Generale de Banque S.A., VVPR (reduced tax) Strips 22 5,730 Kredietbank 2,404,834 104 UCB 343,289 -------------- Total Belgium 4,019,772 -------------- BRAZIL - 2.4% (a) COMMON STOCKS 1,030 Brazil Fund (USD) 21,630 23,712 Centrais Eletricas Brasileiras S.A. ADR (USD) 589,836 10,360 Companhia Brasileira de Distribuicao Grupo Pao de Acucar GDR (USD) 200,725 320 Companhia Energetica Brasilia (USD) 13,920 20,848 Companhia Energetica Minas Gerais ADR (USD) 906,888 2,800 Companhia Siderurgica Nacional (ADR) 72,275 40,500 Telecomunicacoes Brasilias ADR (USD) 4,715,719 76,020 Usinas Siderurgicas de Minas Gerais ADR (USD) 418,110 -------------- Total Brazil 6,939,103 -------------- CANADA - 0.3% (a) COMMON STOCKS 16,090 Alcan Aluminum 444,740 5,900 Royal Bank of Canada 312,949 -------------- Total Canada 757,689 -------------- CHILE - 0.3% (a) COMMON STOCKS 8,522 Chilectra ADR (USD) 231,159 5,940 Chilgener ADR (USD) 145,530 10,755 Empresa Nacional de Electric ADR (USD) 190,229 7,608 Enersis S.A. ADR (USD) 220,632 3,474 Santa Isabel (ADR) 60,795 -------------- Total Chile 848,345 -------------- CHINA - 0.3% (a) COMMON STOCKS 41,360 Huaneng Power International 'N' ADR (USD) 959,035 (b) -------------- CZECH REPUBLIC - 0.03% (a) COMMON STOCKS 700 SPT Telecom a.s. 74,886 (b) -------------- DENMARK - 0.3% (a) COMMON STOCKS 4,054 Den Danske Bank 540,186 807 Tele Danmark 'B' 50,055 4,510 Unidanmark 'A' 331,080 -------------- Total Denmark 921,321 -------------- FINLAND - 0.2% (a) PREFERRED STOCKS 8,960 Oy Nokia 'A' 636,131 -------------- FRANCE - 9.0% (a) COMMON STOCKS 2,005 Accor 372,783 8,909 Alcatel Alsthom 1,132,406 7,520 Assurances Generales de France 398,459 11,640 AXA 900,681 2,570 Canal Plus 477,832 1,041 Carrefour 543,115 10,250 Cie de St. Gobain 1,456,135 7,034 Credit Commercial de France 482,101 1,539 Credit Local de France 178,231 2,513 Credit Local de France - Dexia France 291,029 31,977 Eaux Cie Generale 4,463,019 5,160 Groupe Danone 921,658 2,820 GTM Entrepose 189,765 2,880 Guilbert S.A. 410,574 2,730 Havas S.A. 196,409 5,500 Lapeyre 302,941 2,319 Legrand 461,989 1,094 L'Oreal 428,075 1,877 Pathe S.A. 364,266 4,931 Pinault Printemps Redoute 2,630,795 587 Primagaz 49,059 14,319 Sanofi 1,594,040 22,810 Schneider S.A. 1,238,566 5,253 Societe Generale 715,703 9,045 Societe Nationale Elf Aquitaine 1,052,006 1,746 Sodexho 935,010 166 Sodexho Allinance SA (New) 86,744 (b) 9,320 Television Francaise 952,364 27,309 Total 'B' 2,972,069 -------------- Total France 26,197,824 -------------- GERMANY - 5.8% (a) COMMON STOCKS 6,510 Allianz AG 1,686,350 28,122 Bayer 1,050,501 22,272 Bayerische Hypotheken - und Wechse - Bank 1,087,013 17,022 Bayerische Vereinsbank AG 1,113,699 6,720 Bilfinger & Berger Bau AG 208,442 400 Buderas 179,216 10,380 Commerzbank AG 408,518 24,741 Deutsche Bank AG 1,746,634 30,878 Deutsche Telekom 581,017 7,730 Dresdner Bank AG 356,647 17,778 Dresdner Bank AG Warrants Expiring 4/30/2002 316,238 (b) 29,347 Gehe AG 1,468,206 9,000 Hoechst AG 315,184 520 Hornbach Baumarkt 14,742 942 Mannesmann 475,988 4,716 Rhoen Klinikum 461,389 4,290 SAP AG 1,303,252 9,593 Siemens AG 567,917 36,705 Veba AG 2,499,437 603 Volkswagen 339,218 -------------- 16,179,608 -------------- PREFERRED STOCKS 1,200 Fielmann 26,682 1,450 Fresenius AG 266,795 2,490 Hornbach Holdings AG 172,326 1,077 SAP AG 352,325 -------------- 818,128 -------------- Total Germany 16,997,736 -------------- HONG KONG - 2.3% (a) COMMON STOCKS 40,000 Cheung Kong Holdings Ltd. 261,969 67,000 China Light & Power Co. Ltd. 371,790 169,000 Doa Heng Bank Ltd. 420,919 12,188 First Pacific 5,898 374,142 Hong Kong Land Holdings (USD) 718,353 12,000 Hong Kong Shanghai Bank Holdings 295,780 272,000 Hutchison Whampoa 1,705,923 360,039 New World Development Co. Ltd. 1,245,199 41,000 Sun Hung Kai Properties Ltd. 285,714 139,000 Swire Pacific 'A' 762,356 356,000 Wharf Holdings 781,004 -------------- Total Hong Kong 6,854,905 -------------- INDIA - 0.2% (a) COMMON STOCKS 27,000 Mahanager Telephone Nigam Ltd. (GDR) 423,900 (b) -------------- ITALY - 3.9% (a) COMMON STOCKS 41,000 Assicurazioni Generali 1,007,038 52,000 Banca Commerciale Italiana 180,780 459,177 Credito Italiano 1,415,947 297,491 Ente Nazionale Idrocarburi 1,686,735 64,160 IMI SpA 761,651 9,074 Industrie Natuzzi SpA ADR (USD) 187,151 71,600 Italgas 295,466 35,729 Mediolanum SpA 672,570 17,600 Rinascente 131,328 530,400 Telecom Italia Mobile 2,448,115 72,000 Telecom Italia Mobile RNC 204,726 357,903 Telecom Italia SpA 2,286,209 -------------- Total Italy 11,277,716 -------------- JAPAN - 18.6% (a) COMMON STOCKS 4,940 Advantest Corp. 279,972 42,000 Alps Electric 395,650 73,000 Amada 271,157 144,000 Canon 3,352,684 45,000 Citizen Watch Co. 301,562 71,000 Dai Nippon Screen Manufacturing Co. Ltd. 326,262 13,000 Daifuku 63,223 85,000 Daiichi Pharmaceutical 956,958 103,000 Daiwa House 544,306 140 DDI Corp. 369,917 242 East Japan Railway 1,091,660 19,600 Fanuc 741,549 137,000 Hitachi 975,798 95,000 Hitachi Zosen 152,064 8,000 Honda Motor Co. 293,482 25,000 Inax 72,566 21,000 Ishihara Sangyo Kaisha 23,321 (b) 34,000 Ito-Yokado 1,731,638 63,000 Kao Corp. 907,100 33,000 Kokuyo 568,660 90,000 Komatsu 451,482 31,000 Komori 460,596 33,000 Kumagai Gumi 17,944 88,000 Kuraray 727,885 44,000 Kyocera 1,994,945 56,000 Makita 536,111 90,000 Marui 1,399,249 140,000 Matsushita Electric Industrial 2,047,944 92,000 Mitsubishi 725,741 424,000 Mitsubishi Heavy Industries 1,766,531 23,000 Mitsubishi Paper Mills 32,236 207,000 Mitsui Fudosan 1,997,549 16,000 Mitsui Petrochemical Industries 29,410 42,000 Murata Manufacturing 1,055,066 18,000 National House Industrial 123,382 246,000 NEC 2,618,825 128,000 Nippon Denso 2,303,745 17,000 Nippon Hodo 54,683 503,000 Nippon Steel 743,502 106 Nippon Telegraph & Telecom 909,244 133,000 Nomura Securities 1,772,383 42,000 Pioneer Electronic 646,550 4,000 Sangetsu Co. Ltd. 41,051 89,000 Sankyo Co. 2,010,799 10,400 Sega Enterprises 187,976 107,000 Sekisui Chemical 543,318 65,000 Sekisui House 417,669 11,000 Seven-Eleven Japan 778,433 116,000 Sharp Corp. 797,794 73,300 Shin-Etsu Chemical 1,397,848 32,000 Shiseido Co. Ltd. 436,241 32,300 Sony 2,869,572 152,000 Sumitomo 849,812 195,000 Sumitomo Electric 2,658,344 36,000 Sumitomo Forestry 176,181 31,000 TDK 2,336,218 183,000 Teijin 382,622 32,000 Tokio Marine & Fire Insurance 362,717 16,900 Tokyo Electronics 541,028 31,800 Tokyo Steel Manufacturing 107,404 68,000 Toppan Printing 885,349 34,000 Uny Co. 466,110 8,400 Yurtec 51,531 -------------- Total Japan 54,132,549 -------------- MALAYSIA - 0.01% (a) COMMON STOCKS 64,000 Time Engineering BHD 16,455 -------------- MEXICO - 1.7% (a) COMMON STOCKS 75,000 Cementos de Mexico ADR (USD) 675,000 47,850 Cemex 'B' 255,540 37,473 Cifra 'B' ADR (USD) 84,900 73,436 Gruma 'B' 291,178 (b) 11,260 Gruma S.A. GDR (USD) 168,900 (b) 700 Grupo Financiero Banamex Accival 'L' 1,804 108,680 Grupo Financiero Banamex 'B' 325,212 140,062 Grupo Industrial Maseca 'B' 144,739 8,600 Grupo Televisa GDR (USD) 332,713 (b) 110,408 Kimberly-Clark Mexico 'A' 540,377 29,435 Telefonos de Mexico 'L' ADR (USD) 1,650,200 20,700 TV Azteca S.A. ADR (USD) 467,044 (b) -------------- Total Mexico 4,937,607 -------------- NETHERLANDS - 10.8% (a) COMMON STOCKS 86,746 ABN Amro Holdings N.V. 1,689,871 2,290 Akzo Nobel 394,833 12,589 Baan Co. N.V. 415,437 (b) 18,060 Baan Co. N.V. 591,416 (b) 26,559 CSM 1,178,857 225,499 Elsevier 3,647,753 30,375 Fortis Amev N.V. 1,324,267 10,231 Gucci Group N.V. (USD) 428,423 83,482 ING Groep N.V. 3,516,072 20,765 ING Groep N.V., Stock Warrants 217,517 (b) 16,094 Koninklijke Ahold NV 419,881 18,700 Koninklijke Nutricia Verenigde Bedrijven NV 567,184 8,490 Koninklijke PTT Nederland 354,230 1,940 Otra N.V. 27,746 25,975 Polygram 1,242,608 138,258 Royal Dutch Petroleum 7,589,138 43,890 Unilever NV 2,705,718 38,967 Wolters Kluwer 5,033,145 -------------- Total Netherlands 31,344,096 -------------- NEW ZEALAND - 0.3% (a) COMMON STOCKS 74,000 Air New Zealand Ltd. 148,240 73,130 Fletcher Challenge Building 149,470 63,042 Fletcher Challenge Energy 220,730 87,000 Telecom Corp. of New Zealand 421,813 -------------- Total New Zealand 940,253 -------------- NORWAY - 1.9% (a) COMMON STOCKS 5,570 Bergesen 'A' 131,222 48,654 Norsk Hydro 2,368,208 33,855 Orkla 'A' 2,910,710 6,910 Saga Petroleum 'B' 104,785 -------------- Total Norway 5,514,925 -------------- PANAMA - 0.3% (a) COMMON STOCKS 1,676 Banco Latinoamericano de Exportaciones S.A. 'E' 69,345 22,020 Panamerican Beverages 'A' ADR (USD) 718,404 -------------- Total Panama 787,749 -------------- PERU - 0.09% (a) COMMON STOCKS 5,710 Credicorp Ltd. 102,780 6,361 Telefonica del Peru S.A. ADR (USD) 148,291 -------------- Total Peru 251,071 -------------- PORTUGAL - 0.4% (a) COMMON STOCKS 13,650 Jeronimo Martins 433,121 20,475 Jeronimo Martins (New Shares) 649,682 (b) -------------- Total Portugal 1,082,803 -------------- RUSSIA - 0.07% (a) COMMON STOCKS 2,280 Gazprom ADR (USD) 55,005 1,880 Lukoil Holding AB 173,430 -------------- Total Russia 228,435 -------------- SINGAPORE - 0.6% (a) COMMON STOCKS 28,000 City Developments Ltd. 129,576 22,600 Oversea - Chinese Banking Corp. Ltd. 131,403 67,200 Overseas Union Bank 257,158 122,000 Singapore Land 267,814 52,000 Singapore Press 650,964 60,000 United Overseas Bank 332,839 -------------- Total Singapore 1,769,754 -------------- SOUTH KOREA - 0.1% (a) COMMON STOCKS 53,991 Korea Equity Fund (USD) 357,690 12 Samsung Electronics GDR (USD) 168 -------------- Total South Korea 357,858 -------------- SPAIN - 2.4% (a) COMMON STOCKS 12,260 Banco Bilbao Vizcaya S.A. 396,730 13,430 Banco Popular Espanol S.A. 938,822 37,492 Banco Santander SA 1,252,604 8,790 Centros Comerciales Pryca 130,970 8,152 Corporacion Bancaria de Espana S.A. 496,023 46,304 Endesa S.A. 822,135 9,366 Gas Natural SDG, S.A. 485,667 59,060 Iberdrola 777,258 13,325 Repsol S.A. 568,510 40,337 Telefonica de Espana 1,151,729 -------------- Total Spain 7,020,448 -------------- SWEDEN - 3.5% (a) COMMON STOCKS 57,930 ABB AB 685,830 158,010 Astra AB 2,656,751 32,540 Atlas Copco 'B' 969,245 18,765 Electrolux 'B' 1,302,222 7,770 Esselte 'B' 157,555 6,582 Granges AB 103,208 (b) 41,220 Hennes & Mauritz AB 1,817,025 243,661 Nordbanken Holding AB 1,377,899 (b) 4,860 Sandvik 'A' 138,334 29,620 Sandvik 'B' 846,829 2,720 Scribona 'B' 30,318 -------------- Total Sweden 10,085,216 -------------- SWITZERLAND - 6.9% (a) COMMON STOCKS 1,060 ABB AG 1,331,166 4,317 Adecco S.A. 1,251,197 4,140 Credit Suisse Group 640,323 2,595 Nestle 3,887,527 3,878 Novartis AG 6,289,940 444 Roche Holdings 4,407,487 620 Schweizerische Bankgesellschaft 896,140 4,716 Schwizerischer Bankverein 1,465,278 -------------- Total Switzerland 20,169,058 -------------- UNITED KINGDOM - 17.7% (a) COMMON STOCKS 117,000 Abbey National 2,106,212 116,066 Argos plc 1,047,558 362,000 Asda Group 1,064,961 91,764 BG plc 412,979 89,000 British Petroleum 1,177,339 222,000 Cable & Wireless 1,950,797 159,225 Cadbury Schweppes 1,607,032 257,800 Caradon plc 749,483 62,000 Centrica plc 91,142 (b) 95,000 Compass Group 1,168,721 114,000 David S. Smith 371,681 79,000 Electrocomponents 587,801 13,000 GKN 266,266 169,500 Glaxo Wellcome 4,040,975 11,000 Heywood Williams Group 37,761 64,000 Hillsdown Holdings 155,578 58,000 John Laing 'A' 307,230 242,000 Kingfisher 3,378,623 423,000 National Westminster Bank 7,031,148 167,000 Rank Group plc 929,869 439,000 Reed International plc 4,182,134 84,000 Rolls Royce 324,230 105,000 RTZ 1,294,331 204,000 Safeway plc 1,149,290 595,000 Shell Transport & Trading 4,173,018 562,400 SmithKline Beecham plc 5,796,481 133,000 T & N 557,054 168,000 Tesco 1,385,329 470,700 Tomkins 2,226,599 186,000 United News & Media 2,117,150 -------------- Total United Kingdom 51,688,772 -------------- VENEZUELA - 0.1% (a) COMMON STOCKS 8,372 Compania Anonima Nacional Telefonos de Venezuela ADR (USD) 348,485 -------------- Principal Amount -------------- SHORT-TERM SECURITIES - 5.3% (a) Commercial Paper $ 2,500,000 Disney (Walt) Co. 6.6% Due 1/2/98 2,499,542 13,000,000 Ford Motor Credit Co. 6.75% Due 1/2/98 12,997,563 -------------- Total Short term Securities (at amortized cost) 15,497,105 -------------- Total Investments $291,196,981 (d) ============== Notes to Portfolio of Investments: (a) The categories of investments are shown as a percentage of total investments of the World Growth Portfolio. (b) Currently non-income producing. (c) Security Classification: Percentage of Cost Value Portfolio -------------- -------------- -------------- Common Stocks & Warrants $264,019,189 $274,097,977 94.1% Preferred Stocks 1,327,487 1,601,899 0.6% Short-Term 15,497,105 15,497,105 5.3% -------------- -------------- --------- Total Investments $280,843,781 $291,196,981 100.0% ============== ============== ========= (d) At December 31, 1997, the aggregate cost of securities for federal income tax purposes was $281,637,883 and the net unrealized appreciation of investments based on that cost was $9,559,098 which is comprised of $36,645,610 aggregate gross unrealized appreciation and $27,086,512 gross unrealized depreciation. Abbreviations: (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. GROWTH PORTFOLIO Portfolio of Investments December 31, 1997 Shares Value ------------ ------------ COMMON STOCKS - 92.1% (a) Aerospace - 0.6% 138,600 Boeing Co. $6,782,738 14,743 Raytheon Company 727,014 92,500 United Technologies Corp. 6,735,156 -------------- 14,244,908 -------------- Airlines - 1.5% 85,000 AMR Corp. 10,922,500 150,800 Continental Airlines Holding, Inc., Class B 7,257,250 (b) 283,500 Southwest Airlines Co. 6,981,187 130,000 UAL Corp. 12,025,000 (b) -------------- 37,185,937 -------------- Automotive - 1.7% 295,800 Chrysler Corp. 10,408,462 254,300 General Motors Corp. 15,416,938 115,400 Goodyear Tire & Rubber Co. (The) 7,342,325 186,000 Lear Corp. 8,835,000 -------------- 42,002,725 -------------- Bank & Finance - 16.3% 195,000 Allstate Corp. 17,720,625 231,700 American Express Co. 20,679,225 245,300 American International Group, Inc. 26,676,375 92,000 Banco Rio de La Plata S.A. 1,288,000 (b) 325,000 Bank of New York Co., Inc. 18,789,062 220,000 BankAmerica Corp. 16,060,000 249,700 Barnett Banks, Inc. 17,947,188 185,000 Chase Manhattan Corp. 20,257,500 190,000 Citicorp 24,023,125 159,900 CoreStates Financial Corporation 12,801,994 203,400 Crestar Financial Corp. 11,593,800 496,200 Federal Home Loan Mortgage Corp. 20,809,387 340,000 Federal National Mortgage Association 19,401,250 223,200 First Chicago NBD Corp. 18,637,200 95,000 First Union Corp. 4,868,750 323,000 Hibernia Corp., Class A 6,076,437 150,000 Household International, Inc. 19,134,375 278,300 Lehman Brothers Holdings, Inc. 14,193,300 293,300 MBNA Corp. 8,010,756 133,000 Mellon Bank Corp. 8,063,125 171,300 PaineWebber Group, Inc. 5,920,556 93,600 PMI Group 6,768,450 64,600 Provident Bankshares Corporation 4,126,325 235,000 Summit Bancorp 12,513,750 189,800 SunAmerica, Inc. 8,113,950 46,300 The CIT Group, Inc. 1,493,175 (b) 318,660 Travelers Group, Inc. 17,167,807 240,000 U.S. Bancorp 26,865,000 160,480 Washington Mutual, Inc. 10,240,630 -------------- 400,241,117 -------------- Broadcasting - 0.7% 224,900 CBS Corp. 6,620,494 15,000 Echostar Communications Corp. 251,250 (b) 250,000 Tele-Communications, Inc., Liberty Media Group, Series A 9,062,500 (b) 106,200 TV Azteca, S.A. de C.V. 2,396,137 -------------- 18,330,381 -------------- Chemicals - 2.0% 180,000 Air Products & Chemicals, Inc. 14,805,000 228,300 Avery Dennison Corp. 10,216,425 251,300 E.I. du Pont de Nemours and Co. 15,093,706 222,200 Praxair, Inc. 9,999,000 -------------- 50,114,131 -------------- Computer Software - 5.1% 321,200 Autodesk, Inc. 11,884,400 271,800 BMC Software, Inc. 17,836,875 (b) 65,000 Check Point Software Technologies Ltd. 2,648,750 393,450 Computer Associates International, Inc. 20,803,669 87,800 J.D. Edwards & Company 2,590,100 175,000 Microsoft Corp. 22,618,750 (b) 78,200 Netscape Communications Corp. 1,906,125 335,400 Oracle Corp. 7,483,612 (b) 200,600 Parametric Technology Corp. 9,503,425 (b) 328,700 PeopleSoft, Inc. 12,819,300 (b) 188,400 Security Dynamics Technologies, Inc. 6,735,300 (b) 175,600 Symantec Corp. 3,852,225 (b) 124,500 Viasoft, Inc. 5,260,125 -------------- 125,942,656 -------------- Computers & Office Equipment - 4.1% 121,700 Bay Networks, Inc. 3,110,956 (b) 88,400 CDW Computer Centers, Inc. 4,607,850 (b) 101,800 Compaq Computer Corp. 5,745,337 194,000 FORE Systems, Inc. 2,958,500 (b) 143,100 Gateway 2000, Inc. 4,668,638 (b) 311,500 Hewlett Packard Co. 19,468,750 299,900 Hypercom Corporation 4,236,087 (b) 316,300 International Business Machines 33,073,119 73,800 MRV Communications, Inc. 1,761,975 125,000 Storage Technology Corp. 7,742,187 (b) 313,500 Sun Microsystems, Inc. 12,500,813 (b) 40,800 Xylan Corp. 617,100 (b) -------------- 100,491,312 -------------- Conglomerates - 2.9% 530,200 AlliedSignal, Inc. 20,644,663 394,800 Dover Corp. 14,262,150 338,100 Thermo Electron Corp. 15,045,450 (b) 469,300 Tyco International Ltd. 21,147,831 -------------- 71,100,094 -------------- Drugs & Health Care - 8.6% 326,500 Abbott Laboratories 21,406,156 110,000 American Home Products Corp. 8,415,000 300,500 Becton, Dickinson & Co. 15,025,000 300,000 Biochem Pharma, Inc. 6,262,500 (b) 300,700 Bristol-Myers Squibb Co. 28,453,738 193,100 Cephalon, Inc. 2,196,513 (b) 403,100 Eli Lilly & Co. 28,065,838 23,400 Guidant Corporation 1,456,650 216,900 Johnson & Johnson 14,288,288 358,900 Merck & Co., Inc. 38,133,125 242,900 Pfizer, Inc. 18,111,231 226,800 Schering-Plough Corp. 14,089,950 112,000 Warner-Lambert Co. 13,888,000 (b) -------------- 209,791,989 -------------- Electrical Equipment - 2.4% 546,300 General Electric Co. 40,084,763 275,000 Honeywell, Inc. 18,837,500 -------------- 58,922,263 -------------- Electronics - 1.7% 288,600 Cypress Semiconductor Corp. 2,453,100 (b) 300,000 Intel Corp. 21,075,000 126,300 Kulicke & Soffa Industries, Inc. 2,352,338 (b) 115,700 Linear Technology Corp. 6,667,213 207,800 National Semiconductor Corp. 5,389,813 (b) 109,300 Speedfam International, Inc. 2,896,450 (b) 39,300 Vitesse Semiconductor Corp. 1,483,575 (b) -------------- 42,317,489 -------------- Food & Beverage - 4.6% 69,900 Campbell Soup Co. 4,062,938 465,000 Coca-Cola Co. 30,980,625 138,500 ConAgra, Inc. 4,544,531 69,800 General Mills, Inc. 4,999,425 129,300 Hershey Foods Corp. 8,008,519 184,600 Nabisco Holdings, Inc. 8,941,563 546,100 PepsiCo, Inc. 19,898,519 86,400 Ralston-Ralston Purina Group 8,029,800 381,200 Sara Lee Corp. 21,466,325 -------------- 110,932,245 -------------- Healthcare Management - 1.1% 147,900 Capital Senior Living Corp. 1,543,706 (b) 241,700 FPA Medical Management, Inc. 4,501,663 (b) 384,400 Tenet Healthcare Corporation 12,733,250 (b) 174,400 United Healthcare Corp. 8,665,500 -------------- 27,444,119 -------------- Household Products - 4.6% 203,000 Avon Products, Inc. 12,459,125 107,100 Benckiser NV 4,404,488 (b) 183,000 Colgate Palmolive Co. 13,450,500 305,000 Gillette Co. 30,633,438 202,000 Kimberly-Clark Corp. 9,961,125 391,400 Procter & Gamble Co. 31,238,613 165,200 Unilever N.V., ADR 10,314,675 -------------- 112,461,964 -------------- Leisure & Entertainment - 3.0% 208,000 American Skiing Company 3,094,000 (b) 83,000 CapStar Hotel Co. 2,847,937 (b) 321,000 Disney (Walt) Co. 31,799,063 348,200 Host Marriott Corp. 6,833,425 152,600 Royal Caribbean Cruises Ltd. 8,135,488 255,600 Signature Resorts, Inc. 5,591,250 (b) 255,400 Time Warner, Inc. 15,834,800 -------------- 74,135,963 -------------- Machinery & Equipment - 1.5% 137,300 Case Corp. 8,298,069 35,600 Cummins Engine Co., Inc. 2,102,625 248,500 Deere & Co. 14,490,656 69,600 PACCAR, Inc. 3,654,000 160,100 Parker-Hannifin Corp. 7,344,588 -------------- 35,889,938 -------------- Manufacturing - 0.1% 113,900 BMC Industries, Inc. 1,836,638 -------------- Mining & Metals - 0.9% 160,000 Aluminum Co. of America 11,260,000 152,000 British Steel plc (ADR) 3,258,500 525,000 Homestake Mining Co. 4,659,375 187,500 Placer Dome, Inc. 2,378,906 -------------- 21,556,781 -------------- Oil & Oil Service - 5.7% 123,400 Apache Corp. 4,326,712 246,500 Baker Hughes, Inc. 10,753,563 127,000 British Petroleum Co. plc 10,120,312 75,800 Camco International, Inc. 4,827,512 283,100 Chevron Corp. 21,798,700 114,800 Diamond Offshore Drilling, Inc. 5,524,750 347,900 Halliburton Co. 18,069,056 201,000 Input/Output, Inc. 5,967,188 271,600 Mobil Corp. 19,606,125 228,400 Noble Affiliates, Inc. 8,051,100 124,600 Santa Fe International Corp. 5,069,662 262,200 Texaco, Inc. 14,257,125 92,600 Total SA 5,139,300 166,400 Unocal Corp. 6,458,400 -------------- 139,969,505 -------------- Paper & Forest Products - 0.5% 176,700 Boise Cascade Corp. 5,345,175 50,000 International Paper Co. 2,156,250 185,000 Mead Corp. 5,180,000 -------------- 12,681,425 -------------- Photography - 0.4% 180,800 Eastman Kodak Co. 10,994,900 -------------- Pollution Control - 0.9% 421,300 USA Waste Services, Inc. 16,536,025 205,600 U.S. Filter Corp. 6,155,150 -------------- 22,691,175 -------------- Publishing & Printing - 0.8% 201,100 Gannett Co., Inc. 12,430,494 99,200 New York Times Co. 6,559,600 -------------- 18,990,094 -------------- Real Estate Investment Trust - 1.7% 172,500 Bedford Property Investors, Inc. 3,773,437 173,323 Equity Office Properties Trust 5,470,507 206,800 General Growth Properties 7,470,650 203,000 Glenborough Realty Trust, Inc. 6,013,875 166,200 Glimcher Realty Trust 3,749,888 198,600 InnKeepers USA Trust 3,078,300 185,800 Kilroy Realty Corp. 5,341,750 200,000 Prentiss Properties Trust 5,587,500 83,200 Sunstone Hotel Investors, Inc. 1,435,200 -------------- 41,921,107 -------------- Restaurants - 0.5% 101,700 Boston Chicken, Inc. 654,694 (b) 213,400 Outback Steakhouse, Inc. 6,135,250 183,700 Wendy's International, Inc. 4,420,281 -------------- 11,210,225 -------------- Retail - 5.3% 195,400 Borders Group, Inc. 6,118,463 (b) 168,500 Circuit City Stores, Inc. 5,992,281 96,900 Costco Companies, Inc. 4,324,162 274,600 CVS Corp. 17,591,563 123,100 Dayton Hudson Corp. 8,309,250 251,800 Federated Department Stores 10,843,137 (b) 114,000 General Nutrition Companies 3,876,000 400,200 Kroger Co. 14,782,388 (b) 156,200 Polo Ralph Lauren Corp. 3,797,612 400,000 Safeway, Inc. 25,300,000 (b) 239,700 Sunglass Hut International 1,513,106 385,350 US Office Products Company 7,562,494 525,000 Wal-Mart Stores, Inc. 20,704,688 -------------- 130,715,144 -------------- Services - 2.6% 298,492 AccuStaff, Inc. 6,865,316 (b) 231,300 Budget Group, Inc. 7,994,306 (b) 750,000 Cendant Corporation 25,781,250 (b) 160,000 Computer Sciences Corp. 13,360,000 (b) 302,400 First Data Corp. 8,845,200 36,900 Stewart Enterprises, Inc. 1,720,462 -------------- 64,566,534 -------------- Telecommunications Equipment - 5.2% 383,900 ADC Telecommunications, Inc. 16,027,825 (b) 140,000 CIENA Corp. 8,557,500 672,300 Cisco Systems, Inc. 37,480,725 (b) 253,800 DSC Communications Corp. 6,091,200 193,300 Lucent Technologies, Inc. 15,439,838 153,800 Motorola, Inc. 8,776,212 277,300 NextLevel Systems, Inc. 4,956,737 140,000 Nokia Corp., ADR 9,800,000 380,000 Tellabs, Inc. 20,092,500 (b) -------------- 127,222,537 -------------- Telephone & Telecommunications - 5.1% 200,000 Ameritech Corp. 16,100,000 109,600 AT&T Corp. 6,713,000 241,500 BellSouth Corp. 13,599,469 106,200 GTE Corp. 5,548,950 351,700 LCI International, Inc. 10,814,775 122,700 MasTec, Inc. 2,806,763 (b) 263,200 MCI Communications Corp. 11,268,250 327,500 MobileMedia Corp., Class A 40,937 (b) 207,500 SBC Communications, Inc. 15,199,375 95,000 Telecomunicacoes Brasileir S.A. Telebras ADR 11,061,563 306,300 Teleport Communications Group, Inc. 16,808,212 (b) 258,500 Vanguard Cellular Systems, Inc. 3,295,875 328,100 WorldCom, Inc. 9,925,025 (b) -------------- 123,182,194 -------------- Total Common Stock (cost $1,996,722,267) 2,259,087,490 -------------- PREFERRED STOCK - 0.3% (a) 134,100 EchoStar Communications Corporation (cost $6,690,000) 6,235,650 (b) -------------- Principal Amount -------------- CORPORATE BONDS - 0.2% (a) $ 6,250,000 Broadband Technologies, Inc., Convertible Subordinated Notes (cost $6,251,582) 3,968,750 -------------- SHORT-TERM SECURITIES - 7.4% (a) Commercial Paper - 5.7% 3,797,000 Disney (Walt) Co., 6.1%, Due 1/5/1998 3,794,426 10,500,000 Gillette Co., 6.75%, Due 1/2/1998 10,498,031 28,800,000 Harvard University., 6.75%, Due 1/2/1998 28,794,600 10,000,000 Hewlett Packard Co., 5.9%, Due 1/7/1998 9,990,167 20,000,000 Koch Industries, Inc., 6.25%, Due 1/5/1998 19,986,111 10,000,000 Monsanto Co., 5.97%, Due 1/16/1998 9,975,125 6,490,000 Monsanto Co., 6.1%, Due 1/7/1998 6,483,402 12,600,000 New Center Asset Trust, 6.75%, Due 1/2/1998 12,597,637 3,500,000 Peregrine Investment Holdings Ltd., 6.45%, Due 1/13/1998 3,492,475 12,600,000 Sheffield Receivables Corp., 5.95%, Due 1/23/1998 12,554,185 5,000,000 TMI-1 Fuel Corp., 6.5%, Due 1/7/1998 4,994,583 8,000,000 UBS Finance (Delaware) Inc., 7.0%, Due 1/2/1998 7,998,444 9,700,000 Warner-Lambert Co., 6.02%, Due 1/6/1998 9,691,890 -------------- Total Commercial Paper 140,851,076 -------------- U.S. Government Agency - 1.7% 10,000,000 Federal Home Loan Bank, Consolidated Discount Notes, 5.65%, Due 1/14/1998 9,979,597 20,000,000 Federal Home Loan Bank, Consolidated Discount Notes, 5.68%, Due 1/20/1998 19,940,044 10,000,000 Federal National Mortgage Association, Consolidated Discount Notes, 5.64%, Due 2/25/1998 9,913,833 -------------- Total U.S. Government Agency 39,833,474 -------------- Total Short-Term Securities (at amortized cost) 180,684,550 -------------- Total Investments (cost $2,190,348,401) $2,449,976,440 (c) ============== 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) At December 31, 1997, the aggregate cost of securities for federal income tax purposes was $2,198,670,538 and the net unrealized appreciation of investments based on that cost was $251,305,902 which is comprised of $321,745,403 aggregate gross unrealized appreciation and $70,439,501 aggregate gross unrealized depreciation. The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. HIGH YIELD PORTFOLIO Portfolio of Investments December 31, 1997 Principal Maturity Amount Rate Date Value ---------- ---------- ---------- ---------- CORPORATE BONDS - 80.9% (a) Aerospace - 0.3% $4,200,000 Stellex Industries, Inc., Sr. Subordinated Notes 9.5% 11/1/2007 $4,263,000 ------------- Airlines - 1.1% 3,100,000 Constellation Finance, LLC, Airline Receivable Asset Backed Notes 9.8% 1/1/2001 3,131,000 3,000,000 Northwest Airlines, Inc., Notes 8.375% 3/15/2004 3,088,773 4,200,000 Northwest Airlines, Inc., Notes 8.7% 3/15/2007 4,349,293 3,000,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 3,356,250 ------------- 13,925,316 ------------- Automotive - 0.5% 3,000,000 Chief Auto Parts, Inc., Sr. Notes 10.5% 5/15/2005 2,955,000 3,050,000 Delco Remy International, Inc., Sr. Notes 8.625% 12/15/2007 3,107,187 ------------- 6,062,187 ------------- Bank & Finance - 7.6% 5,550,000 AmeriCredit Corp., Sr. Notes 9.25% 2/1/2004 5,550,000 3,550,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 3,656,500 4,200,000 Delta Financial Corp., Sr. Notes 9.5% 8/1/2004 4,200,000 7,200,000 Dollar Financial Group, Inc., Sr. Notes, Series A 10.875% 11/15/2003 7,812,000 6,000,000 Emergent Group, Inc., Sr. Notes 10.75% 9/15/2004 5,977,500 11,850,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 13,538,625 3,896,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B 11.25% 5/15/2003 4,636,240 9,100,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 7,598,500 4,250,000 Metris Companies, Inc., Sr. Notes 10% 11/1/2004 4,335,000 3,800,000 Residential Reinsurance Ltd., Notes 11.869% 1/15/1998 3,887,875 (e) 4,800,000 Riggs Capital Trust II, Trust Preferred Securities, Series C 8.875% 3/15/2027 5,213,030 4,800,000 Southern Pacific Funding, Sr. Notes 11.5% 11/1/2004 4,824,000 2,010,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 2,261,250 3,000,000 Veritas Capital Trust, Trust Preferred Securities 10% 1/1/2028 3,037,500 7,800,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 8,346,000 7,500,000 Williams Scotsman, Inc., Sr. Notes 9.875% 6/1/2007 7,837,500 7,800,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 7,975,500 ------------- 100,687,020 ------------- Broadcasting - 10.8% 4,500,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 1,327,500 3,136,850 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 1,050,845 3,600,000 Australis Holdings Pty Ltd., Sr. Discount Notes Zero Coupon 11/1/2002 2,088,000 16,502,221 Australis Media Ltd., Sr. Discount Notes Zero Coupon 5/15/2003 7,260,977 3,000,000 Cablevision Systems Corp., Sr. Notes 7.875% 12/15/2007 3,075,000 3,600,000 Century Communications Corp., Sr. Notes 8.375% 12/15/2007 3,609,000 9,750,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 9,591,562 6,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2006 1,590,000 5,450,000 Diamond Cable Co., Sr. Discount Notes Zero Coupon 9/30/2004 4,905,000 2,400,000 Echostar DBS Corp., Sr. Secured Notes 12.5% 7/1/2002 2,604,000 7,800,000 EchoStar Satellite Broadcasting Corp., Sr. Secured Discount Notes Zero Coupon 3/15/2004 6,669,000 9,896,158 Falcon Holdings Group L.P., Sr. Subordinated Notes, Series B 11.0% 9/15/2003 10,737,331 10,800,000 Groupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 12,271,500 8,500,000 Intermedia Capital Partners, Sr. Notes 11.25% 8/1/2006 9,350,000 5,900,000 International CableTel, Inc., Convertible Subordinated Notes 7.0% 6/15/2008 5,892,625 6,300,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 5,276,250 4,800,000 Jacor Communications, Inc., Convertible Liquid Yield Option Notes Zero Coupon 6/12/2011 3,546,000 3,050,000 James Cable Partners, L.P., Sr. Notes 10.75% 8/15/2004 3,233,000 4,200,000 NTL, Inc., Sr. Notes, Series B 10.0% 2/15/2007 4,441,500 6,000,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 6,675,000 7,050,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 7,543,500 4,000,000 Rogers Cantel, Inc., Sr. Secured Notes 8.3% 10/1/2007 3,990,000 7,000,000 Rogers Communications, Inc., Convertible Debentures 2.0% 11/26/2005 4,191,250 3,000,000 Rogers Communications, Inc., Sr. Notes 9.125% 1/15/2006 3,060,000 703,583 Scott Cable Communications, Jr. Subordinated Notes, Payment-In-Kind 16.0% 7/18/2002 138,078 3,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes 8.75% 12/15/2007 3,015,000 3,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes 9% 7/15/2007 3,075,000 2,500,000 UIH Australia/Pacific, Inc., Sr. Discount Notes Zero Coupon 5/15/2006 1,662,500 4,900,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 3,258,500 7,200,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/1999 6,012,000 4,900,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 1,788,500 ------------- 142,928,418 ------------- Building Products & Materials - 1.3% 6,150,000 Atrium Companies, Inc., Sr. Subordinated Notes 10.5% 11/15/2006 6,503,625 6,000,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 7,200,000 3,600,000 Nortek, Inc., Sr. Notes 9.125% 9/1/2007 3,672,000 ------------- 17,375,625 ------------- Chemicals - 0.4% 4,800,000 Sovereign Specialty Chemicals, Inc., Sr. Subordinated Notes 9.5% 8/1/2007 4,944,000 ------------- Computers & Office Equipment - 1.2% 5,250,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 5,118,750 3,600,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 4,095,000 6,000,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 6,885,000 ------------- 16,098,750 ------------- Construction & Home Building - 1.2% 9,600,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 10,176,000 5,400,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 6,129,000 ------------- 16,305,000 ------------- Containers & Packaging - 1.3% 1,850,000 Radnor Holdings Corp. 10.0% 12/1/2003 1,928,625 4,750,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 4,951,875 2,866,000 Silgan Holdings, Inc., Subordinated Debentures, Payment-In-Kind 13.25% 7/15/2006 3,281,570 3,100,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 10.25% 5/15/2002 3,255,000 3,700,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 11.375% 5/15/2007 3,996,000 ------------- 17,413,070 ------------- Drugs & Health Care - 0.6% 4,100,000 ICN Pharmaceuticals, Inc., Sr. Notes 9.25% 8/15/2005 4,366,500 3,550,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 3,931,625 ------------- 8,298,125 ------------- Electric Utilities - 2.2% 2,400,000 AES Corp., Sr. Subordinated Notes 8.5% 11/1/2007 2,412,000 2,100,000 CMS Energy Corp., Sr. Notes 7.625% 11/15/2004 2,100,388 7,200,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,420,010 5,100,000 Espirito Santo Centrais Eletricas S.A.-ELCELSA, Sr. Notes 10.0% 7/15/2007 4,577,250 3,550,000 Midland Cogen Venture Fund II, Secured Lease Obligation Bonds, Series A 11.75% 7/23/2005 4,259,666 3,000,000 Midland Cogen Venture Fund II, Subordinated Secured Lease Obligation Bonds 13.25% 7/23/2006 3,809,193 4,200,000 Panda Global Energy Co., Sr. Secured Notes 12.5% 4/15/2004 3,843,000 ------------- 28,421,507 ------------- Electrical Equipment - 1.7% 4,900,000 EV International, Inc., Sr. Subordinated Notes, Series A 11.0% 3/15/2007 5,034,750 5,400,000 Protection One Alarm Monitoring, Inc., Convertible Sr. Subordinated Notes 6.75% 9/15/2003 6,405,750 4,800,000 Protection One Alarm Monitoring, Inc., Sr. Subordinated Discount Notes Zero Coupon 6/30/2005 5,184,000 6,100,000 Telex Communications, Inc., Unsecured Sr. Notes 10.5% 5/1/2007 6,130,500 ------------- 22,755,000 ------------- Food & Beverage - 3.1% 4,800,000 Ameriserve Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 4,848,000 1,200,000 CFP Holdings, Inc., Sr. Notes, Series B 11.625% 1/15/2004 1,206,000 4,200,000 Cott Corp., Sr. Notes 8.5% 5/1/2007 4,284,000 9,000,000 Fresh Del Monte Corp., Sr. Notes, Series B 10.0% 5/1/2003 9,405,000 9,000,000 Gorges/Quik-to-Fix Foods, Sr. Subordinated Notes, Series B 11.5% 12/1/2006 9,540,000 7,300,000 Imperial Holly Corp., Sr. Subordinated Notes 9.75% 12/15/2007 7,382,125 3,600,000 Southern Foods Group, L.P., Sr. Subordinated Notes 9.875% 9/1/2007 3,771,000 ------------- 40,436,125 ------------- Hospital Management - 2.2% 7,900,000 Integrated Health Services, Inc., Sr. Subordinated Notes 9.25% 1/15/2008 8,077,750 6,600,000 Merit Behavioral Care Corp., Sr. Subordinated Notes 11.5% 11/15/2005 7,689,000 4,200,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 3,874,500 4,300,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.625% 1/15/2007 4,450,500 5,400,000 Vencor, Inc., Sr. Subordinated Notes 8.625% 7/15/2007 5,420,250 ------------- 29,512,000 ------------- Household Products - 1.6% 6,850,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 7,569,250 3,000,000 Converse, Inc., Convertible Subordinated Notes 7% 6/1/2004 1,920,000 3,000,000 Sealy Mattress Company, Sr. Discount Notes Zero Coupon 12/15/2007 1,830,000 3,000,000 Sealy Mattress Company, Sr. Subordinated Notes 9.875% 12/15/2007 3,090,000 6,000,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 6,345,000 ------------- 20,754,250 ------------- Industrial - 0.3% 4,200,000 Navistar Financial Corp., Sr. Subordinated Notes, Series B 9.0% 6/1/2002 4,373,250 ------------- Leisure & Entertainment - 2.9% 7,471,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 5,911,429 3,000,000 CapStar Hotel Company, Convertible Subordinated Notes 4.75% 10/15/2004 3,003,750 3,000,000 CapStar Hotel Company, Sr. Subordinated Notes 8.75% 8/15/2007 3,105,000 7,200,000 HMH Properties, Inc., Sr. Secured Notes 8.875% 7/15/2007 7,614,000 3,000,000 IMAX Corp., Sr. Notes 10.0% 3/1/2001 3,165,000 6,100,000 Lodgenet Entertainment, Sr. Notes 10.25% 12/15/2006 6,328,750 3,100,000 Production Resource Group LLC, Sr. Subordinated Notes 11.5% 1/15/2008 3,123,250 5,400,000 Signature Resorts, Inc., Sr. Subordinated Notes 9.75% 10/1/2007 5,427,000 ------------- 37,678,179 ------------- Machinery & Equipment - 0.6% 4,200,000 Motors and Gears, Inc., Sr. Notes, Series C 10.75% 11/15/2006 4,483,500 3,000,000 Scotsman Group, Inc., Sr. Subordinated Notes 8.625% 12/15/2007 3,022,500 ------------- 7,506,000 ------------- Mining & Metals - 1.4% 4,850,000 Altos Hornos de Mexico, Bonds, Series B 11.875% 4/30/2004 5,044,000 6,600,000 CSN Iron Panama, Guaranteed Notes 9.125% 6/1/2007 5,643,000 6,600,000 Westmin Resources Ltd., Sr. Notes 11.0% 3/15/2007 7,260,000 ------------- 17,947,000 ------------- Oil & Gas - 5.6% 10,200,000 Abraxas Petroleum Corp., Sr. Notes, Series B 11.5% 11/1/2004 11,194,500 6,200,000 Belden & Blake Corp., Sr. Subordinated Notes 9.875% 6/15/2007 6,293,000 6,100,000 Benton Oil & Gas, Sr. Notes 9.375% 11/1/2007 6,267,750 4,800,000 Coho Energy, Inc., Sr. Subordinated Notes 8.875% 10/15/2007 4,836,000 4,200,000 Cross Timbers Oil Co., Sr. Subordinated Notes 8.75% 11/1/2009 4,289,250 9,050,000 National Energy Group, Inc., Sr. Notes, Series C 10.75% 11/1/2006 9,479,875 1,800,000 Newpark Resources, Inc., Sr. Subordinated Notes 8.625% 12/15/2007 1,838,250 4,250,000 Perez Companc S.A., Notes 8.125% 7/15/2007 4,101,250 6,167,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/2005 6,136,165 5,100,000 Pride Petroleum Services, Inc., Sr. Notes 9.375% 5/1/2007 5,508,000 4,850,000 Snyder Oil Corp., Sr. Subordinated Notes 8.75% 6/15/2007 4,947,000 6,000,000 Southwest Royalties, Inc., Sr. Notes 10.5% 10/15/2004 6,000,000 3,650,000 Trico Marine Services, Inc., Sr. Unsecured Notes, Series E 8.5% 8/1/2005 3,718,437 ------------- 74,609,477 ------------- Paper & Forest Products - 3.6% 6,100,000 Ainsworth Lumber Co. Ltd., Sr. Secured Notes, Payment-In-Kind 12.5% 7/15/2007 6,161,000 3,600,000 APP Finance (II) Mauritius Ltd., Guaranteed Preferred Securities, Series B 12.0% 2/15/2004 3,105,000 4,900,000 APP International Finance, Guaranteed Secured Notes 11.75% 10/1/2005 4,520,250 3,000,000 Doman Industries Ltd., Sr. Notes 9.25% 11/15/2007 2,940,000 6,700,000 Fonda Group, Inc., Sr. Subordinated Notes, Series B 9.5% 3/1/2007 6,331,500 4,850,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 3,698,125 8,100,000 National Fiberstok Corp., Sr. Notes Series B 11.625% 6/15/2002 8,545,500 3,600,000 Pindo Deli Finance Mauritius, Sr. Notes 10.25% 10/1/2002 3,222,000 5,900,000 Tembec Finance Corp., Sr. Notes 9.875% 9/30/2005 6,091,750 3,000,000 Tjiwi Kimia Financial Mauritius, Guaranteed Sr. Notes 10.0% 8/1/2004 2,520,000 ------------- 47,135,125 ------------- Pollution Control - 0.3% 4,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 13.5% 11/15/2005 4,620,000 ------------- Publishing & Printing - 2.6% 2,700,000 ITT PubliMedia BV, Sr. Subordinated Notes 9.375% 9/15/2007 2,868,480 2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,687,500 7,500,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 7,968,750 10,800,000 Neodata Services, Inc., Sr. Notes, Series B 12.0% 5/1/2003 11,664,000 4,000,000 News America Holdings, Inc., Convertible Liquid Yield Option Notes Zero Coupon 3/11/2013 1,870,000 750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/2002 721,875 5,850,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 5,937,750 ------------- 33,718,355 ------------- Retail - 1.6% 3,900,000 County Seat Stores, Inc., Units 12.75% 11/1/2004 4,036,500 2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 41,250 (c) 6,000,000 Hollywood Entertainment Corp., Sr. Subordinated Notes, Series B 10.625% 8/15/2004 5,910,000 6,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated Notes 10.875% 8/1/2006 6,675,000 4,800,000 TravelCenters of America, Inc., Sr. Subordinated Notes 10.25% 4/1/2007 5,064,000 ------------- 21,726,750 ------------- Retail - Food - 2.6% 6,000,000 Fleming Companies, Inc., Sr. Subordinated Notes 10.625% 7/31/2007 6,360,000 1,800,000 Jitney-Jungle Stores of America, Sr. Subordinated Notes 10.375% 9/15/2007 1,876,500 4,300,000 Jitney-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 4,902,000 6,100,000 Pueblo Xtra International, Inc., Sr. Notes, Series C 9.5% 8/1/2003 5,825,500 6,100,000 Ralph's Grocery Co., Sr. Notes 10.45% 6/15/2004 6,862,500 7,600,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 8,170,000 ------------- 33,996,500 ------------- Services - 1.2% 3,000,000 Discovery Zone, Inc., Units 13.5% 8/1/2002 3,135,000 9,100,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes 9.5% 2/15/2009 9,100,000 4,200,000 Unicco Service/Finance, Sr. Subordinated Notes 9.875% 10/15/2007 4,205,250 ------------- 16,440,250 ------------- Telecommunications - 17.8% 4,800,000 American Communications Services, Inc., Sr. Notes 13.75% 7/15/2007 5,712,000 3,650,000 CenCall Communications Corp., Sr. Redeemable Discount Notes Zero Coupon 1/15/2004 3,294,125 8,400,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 6,657,000 6,000,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 6,285,000 5,450,000 Esprit Telecom Group, plc, Sr. Notes 11.5% 12/15/2007 5,640,750 3,600,000 Globalstar LP/Capital Corp., Sr. Notes 10.75% 11/1/2004 3,528,000 3,000,000 GST Equipment Funding, Inc., Sr. Secured Notes 13.25% 5/1/2007 3,450,000 1,445,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 1,257,150 6,150,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 4,735,500 4,250,000 Hermes Europe Railtel B.V., Sr. Notes 11.5% 8/15/2007 4,706,875 300,000 HighwayMaster Communications, Inc., Sr. Notes 13.75% 9/15/2005 306,000 4,300,000 HighwayMaster Communications, Inc., Sr. Notes 13.75% 9/15/2005 4,386,000 2,400,000 Hyperion Telecommunications, Inc., Sr. Secured Notes 12.25% 9/1/2004 2,664,000 6,200,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 4,541,500 6,050,000 IntelCom Group (U.S.A.), Inc., Sr. Discount Ntoes Zero Coupon 5/1/2006 4,567,750 3,000,000 Intermedia Communication 8.875% 11/1/2007 3,090,000 4,900,000 Intermedia Communications, Inc., Sr. Notes 8.5% 1/15/2008 4,924,500 10,300,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 8,806,500 1,200,000 Iridium LLC/Capital Corp., Sr. Notes 11.25% 7/15/2005 1,182,000 4,200,000 Iridium LLC/Capital Corp., Sr. Notes, Series A 13.0% 7/15/2005 4,410,000 4,850,000 Iridium LLC/Capital Corp., Sr. Notes, Series B 14.0% 7/15/2005 5,286,500 6,100,000 IXC Communications, Inc., Sr. Notes, Series B 12.5% 10/1/2005 7,060,750 3,000,000 Jordan Telecommunication Products, Sr. Notes 9.875% 8/1/2007 3,082,500 3,600,000 Knology Holdings, Inc., Units Zero Coupon 10/15/2007 1,980,000 10,800,000 McCaw International Ltd., Sr. Discount Notes Zero Coupon 4/15/2007 6,426,000 6,000,000 MGC Communications, Inc., Units 13.0% 10/1/2004 6,060,000 10,200,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 6,885,000 12,600,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 9,292,500 3,600,000 Netia Holdings BV, Sr. Discount Notes Zero Coupon 11/1/2007 2,043,000 5,400,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 9/15/2007 3,429,000 3,000,000 Nextel Communications, Sr. Discount Notes Zero Coupon 10/31/2007 1,845,000 4,800,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 5,496,000 2,400,000 NEXTLINK Communications, Inc., Sr. Notes 9.625% 10/1/2007 2,496,000 9,000,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 7,717,500 5,500,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 5,733,750 3,650,000 Poland Telecom Finance BV 14% 12/1/2007 3,786,875 3,050,000 Price Communications Wireless, Sr. Subordinated Notes 11.75% 7/15/2007 3,324,500 5,400,000 Primus Telecommunications Group, Inc., Sr. Notes 11.75% 8/1/2004 5,832,000 9,650,000 RSL Communications Ltd., Units 12.25% 11/15/2006 10,566,750 4,200,000 Telegroup, Inc., Sr. Discount Notes Zero Coupon 11/1/2004 3,276,000 4,850,000 Teletrac, Inc., Sr. Notes 14% 8/1/2007 4,631,750 4,800,000 Teligent, Inc., Sr. Notes 11.5% 12/1/2007 4,836,000 14,400,000 UNIFI Communications, Inc., Sr. Notes 14.0% 3/1/2004 12,888,000 4,900,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 5,439,000 6,600,000 USN Communications, Inc., Sr. Discount Notes Zero Coupon 8/15/2004 5,049,000 2,400,000 VIALOG Corp., Units 12.75% 11/15/2001 2,520,000 8,400,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/2005 6,909,000 4,500,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 3,577,500 3,000,000 WinStar Communications, Inc., Unsecured Sr. Notes 14.5% 10/15/2005 3,975,000 ------------- 235,589,525 ------------- Textiles & Apparel - 1.8% 4,300,000 Anvil Knitwear, Inc., Sr. Notes, Series B 10.875% 3/15/2007 4,439,750 1,900,000 Brazos Sportswear, Inc., Sr. Notes 10.5% 7/1/2007 1,900,000 6,050,000 CMI Industries, Inc., Sr. Subordinated Notes 9.5% 10/1/2003 5,974,375 4,200,000 Delta Mills, Inc., Sr. Notes 9.625% 9/1/2007 4,284,000 4,200,000 Dyersburg Corp., Sr. Subordinated Notes 9.75% 9/1/2007 4,410,000 3,100,000 Pillowtex Corp., Sr. Subordinated Notes 9% 12/15/2007 3,193,000 ------------- 24,201,125 ------------- Transportation - 1.5% 4,200,000 Allied Holdings, Inc., Sr. Notes, Series B 8.625% 10/1/2007 4,315,500 8,650,000 Equimar Shipholdings Ltd., First Priority Mortgage Notes 9.875% 7/1/2007 8,131,000 4,200,000 Panoceanic Bulk Carriers, Ltd., 1st Preferred Shipping Notes 12% 12/15/2007 4,158,000 4,500,000 TFM, S.A. de C.V., Sr. Discount Debentures Zero Coupon 6/15/2009 2,868,750 ------------- 19,473,250 ------------- Total Corporate Bonds (cost $1,037,836,385) 1,069,194,179 ------------- Shares Value - ----------- ------------- PREFERRED STOCKS - 12.4% (a) Convertible - 4.2% 59,000 AES Trust II, Convertible Preferred Stock $3,045,875 48,000 Big Flower Trust I, Convertible Preferred Stock 2,418,000 60,000 CalEnergy Capital Trust III, Convertible Preferred Stock 2,602,500 125,000 Echostar Communications Corp., Convertible Preferred Stock, Series C 5,812,500 60,000 Evergreen Media Corp., Convertible Preferred Stock 4,642,500 174,500 Granite Broadcasting Corp., Convertible Preferred Stock 8,463,250 90,000 Host Marriott Financial Trust, Convertible Preferred Stock 5,490,000 50,000 Intermedia Communication 1,418,750 83,800 Network Imaging Corp., Convertible Preferred Stock, Series A 712,300 61,000 Sinclair Broadcast Group, Inc., Convertible Preferred Stock 3,477,000 54,000 TIMET Capital Trust I, Convertible Preferred Stock 2,727,000 150,000 USX Corp. (Marathon Group), Convertible Preferred Stock 2,943,750 115,400 WorldCom, Inc., Convertible Preferred Stock 12,117,000 ------------- 55,870,425 ------------- Non-Convertible - 8.2% 3,197 American Communications Services, Payment-In-Kind Preferred Stock 3,236,962 31,000 Benedek Communications Corp., Sr. Exchangeable Preferred Stock 4,030,000 28,417 Cablevision Systems Corp., Preferred Stock 3,289,268 55,963 Cablevision Systems Corp., Redeemable Exchangeable Preferred Stock, Series H 6,645,606 42,000 California Federal Bank, Non-cumulative Preferred Stock 4,756,500 47,137 Chancellor Media Corp., Payment-In-Kind Preferred Stock 5,432,539 105,000 Chevy Chase Capital Corp., Noncumulative Exchangeable Preferred Stock, Series A 5,460,000 46,372 Communications & Power Industries, Inc., Convertible Preferred Stock, Series B 4,880,653 2,162 Echostar Communications Corp., Exchangeable Payment-In-Kind Preferred Stock 2,226,860 49,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0 (b,d) 396,146 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 693,256 3,102 Hyperion Telecommunications, Inc., Payment-In-Kind Preferred Stock, Series B 3,117,510 6,653 ICG Holdings, Inc., Preferred Stock 7,833,908 3,242 Intermedia Communications, Inc., Preferred Stock 3,971,450 3,089 IXC Communications, Inc., Payment-In-Kind Preferred Stock 3,614,130 1,800 J Crew Group, Preferred Stock 1,620,000 15,000 Jitney-Jungle Stores of America, Sr. Exchangeable Preferred Stock, Class A 2,280,000 97,199 NEXTLINK Communications, Inc., Payment-In-Kind Preferred Stock 6,050,638 6,418 Paxson Communications Corp., Payment-In-Kind Preferred Stock 6,482,180 240,000 Petroleum Heat & Power Co., Inc., Exchangeable Preferred Stock, Series B 4,860,000 50,696 Primedia, Inc., Payment-In-Kind Preferred Stock, Series B 5,475,180 33,000 Primedia, Inc., Preferred Stock 3,308,250 46,000 Primedia, Inc., Preferred Stock, Series D 4,853,000 147,500 River Bank America, Preferred Stock 3,503,125 44,651 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock 5,101,377 6,000,000 SIG Capital Trust I, Preferred Stock 6,120,000 ------------- 108,842,392 ------------- Total Preferred Stocks (cost $161,128,412) 164,712,817 ------------- COMMON STOCKS & STOCK WARRANTS - 2.4% (a,b) 16,800 American Communications Services, Stock Warrants 1,604,400 3,600 American Telecasting, Inc., Stock Warrants 1,800 34,000 American Telecasting, Inc., Stock Warrants 17,000 175,000 Arch Communications Group, Common Stock 896,875 3,600 Australis Holdings Pty Ltd., Stock Warrants 36 17,150 Australis Media Ltd., Stock Warrants 172 156,000 Bell & Howell Co., Common Stock 3,773,250 35,475 Clearnet Communications, Inc., Stock Warrants 212,850 2,310 Communications & Power Industries, Inc., Common Stock 346,500 7,830 Consolidated Hydro, Inc., Stock Warrants 0 (d) 10,989 Consolidated Hydro, Inc., Stock Warrants, Class B 98,901 (d) 7,133 Consolidated Hydro, Inc., Stock Warrants, Class C 49,931 (d) 3,267 CS Wireless Systems, Inc., Common Stock 3 30,000 Echostar Communications Corp., Class A Common Stock 502,500 101,377 Gaylord Container Corp., Class A Common Stock 582,918 127,902 Gaylord Container Corp., Stock Warrants 735,437 18,126 Grand Union Co., Stock Warrants 181 (d) 36,251 Grand Union Co., Stock Warrants 363 (d) 65,000 Harvard Industries, Inc., Class B Common Stock 40,625 4,600 HighwayMaster Communications, Inc., Stock Warrants 55,200 13,800 Hyperion Telecommunications, Stock Warrants 828,000 139,000 IntelCom Group Communications, Inc., Common Stock 3,787,750 68,300 IntelCom Group (U.S.A.), Inc., Stock Warrants 1,212,325 5,900 Intermedia Communications of Florida, Stock Warrants 649,000 14,800 Ionica plc, Stock Warrants 1,184,000 3,000 Iridium World Communications, Stock Warrants 360,000 38,000 JPS Textiles Group, Common Stock, Class A 380 (d) 125,000 Magellan Health Services, Common Stock 2,687,500 10,800 McCaw International Ltd., Stock Warrants 27,000 50,379 Memorex Telex N.V., ADR, Common Stock 254 1,728 Memorex Telex N.V., ADR, Stock Warrants 0 (d) 40,800 Microcell Telecommunications, Inc., Stock Warrants 408 40,800 Microcell Telecommunications, Inc., Stock Warrants 558,144 384,500 MobileMedia Corp., Class A Common Stock 48,063 3,750 NEXTEL Communications, Stock Warrants 3,750 3,086 NEXTEL Communications, Stock Warrants 370 33,250 PageMart Nationwide, Inc., Common Stock 266,000 174,000 Pagemart Wireless, Inc., Class A Common Stock 1,370,250 50,300 Plantronics, Inc., Common Stock 2,012,000 155,000 Powertel, Inc., Common Stock 2,596,250 4,800 Primus Telecommunications Group, Inc., Stock Warrants 60,000 23,840 Protection One Alarm Monitoring, Stock Warrants 332,568 9,000 RSL Communications Ltd., Stock Warrants 765,000 4,850 Teletrac Holdings, Inc., Stock Warrants 266,750 5,000 Triangle Wire & Cable, Inc., Stock Warrants 0 (d) 7,400 UIH Australia/Pacific, Inc., Stock Warrants 5,920 14,400 UNIFI Communications, Inc., Stock Warrants 216,000 118,000 United International Holdings, Inc., Class A Common Stock 1,357,000 27,000 United International Holdings, Inc., Stock Warrants 324,000 66,000 USN Communications, Inc., Stock Warrants 660 240,666 Viatel, Inc., Common Stock 1,203,330 6,363 Wherehouse Entertainment, Inc., Class B Stock Warrants 15,908 6,363 Wherehouse Entertainment, Inc., Class C Stock Warrants 9,545 36,654 Wherehouse Entertainment, Inc., Stock Warrants, Class A 403,194 138,000 Wireless One, Inc., Common Stock 276,000 19,200 Wireless One, Inc., Stock Warrants 192 ------------- Total Common Stocks & Stock Warrants (cost $38,340,141) 31,746,453 ------------- Principal Maturity Amount Rate Date Value ---------- ---------- ---------- ---------- SHORT-TERM SECURITIES - 4.3% (a) Commercial Paper $ 1,800,000 American Express Credit Corp. 6.15% 1/7/1998 $1,798,155 8,200,000 American Express Credit Corp. 6.1% 1/7/1998 8,191,663 10,000,000 Centerior Fuel Corp. 6.25% 1/5/1998 9,993,056 1,825,000 Delaware Funding Corp. 5.75% 1/30/1998 1,816,547 29,400,000 Koch Industries, Inc. 6.75% 1/2/1998 29,394,488 5,000,000 Triple-A One Funding Corp. 6.5% 1/9/1998 4,992,778 ------------- Total Short-Term Securities (at amortized cost) 56,186,687 ------------- Total Investments (cost $1,293,491,625) $1,321,840,136 (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) Currently non-income producing. (c) Currently non-income producing and in default. (d) Denotes restricted securities. These securities have been valued from the date of acquisition through December 31, 1997, 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, 1997.
Acquisition Security Date Cost ---------------------------------------------------------------- ----------- --------- Consolidated Hydro, Inc., Stock Warrants 2/8/1994 $171,277 Consolidated Hydro, Inc., Stock Warrants, Class B 11/18/1997 2,061,665 Consolidated Hydro, Inc., Stock Warrants, Class C 11/18/1997 0 Grand Union Co., Stock Warrants 6/20/1995 7,250 Grand Union Co., Stock Warrants 6/20/1995 3,625 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,703,525 JPS Textiles Group, Common Stock, Class A 1/13/1994 1,512,500 Memorex Telex N.V., ADR, Stock Warrants 3/25/1994 3,456 Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 500
(e) Denotes variable rate obligations for which the current yield and the next scheduled interest reset dates are shown. (f) At December 31, 1997, the aggregate cost of securities for federal tax purposes was $1,294,351,941 and the net unrealized appreciation of investments based on that cost was $27,488,195 which is comprised of $86,908,312 aggregate gross unrealized appreciation and $59,420,117 aggregate gross unrealized depreciation. The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. INCOME PORTFOLIO Portfolio of Investments December 31, 1997 Principal Maturity Amount Rate Date Value ---------- ---------- ---------- ---------- CORPORATE BONDS - 50.9% (a) Aerospace - 0.5% $4,500,000 United Defense Industries, Inc., Sr. Subordinated Notes 8.75% 11/15/2007 $4,550,625 ------------- 4,550,625 ------------- Automotive - 1.1% 5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 5,024,510 5,000,000 General Motors Acceptance Corp., Unsecured Notes 7.125% 5/1/2003 5,192,270 ------------- 10,216,780 ------------- Bank & Finance - 14.0% 6,000,000 Aon Capital A, Capital Securities 8.205% 1/1/2027 6,785,790 5,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 5,305,900 4,500,000 Banc One Corp., Subordinated Debentures 8.0% 4/29/2027 5,137,114 2,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 2,097,612 6,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 6,602,790 5,000,000 Chemical New York Corp., Debentures 9.75% 6/15/2099 5,255,195 12,000,000 Equitable Life Assurance Society of the United States, Surplus Notes 6.95% 12/1/2005 12,236,592 8,000,000 GenAmerica Capital I, Capital Securities 8.525% 6/30/2002 8,510,776 6,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 7,481,097 6,000,000 Mellon Capital I, Capital Trust Preferred Securities 7.72% 12/1/2026 6,263,892 10,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 10,620,700 5,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 5,022,865 9,000,000 Prudential Insurance Co. of America, Capital Notes 6.875% 4/15/2003 9,107,514 8,000,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 8,912,144 7,500,000 Societe Generale Real Estate Investment Trust, LIBOR Bonds, Series A 7.64% 12/29/2049 7,529,265 6,000,000 Societe-Generale- New York, Subordinated Notes 9.875% 7/15/2003 6,959,322 5,000,000 Societe-Generale- New York, Subordinated Notes 7.4% 6/1/2006 5,225,345 7,500,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 7,656,975 ------------- 126,710,888 ------------- Broadcasting - 3.8% 4,000,000 Cablevision Systems Corp., Sr. Notes 7.875% 12/15/2007 4,100,000 3,000,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 2,951,250 3,500,000 Groupo Televisa S.A., Sr. Notes, Series A 11.375% 5/15/2003 3,832,500 5,800,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes 9.625% 8/1/2002 6,206,000 8,000,000 TKR Cable I, Inc., Sr. Debentures 10.5% 10/30/2007 8,893,152 5,000,000 Viacom, Inc., Subordinated Debentures 8.0% 7/7/2006 5,068,750 3,000,000 Westinghouse Electric Corp., Notes 8.875% 6/1/2001 3,170,427 ------------- 34,222,079 ------------- Computers & Office Equipment - 1.2% 10,000,000 International Business Machines Corp., Debentures 7.125% 12/1/2096 10,450,980 ------------- Containers & Packaging - 0.5% 4,000,000 Owens-Illinois, Inc., Sr. Notes 7.85% 5/15/2004 4,205,012 ------------- Drugs & Health Care - 1.6% 5,000,000 Allegiance Corp., Debentures 7.8% 10/15/2016 5,453,915 1,500,000 Athena Neurosciences, Inc., Convertible Bonds 4.75% 11/15/2004 1,501,875 5,000,000 McKesson Finance Company of Canada, Sr. Notes 6.55% 11/1/2002 5,071,380 2,000,000 Playtex Products Inc., Unsecured Sr. Notes 8.875% 7/15/2004 2,042,500 1,500,000 Roche Holdings, Inc., Convertible Notes Zero Coupon 4/20/2010 832,500 ------------- 14,902,170 ------------- Electric Utilities - 7.3% 2,000,000 AES Corp., Sr. Subordinated Notes 10.25% 7/15/2006 2,185,000 6,000,000 CalEnergy Company, Inc., Sr. Notes 7.63% 10/15/2007 6,107,166 1,500,000 Calpine Corp., Sr. Notes 8.75% 7/15/2007 1,537,500 5,000,000 Cleveland Electric Illumination Co., First Mortgage Bonds 7.625% 8/1/2002 5,169,995 7,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,213,899 5,500,000 Commonwealth Edison Co., Notes 7.625% 1/15/2007 5,794,640 5,000,000 Connecticut Light & Power Co., First Refunding Mortgage Bonds, Series 97C 7.75% 6/1/2002 5,062,895 5,000,000 Consolidated Edison Co. NY, Inc., Debentures 6.45% 12/1/2007 4,999,620 4,000,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 4,425,000 6,500,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 6,688,754 10,000,000 Korea Electric Power Corp., Debentures 6.75% 8/1/2027 7,487,480 4,000,000 NRG Energy, Inc., Sr. Notes 7.5% 6/15/2007 4,147,948 5,000,000 Texas Utilities Electric Company, Debentures 7.17% 8/1/2007 5,204,170 ------------- 66,024,067 ------------- Electronics - 0.1% 750,000 Motorola, Inc., Convertible Liquid Yield Option Notes Zero Coupon 9/27/2013 570,937 ------------- Food & Beverage - 1.3% 2,000,000 AmeriServe Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 2,020,000 10,000,000 Archer Daniels Midland Co., Bonds 6.75% 12/15/2027 10,047,450 ------------- 12,067,450 ------------- Hospital Management - 1.3% 3,000,000 Integrated Health Services, Inc., Sr. Subordinated Notes 9.25% 1/15/2008 3,067,500 4,000,000 Quorum Health Group, Inc., Sr. Subordinated Notes 8.75% 11/1/2005 4,145,000 2,500,000 Tenet Healthcare Corp., Sr. Notes 8.625% 12/1/2003 2,653,808 2,000,000 Tenet Healthcare Corp., Sr. Subordinated Notes 10.125% 3/1/2005 2,192,500 ------------- 12,058,808 ------------- Household Products - 0.7% 5,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 6,442,660 ------------- Leisure & Entertainment - 0.8% 6,000,000 Time Warner, Inc., Debentures 9.125% 1/15/2013 7,110,000 ------------- Oil & Gas - 1.9% 3,000,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures 9.625% 7/1/2005 3,270,000 4,000,000 Newfield Exploration Company, Sr. Notes 7.45% 10/15/2007 4,051,208 1,000,000 Ocean Energy, Inc., Sr. Notes 8.875% 7/15/2007 1,065,000 9,000,000 Triton Energy Ltd., Sr. Notes 8.75% 4/15/2002 9,119,943 ------------- 17,506,151 ------------- Oil & Oil Service - 0.1% 1,000,000 Baker Hughes, Inc., Convertible Liquid Yield Option Notes Zero Coupon 5/5/2008 860,000 350,000 Diamond Offshore Drilling, Inc., Convertible Subordinated Notes 3.75% 2/15/2007 473,375 ------------- 1,333,375 ------------- Paper & Forest Products - 0.3% 3,500,000 Indah Kiat Finance Mauritius, Sr. Guaranteed Notes 10.0% 7/1/2007 2,948,750 ------------- Petroleum - 2.7% 3,000,000 Flores & Rucks, Inc., Sr. Subordinated Notes 9.75% 10/1/2006 3,311,250 4,635,150 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 4,795,619 3,000,000 Oryx Energy Co., Notes 8.375% 7/15/2004 3,243,216 10,500,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 9,669,702 3,000,000 United Meridian Corp., Sr. Subordinated Notes 10.375% 10/15/2005 3,330,000 ------------- 24,349,787 ------------- Pollution Control - 0.2% 1,500,000 USA Waste Services, Inc., Convertible Subordinated Notes 4.0% 2/1/2002 1,642,500 ------------- Publishing & Printing - 0.6% 3,500,000 Belo (A.H.) Corp., Sr. Notes 7.125% 6/1/2007 3,636,255 1,500,000 Omnicom Group Inc., Convertible Subordinated Debentures 2.25% 1/16/2013 1,571,250 ------------- 5,207,505 ------------- Railroads - 1.7% 5,000,000 Norfolk Southern Corp., Bonds 7.8% 5/152027 5,657,960 5,500,000 Norfolk Southern Corp., Notes 6.875% 5/1/2001 5,609,120 4,000,000 Norfolk Southern Corp., Notes 6.95% 5/1/2002 4,102,716 ------------- 15,369,796 ------------- Retail - 6.4% 1,250,000 Costco Companies, Inc., Convertible Subordinated Notes Zero Coupon 8/19/2017 745,312 250,000 Costco Companies, Inc., Subordinated Notes Zero Coupon 8/19/2007 149,063 8,500,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 8,541,880 6,000,000 Federated Department Stores, Inc., Sr. Debentures 6.79% 7/15/2027 6,123,084 4,000,000 Federated Department Stores, Sr. Notes 8.5% 6/15/2003 4,371,172 3,000,000 Fleming Companies, Inc., Sr. Subordinated Notes 10.5% 12/1/2004 3,157,500 6,800,000 Kroger Co. (The), Sr. Notes 8.15% 7/15/2006 7,498,054 8,000,000 Penney (J.C.) Co., Inc., Notes 6.95% 4/1/2000 8,147,456 2,500,000 Rite Aid Corp., Capital Notes 5.25% 9/15/2002 2,700,000 6,000,000 Sears Roebuck Acceptance Corp, Medium Term Notes, Series III 7.03% 6/4/2003 6,197,562 10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,196,730 ------------- 57,827,813 ------------- Services - 0.8% 750,000 CUC International, Inc., Convertible Subordinated Notes 3.0% 2/15/2002 940,313 6,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 6,106,236 750,000 Interpublic Group of Companies, Convertible Subordinated Debentures 1.80% 9/16/2004 617,812 ------------- 7,664,361 ------------- Telephone - 1.2% 3,000,000 Philippine Long Distance Telephone, Notes 7.85% 3/6/2007 2,647,500 8,000,000 US West Capital Funding, Inc., Notes 6.85% 1/15/2002 8,140,088 ------------- 10,787,588 ------------- Textiles & Apparel - 0.8% 7,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 7,164,927 ------------- Total Corporate Bonds (cost $451,761,795) 461,335,009 ------------- FOREIGN GOVERNMENT BONDS - 3.3% (a,c) 5,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 $5,411,695 7,500,000 Korea Development Bank (The), Bonds 7.25% 5/15/2006 5,909,422 5,000,000 Korea Development Bank, Bonds 7.125% 9/17/2001 4,259,945 3,000,000 Korea Development Bank, Unsecured Bonds 6.625% 11/21/2003 2,415,633 6,000,000 Ontario Province, Canada, Debentures 11.75% 4/25/2013 6,397,020 2,500,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 2,627,900 3,000,000 Republic Of Poland, Unsecured Bonds 4.0% 10/27/2014 2,598,750 (b) ------------- Total Foreign Government Bonds (cost $33,157,871) 29,620,365 ------------- ASSET-BACKED SECURITIES - 14.6% (a) 12,000,000 AESOP Funding II L.L.C., Rental Car Notes, Series 1997-1, Class A-2 6.4% 10/20/2003 12,117,600 11,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 11,119,130 7,223,736 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 7,282,031 5,000,000 CS First Boston Mortgage Security Corp., 1996-2 Class A4 6.62% 9/25/2009 5,037,400 5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3 6.91% 5/25/2007 5,047,200 5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A4 7.15% 5/25/2010 5,115,550 20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.6% 2/15/2001 20,052,000 (b) 10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 9,856,800 10,000,000 Proffitt's Credit Card Master Trust 6.5% 12/15/2005 10,132,900 12,000,000 Standard Credit Master Trust 1, Credit Card Participation 6.55% 10/7/2007 12,190,440 15,000,000 World Financial Network Credit Card Master Trust, Series 1996-B 6.95% 4/15/2006 15,504,285 18,000,000 World Omni Auto Lease Trust 6.9% 6/25/2003 18,285,300 ------------- Total Asset-Backed Securities (cost $130,020,236) 131,740,636 ------------- MORTGAGE-BACKED SECURITIES - 11.3% (a) 32,425,897 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 2011 - 2012 31,977,727 (d) 32,000,000 Federal National Mortgage Association, Participation Certificates 6.5% 1/15/2028 31,620,000 (d) 38,935,367 Government National Mortgage Association, Modified Pass Through 6.5% 2/15/2027 38,596,240 ------------- Total Mortgage-Backed Securities (cost $100,490,604) 102,193,967 ------------- U.S. GOVERNMENT - 11.0% (a) 50,000,000 U.S. Treasury Bonds 6.375% - 12.0% 8/15/2027 61,428,938 34,500,000 U.S. Treasury Notes 6.25% - 7.875% 2003 - 2004 37,815,347 ------------- Total U.S. Government (cost $95,191,895) 99,244,285 ------------- Shares - ----------- COMMON STOCKS - 0.4% (a) 7,500 Banc One Corp., Common Stock 407,344 10,000 CarrAmerica Realty Corp., Common Stock 316,875 6,000 Cresent Real Estate Equities, Common Stock 236,250 5,000 Federal National Mortgage Association, Common Stock 285,313 10,000 First Industrial Realty Trust, Inc., Common Stock 361,250 15,000 First Union Corp., Common Stock 768,750 5,000 Highwoods Properties, Inc., Common Stock 185,938 10,000 Simon Debartolo Group, Inc., Common Stock 326,875 4,000 Spieker Properties, Inc., Common Stock 171,500 ------------- Total Common Stocks (cost $2,811,774) 3,060,095 ------------- PREFERRED STOCKS - 1.6% (a) 35,000 AES Trust II., Convertible Preferred Stock 1,806,875 15,000 AirTouch Communications, Inc., Convertible Preferred Stock 934,687 20,000 Conseco, Inc., Convertible Preferred Stock 1,025,000 22,500 Houston Industries, Inc., Preferred Stock 1,283,906 10,000 McKesson Financing Trust, Convertible Preferred Stock 717,500 25,000 National Australia Banks, Preferred Stock 710,938 45,000 Newell Financial Trust I., Convertible Preferred Stock 2,351,250 10,000 Primedia Inc., Preferred Stock 1,002,500 20,000 Primedia Inc., Preferred Stock, Series D 2,110,000 17,500 Security Capital Industrial Trust Ltd., Preferred Stock 557,812 17,500 Security Capital Pacific Trust, Preferred Stock 573,125 15,000 Unocal Capital Trust, Preferred Stock 838,125 ------------- Total Preferred Stocks (cost $13,261,559) 13,911,718 ------------- Principal Maturity Amount Rate Date ---------- ---------- ---------- SHORT-TERM SECURITIES - 6.9% (a) Commercial Paper - 5.7% $10,000,000 Commercial Credit Co. 5.85% 1/20/1998 9,969,125 24,500,000 Gillette Co. 6.75% 1/2/1998 24,495,406 14,800,000 Merck & Co., Inc. 6.25% 1/5/1998 14,789,722 2,500,000 Met-Life Funding, Inc. 5.72% 1/23/1998 2,491,261 ------------- 51,745,514 ------------- U.S. Government Agency - 1.2% 10,769,000 Federal Home Loan Bank, Consolidated Discount Notes 5.69% 1/14/1998 10,746,873 ------------- Total Short-Term Securities (at amortized cost) 62,492,387 ------------- Total Investments (cost $889,188,121) $903,598,462 (e) ============= Notes to Portfolio of Investments: (a) The categories of investments are shown as a percentage of total investments of the Income Portfolio. (b) Denotes variable rate obligations for which current yield is shown. (c) Denominated in U.S. dollars. (d) Denotes investments purchased on a when-issued basis. (e) At December 31, 1997, the aggregate cost of securities for federal income tax purposes was $889,725,087 and the net unrealized appreciation of investments based on that cost was $13,873,375 which is comprised of $22,741,014 aggregate gross unrealized appreciation and $8,867,639 aggregate gross unrealized depreciation. The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. MONEY MARKET PORTFOLIO Portfolio of Investments December 31, 1997 Principal Maturity Amount Rate Date Value ---------- ---------- ---------- ---------- BANK NOTES - 3.3% (a) $2,000,000 Bank of America, National Trust & Savings Association 5.84% 5/5/1998 $2,000,523 2,000,000 Wachovia Bank North Carolina, N.A. 6.20% 4/6/1998 1,999,504 ------------- 4,000,027 ------------- COMMERCIAL PAPER - 86.1% (a) Banking-Domestic - 4.4% 1,661,000 CommEd Fuel Company, Inc. (First National Bank of Chicago, Direct Pay Letter of Credit) 5.93% 1/5/1998 1,659,911 3,650,000 Metrocrest Hospital Authority, Series 1989 (Bank of New York, Direct Pay Letter of Credit) 5.72% 2/3/1998 3,631,138 ------------- 5,291,049 ------------- Banking-Foreign - 17.8% 2,000,000 Banco BCN Barclays (Bahamas) (Barclay's Bank, plc, Direct Pay Letter of Credit 5.94% 1/20/1998 1,993,783 2,000,000 CEMEX, S.A. de C.V. (Credit Suisse, Direct Pay Letter of Credit) 5.67% 1/16/1998 1,995,342 1,500,000 China Merchants (Cayman) Inc. (Credit Suisse, Direct Pay Letter of Credit) 5.81% 2/23/1998 1,487,368 2,000,000 China Merchants (Cayman) Inc. (Credit Suisse, Direct Pay Letter of Credit) 5.73% 2/17/1998 1,985,273 2,000,000 Comision Federal De Electricidad (Westdeutsche Landesbank, Direct Pay Letter of Credit) 5.85% 2/26/1998 1,982,049 2,000,000 Comision Federal De Electricidad (Westdeutsche Landesbank, Direct Pay Letter of Credit) 5.87% 3/13/1998 1,977,201 1,400,000 Glencore Finance (Bermuda) Ltd (Union Bank of Switzerland, Direct Pay Letter of Credit) 5.69% 2/4/1998 1,392,648 1,000,000 Glencore Finance (Bermuda) Ltd (Union Bank of Switzerland, Direct Pay Letter of Credit) 5.71% 2/4/1998 994,739 1,500,000 Indiana Development Board Parish Calcasieu, Series 1996 (ABN AMRO Bank, Direct Pay Letter of Credit) 5.75% 2/18/1998 1,500,000 2,000,000 UBS Finance (Delaware) Inc. (Union Bank of Switzerland) 7.00% 1/2/1998 1,999,611 2,240,000 U.S. Prime Property, Inc. (ABN AMRO, Direct Pay Letter of Credit) 5.65% 3/9/1998 2,216,988 2,000,000 U.S. Prime Property, Inc. (ABN AMRO, Direct Pay Letter of Credit) 5.72% 2/12/1998 1,987,027 ------------- 21,512,029 ------------- Computer & Office Equipment - 0.4% 500,000 IBM Credit Corp. 5.73% 3/9/1998 494,817 ------------- Education - 7.4% 2,000,000 Harvard University 6.75% 1/2/98 1,999,625 2,000,000 Leland Stanford Jr. University 5.75% 4/2/98 1,972,043 1,000,000 Leland Stanford Jr. University 5.71% 4/23/98 982,764 1,000,000 Yale University 5.80% 3/2/98 990,467 1,000,000 Yale University 5.86% 3/23/98 987,018 2,000,000 Yale University 5.85% 2/25/98 1,982,339 ------------- 8,914,256 ------------- Finance-Automotive - 1.3% 200,000 Ford Motor Credit Co. 6.51% 1/8/1998 199,747 300,000 General Motors Acceptance Corp 6.27% 1/14/1998 299,323 225,000 General Motors Acceptance Corp 5.94% 1/8/1998 224,742 900,000 General Motors Acceptance Corp 6.23% 1/21/1998 896,900 ------------- 1,620,712 ------------- Finance-Commercial - 6.9% 310,000 General Electric Capital Corp. 5.69% 2/19/1998 307,654 130,000 General Electric Capital Corp. 5.76% 5/6/1998 127,490 2,000,000 General Electric Credit Capital Services (GTD General Electric Capital Corp.) 5.85% 3/3/1998 1,980,446 2,000,000 General Electric Credit Capital Services (GTD General Electric Capital Corp.) 5.73% 3/5/1998 1,980,330 2,000,000 Norwest Financial, Inc. 5.64% 1/29/1998 1,991,382 2,000,000 Norwest Financial, Inc. 5.70% 2/26/1998 1,982,609 ------------- 8,369,911 ------------- Finance-Consumer - 9.6% 1,500,000 Associates Corp of North America 5.80% 1/14/1998 1,496,885 1,000,000 Associates Financial Services (GTD Associates Corp of North America) 6.11% 1/7/1998 998,983 1,100,000 Associates Financial Services Co Puerto Rico (GTD Associates Corp of North America) 5.71% 2/12/1998 1,092,788 2,000,000 Associates Financial Services Co Puerto Rico (GTD Associates Corp of North America) 5.93% 1/20/1998 1,993,772 2,000,000 AVCO Financial Services Inc. 5.76% 1/23/1998 1,993,021 2,000,000 Penney (J.C.) Funding Corp. 5.77% 2/19/1998 1,984,538 2,000,000 Penney (J.C.) Funding Corp. 5.67% 1/30/1998 1,990,994 ------------- 11,550,981 ------------- Finance-Structured - 11.0% 2,000,000 Delaware Funding Corp. 6.03% 1/16/1998 1,995,000 620,000 Delaware Funding Corp. 6.00% 1/20/1998 618,043 1,000,000 Delaware Funding Corp. 5.91% 2/20/1998 991,875 2,000,000 Preferred Receivables Funding 5.88% 1/20/1998 1,993,846 2,000,000 Preferred Receivables Funding 6.03% 1/20/1998 1,993,667 293,000 Triple-A One Funding 6.17% 1/15/1998 292,300 2,000,000 Triple-A One Funding 5.93% 1/14/1998 1,995,739 459,000 Triple-A One Funding 6.19% 1/5/1998 458,685 1,000,000 Triple-A One Funding 6.51% 1/9/1998 998,556 2,000,000 Triple-A One Funding 5.95% 1/9/1998 1,997,369 ------------- 13,335,080 ------------- Financial Services - 0.3% 300,000 USAA Capital Corp. 5.80% 2/19/1998 297,652 ------------- Food & Beverage - 0.8% 1,000,000 Heinz (H.J.) Co. 5.79% 2/24/1998 991,390 ------------- Industrial - 14.1% 2,000,000 Chevron Transport Corp. (GTD Chevron Corp.) 5.83% 2/5/1998 1,988,761 2,000,000 Chevron Transport Corp. (GTD Chevron Corp.) 5.73% 2/25/1998 1,982,828 2,000,000 Dupont (E.I.) de Nemours 5.75% 6/2/1998 1,953,387 1,900,000 Dupont (E.I.) de Nemours 6.14% 1/9/1998 1,897,416 5,200,000 Merck and Co, Inc. 6.26% 1/5/1998 5,196,389 2,000,000 Monsanto Co. 5.81% 5/11/1998 1,959,194 2,000,000 Monsanto Co. 5.62% 2/4/1998 1,989,592 ------------- 16,967,567 ------------- Insurance - 2.5% 1,000,000 A.I. Credit Corp. 5.67% 1/15/1998 997,849 410,000 Met-Life Funding Inc. 5.84% 3/25/1998 404,565 1,242,000 Met-Life Funding Inc. 5.78% 1/29/1998 1,236,474 385,000 Met-Life Funding Inc. 5.83% 3/17/1998 380,388 ------------- 3,019,276 ------------- Sovereign/Foreign Government - 0.4% 500,000 Sweden (Kingdom of) 5.76% 3/16/1998 494,193 ------------- Transportation - 0.2% 272,000 UPS Service of America, Inc. 5.68% 2/13/1998 270,198 ------------- U.S. Municipal - 9.0% 2,000,000 California Pollution Control Finance Authority (GTD Shell Oil Co.) 5.80% 3/6/1998 2,000,000 4,020,000 Gulf Coast Waste Disposal Authority (GTD Amoco Oil) 5.81% 3/12/1998 4,020,000 3,100,000 City of New York Government Bonds, Fiscal 1995, Series B (GTD FGIC SPI) 5.94% 2/20/1998 3,100,000 1,800,000 City of Whiting, Indiana Series 1995, Sewage & Waste Disposal (GTD Amoco Oil Co.) 5.85% 4/9/1998 1,800,000 ------------- 10,920,000 ------------- Total Commercial Paper 104,049,111 ------------- CERTIFICATES OF DEPOSIT - 0.8% (a) Domestic 1,000,000 Bankers Trust Company, New York 6.00% 8/28/1998 999,813 ------------- MEDIUM TERM NOTES - 1.7% (a) 2,000,000 Abbey National Treasury Service PLC 5.72% 4/2/1998 2,000,941 ------------- VARIABLE RATE NOTES - 7.5% (a,b) 2,000,000 Federal Home Loan Bank 5.87% 1/7/1998 1,998,987 5,000,000 IBM Credit Corp. 5.61% 2/16/1998 4,998,361 2,000,000 Illinois Student Assistance Commission 5.92% 1/7/1998 2,000,000 ------------- 8,997,348 ------------- OTHER - 0.6% (a,b) 380,000 Federal Home Loan Bank, Discount Notes 5.83% 2/18/1998 377,112 290,000 Federated Master Trust 5.38% 1/2/1998 290,000 ------------- 667,112 ------------- Total Investments (at amortized cost) $120,714,352 (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. The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. OPPORTUNITY GROWTH PORTFOLIO Financial Statements Statement of Assets and Liabilities December 31, 1997 ASSETS: Investments in securities, at value (cost, $415,816,402) $412,606,261 Cash 128,375 Receivable for investment securities sold 3,080,652 Dividend and interest receivable 384,355 ------------ Total assets 416,199,643 ------------ LIABILITIES: Payable for investment securities purchased 24,735,860 ------------ NET ASSETS $391,463,783 ============ NET ASSETS CONSIST OF: Paid-in capital (33,897,420 shares of capital stock outstanding) $393,535,909 Accumulated net realized gain from sale of investments 1,138,015 Unrealized net depreciation of investments (3,210,141) ------------ NET ASSETS $391,463,783 ============ Net asset value and public offering price per share ($391,463,783 divided by 33,897,420 shares of capital stock outstanding) $11.55 ======
Statement of Operations Year Ended December 31, 1997 INVESTMENT INCOME: Income -- Dividend income $ 840,684 Interest income 2,578,577 ------------ Total income 3,419,261 ------------ Expenses -- Investment advisory fee 1,301,986 ------------ Net investment income 2,117,275 ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions 4,242,763 Net realized gain on closed or expired option contracts written 593,121 ------------ Net realized gain on investments 4,835,884 Net change in unrealized depreciation of investments 1,130,770 ------------ Net gain on investments 5,966,654 ------------ Net increase in net assets resulting from operations $ 8,083,929 ============
Statement of Changes in Net Assets Periods Ended December 31, 1997 and 1996 For the period from January 18, 1996 Year Ended (effective date) to December 31, 1997 December 31, 1996 ----------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 2,117,275 $ 344,855 Net realized gain on investments 4,835,884 4,492,663 Net change in unrealized appreciation or depreciation of investments 1,130,770 (4,340,911) ------------ ------------ Net increase in net assets resulting from operations 8,083,929 496,607 ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS -- Net investment income (2,117,275) (344,855) Net realized gain on investments -- (8,190,532) ------------ ------------ Total distributions (2,117,275) (8,535,387) ------------ ------------ CAPITAL STOCK TRANSACTIONS -- Proceeds from sale of shares 144,261,099 247,867,947 Reinvested dividend distributions 2,117,275 8,535,387 Cost of shares redeemed (7,432,544) (1,813,255) ------------ ------------ Net increase in net assets from capital stock transactions 138,945,830 254,590,079 ------------ ------------ Net increase in net assets 144,912,484 246,551,299 NET ASSETS: Beginning of period 246,551,299 -- ------------ ------------ End of period $391,463,783 $246,551,299 ============ ============ The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. WORLD GROWTH PORTFOLIO Financial Statements Statement of Assets and Liabilities December 31, 1997 ASSETS: Investments in securities, at value (cost, $280,843,781) $291,196,981 Cash (including foreign currency holdings of $4,351,368) 4,388,680 Dividend and interest receivable 377,982 ------------ Total assets 295,963,643 ------------ LIABILITIES: Payable for investment securities purchased 8,745,977 Unrealized depreciation of foreign currency contracts held 13,919 ------------ Total liabilities 8,759,896 ------------ NET ASSETS $287,203,747 ============ NET ASSETS CONSIST OF: Paid-in capital (25,826,988 shares of capital stock outstanding) $276,919,829 Accumulated net realized loss from sale of investments and foreign currency transactions (105,500) Unrealized net appreciation of investments and on translation of assets and liabilities in foreign currencies 10,389,418 ------------ NET ASSETS $287,203,747 ============ Net asset value and public offering price per share ($287,203,747 divided by 25,826,988 shares of capital stock outstanding) $11.12 ======
Statement of Operations Year Ended December 31, 1997 INVESTMENT INCOME: Income -- Dividend income (net of foreign taxes of $528,766) $ 3,932,945 Interest income 791,942 ------------ Total income 4,724,887 ------------ Expenses -- Investment advisory fee 2,080,364 ------------ Net investment income 2,644,523 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain on investment transactions 805,176 Net realized loss on foreign currency transactions (38,950) ------------ Net realized gain on investments and foreign currency transactions 766,226 ------------ Net change in unrealized appreciation of investments 20,309 Net change in unrealized appreciation on translation of assets and liabilities in foreign currencies 27,332 ------------ Net change in unrealized appreciation of investments and on translation of assets and liabilities in foreign currencies 47,641 ------------ Net gain on investments and foreign currency 813,867 ------------ Net increase in net assets resulting from operations $ 3,458,390 ============
Statement of Changes in Net Assets Periods Ended December 31, 1997 and 1996 For the period from January 18, 1996 Year Ended (effective date) to December 31, 1997 December 31, 1996 ----------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $2,644,523 $1,200,906 Net realized gain on investments and foreign currency transactions 766,226 128,544 Net change in unrealized appreciation or depreciation of investments and on translation of assets and liabilities in foreign currencies 47,641 10,341,776 ------------ ------------ Net increase in net assets resulting from operations 3,458,390 11,671,226 ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS -- Net investment income (3,251,752) (1,432,845) Net realized gain on investments (161,102) -- ------------ ------------ Total distributions (3,412,854) (1,432,845) ------------ ------------ CAPITAL STOCK TRANSACTIONS -- Proceeds from sale of shares 112,489,907 163,860,588 Reinvested dividend distributions 3,412,854 1,432,845 Cost of shares redeemed (2,837,098) (1,439,266) ------------ ------------ Net increase in net assets from capital stock transactions 113,065,663 163,854,167 ------------ ------------ Net increase in net assets 113,111,199 174,092,548 NET ASSETS: Beginning of period 174,092,548 -- ------------ ------------ End of period $287,203,747 $174,092,548 ============ ============ The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. GROWTH PORTFOLIO Financial Statements Statement of Assets and Liabilities December 31, 1997 ASSETS: Investments in securities, at value (cost, $2,190,348,401) $2,449,976,440 Cash 9,259 Receivable for investment securities sold 15,171,183 Dividend and interest receivable 2,457,355 -------------- Total assets 2,467,614,237 -------------- LIABILITIES: Payable for investment securities purchased 41,476,557 -------------- Total liabilities 41,476,557 -------------- NET ASSETS $2,426,137,680 ============== NET ASSETS CONSIST OF: Paid-in capital (112,406,211 shares of capital stock outstanding) $1,792,272,399 Accumulated net realized gain from sale of investments 374,237,243 Unrealized net appreciation of investments 259,628,038 -------------- NET ASSETS $2,426,137,680 ============== Net asset value and public offering price per share ($2,426,137,680 divided by 112,406,211 shares of capital stock outstanding) $21.58 ======
Statement of Operations Year Ended December 31, 1997 INVESTMENT INCOME: Income -- Dividend income $ 22,808,333 Interest income 8,462,581 ------------ Total income 31,270,914 ------------ Expenses -- Investment advisory fee 8,300,117 ------------ Net investment income 22,970,797 ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions 388,493,658 Net realized gain on closed or expired option contracts written 1,319,749 ------------ Net realized gain on investments 389,813,407 Net change in unrealized appreciation of investments 118,290,444 ------------ Net gain on investments 508,103,851 ------------ Net increase in net assets resulting from operations $531,074,648 ============
Statement of Changes in Net Assets Years Ended December 31, 1997 and 1996 1997 1996 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 22,970,797 $ 19,859,156 Net realized gain on investments 389,813,407 226,017,880 Net change in unrealized appreciation or depreciation of investments 118,290,444 40,726,963 -------------- -------------- Net increase in net assets resulting from operations 531,074,648 286,603,999 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS -- Net investment income (22,970,797) (19,859,156) Net realized gain on investments (239,942,399) (156,587,523) -------------- -------------- Total distributions (262,913,196) (176,446,679) -------------- -------------- CAPITAL STOCK TRANSACTIONS -- Proceeds from sale of shares 268,095,814 226,899,132 Reinvested dividend distributions 262,913,196 176,446,679 Cost of shares redeemed (31,613,719) (28,066,347) -------------- -------------- Net increase in net assets from capital stock transactions 499,395,291 375,279,464 -------------- -------------- Net increase in net assets 767,556,743 485,436,784 NET ASSETS: Beginning of period 1,658,580,937 1,173,144,153 -------------- -------------- End of period $2,426,137,680 $1,658,580,937 ============== ============== The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. HIGH YIELD PORTFOLIO Financial Statements Statement of Assets and Liabilities December 31, 1997 ASSETS: Investments in securities, at value (cost, $1,293,491,625) $1,321,840,136 Cash 57,008 Receivable for investment securities sold 2,161,619 Interest and dividend receivable 22,439,683 -------------- Total assets 1,346,498,446 -------------- LIABILITIES: Payable for investment securities purchased 1,935,750 -------------- Total liabilities 1,935,750 -------------- NET ASSETS $1,344,562,696 ============== NET ASSETS CONSIST OF: Paid-in capital (128,831,291 shares of capital stock outstanding) $1,296,384,079 Undistributed net investment income 852,897 Accumulated net realized gain from sale of investments 18,977,209 Unrealized net appreciation of investments 28,348,511 -------------- NET ASSETS $1,344,562,696 ============== Net asset value and public offering price per share ($1,344,562,696 divided by 128,831,291 shares of capital stock outstanding) $10.44 ======
Statement of Operations Year Ended December 31, 1997 INVESTMENT INCOME: Income -- Interest income $106,752,190 Dividend income 11,318,144 ------------ Total income 118,070,334 ------------ Expenses -- Investment advisory fee 4,734,301 ------------ Net investment income 113,336,033 ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions 26,147,702 Net change in unrealized appreciation of investments 18,136,291 ------------ Net gain on investments 44,283,993 ------------ Net increase in net assets resulting from operations $157,620,026 ============
Statement of Changes in Net Assets Years Ended December 31, 1997 and 1996 1997 1996 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 113,336,033 $ 89,021,168 Net realized gain on investment transactions 26,147,702 19,530,710 Net change in unrealized appreciation or depreciation of investments 18,136,291 (9,358,262) -------------- -------------- Net increase in net assets resulting from operations 157,620,026 99,193,616 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS -- Net investment income (112,483,136) (89,021,168) -------------- -------------- CAPITAL STOCK TRANSACTIONS -- Proceeds from sale of shares 180,112,872 156,539,510 Reinvested dividend distributions 112,483,136 89,367,857 Cost of shares redeemed (19,906,718) (21,833,105) -------------- -------------- Net increase in net assets from capital stock transactions 272,689,290 224,074,262 -------------- -------------- Net increase in net assets 317,826,180 234,246,710 NET ASSETS: Beginning of period 1,026,736,516 792,489,806 -------------- -------------- End of period (including undistributed net investment income of $852,897 and $0 respectively) $1,344,562,696 $1,026,736,516 ============== ============== The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. INCOME PORTFOLIO Financial Statements Statement of Assets and Liabilities December 31, 1997 ASSETS: Investments in securities, at value (cost, $889,188,121) $903,598,462 Cash 77,238 Receivable for investment securities sold 11,930,172 Interest and dividend receivable 12,278,500 ------------ Total assets 927,884,372 ------------ LIABILITIES: Payable for investment securities purchased 47,444,804 ------------ NET ASSETS $880,439,568 ============ NET ASSETS CONSIST OF: Paid-in capital (88,782,557 shares of capital stock outstanding) $884,551,031 Accumulated net realized loss from sale of investments (18,521,803) Unrealized net appreciation of investments 14,410,340 ------------ NET ASSETS $880,439,568 ============ Net asset value and public offering price per share ($880,439,568 divided by 88,782,557 shares of capital stock outstanding) $9.92 =====
Statement of Operations Year Ended December 31, 1997 INVESTMENT INCOME: Income -- Interest income $ 57,412,253 Dividend income 970,682 ------------ Total income 58,382,935 ------------ Expenses -- Investment advisory fee 3,298,189 ------------ Net investment income 55,084,746 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investment transactions 7,274,687 Net realized gain on closed or expired option contracts written 234,154 Net realized loss on closed futures contracts (164,605) ------------ Net realized gain on investments 7,344,236 Net change in unrealized appreciation of investments 7,183,565 ------------ Net gain on investments 14,527,801 ------------ Net increase in net assets resulting from operations $ 69,612,547 ============
Statement of Changes in Net Assets Years Ended December 31, 1997 and 1996 1997 1996 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 55,084,746 $ 50,838,355 Net realized gain (loss) on investment transactions 7,344,236 (3,738,656) Net change in unrealized appreciation or depreciation of investments 7,183,565 (21,236,306) ------------ ------------ Net increase in net assets resulting from operations 69,612,547 25,863,393 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS -- Net investment income (55,084,746) (50,838,355) ------------ ------------ CAPITAL STOCK TRANSACTIONS -- Proceeds from sale of shares 65,602,599 80,241,834 Reinvested dividend distributions 55,084,746 51,093,053 Cost of shares redeemed (55,935,562) (67,256,668) ------------ ------------ Net increase in net assets from capital stock transactions 64,751,783 64,078,219 ------------ ------------ Net increase in net assets 79,279,584 39,103,257 NET ASSETS: Beginning of period 801,159,984 762,056,727 ------------ ------------ End of period $880,439,568 $801,159,984 ============ ============ The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. MONEY MARKET PORTFOLIO Financial Statements Statement of Assets and Liabilities December 31, 1997 ASSETS: Investments in securities, at amortized cost and value $120,714,352 Cash 3,429 Interest receivable 449,374 ------------ Total assets 121,167,155 ------------ NET ASSETS $121,167,155 ============ NET ASSETS CONSIST OF: Paid-in capital (121,167,155 shares of capital stock outstanding) $121,167,155 ============ Net asset value and public offering price per share ($121,167,155 divided by 121,167,155 shares of capital stock outstanding) $1.00 =====
Statement of Operations Year Ended December 31, 1997 INVESTMENT INCOME: Income -- Interest income $ 6,411,601 ------------ Expenses -- Investment advisory fee 452,465 ------------ Net investment income $ 5,959,136 ============
Statement of Changes in Net Assets Years Ended December 31, 1997 and 1996 1997 1996 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 5,959,136 $ 4,132,461 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS -- Net investment income (5,959,136) (4,132,461) ------------ ------------ CAPITAL STOCK TRANSACTIONS -- Proceeds from sale of shares 76,690,617 75,776,304 Reinvested dividend distributions 5,959,136 4,152,037 Cost of shares redeemed (65,403,224) (42,157,682) ------------ ------------ Net increase in net assets from capital stock transactions 17,246,529 37,770,659 ------------ ------------ Net increase in net assets 17,246,529 37,770,659 NET ASSETS: Beginning of period 103,920,626 66,149,967 ------------ ------------ End of period $121,167,155 $103,920,626 ============ ============ The accompanying notes are an integral part of the financial statements.
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 1997 December 31, 1996 ------------------------ ------------------------ Net asset value, beginning of period $11.50 $10.00 -------- -------- Income From Investment Operations -- Net investment income 0.06 0.02 Net realized and unrealized gain (loss) on investments 0.05 1.90 -------- -------- Total from investment operations 0.11 1.92 -------- -------- Less Distributions -- Dividends from net investment income (0.06) (0.02) Distributions from net realized gain on investments -- (0.40) -------- -------- Total distributions (0.06) (0.42) -------- -------- Net asset value, end of period $11.55 $11.50 ======== ======== Total investment return at net asset value (b) 0.93% 19.17% Net assets, end of period ($ millions) $391.5 $246.6 Ratio of expenses to average net assets 0.40% 0.40%(c) Ratio of net investment income to average net assets 0.65% 0.27%(c) Portfolio turnover rate 147% 155% Average Commission Rate (d) $0.0531 $0.0342 For the period from January 18, 1996 (effective date) to WORLD GROWTH PORTFOLIO 1997 December 31, 1996 ------------------------ ------------------------ Net asset value, beginning of period $10.95 $10.00 -------- -------- Income From Investment Operations -- Net investment income 0.10 0.08 Net realized and unrealized gain (loss) on investments 0.21 0.96 -------- -------- Total from investment operations 0.31 1.04 -------- -------- Less Distributions -- Dividends from net investment income (0.13) (0.09) Distributions from net realized gain on investments (0.01) -- -------- -------- Total distributions (0.14) (0.09) -------- -------- Net asset value, end of period $11.12 $10.95 ======== ======== Total investment return at net asset value (b) 2.81% 10.41% Net assets, end of period ($ millions) $287.2 $174.1 Ratio of expenses to average net assets 0.85% 0.85%(c) Ratio of net investment income to average net assets 1.08% 1.34%(c) Portfolio turnover rate 19% 9% Average Commission Rate (d) $0.0245 $0.0265 See accompanying notes to the Financial Highlights.
LB SERIES FUND, INC. Financial Highlights (continued) GROWTH PORTFOLIO 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net asset value, beginning of period $19.32 $18.27 $13.51 $14.76 $13.89 -------- -------- -------- -------- -------- Income From Investment Operations -- Net investment income 0.21 0.24 0.24 0.20 0.29 Net realized and unrealized gain (loss) on investments 4.97 3.43 4.76 (0.87) 1.08 -------- -------- -------- -------- -------- Total from investment operations 5.18 3.67 5.00 (0.67) 1.37 -------- -------- -------- -------- -------- Less Distributions -- Dividends from net investment income (0.21) (0.24) (0.24) (0.20) (0.29) Distributions from net realized gain on investments (2.71) (2.38) -- (0.38) (0.21) -------- -------- -------- -------- -------- Total distributions (2.92) (2.62) (0.24) (0.58) (0.50) -------- -------- -------- -------- -------- Net asset value, end of period $21.58 $19.32 $18.27 $13.51 $14.76 ======== ======== ======== ======== ======== Total investment return at net asset value (b) 30.18% 22.44% 37.25% -4.66% 10.10% Net assets, end of period ($ millions) $2,426.1 $1,658.6 $1,173.1 $721.8 $534.5 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 1.11% 1.41% 1.53% 1.52% 2.17% Portfolio turnover rate 193% 223% 184% 135% 243% Average Commission Rate (d) $0.0600 $0.0629 n/a n/a n/a HIGH YIELD PORTFOLIO 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net asset value, beginning of period $10.06 $ 9.94 $ 9.18 $10.76 $ 9.62 -------- -------- -------- -------- -------- Income From Investment Operations -- Net investment income 0.98 0.98 0.96 0.97 0.96 Net realized and unrealized gain (loss) on investments 0.37 0.12 0.76 (1.40) 1.16 -------- -------- -------- -------- -------- Total from investment operations 1.35 1.10 1.72 (0.43) 2.12 -------- -------- -------- -------- -------- Less Distributions -- Dividends from net investment income (0.97) (0.98) (0.96) (0.97) (0.96) Distributions from net realized gain on investments -- -- -- (0.18) (0.02) -------- -------- -------- -------- -------- Total distributions (0.97) (0.98) (0.96) (1.15) (0.98) -------- -------- -------- -------- -------- Net asset value, end of period $10.44 $10.06 $ 9.94 $ 9.18 $10.76 ======== ======== ======== ======== ======== Total investment return at net asset value (b) 14.10% 11.55% 19.62% -4.38% 22.91% Net assets, end of period ($ millions) $1,344.6 $1,026.7 $792.5 $595.6 $444.5 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 9.58% 9.83% 9.94% 9.75% 9.29% Portfolio turnover rate 105% 107% 67% 44% 68% See accompanying notes to the financial highlights. LB SERIES FUND, INC. Financial Highlights (continued) INCOME PORTFOLIO 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net asset value, beginning of period $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87 -------- -------- -------- -------- -------- Income From Investment Operations -- Net investment income 0.65 0.63 0.65 0.64 0.63 Net realized and unrealized gain (loss) on investments 0.17 (0.33) 1.04 (1.11) 0.49 -------- -------- -------- -------- -------- Total from investment operations 0.82 0.30 1.69 (0.47) 1.12 -------- -------- -------- -------- -------- Less Distributions -- Dividends from net investment income (0.65) (0.63) (0.65) (0.64) (0.63) Distributions from net realized gain on investments -- -- -- (0.21) -- -------- -------- -------- -------- -------- Total distributions (0.65) (0.63) (0.65) (0.85) (0.63) -------- -------- -------- -------- -------- Net asset value, end of period $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36 ======== ======== ======== ======== ======== Total investment return at net asset value (b) 8.75% 3.21% 19.36% -4.68% 11.66% Net assets, end of period ($ millions) $880.4 $801.2 $762.1 $608.2 $566.9 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 6.68% 6.54% 6.81% 6.78% 6.23% Portfolio turnover rate 117% 150% 132% 139% 153% MONEY MARKET PORTFOLIO 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- 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 0.06 0.04 0.03 Less: Dividends from net investment income (0.05) (0.05) (0.06) (0.04) (0.03) -------- -------- -------- -------- -------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Total return (b) 5.43% 5.20% 5.71% 4.00% 2.87% Net assets, end of period ($ millions) $121.2 $103.9 $66.1 $41.9 $24.9 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 5.27% 5.07% 5.55% 4.03% 2.83% NOTES TO FINANCIAL HIGHLIGHTS: (a) All per share amounts have been rounded to the nearest cent. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of a sales charge. (c) Computed on an annualized basis. (d) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that were subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities purchased, or reduce the proceeds of securities sold. The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. Notes to Financial Statements December 31, 1997 (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 six separate series (the "Portfolio(s)"), each with its own investment objective and policies. The six Portfolios of the Fund are: Opportunity Growth Portfolio, World Growth Portfolio, Growth Portfolio, High Yield Portfolio, Income Portfolio and Money Market Portfolio. 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. The Opportunity Growth and World Growth Portfolio's registration was declared effective by the Securities Exchange Commission and began operations as separate series of the LB Series Fund, Inc. on January 18, 1996. On January 18, 1996, Lutheran Brotherhood invested $2,000,000 each in the Opportunity Growth and World Growth Portfolios and acquired 200,000 shares of capital stock in each portfolio. (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. Securities traded on the over-the- counter market 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 or by dealers that make markets in the securities. 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. 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 effect of changes in foreign exchange rates on realized and unrealized security gains or losses are not segregated from gains and losses that arise from changes in market prices of investments, and are included with the net realized and unrealized gain or loss on investments. Repurchase Agreements The Fund may engage in repurchase agreement transactions in pursuit of its investment objectives. When the Fund engages in such transactions, it is policy to require the custodian bank to take possession of all securities held as collateral in support of repurchase agreement investments. In addition, the Fund monitors the market value of the underlying collateral on a daily basis. If the seller defaults or if bankruptcy proceedings are initiated with respect to the seller, the realization or retention of the collateral may be subject to legal proceedings. Investment Income 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. 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. Federal Income Taxes It is the Fund's policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income on a timely basis, including any net realized gain on investments each year. It is also the intention of the Fund to distribute an amount sufficient to avoid imposition of any federal excise tax. Accordingly, no provision for federal income tax is necessary. Each portfolio is treated as a separate taxable entity for federal income tax purposes. 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. 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 $1,230,547 from such fees. 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 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) amy 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 trust capital accounts on the statements of assets and liabilities. As a result of permanent book-to-tax differences for the year ended December 31, 1997, accumulated net realized gain or loss from the sale of investments was decreased by $607,229 and undistributed net investment income was increased by $607,229 for the World Growth Portfolio. 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. Other Investment transactions are accounted for on the date the investments are purchased or sold. Realized gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. (3) INVESTMENT ADVISORY FEES AND OTHER EXPENSES Investment Advisory Fees Each Portfolio pays Lutheran Brotherhood, the Fund's investment advisor, a fee for its advisory services. The fees are accrued daily and paid monthly. The fees are based on the following annual rates of average daily net assets: Opportunity Growth, 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 a portion of an annual sub- advisory fee that is based on the following annual rates of combined average daily net assets of the LB World Growth Fund and the LB Series Fund, Inc. - World Growth Portfolio at the following rates: 0.75% for the first $20 million in assets; 0.60% for the next $30 million, and 0.50% for assets over $50 million. When combined annual average assets exceed $200 million, the fee converts to a flat fee of 0.50% of the annual average daily net assets. Other Expenses All other expenses associated with operating the Fund are paid or reimbursed to the Fund by LB and LBVIP pursuant to an Expense Reimbursement Agreement. The Expense Reimbursement Agreement can be terminated at any time by the mutual agreement of the Fund, LB and LBVIP, but the Fund, LB and LBVIP currently contemplate that the Expense Reimbursement Agreement will continue so long as the Fund remains in existence. The Fund has adopted a director fee deferral plan which allows the independent directors of the Fund to defer the receipt of all or a portion of their director fees. Amounts that are deferred are invested in the Lutheran Brotherhood Family of Funds until distribution in accordance with the plan. Certain officers and non-independent directors of the Fund are officers of Lutheran Brotherhood and officers or directors of LBVIP; however, they receive no compensation from the Fund. (4) SECURITIES LENDING To generate additional income, the Fund may participate in a securities lending program administered by the Fund's custodian bank. Securities are periodically loaned to brokers, banks or other institutional borrowers of securities, for which collateral in the form of cash, U.S. government securities, or letter of credit is received by the custodian in an amount at least equal to the market value of securities loaned. Collateral received in the form of cash is invested in short-term investments by the custodian from which earnings are shared between the borrower, the custodian and the Fund at negotiated rates. The risks to the Fund are that it may experience delays in recovery or even loss of rights in the collateral should the borrower of securities fail financially. There were no security loans during the year. (5) DISTRIBUTIONS FROM CAPITAL GAINS During the year ended December 31, 1997, a distribution from net realized capital gains of $161,102 and $239,942,399 were paid by the World Growth Portfolio and the Growth Portfolio, respectively. These distributions relate to net capital gains realized during the year ended December 31, 1996. (6) CAPITAL LOSS CARRYOVER During the year ended December 31, 1997, the High Yield Portfolio fully utilized the remaining $5,055,282 of its capital loss carryover, and the Income Portfolio utilized $7,605,392 of its capital loss carryover against net realized capital gains. At December 31, 1997, the Income Portfolio had an accumulated net realized capital loss carryover of $17,727,812 expiring as follows: Income Year Portfolio -------- ----------- 2002 $14,060,792 2003 -- 2004 3,667,020 ----------- $17,727,812 ----------- To the extent that the Income Portfolio realizes future net capital gains, taxable distributions will be reduced by any unused capital loss carryovers. Temporary timing differences of $4,065,540, $2,586,307, $8,377,908, $860,316 and $793,991 existed between accumulated net realized capital gains or losses for financial statement and tax purposes as of December 31, 1997 for the Opportunity Growth, World Growth, Growth, High Yield and Income Portfolios, respectively. These differences are due primarily to deferral of capital losses for tax purposes. (7) INVESTMENT TRANSACTIONS Purchases and Sales of Investment Securities For the year ended December 31, 1997, 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 $ 549,839 $ 418,868 World Growth 157,671 43,564 Growth 3,879,956 3,671,009 High Yield 1,379,617 1,168,435 Income 658,918 603,649 Purchases and sales of U.S. Government securities were: In thousands ---------------------------------- Portfolio Purchases Sales - --------------------------------------------------------------------- Growth $ 21,515 $ 33,414 Income 316,003 301,779 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 $149,756 at December 31, 1997, which represented 0.01% 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, 1997 were as follows:
Opportunity Growth Portfolio Growth Portfolio Income Portfolio ---------------------------- ------------------------- ------------------------- Number of Premium Number of Premium Number of Premium Contracts Amount Contracts Amount Contracts Amount ------------- ----------- ---------- ---------- ----------- ---------- Balance at December 31, 1996 -- -- 998 $ 334,242 150 $ 99,196 Opened 4,790 $1,726,050 23,405 3,915,387 3,034 1,022,090 Closed (1,256) (479,278) (15,423) (2,889,305) (2,584) (962,263) Expired (639) (177,149) (5,441) (595,583) (600) (159,023) Exercised (2,895) (1,069,623) (3,539) (764,741) -- -- ------------ ---------- ---------- ---------- ----------- ---------- Balance at December 31, 1997 -- $ -- -- $ -- -- $ -- ============ ========== ========== ========== =========== ==========
(8) CAPITAL STOCK Authorized capital stock consists of two billion shares as follows: Shares Par Portfolio Authorized Value - ------------------- ---------------- ----------- Opportunity Growth 200,000,000 $ 0.01 World Growth 200,000,000 $ 0.01 Growth 600,000,000 $ 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:
Opportunity World High Income Money Growth Growth Growth Yield Fund Market ----------- ----------- ----------- ----------- ------------ ----------- Shares outstanding at December 31, 1995 -- -- 64,197,627 79,742,358 75,614,192 66,149,967 Shares sold 20,829,993 15,909,365 12,716,616 15,616,822 8,257,064 75,776,304 Shares issued on reinvestment of dividends and distributions 741,927 130,856 10,462,909 8,924,334 5,273,056 4,152,037 Shares redeemed (141,181) (139,490) (1,544,344) (2,175,610) (6,968,350) (42,157,682) ------------ ---------- ---------- ---------- ----------- ------------ 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 ========== ========== =========== =========== ========== ===========
LB SERIES FUND, INC. OPPORTUNITY GROWTH PORTFOLIO WORLD GROWTH PORTFOLIO GROWTH PORTFOLIO HIGH YIELD PORTFOLIO INCOME PORTFOLIO MONEY MARKET PORTFOLIO DIRECTORS Rolf F. Bjelland Charles W. Arnason Herbert F. Eggerding, Jr. Noel K. Estenson Connie M. Levi Bruce J. Nicholson Ruth E. Randall OFFICERS Rolf F. Bjelland James M. Odland Chairman and President Assistant Secretary Otis F. Hilbert Randall L. Wetherille Secretary and Vice President Assistant Secretary James R. Olson Wade M. Voigt Vice President Treasurer James M. Walline Rand E. Mattsson Vice President Assistant Treasurer Richard B. Ruckdashel Vice President This report is authorized for distribution to prospective investors only when preceded or accompanied by the current prospectuses. #18914 version 2 EX-99 3 OPINION AND CONSENT OF COUNSEL Exhibit 10(c) LB Series Fund, Inc. 625 Fourth Avenue South Minneapolis, Minnesota 55415 April 27, 1998 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. 22 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 JCB:jkr\#20752 EX-99 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 11 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. 22 to the registration statement on Form N-1A (the "Registration Statement") of our report dated February 11, 1998, relating to the financial statements and financial highlights appearing in the December 31, 1997 Annual Report to Shareholders 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 heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/ Price Waterhouse LLP Minneapolis, Minnesota April 27, 1998 #20795 EX-99 5 EXHIBIT 1 ARTICLES OF INCORPORATION OF LBVIP SERIES FUND, INC. The undersigned incorporator, being a natural person 18 years of age or older, in order to form a corporate entity under Minnesota Statutes, Chapter 302A, hereby adopts the following Articles of Incorporation: ARTICLE I The name of this Corporation is LBVIP Series Fund, Inc. ARTICLE II The registered office of this Corporation is located at 625 Fourth Avenue South, Minneapolis, Minnesota 55415. ARTICLE III The total number of shares of capital stock which this Corporation shall have authority to issue is $2,000,000,000 shares of the par value of $.01 per share. One billion six hundred million (1,600,000,000) shares shall be 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 hereinafter granted to the Board of Directors: CLASS NUMBER OF SHARES ----- ---------------- Money Market Portfolio Capital Stock 600,000,000 Income Portfolio Capital Stock 400,000,000 Growth Portfolio Capital Stock 600,000,000 Subject to any then applicable statutory requirements, the balance of 400,000,000 shares of such authorized capital stock may be issued in such classes, or in any new class or classes each comprising such number of shares and having such designations, such powers, preferences and rights and such qualifications, limitations and restrictions as shall be fixed and determined from time to time by resolution or resolutions providing for the issuance of such stock adopted by the Board of Directors, to whom authority so to fix and determine the same is hereby expressly granted. In addition, and subject to any applicable statutory requirements, the Board of Directors is hereby expressly granted authority to increase or decrease the number of shares of any class, but the number of shares of any class shall not be decreased by the Board of Directors below the number of shares thereof then outstanding. The holder of each share of stock of this Corporation 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 this Corporation. On any matter submitted to a vote of shareholders, all shares of this Corporation then issued and outstanding and entitled to vote shall be voted in the aggregate and not by class except that (a) when otherwise expressly required by Minnesota Statutes, Chapter 302A, or the Investment Company Act of 1940, as amended, shares shall 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 policies, as specified in the Bylaws of this Corporation, 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 capital stock of such Portfolio. No shareholder of this Corporation shall have any cumulative voting rights. No shareholder of this Corporation shall have any preemptive rights to subscribe for, purchase or acquire any shares of this Corporation of any class, whether unissued or now or hereafter authorized, or any obligations or other securities convertible into or exchangeable for any such shares. Each class of stock of this Corporation shall have the following powers, preferences or other special rights, and the qualifications, restrictions and limitations thereof shall be as follows: (a) The shares of each class, when issued, will be fully paid and nonassessable, have no preference, preemptive, conversion, exchange or similar rights, except as set forth in (b) below, and will be freely transferable. (b) The consideration received by this Corporation for the sale of capital stock shall become part of the assets of the Portfolio to which the capital stock of the class relates. Each share of the capital stock of each class shall have a pro rata interest in the assets of the Portfolio to which the capital stock of that class relates and shall have no interest in the assets of any other Portfolio. (c) Subject to any applicable statutory requirements, 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 of Directors. (i) Dividends or distributions on shares of any class of stock shall be paid only out of earned surplus or other lawfully available assets belonging to such class. (ii) Inasmuch as one goal of this Corporation is to qualify as a "regulated investment company" under the Internal Revenue Code of 1954, as amended, or any successor or comparable statute thereto, 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 this Corporation, the Board of Directors shall have 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 of Directors to enable this Corporation to qualify as a regulated investment company and to avoid liability of this Corporation for Federal income tax in respect of that year. In furtherance and not in limitation of the foregoing, in the event that a class of shares has a net capital loss for a fiscal year, and to the extent that a net capital loss for a fiscal year, and to the extent that a net capital loss for a fiscal year offsets net capital gains from one or more of the other classes, the amount to be deemed available for distribution to the class or classes with the net capital gain may be reduced by the amount offset. (d) The assets belonging to any class of stock shall be charged with the liabilities in respect to such class, and shall also be charged with their share of the general liabilities of this Corporation in proportion to the asset values of the respective classes. The determination of the Board of Directors shall be conclusive as to the amount of liabilities or the amount of any general assets of this Corporation, as to whether such liabilities or assets are allocable to one or more classes, and as to the allocation of such liabilities or assets to a given class or among several classes. (e) With the approval of the holders of a majority of the outstanding shares of each of the affected classes of capital stock, the Board of Directors may transfer the assets of any Portfolio to any other Portfolio. Upon such a transfer, this Corporation shall issue shares of capital stock representing interests in the Portfolio to which the assets were transferred in exchange for all shares of capital stock representing interests in the Portfolio from which the assets were transferred. Such shares shall be exchanged at their respective net asset values. ARTICLE IV Each holder of shares of capital stock of this Corporation shall be entitled to require this Corporation to redeem all or part of the shares of capital stock of this Corporation standing in the name of such holder on the books of this Corporation, and this Corporation shall redeem all shares of such capital stock tendered to it for redemption at the redemption price of such shares as in effect from time to time as may be determined by the Board of Directors of this Corporation in accordance with the provisions hereof, subject to the right of the Board of Directors of this Corporation to suspend the right of redemption of shares of capital stock of this Corporation or postpone the date of payment of such redemption price in accordance with provisions of applicable law. The redemption price of shares of capital stock of this Corporation shall be the net asset value thereof as determined by the Board of Directors of this Corporation from time to time in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors of this Corporation. Payment of the redemption price shall be made in cash by this Corporation at such time and in such manner as may be determined from time to time by the Board of Directors of this Corporation, except that capital stock of any class may be redeemed in kind with the assets of the Portfolio to which the class relates if the Board of Directors deems such action desirable. ARTICLE V The name and address of the incorporator is W. Smith Sharpe, Jr., 2300 Multifoods Tower, 33 South Sixth Street, Minneapolis, Minnesota 55402. ARTICLE VI The names and addresses of the first directors of this Corporation are as follows: Clair E. Strommen 625 Fourth Avenue South Minneapolis, Minnesota 55415 Luther O. Forde 625 Fourth Avenue South Minneapolis, Minnesota 55415 Rolf F. Bjelland 625 Fourth Avenue South Minneapolis, Minnesota 55415 ARTICLE VII Any action required or permitted to be taken at a meeting of the Board of Directors of this Corporation not needing approval by the shareholders under Minnesota Statutes, Chapter 302A, may be taken by written action signed by the number of directors that would be required to take such action at a meeting of the Board of Directors at which all directors are present. IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of February, 1986. /s/W. Smith Sharpe, Jr. -------------------------------- W. Smith Sharpe, Jr. STATE OF MINNESOTA) ) SS. COUNTY OF HENNEPIN) The foregoing instrument was acknowledged before me this 24th day of February, 1986. /s/Patricia A. Gronquist --------------------------------- /notary seal/Patricia A. Gronquist Notary Public - Minnesota /Minnesota state seal/ HENNEPIN COUNTY My Commission Expires May 24, 1989 AMENDMENT TO ARTICLES OF INCORPORATION LBVIP Series Fund, Inc. The following amendment to the articles of incorporation of LBVIP Series Fund, Inc., consisting of an additional article, was approved by a vote of the holders of a majority of shares of stock on August 13, 1987, at a regular meeting of shareholders. ARTICLE VIII No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty by that director as a director; provided, however, that this Article shall not eliminate or limit the liability of a director to the extent provided by applicable law: (a) for any breach of the director's duty of loyalty to the corporation or its shareholders; (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (c) under Minnesota Statutes Section 302A.559 or 80A.23; (d) for any transaction from which the director derived an improper personal benefit; (e) for any act for which the director would be liable by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office; or (f) for any act or omission occurring prior to the date when this Article VIII becomes effective. No amendment to or repeal of this Article VIII shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to that amendment or repeal. I swear that the foregoing is true and accurate and that I have the authority to sign this document on behalf of the corporation. /s/ Otis F. Hilbert --------------------------------- Otis H. Hilbert, Secretary STATE OF MINNESOTA ) ) ss County of Hennepin ) The foregoing instrument was acknowledged before me on this 16th day of September, 1987. /s/ Audrey P. Hodgson --------------------------------- Notary Public AMENDMENT TO ARTICLES OF INCORPORATION LBVIP Series Fund, Inc. The following amendment to the articles of incorporation of LBVIP Series Fund, Inc., consisting of striking out ARTICLE I and replacing it with the following new ARTICLE I, was approved by a vote of the holders of a majority of shares of stock on October 28, 1993, at a regular meeting of shareholders. ARTICLE I The name of this Corporation is LB Series Fund, Inc. I swear that the foregoing is true and accurate and that I have the authority to sign this document on behalf of the corporation. /s/ Randall L. Wetherille --------------------------------- Randall L. Wetherille Assistant Secretary STATE OF MINNESOTA ) ) ss County of Hennepin ) The foregoing instrument was acknowledged before me on this 28th day of January, 1997. /s/ Katherine M. Stehr --------------------------------- Notary Public #20728 EX-99 6 EXHIBIT 2 ----- BYLAWS OF LBVIP SERIES FUND, INC. 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 of 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 dully 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 10 continuous years of service as a Director, except that the limitation on 10 continuous years of service shall not apply to any person who was originally elected as a Director before September 6, 1989. ( Footnote Number 1 ) 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. (Footnote Number 2) 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. 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). NOTES TO BY-LAWS OF LBVIP SERIES FUND, INC. ------------------ 1. As amended by action of Board of Directors on December 5, 1989. 2. Entire paragraph added as amendment by action of Board of Directors on December 5, 1989. #20742 EX-99 7 EXHIBIT 5(a) INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT made this _____ day of _______________, 1986 by and between LBVIP Series Fund, Inc., a Minnesota corporation (the "Fund"), and Lutheran Brotherhood Research Corp., a Pennsylvania corporation (the "Adviser"). 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, the Adviser is willing to provide business management services to 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 THE ADVISER. The adviser shall provide the Fund with such investment advise and supervision as the Fund may from time to time consider necessary for the proper supervision of its assets. The Adviser shall act as adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Fund's Articles of Incorporation and Bylaws, as amended from time to time, to the provisions of the 1940 Act and to the Fund's then current Prospectus. The Adviser shall also make recommendations as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Directors of the Fund at any time, however, make any definite determination as to investment policy and notify the Adviser thereof in writing, the Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Adviser shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase, sale or exchange of portfolio securities for the Fund's account with brokers, dealers or bankers selected by it, and to that end the Adviser is authorized as the agent of the Fund to give instructions to the custodian of the Fund (the "Custodian") or to any sub-custodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers, dealers or bankers and the placing of such orders, the Adviser is directed at all times to obtain for the Fund the most favorable prices at reasonably competitive commission rates. In fulfilling this requirement the Adviser shall not be deemed to have acted unlawfully or to have breached any duty, created by this Agreement or otherwise, solely by reason of its having caused the Fund to pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser or any sub-adviser employed by the Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion. ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall furnish at its own expense investment advisory and portfolio administrative and management services necessary for servicing the investments of the Fund, and investment advisory facilities and executive and supervisory personnel for managing the investments and effecting the portfolio transactions of the Fund. The Adviser shall arrange, if desired by the Fund, for officers and employees of the Adviser to serve as Directors, Officers or agents of the Fund if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law. It is understood that the Fund will pay, or provide for the payment of, all of its own expenses including, without limitation, compensation of Directors not affiliated with the Adviser, Lutheran Brotherhood or Lutheran Brotherhood Variable Insurance Products Company, 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 share of the Fund. The Adviser may enter into a sub-investment advisory agreement or agreements with another party or parties providing that such party or parties shall furnish certain advisory and other services to the Fund and the Adviser and also providing that on the terms and conditions of such sub-investment advisory agreement such party or parties may determine from time to time what securities shall be purchased, sold or exchanged by the Fund and what portion of the assets of the Fund shall be held uninvested. ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be rendered hereunder, the Fund shall pay to the Adviser an investment advisory fee which shall be a daily charge equal to an annual rate of .40% of the aggregate average daily net assets of the Fund. If the Adviser shall serve for less than the whole of any period specified in this ARTICLE 3, the compensation to the Adviser shall be prorated. ARTICLE 4: COVENANTS OF THE ADVISER. The adviser agrees that it will not deal with itself, or with the Directors of the Fund or the Fund's principal underwriter, if any, as principal, broker or dealer in making purchases or sales of securities or other property for the account of the Fund except as permitted by the 1940 Act and the rules, regulations or orders thereunder, will not take a long or short position in the shares of the Fund, and will comply with all other provisions of the Fund's Articles of Incorporation and Bylaws as then in effect and current Prospectus of the Fund relative to the Adviser, its directors, officers, employees and affiliates. ARTICLE 5: LIMITATION OF LIABILITY OF THE ADVISER. The adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in carrying out its duties under this Agreement and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this ARTICLE 5, the term "Adviser" shall include directors, officers and employees of the Adviser as well as the Adviser itself. ARTICLE 6: ACTIVITIES OF THE ADVISER. The services of the Adviser to the Fund are not to be deemed to be exclusive, the Adviser and its affiliates being free to render services to others. It is understood that Directors, Officers, employees and shareholders of the Fund may be or become interested in the Adviser as shareholders, directors, officers, employees or otherwise, and that directors, officers, employees and shareholders of the Adviser may be or become similarly interested in the Fund, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise. ARTICLE 7: 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, and shall remain in force until _______________, 198__ on which date it will terminate unless its continuance after such date is specifically approved at least annually (i) by the vote of a majority of the Directors of the Fund who are not interested persons of the Fund or of the Adviser at a meeting specifically called for the purpose of voting on such approval, and (ii) by the Directors of the Fund, or by vote of a majority of the outstanding voting securities of the Fund. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the 1940 Act and the rules and regulations thereunder. This Agreement may be terminated at any time without the payment of any penalty by the Directors of the Fund or by vote of a majority of the outstanding voting securities of the Fund, or by the Adviser, in each case on not more than sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. This Agreement may be amended only if such amendment is approved by vote of a majority of the outstanding voting securities of the Fund and by the Adviser. The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person" and "interested person", when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. ARTICLE 8: 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. LBVIP SERIES FUND, INC. By ------------------------------------ Its ---------------------------- LUTHERAN BROTHERHOOD RESEARCH CORP. By ------------------------------------ Its ---------------------------- #20730 EX-99 8 EXHIBIT 5(b) LB SERIES FUND, INC. INVESTMENT ADVISORY AGREEMENT This Agreement made this 31st day of January, 1994 by and between LB SERIES FUND, INC., a Minnesota corporation (the "Fund"), and LUTHERAN BROTHERHOOD, a Minnesota fraternal benefit society (the "Adviser"). 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, the Adviser is willing to provide business management services to 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 the Adviser. The Adviser shall provide the Fund with such investment advice and supervision as the Fund may from time to time consider necessary for the proper supervision of its assets. The Adviser shall act as adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Fund's Articles of Incorporation and Bylaws, as amended from time to time, to the provisions of the 1940 Act and to the Fund's then current Prospectus. The Adviser shall also make recommendations as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Directors of the Fund at any time, however, make any definite determination as to investment policy and notify the Adviser thereof in writing, the Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Adviser shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase, sale or exchange of portfolio securities for the Fund's account with brokers, dealers or bankers selected by it, and to that end the Adviser is authorized as the agent of the Fund to give instructions to the custodian of the Fund (the "Custodian") or to any sub-custodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers, dealers or bankers and the placing of such orders, the Adviser is directed at all times to obtain for the Fund the most favorable prices at reasonably competitive commission rates. In fulfilling this requirement the Adviser shall not be deemed to have acted unlawfully or to have breached any duty, created by this Agreement or otherwise, solely by reason of its having caused the Fund to pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser or any sub-adviser employed by the Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion. ARTICLE 2: Allocation of Charges and Expenses. The Adviser shall furnish at its own expense investment advisory and portfolio administrative and management services necessary for servicing the investments of the Fund, and investment advisory facilities and executive and supervisory personnel for managing the investments and effecting the portfolio transactions of the Fund. The Adviser shall arrange, if desired by the Fund, for officers and employees of the Adviser to serve as Directors, Officers or agents of the Fund if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law. It is understood that the Fund will pay, or provide for the payment of, all of its own expenses including, without limitation, compensation of Directors not affiliated with the Adviser, Lutheran Brotherhood or Lutheran Brotherhood Variable Insurance Products Company, 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. The Adviser may enter into a sub-investment advisory agreement or agreements with another party or parties providing that such party or parties shall furnish certain advisory and other services to the Fund and the Adviser and also providing that on the terms and conditions of such sub- investment advisory agreement such party or parties may determine from time to time what securities shall be purchased, sold or exchanged by the Fund and what portion of the assets of the Fund shall be held uninvested. ARTICLE 3: Compensation of the Adviser. For the services to be rendered hereunder, the Fund shall pay to the Adviser an investment advisory fee which shall be a daily charge equal to an annual rate of .40% of the aggregate average daily net assets of the Fund. If the Adviser shall serve for less than the whole of any period specified in this ARTICLE 3, the compensation to the Adviser shall be prorated. ARTICLE 4: Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Directors of the Fund or the Fund's principal underwriter, if any, as principal, broker or dealer in making purchases or sales of securities or other property for the account of the Fund except as permitted by the 1940 Act and the rules, regulations or orders thereunder, will not take a long or short position in the shares of the Fund, and will comply with all other provisions of the Fund's Articles of Incorporation and Bylaws as then in effect and current Prospectus of the Fund relative to the Adviser, its directors, officers, employees and affiliates. ARTICLE 5: Limitation of Liability of the Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in carrying out its duties under this Agreement and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this ARTICLE 5, the term "Adviser" shall include directors, officers and employees of the Adviser as well as the Adviser itself. ARTICLE 6: Activities of the Adviser. The services of the Adviser to the Fund are not to be deemed to be exclusive, the Adviser and its affiliates being free to render services to others. It is understood that Directors, Officers, employees and shareholders of the Fund may be or become interested in the Adviser as shareholders, directors, officers, employees or otherwise, and that directors, officers, employees and shareholders of the Adviser may be or become similarly interested in the Fund, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise. ARTICLE 7: 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, and shall remain in force until December 1, 1988 on which date it will terminate unless its continuance after such date is specifically approved at least annually (i) by the vote of a majority of the Directors of the Fund who are not interested persons of the Fund or of the Adviser at a meeting specifically called for the purpose of voting on such approval, and (ii) by the Directors of the Fund, or by vote of a majority of the outstanding voting securities of the Fund. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the 1940 Act and the rules and regulations thereunder. This Agreement may be terminated at any time without the payment of any penalty by the Directors of the Fund or by vote of a majority of the outstanding voting securities of the Fund, or by the Adviser, in each case on not more than sixty (60) days written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. This Agreement may be amended only if such amendment is approved by vote of a majority of the outstanding voting securities of the Fund and by the Adviser. The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person" and "interested person", when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. ARTICLE 8: 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 Its President LUTHERAN BROTHERHOOD By /s/ Robert P. Gandrud ----------------------------------- Robert P. Gandrud Its President #11873 EX-99 9 EXHIBIT 8(a) CUSTODIAN CONTRACT Between LBVIP SERIES FUND, INC. and STATE STREET BANK AND TRUST COMPANY SC1 06/86 TABLE OF CONTENTS ----------------- 1. Employment of Custodian and Property to be Held By It 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian 2.1 Holding Securities 2.2 Delivery of Securities 2.3 Registration of Securities 2.4 Bank Accounts 2.5 Payments for Shares 2.6 Investment and Availability of Federal Funds 2.7 Collection of Income 2.8 Payment of Fund Moneys 2.9 Liability for Payment in Advance of Receipt of Securities Purchased 2.10 Payments for Repurchases or Redemptions of Shares of the Fund 2.11 Appointment of Agents 2.12 Deposit of Fund Assets in Securities System 2.13 Segregated Account 2.14 Ownership Certificates for Tax Purposes 2.15 Proxies 2.16 Communications Relating to Fund Portfolio Securities 2.17 Proper Instructions 2.18 Actions Permitted Without Express Authority 2.19 Evidence of Authority 3. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value and Net Income 4. Records 5. Opinion of Fund's Independent Accountants 6. Reports to Fund by Independent Public Accountants 7. Compensation of Custodian 8. Responsibility of Custodian 9. Effective Period, Termination and Amendment 10. Successor Custodian 11. Interpretive and Additional Provisions 12. Additional Funds 13. Massachusetts Law to Apply 14. Prior Contracts CUSTODIAN CONTRACT ------------------ This Contract between LBVIP Series Fund, Inc., a corporation organized and existing under the laws of Minnesota, having its principal place of business at 625 Fourth Avenue, South, Minneapolis, Minnesota 55415 hereinafter called the "Fund", and State Street Bank and Trust Company, a Massachusetts corporation, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in three series, the Growth Portfolio, the Income Portfolio, and the Money Markety Portfolio (such series together will all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 12, being herein referred to as the "Fund(s)"); NOW THEREFOR, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT The Fund hereby employs the Custodian as the custodian of its assets pursuant to the provisions of the Articles of Incorporation. The Fund agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares of capital stock ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Section 2.17), the Custodian shall from time to time employ one or more sub- custodians, but only in accordance with an applicable vote by the Board of Directors of the Fund, and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of the Fund all non-cash property, including all securities owned by the Fund, other than securities which are maintained pursuant to Section 2.12 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as a "Securities System". 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver securities owned by the Fund held by the Custodian or in Securities System account of the Custodian only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Upon receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.12 hereof; 4) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.11 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; PROVIDED that, in any such case, the new securities are to be delivered to the Custodian; 7) To the broker selling the same for examination in accordance with the "Street delivery" custom; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Fund, BUT ONLY against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, BUT ONLY against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time the Fund's currently effective prospectus and statement of additional information ("prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other proper corporate purpose, BUT ONLY upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, UNLESS the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.11 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Fund under the terms of this Contract shall be in "street name" or other good delivery form. 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; PROVIDED, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board of Directors of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 PAYMENTS FOR SHARES. The Custodian shall receive from the distributor for the Fund's Shares or from the Transfer Agent of the Fund and deposit into the Fund's account such payments as are received for Shares of the Fund issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund. 2.6 INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of Proper Instructions, make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of the Fund which are deposited into the Fund's account. 2.7 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due the Fund on securities loaned pursuant to the provisions of Section 2.2(10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled. 2.8 PAYMENT OF FUND MONEYS. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out moneys of the Fund in the following cases only: 1) Upon the purchase of securities, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such securities, or evidence of title to futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.12 hereof or (c) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund; 2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Fund as set forth in Section 2.10 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For any other proper purpose, BUT ONLY upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In any and every case where payment for purchase of securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. 2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND. From such funds as may be available for the purpose but subject to the limitations of the Articles of Incorporation and any applicable votes of the Board of Directors of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 2.11 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; PROVIDED, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by the Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund; 3) The Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund. 4) The Custodian shall provide the Fund with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Custodian shall have received the initial or annual certificate, as the case may be, required by Article 9 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. 2.13 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in a account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purpose of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by it and in connection with transfers of securities. 2.15 PROXIES. The Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. 2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. 2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Article 2 means a writing signed or initialled by one or more person or persons as the Board of Directors shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors of the Fund accompanied by a detailed description of procedures approved by the Board of Directors, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. 2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its discretion, without express authority from the Fund: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, PROVIDED that all such payments shall be accounted for to the Fund; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board of Directors of the Fund. 2.19 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Directors of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Directors pursuant to the Articles of Incorporation as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Directors of the Fund to keep the books of account of the Fund and/or compute the net asset value per share of the outstanding shares of the Fund or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Fund's currently effective prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times described from time to time in the Fund's currently effective prospectus. 4. RECORDS The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. 5. OPINION OF FUND'S INDEPENDENT ACCOUNTANT The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 6. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 7. COMPENSATION OF CUSTODIAN The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian. 8. RESPONSIBILITY OF CUSTODIAN So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Fund. If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Fund requires the Custodian to advance cash or securities for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of Fund assets to the extent necessary to obtain reimbursement. 9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; PROVIDED, however that the Custodian shall not act under Section 2.12 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors of the Fund have approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors have reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended; PROVIDED FURTHER, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Articles of Incorporation, and further provided, that the fund may at any time by action of its Board of Directors (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 10. SUCCESSOR CUSTODIAN If a successor custodian shall be appointed by the Board of Directors of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities then held by it hereunder and shall transfer to an account of the successor custodian all of the Fund's securities held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract and to transfer to an account of such successor custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board of Directors to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 11. INTERPRETIVE AND ADDITIONAL PROVISIONS In connection with the operation of this Contract, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, PROVIDED that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Articles of Incorporation of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 12. ADDITIONAL FUNDS In the event that the Fund establishes one or more series of Shares in addition to the Growth Portfolio, the Income Portfolio, and the Money Markety Portfolio with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Fund hereunder. 13. MASSACHUSETTS LAW TO APPLY This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 14. PRIOR CONTRACTS This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund and the Custodian relating to the custody of the Fund's assets. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the day of December, 1986. ATTEST LBVIP SERIES FUND, INC. By - ----------------------------- ----------------------------------------- ATTEST STATE STREET BANK AND TRUST COMPANY /s/ By /s/ - ----------------------------- ---------------------------------------- Assistant Secretary Vice President #20722 EX-99 10 EXHIBIT 8(b) TRANSFER AGENCY AND SERVICE AGREEMENT between LBVIP SERIES FUND, INC. and STATE STREET BANK AND TRUST COMPANY SA2 5/86 TABLE OF CONTENTS ----------------- Article 1 Terms of Appointment; Duties of the Bank Article 2 Fees and Expenses Article 3 Representations and Warranties of the Bank Article 4 Representations and Warranties of the Fund Article 5 Indemnification Article 6 Covenants of the Fund and the Bank Article 7 Termination of Agreement Article 8 Additional Funds Article 9 Assignment Article 10 Amendment Article 11 Massachusetts Law to Apply Article 12 Merger of Agreement TRANSFER AGENCY AND SERVICE AGREEMENT ------------------------------------- AGREEMENT made as of the day of December, 1986, by and between LBVIP SERIES FUND, INC. a Minnesota company, having its principal office and place of business at 625 Fourth Avenue South, Minneapolis, Minnesota, 55415 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts corporation having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Fund desires to appoint the Bank as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and the Bank desires to accept such appointment; WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer Shares in three series, the Growth Portfolio, the Income Portfolio and the Money Market Portfolio (such series, together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Article 8, being herein referred to as the "Fund(s)"); NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints the Bank to act as, and the Bank agrees to act as its transfer agent for the Fund's authorized and issued shares of its capital stock, $.01 par value ("Shares"), dividend disbursing agent and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of the Fund ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of the Fund, including without limitation any periodic investment plan or periodic withdrawal program. 1.02 The Bank agrees that it will perform the following services: (a) In accordance with the procedures established from time to time by agreement between the Fund and the Bank, the Bank shall: (i) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation therefor to the Custodian of the Fund authorized pursuant to the Articles of Incorporation of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation therefor to the Custodian; (iv) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (v) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vi) Prepare and transmit payments for dividends and distributions declared by the Fund; and (vii) Maintain records of account for and advise the Fund and its shareholders as to the foregoing; and (viii) Record the issuance of shares of the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. Bank shall also provide the Fund on a regular basis with the total number of shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of shares, to monitor the issuance of such shares or to take cognizance of any laws relating to the issue or sale of such shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and not in lieu of the services set forth in the above paragraph (a), the Bank shall: (i) perform all of the customary services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide a system which will enable the Fund to monitor the total number of Shares sold in each State. The Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. Procedures applicable to certain of these services may be established from time to time by agreement between the Fund and the Bank. Article 2 FEES AND EXPENSES 2.01 For performance by the Bank pursuant to this Agreement, the Fund agrees to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time subject to mutual written agreement between the Fund and the Bank. 2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by the Bank at the request or with the consent of the Fund, will be reimbursed by the Fund. 2.03 The Fund agrees to pay all fees and reimbursable expenses within five days following the mailing of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all shareholder accounts shall be advanced to the Bank by the Fund at least seven (7) days prior to the mailing date of such materials. Article 3 REPRESENTATIONS AND WARRANTIES OF THE BANK The Bank represents and warrants to the Fund that: 3.01 It is a corporation duly organized and existing and in good standing under the laws of The Commonwealth of Massachusetts. 3.02 It is duly qualified to carry on its business in The Commonwealth of Massachusetts. 3.03 It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement. 3.04 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.05 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to the Bank that; 4.01 It is a company duly organized and existing and in good standing under the laws of Minnesota. 4.02 It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement. 4.03 All corporate proceedings required by said Articles of Incorporation and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.04 It is an open-end and diversified management investment company registered under the Investment Company Act of 1940. 4.05 A registration statement under the Securities Act of 1933 is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. Article 5 INDEMNIFICATION 5.01 The Bank shall not be responsible for, and the Fund shall indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) All actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Fund's refusal or failure to comply with the terms of this Agreement, or which arise out of the Fund's lack of good faith, negligence or willful misconduct or which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The reliance on or use by the Bank or its agents or subcontractors of information, records and documents which (i) are received by the Bank or its agents or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have been prepared and/or maintained by the Fund or any other person or firm on behalf of the Fund. (d) The reliance on, or the carrying out by the Bank or its agents or subcontractors of any instructions or requests of the Fund. (e) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state. 5.02 The Bank shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by the Bank as a result of the Bank's lack of good faith, negligence or willful misconduct. 5.03 At any time the Bank may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Fund for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. The Bank, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co-transfer agent or co-registrar. 5.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 5.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any act or failure to act hereunder. 5.06 In order that the indemnification provisions contained in this Article 5 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 6 COVENANTS OF THE FUND AND THE BANK 6.01 The Fund shall promptly furnish to the bank the following: (a) A certified copy of the resolution of the Board of Directors of the Fund authorizing the appointment of the Bank and the execution and delivery of this Agreement. (b) A copy of the Articles of Incorporation and By-Laws of the Fund and all amendments thereto. 6.02 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 6.03 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 6.04 The Bank and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 6.05 In case of any requests or demands for the inspection of the Shareholder records of the Fund, the Bank will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. Article 7 TERMINATION OF AGREEMENT 7.01 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 7.02 Should the Fund exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund. Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination and/or a charge equivalent to the average of three (3) months' fees. Article 8 ADDITIONAL FUNDS 8.01 In the event that the Fund establishes one or more series of Shares in addition to the Growth Portfolio, the Income Portfolio and the Money Market Portfolio with respect to which it desires to have State Street render services as transfer agent under the terms hereof, it shall so notify State Street in writing, and if State Street agrees in writing to provide such services, such series of Shares shall become a Fund hereunder. Article 9 ASSIGNMENT 9.01 Except as provided in Section 9.03 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 9.02 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 9.03 The Bank may, without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934 ("Section 17A(c)(1)"), or (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(1); provided, however, that the Bank shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. Article 10 AMENDMENT 10.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Board of Directors of the Fund. Article 11 MASSACHUSETTS LAW TO APPLY 11.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. Article 12 MERGER OF AGREEMENT 12.01 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under the seals by and through their duly authorized officers, as of the day and year first above written. LBVIP SERIES FUND, INC. BY: -------------------------------- ATTEST: - --------------------------------- STATE STREET BANK AND TRUST COMPANY BY: /S/ -------------------------------- Vice President ATTEST: /S/ - --------------------------------- Assistant Secretary #20723 EX-99 11 EXHIBIT 13(a) SUBSCRIPTION AGREEMENT February __, 1986 LBVIP Series Fund, Inc. 625 Fourth Avenue South Minneapolis, Minnesota 55415 Gentlemen: The undersigned hereby subscribes for 2,000,000 shares of Money Market Portfolio Capital Stock, 50,000 shares of Income Portfolio Capital Stock and 50,000 shares of Growth Portfolio Capital Stock (collectively the "Shares") of LBVIP Series Fund, Inc., a Minnesota corporation (the "Company"), at a cash price of $1 per share (with respect to the Income Portfolio and Growth Portfolio shares), for an aggregate purchase price of $3,000,000. In connection with the purchase of the Shares, the undersigned hereby represents, warrants and agrees as follows: 1. The undersigned understands that the Shares have not been registered under the Securities Act of 1933, as amended, or under any state securities laws, in reliance on the exemptions from registration under all such laws for transactions not involving any public offering, and that, accordingly, the Shares may not be resold by the undersigned unless they are registered under both the Securities Act of 1933 and any applicable state securities laws or are sold in transactions which are exempt from registration under all of such laws. 2. The undersigned understands that, even though the Shares constitute "restricted securities" within the meaning of Rule 144 promulgated under the Securities Act of 1933 (which Rule defines the circumstances under which the exemption from registration contained in 4(1) of the Securities Act of 1933 is available for the resale of restricted securities), you are not now obligated, nor do you now or at any future date intend, unless obligated, to make available to the public the information required by Rule 144, and that therefore Rule 144 may not be available to the undersigned for the resale of the Shares. 3. The undersigned has had access to information about the Company, the offering of the Shares, and the use of any proceeds therefrom. 4. The undersigned has such knowledge and experience in financial and business matters that it is capable of utilizing the information furnished to it by you and evaluating the risks involving in the purchase of the Shares. 5. The undersigned has such income and such assets that it is able to bear the economic risks of the purchase of the Shares. 6. The undersigned is familiar with the risks involved in the business to be conducted by the Company. 7. The undersigned is acquiring the Shares for investment for its own account and without any view to the distribution thereof and it has no present intention of selling, redeeming or otherwise disposing of the Shares or any portion thereof. 8. The undersigned therefore agrees not to sell, assign, transfer or otherwise dispose of the Shares unless a registration statement relating thereto has been duly filed and become effective under both the Securities Act of 1933, and any applicable state securities laws, or unless in the opinion of counsel satisfactory to you no such registration is required under the circumstances. Very truly yours, LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY By_______________________________________ Its__________________________________ The foregoing subscription is hereby accepted as of this ____ day of February, 1986. LBVIP SERIES FUND, INC. By_______________________ Its__________________ #20677 EX-99 12 EXHIBIT 16(i) ------- LBVIP SERIES FUND - GROWTH PORTFOLIO HYPOTHETICAL FUND PERFORMANCE ILLUSTRATION ------------------------------------------------------ This is a Hypothetical Illustration of an Investment of a $1,000 Made On 31-Dec-88 with a 0% Sales Load For the Period: 31-Dec-88 thru 31-Dec-89 The table below indicates the number of shares that would have accumulated had all dividends been reinvested on the record date and their value as of 12/31/89. ENDING SHARES ENDING REDEEMABLE DESCRIPTION OWNED NAV VALUE - ------------------------------ -------- -------- ------------ Shares initially acquired..........................106.045 $11.70 $1,240.73 Shares acquired from reinvested income dividends....................2.137 $11.70 25.00 Shares acquired from reinvested capital gain distributions..................0.000 $11.70 0.00 --------- -------- ------------ TOTAL.............................108.182 $1,265.73 ========= ============ TOTAL RETURN FOR THE 1 YEAR PERIOD (Based on an investment of $1,000.00 with a 0% sales load).................................26.57% =========== AVERAGE ANNUAL TOTAL RETURN FOR THE 1 YEAR PERIOD (Based on an investment of $1,000.00 with a 0% sales load).................................26.57%(b) =========== FOOTNOTES - ---------- (a) The following formula is used to calculate total return: (Ending Redeemable Value - Initial $1,000 Investment) ----------------------------------------------------- Initial $1,000 Investment (b) The following formula is used to calculate average annual total return: 1/n [(Total Return + 1) -1} Where n equals the one year period ended December 31, 1989.
LBVIP SERIES FUND, INC. - GROWTH PORTFOLIO CALCULATION OF SHARE ACQUIRED FROM REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Dividends Declared on a Per Share Basis Income Dividends Capital Gain Dist. - --------------------------------------------- -------------------- ----------------------- Cumulative Dividend Reinvest Investment Capital Income Shares Income Shares Share Date Price Income Gains Earned(a) Created(b) Earned(a) Created(b) Balance (B*H) (D/A) (C*H) (F/A) - ---------- ---------- ------------ ---------- ----------- ----------- ----------- ------------ -------- A B C D E F G H Initial $1,000 investment at a public offering price of $9.43................................................106.045 03/31/89 10.04 0.051487 - $5.46 0.544 $0 0.000 106.589 06/30/89 10.71 0.051679 5.51 0.514 0 0.000 107.103 09/29/89 12.09 0.054108 5.80 0.480 0 0.000 107.583 12/31/89 11.70 0.065190 7.01 0.599 0 0.000 108.182 ------------ ------------ Total shares acquired through reinvestment of income dividends and capital gain distribution......................2.137 0.000 ============ ============
Assumptions: - ----------- (a) Income earned is determined by multiplying the declared dividend (on a per share basis) by the beginning cumulative share balance. (b) The number of shares created through divided reinvestment is determined by dividing income earned by the reinvestment price. #20738 EX-99 13 EXHIBIT 16 (ii) --------- LBVIP Series Fund, Inc. - Income Portfolio Standardized Yield Calculation As of 31-Mar-90 Gross Income Earned During Base Period: Amount - -------------------------------------- ------------- From Corporate Obligations: Computed on a yield to Maturity or Yield to Call Basis (Schedule 1)................... $163,348 From Mortgage-Backed Obligations: Book Income for Past 30 Days (Schedule 2)............. 27,178 Gain/Loss on Paydowns (Schedule 3).................... (15) From Short-Term Securities: Book Income earned during base period (Schedule 4).... 18,290 ------------- Total Gross Income......................................... $208,802 ============= Fund expenses accrued during base period (Schedule 4)...... $8,228 ============= Average daily number of shares outstanding during the base period (Schedule 5)................... 2,746,368 ============= Maximum public offering price per share on the last day of the base period.................... $9.09 ============= Standardized Yield......................................... 9.84%(a) ============= Footnotes: - --------- (a) Current yield is computed using the following formula: 6 (Gross Income - Fund Expenses) 2 +1 -1 X 100 ------------------------------------------------- (Average Daily shares x Maximum Offering Price) SCHEDULE 1 LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation INPUT AREA ====================================================================================================================== PORTFOLIO HOLDINGS AS OF 2/28/90 (ADJUSTED FOR UNSETTLED TRADES) =============================================================== MATURITY VALUATION ACCRUED INT PAY CALL CALL ROW CUSIP NO. ISSUER PAR COUPON PRICE DATE DATE INTEREST DATE DATE PRICE - ------ ---------- --------------- ------- -------- -------- --------- ----------- --------- -------- ------ ----- 0 029717AD7 AMERICAN STD INC 750,000 12.875 94.250 06/30/2000 02/28/90 16,362 06/30/90 1 066747AB2 BANQUE NATIONALE DE PARIS 500,000 9.875 102.420 05/25/98 02/28/90 13,167 05/25/90 2 125569BZ5 C I T GROUP HLDGS INC 500,000 8.875 98.128 06/15/96 02/28/90 9,368 06/15/90 3 171196AK4 CHRYSLER CORP 500,000 12.000 100.375 11/15/2015 02/28/90 17,667 05/15/90 4 173034FG9 CITICORP 500,000 8.700 98.140 10/15/94 02/28/90 16,192 04/15/90 5 211177AC4 CONTINENTAL CABLEVISION INC 300,000 12.875 99.125 11/01/2004 02/28/90 12,875 05/01/90 6 26633JAA6 DURACELL HLDGS CORP 750,000 60.000 09/15/98 02/28/90 03/15/90 7 277461AS8 EASTMAN KODAK CO 500,000 9.750 97.940 10/01/2004 02/28/90 20,854 04/01/90 8 283681AF1 EL PASO FNDG 500,000 10.375 85.097 01/02/2011 02/28/90 8,502 07/02/90 9 337358AJ4 FIRST ON CORP 750,000 9.450 96.232 06/15/99 02/28/90 14,963 06/15/90 10 345397DY6 FORD MTR CR CORP 500,000 8.250 95.706 05/15/96 02/28/90 12,146 05/15/90 11 347460AF4 FORT HOWARD CORP 500,000 45,250 11/01/2004 02/28/90 05/01/90 12 370424CK7 GENERAL MTRS ACCEP CORP 500,000 5.500 72.794 12/15/2001 02/28/90 5,806 06/15/90 13 370442AD7 GENERAL MOTORS CORP 500,000 8.125 85.447 04/15/2016 02/28/90 15,347 04/15/90 14 448814BT9 HYDRO-QUEBEC 500,000 16.625 112.876 01/15/92 02/28/90 10,622 07/15/90 15 499040AD5 KNIGHT RIDDER INC 500,000 9.875 102.811 04/15/2009 02/28/90 18,653 04/15/90 16 501044AT8 KROGER CO 500,000 13.125 101.750 01/15/2001 02/28/90 8,385 07/15/90 17 590910AB1 MESA CAP CORP 500,000 13.500 100.000 05/01/99 02/28/90 22,500 05/01/90 18 639054AB1 NATWEST CAP CORP 500,000 9.375 99.481 11/15/2003 02/28/90 13,802 05/15/90 19 654624AC9 NIPPON TELEG & TEL CORP 1,000,000 9.500 102.352 07/27/98 02/28/90 8,972 07/27/90 20 674599AQ8 OCCIDENTAL PETE CORP 750,000 8.950 94.875 04/15/94 02/28/90 25,358 04/15/90 21 690768AH9 OWENS ILLINOIS INC 750,000 12.250 93.000 06/01/96 02/28/90 22,969 06/01/90 22 749275AA1 RBSG CAP CORP 500,000 10.125 104.384 03/01/2004 02/28/90 25,313 03/01/90 23 761157AA4 RESOLUTION FDG CORP 1,000,000 8.125 92.816 10/15/2019 02/28/90 30,580 04/15/90 24 81371FAA5 SECURED FINANCE DELS 500,000 9.050 96.058 12/15/2004 02/28/90 9,553 06/15/90 25 83364WAA3 SOCIETE-GENERALE 500,000 9.875 103.010 07/15/2003 02/28/90 6,309 07/15/90 26 880591BC5 TENNNESSEE VALLEY AUTH 500,000 8.250 96.657 11/15/96 02/28/90 10,427 05/15/90 27 880591BD3 TENNESSEE VALLEY AUTH 400,000 8.625 93.013 11/15/2029 02/28/90 8,721 05/15/90 28 882850AY6 TEXAS UTILS ELEC CO 500,000 9.875 95.880 11/01/2019 02/28/90 16,458 05/01/90 29 912827XK3 UNITED STATES TREAS NTS 1,100,000 9.375 103.875 04/15/96 02/28/90 38,814 04/15/90 30 912827YG1 UNITED STATES TREAS NOTE 250,000 7.750 97.437 02/15/95 02/28/90 4,751 08/15/90 31 928869AA4 VONS COS INC 500,000 94.000 07/15/99 02/28/90 07/15/90 ------------ ----------- 18,300,000 445,433 ============ =========== SEE OUTPUT COLUMN(S) FOR FURTHER TOTALS
SCHEDULE 1 (CONTINUED) LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation OUTPUT ===================================================================================================================== PORTFOLIO HOLDINGS AS OF 2/28/90 (ADJUSTED FOR UNSETTLED TRADES) ==================================================================== DAILY MARKET VALUE GROSS YIELD AND NO. OF DAYS INCOME (360 DAY ACCRUED DAILY IN BASE FOR BASE ROW CUSIP NO. ISSUER YIELD YEAR) INCOME INCOME PERIOD PERIOD - ------ ---------- ----------------------- ----------- ------------- --------------- ---------- ---------- ---------- 0 029717AD7 AMERICAN STD INC 13.9024% 0.038618% 723,236.98 279.30 30 8,379.00 1 066747AB2 BANQUE NATIONALE DE PARIS 9.4216% 0.026171% 525,268.67 137.47 30 4,124.10 2 125569BZ5 C I T GROUP HLDGS INC 9.2478% 0.025688% 500,006.05 128.44 30 3,853.20 3 171196AK4 CHRYSLER CORP 11.9296% 0.033138% 519,541.67 172.16 30 5,164.80 4 173034FG9 CITICORP 9.1851% 0.025514% 506,892.67 129.33 30 3,879.90 5 211177AC4 CONTINENTAL CABLEVISION INC 12.9790% 0.036053% 310,250.00 111.85 30 3,355.50 6 26633JAA6 DURACELL HLDGS CORP 13.9915% 0.038865% 450,000.00 174.89 30 5,246.70 7 277461AS8 EASTMAN KODAK CO 9.9915% 0.027754% 510,554.18 141.70 30 4,251.00 8 283681AF1 EL PASO FNDG 12.3613% 0.034337% 433,986.24 149.02 30 4,470.60 9 337358AJ4 FIRST ON CORP 10.0606% 0.027946% 736,704.00 205.88 30 6,176.40 10 345397DY6 FORD MTR CR CORP 9.1465% 0.025407% 490,673.33 124.67 30 3,740.10 11 347460AF4 FORT HOWARD CORP 15.7458% 0.043738% 226,250.00 98.96 30 2,968.80 12 370424CK7 GENERAL MTRS ACCEP CORP 9.3433% 0.025954% 369,773.06 95.97 30 2,879.10 13 370442AD7 GENERAL MOTORS CORP 9.6489% 0.026802% 442,584.22 118.62 30 3,558.60 14 448814BT9 HYDRO-QUEBEC 8.9234% 0.024787% 575,003.02 142.53 30 4,275.90 15 499040AD5 KNIGHT RIDDER INC 9.5381% 0.026495% 532,708.78 141.14 30 4,234.20 16 501044AT8 KROGER CO 12.7913% 0.035531% 517,135.42 183.75 30 5,512.50 17 590910AB1 MESA CAP CORP 13.4588% 0.037386% 522,500.00 195.34 30 5,860.20 18 639054AB1 NATWEST CAP CORP 9.4260% 0.026183% 511,205.08 133.85 30 4,015.50 19 654624AC9 NIPPON TELEG & TEL CORP 9.0755% 0.025210% 1,032,496.22 260.29 30 7,808.70 20 674599AQ8 OCCIDENTAL PETE CORP 10.4731% 0.029092% 736,920.83 214.39 30 6,431.70 21 690768AH9 OWENS ILLINOIS INC 13.9106% 0.038640% 720,468.75 278.39 30 8,351.70 22 749275AA1 RBSG CAP CORP 9.5398% 0.026499% 547,230.00 145.01 30 4,350.30 23 761157AA4 RESOLUTION FDG CORP 8.8022% 0.024450% 958,736.36 234.42 30 7,032.60 24 81371FAA5 SECURED FINANCE DELS 9.5365% 0.026490% 489,841.78 129.76 30 3,892.80 25 83364WAA3 SOCIETE-GENERALE 9.4574% 0.026271% 521,360.53 136.96 30 4,108.80 26 880591BC5 TENNNESSEE VALLEY AUTH 8.9698% 0.024916% 493,713.58 123.01 30 3,690.30 27 880591BD3 TENNESSEE VALLEY AUTH 9.3168% 0.025880% 380,774.43 98.54 30 2,956.20 28 882850AY6 TEXAS UTILS ELEC CO 10.3072% 0.028631% 495,857.83 141.97 30 4,259.10 29 912827XK3 UNITED STATES TREAS NTS 8.5285% 0.023690% 1,181,438.52 279.89 30 8,396.70 30 912827YG1 UNITED STATES TREAS NOTE 7.9812% 0.022170% 248,342.92 55.06 30 1,651.80 31 928869AA4 VONS COS INC 13.0082% 0.036134% 470,000.00 169.83 30 5,094.90 ---------------- 153,971.70 ----------------
SCHEDULE 2 LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation PURCHASES SETTLING IN MARCH ============================== PURCHASE MATURITY SETTLEMENT ACCRUED INT PAY CALL CALL ROW CUSIP NO. ISSUER PAR COUPON PRICE DATE DATE INTEREST DATE DATE PRICE - ------ ---------- --------------- ------- -------- -------- --------- ----------- --------- -------- ------ ----- 42 459200AG6 INTERNATIONAL BUSINE 750,000 8.375 92.277 11/01/2019 03/05/90 21,635 05/01/90 43 912827XW7 UNITED STATES TREASU 500,000 8.000 96.031 08/15/99 03/06/90 2,099 08/15/90 44 928869AA4 VONS COS INC 250,000 94.000 07/15/99 03/06/90 07/15/90 45 761157AA4 RESOLUTION FDG CORP 250,000 8.125 90.656 10/15/2019 03/14/90 8,371 04/15/90 46 761157AA4 RESOLUTION FDG CORP 250,000 8.125 90.625 10/15/2019 03/14/90 8,371 04/15/90 47 459200AG6 INTERNATIONAL BUSINE 250,000 8.375 91.172 11/01/2019 03/16/90 7,852 05/01/90 48 880591BD3 TENNESSEE VALLEY AUT 350,000 8.625 90.438 11/15/2029 03/16/90 8,889 05/15/90 49 161241AK0 CHARTER MED CORP 250,000 14.000 70.000 08/15/2000 03/23/90 3,694 08/15/90 50 881685AN1 TEXACO CAP INC 500,000 9.750 101.263 03/15/2020 03/27/90 1,625 09/15/90 51 369856AF6 GENERAL FOODS CORP 500,000 7.000 77.191 06/15/2011 03/29/90 10,111 06/15/90 52 74955EAA7 RGS I & M FDG 500,000 9.810 100.689 12/07/2022 03/29/90 6,949 06/07/90 53 54 55 56
SALES SETTLING IN MARCH ============================= MATURITY SETTLEMENT ACCRUED INT PAY CALL CALL ROW CUSIP NO. ISSUER PAR COUPON PRICE DATE DATE INTEREST DATE DATE PRICE - ------ ---------- -------------------- ------- -------- -------- --------- ----------- --------- -------- ------ ----- 62 761157AA4 RESOLUTION FDG CORP 500,000 8.125 92.816 10/15/2019 03/05/90 22,712 04/15/90 63 029717AD7 AMERICAN STD INC 250,000 12.875 94.250 06/30/2000 03/06/90 12,428 06/30/90 64 761157AA4 RESOLUTION FDG CORP 500,000 8.125 92.816 10/15/2019 03/23/90 22,712 04/15/90 SEE OUTPUT COLUMN(S) FOR FURTHER TOTALS
SCHEDULE 2 (CONTINUED) LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation PURCHASES SETTLING IN MARCH ================================= DAILY MARKET VALUE GROSS YIELD AND NO. OF DAYS INCOME (360 DAY ACCRUED DAILY IN BASE FOR BASE ROW CUSIP NO. ISSUER YIELD YEAR) INCOME INCOME PERIOD PERIOD - ------ ---------- ----------------------- ----------- ------------- --------------- ---------- ---------- ----------- 42 459200AG6 INTERNATIONAL BUSINE 9.1299% 0.025361% 713,712.92 181.00 26 4,706.00 43 912827XW7 UNITED STATES TREASU 8.6277% 0.023966% 482,255.45 115.58 25 2,889.50 44 928869AA4 VONS COS INC 13.0577% 0.036271% 235,000.00 85.24 25 2,131.00 45 761157AA4 RESOLUTION FDG CORP 9.0348% 0.025097% 235,011.04 58.98 17 1,002.66 46 761157AA4 RESOLUTION FDG CORP 9.0381% 0.025106% 234,933.04 58.98 17 1,002.66 47 459200AG6 INTERNATIONAL BUSINE 9.2480% 0.025689% 235,781.56 60.57 15 908.55 48 880591BD3 TENNESSEE VALLEY AUT 9.5964% 0.026657% 325,419.79 86.75 15 1,301.25 49 161241AK0 CHARTER MED CORP 21.2327% 0.058980% 178,694.44 105.39 8 843.12 50 881685AN1 TEXACO CAP INC 9.6193% 0.026720% 507,940.00 135.72 4 542.88 51 369856AF6 GENERAL FOODS CORP 9.5172% 0.026437% 396,066.11 104.71 2 209.42 52 74955EAA7 RGS I & M FDG 9.9049% 0.027514% 510,393.75 140.43 2 280.86 53 54 55 56 -------------- 15,817.90 --------------
SALES SETTLING IN MARCH ================================= DAILY MARKET VALUE GROSS YIELD AND NO. OF DAYS INCOME (360 DAY ACCRUED DAILY IN BASE FOR BASE ROW CUSIP NO. ISSUER YIELD YEAR) INCOME INCOME PERIOD PERIOD - ------ ---------- ----------------------- ----------- ------------- --------------- ---------- ---------- ----------- 62 761157AA4 RESOLUTION FDG CORP 8.8022% 0.024450% 486,790.06 119.02 -26 (3,094.52) 63 029717AD7 AMERICAN STD INC 13.9024% 0.038618% 248,052.95 95.79 -25 (2,394.75) 64 761157AA4 RESOLUTION FDG CORP 8.8022% 0.024450% 486,790.06 119.02 -8 (952.16) --------------- (6,441.43) --------------- Total Gross Income Earned from Corporate Obligations Computed on a Yield to Maturity or Yield to Call Basis... 163,348.17 ===============
Schedule 1 - LBVIP Series Fund - Income Portfolio FOOTNOTES: - ---------- The purpose of schedule 1 is to show how yield is computed for securities held throughout the 30 day base period as well as for securities that were acquired or disposed of during the base period. Page 1 of Schedule 1 summarizes the Fund's portfolio position and market values as of the last business day of the previous bas period. Based on this information, a yield is calculated for each security by equating its future discounted cash flows to its current market value (including accrued income). For those securities that are currently expected to be called prior to maturity, a yield is calculated to an earlier call date. Once a yield is calculated, gross income for the base period for each security is arrived at by dividing yield by 360, the resulting quotient is multiplied by the security's market value (including accrued income), and then multiplied by 30. Part 2 of schedule 1 summarizes securities that were acquired or disposed of during the base period. For securities acquired during the base period, yield is calculated assuming purchase price plus accrued income. Gross income for the period is based on the holding period from settlement date to the end of the base period. For securities that are disposed of during the base period, a reduction to gross income is made to reflect the actual holding period. This reduction is necessary to avoid overstating gross income since gross income for these securities shown on page 1 assumed they were held for the entire base period. SCHEDULE 2 - SCHEDULE OF BOOK INCOME ON MORTGAGE-BACKED SECURITIES FOR MARCH, 1990 BOOK INCOME EARNED CUSIP MATURITY DURING NO. ISSUER PAR COUPON DATE MARCH - --------- ------------------- ---------- --------- ---------- ----------- 36219KX76 GNMA POOL # 251902 489338.94 10 20191115 4,078 362195Q36 GNMA POOL # 267874 508179.54 10 20180215 4,235 ----------- SUBTOTAL FOR GNMA MORTAGE-BACKED SECURITIES...................... 8,313 ----------- 31354CSV3 FED HM LN PC # 545932 1744282.8 8.5 20200201 12,355 0 ----------- SUBTOTAL FOR FHLMC MORTGAGE-BACKED SECURITIES.................... 12,355 ----------- SUBTOTAL FOR FHLMC & GNMA SECURITIES............................. 20,668 ----------- 063844AA2 BANK NEW ENGLAND 882720 8.85 19941215 6,510 ----------- TOTAL BOOK INCOME FROM MORTGAGE-BACKED SECURITIES FOR MARCH, 1990....................................... 27,178 ----------- -----------
SCHEDULE 3 Gain/Loss from Paydowns on Mortgage-backed Securities LBVIP SERIES FUND - INCOME PORTFOLIO PORTFOLIO SECURITY TRANSACTION JOURNAL 03/01/90 - 03/31/90 TRAN ENTRY TRADE SETTLE TERM CODE PAR VALUE NAME DATE DATE DATE PRICE - ---- ----- ----------- -------- ----- ------ -------- -------- L-T SALE 717 FED HM LN PC # 54593 8.500000% 20200201 900327 900301 900415 100.000 SALE 206 GNMA POOL # 251902 10.000000% 20191115 900319 900301 900315 100.000 SALE 2,097 GNMA POOL # 267874 10.000000% 20180215 900319 900301 900315 100.000
*TOTAL TERM L-T 3,019 *TOTAL TRANSACTION SALE 3,019 TOTAL 3,019
SCHEDULE 3 (CONTINUED) Gain/Loss from Paydowns on Mortgage-backed Securities LBVIP SERIES FUND - INCOME PORTFOLIO PORTFOLIO SECURITY TRANSACTION JOURNAL 03/01/90 - 03/31/90 TRAN TOTAL IDENTIFIED S-T L-T TERM CODE NAME PROCEEDS INTEREST COST GAINS/LOSS GAINS/LOSS BROKER - ---- ----- ---- -------- -------- -------- ---------- ---------- ---------- ------ L-T SALE FED HM LN PC # 54593 13,077.62 12360.42 669.91 47.29 .00 PRINCIPAL PAYMENTS-MTG BACK SALE GNMA POOL # 251902 4,285.08 4079.54 211.03 -5.49 .00 PRINCIPAL PAYMENTS-MTG BACK SALE GNMA POOL # 267874 6,348.97 4252.30 2,153.02 -56.35 .00 PRINCIPAL PAYMENTS-MTG BACK *TOTAL TERM L-T 23,711.67 20692.26 3,033.96 -14.55 .00 *TOTAL TRANSACTION SALE 23,711.67 20692.26 3,033.96 -14.55 .00 TOTAL 23,711.67 20692.26 3,033.96 -14.55 .00 ---------- ----------
SCHEDULE 4 LBVIP INCOME PORTFOLIO BOOK INCOME AND EXPENSES BY MONTH FOR FISCAL YEAR ENDING 12/31/90 MONTHLY INCOME ---------------------------- AMORT. AMORT. TOTAL L-T S-T DIVIDEND OF OF OTHER GROSS MONTH INTEREST INTEREST INCOME DISCOUNT PREMIUM INCOME INCOME - ---------- ------------ ------------ ----------- ---------- ------------ ------------ -------------- JAN-90 142,662 13,529 0 8,130 3,604 1,469 162,186 FEB-90 156,862 17,028 0 21,698 4,185 677 192,080 MAR-90 166,561 18,290 0 16,575 4,452 335 197,310 ------------ ------------ APR-90 0 0 0 0 0 0 0 MAY-90 0 0 0 0 0 0 0 JUN-90 0 0 0 0 0 0 0 JUL-90 0 0 0 0 0 0 0 AUG-90 0 0 0 0 0 0 0 SEP-90 0 0 0 0 0 0 0 OCT-90 0 0 0 0 0 0 0 NOV-90 0 0 0 0 0 0 0 DEC-90 0 0 0 0 0 0 0 - ---------- ------------- ------------ ----------- ----------- ------------ ----------- -------------- (Y-T-D) TOTALS 466,085 48,847 0 46,403 12,240 2,481 551,576 - ---------- ------------ ------------ ---------- ----------- ------------- ----------- -------------- - ---------- ------------ ------------ ---------- ----------- ------------- ----------- --------------
SCHEDULE 4 (CONTINUED) LBVIP INCOME PORTFOLIO BOOK INCOME AND EXPENSES BY MONTH FOR FISCAL YEAR ENDING 12/31/90 MONTHLY EXPENSES ---------------------------- ADVISORY NET OTHER TOTAL TOTAL NET FEE FEE ADVISORY ACCRUED NET INVESTMENT MONTH EXPENSE WAIVER FEE TAXES EXPENSES EXPENSES INCOME - ---------- ---------- -------- -------- --------- ------------ ------------- ---------------- JAN-90 7,108 0 7,108 0 0 7,108 155,078 FEB-90 7,053 0 7,053 0 0 7,053 185,027 MAR-90 8,228 0 8,228 0 0 8,228 189,082 --------- --------- APR-90 0 0 0 0 0 0 0 MAY-90 0 0 0 0 0 0 0 JUN-90 0 0 0 0 0 0 0 JUL-90 0 0 0 0 0 0 0 AUG-90 0 0 0 0 0 0 0 SEP-90 0 0 0 0 0 0 0 OCT-90 0 0 0 0 0 0 0 NOV-90 0 0 0 0 0 0 0 DEC-90 0 0 0 0 0 0 0 - ---------- ------------ ------- --------- -------- ------------- ------------- ------------ (Y-T-D) TOTALS 22,389 0 22,389 0 0 22,389 529,187 - -------- ------------ ------- --------- -------- ------------- ------------- ------------ - -------- ------------ ------- --------- -------- ------------- ------------- ------------
SCHEDULE 5 - Average Daily Number of Shares Outstanding LBVIP - INCOME PORTFOLIO (MARCH 1990) - ---------------------------------------------------------------- DAILY CUMULATIVE O/S O/S DATE DAY SHARES SHARES - ---------------------------------------------------------------- - ---------------------------------------------------------------- MAR 1 THU 2,621,286 2,621,286 2 FRI 2,629,286 5,250,572 3 SAT 2,632,578 7,883,150 4 SUN 2,632,578 10,515,728 5 MON 2,632,578 13,148,306 6 TUE 2,635,516 15,783,822 7 WED 2,662,029 18,445,851 8 THU 2,662,923 21,108,774 9 FRI 2,661,054 23,769,828 10 SAT 2,667,940 26,437,768 11 SUN 2,667,940 29,105,708 12 MON 2,667,940 31,773,648 13 TUE 2,670,317 34,443,965 14 WED 2,728,291 37,172,256 15 THU 2,751,763 39,924,019 16 FRI 2,770,432 42,694,451 17 SAT 2,773,802 45,468,253 18 SUN 2,773,802 48,242,055 19 MON 2,773,802 51,015,857 20 TUE 2,775,570 53,791,427 21 WED 2,791,250 56,582,677 22 THU 2,815,620 59,398,297 23 FRI 2,823,228 62,221,525 24 SAT 2,828,633 65,050,158 25 SUN 2,828,633 67,878,791 26 MON 2,828,633 70,707,424 27 TUE 2,834,143 73,541,567 28 WED 2,875,104 76,416,671 29 THU 2,880,448 79,297,119 30 FRI 2,918,656 82,215,775 MAR 31 SAT 2,921,618 85,137,393 AVERAGE OUTSTANDING 2,746,368 --------- --------- #20739 EX-99 14 EXHIBIT 16(iii) ----------- LBVIP SERIES FUND, INC. MONEY MARKET PORTFOLIO CALCULATION OF YIELD QUOTATIONS AS OF MARCH 30, 1990 Value of hypothetical pre-existing account with exactly one share at the beginning of the period...............................................$1.000000000 Value of same account (excluding capital changes) at the end of the seven-day period.......................... 1.001502544 ------------- Net change in account value.................................$0.001502544 ============= Base Period Return: Net change in account value divided by beginning account value ($0.001502544/$1.000000000) 0.001502544 ============= Annualized Current Net Yield................................. 7.83% (a) ============= Effective Yield.............................................. 8.14% (b) Footnotes: - --------------------------------------------------------------- (a) Annualized Current Net Yield = (0.001502544 x (365/7)) 365/7 (b) Effective Yield = ((0.001502544 + 1) -1) #20741 EX-99 15 EXHIBIT 18(a) REIMBURSEMENT AGREEMENT ----------------------- THIS AGREEMENT made this _____ day of ______________, 1986, by and between LBVIP Series Fund, Inc., a Minnesota corporation (the "Fund"), 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 the LBVIP Variable Insurance Account, a separate account (the "Variable Account"), pursuant to the laws of Minnesota for the purpose of selling flexible premium variable life insurance contracts ("Contracts") to commence after the effectiveness of the Registration Statement relating thereto filed with the Securities and Exchange Commission on Form S-6 pursuant to the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Variable Account will be registered as a unit investment trust under the 1940 Act upon the effectiveness of the pending Form N-8B-2 Registration Statement under the 1940 Act, and of the Notification of Registration, Form N-8A; and WHEREAS, each Subaccount of the LBVIP Variable Account will invest in the shares of a corresponding portfolio of the Fund; and WHEREAS, pursuant to an Investment Advisory Agreement dated ____________________, between the Fund and Lutheran Brotherhood Research Corp., a registered investment adviser (the "Adviser"), the Fund agreed to pay, or provide for the payment of, all of its own expenses; and WHEREAS, LBVIP is 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. LBVIP 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 agrees 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 or an affiliated company. If the Fund does sell such shares to other separate accounts, LBVIP 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 and the sponsors of such other separate accounts for an equitable allocation of Fund expenses payable by LBVIP under this Agreement. ARTICLE 3: ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. LBVIP reserves the right, subject to applicable law, to make additions to, deletions from, or substitutions for the shares that are held in the Variable Account or that the Variable Account may purchase. If the shares of a Portfolio of the Fund are no longer available for investment or if in LBVIP's judgment further investment in any Portfolio should become inappropriate in view of the purposes of the Variable Account, LBVIP may redeem the shares, if any, of that Portfolio and substitute shares of another registered open-end management company. LBVIP will not substitute any shares attributable to LBVIP insurance Contract interests in a Subaccount of the Variable Account 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 also reserves the right to establish additional Subaccounts of the Variable Account, 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 may, in its 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. LBVIP SERIES FUND, INC. By ---------------------------------------- Its ------------------------------------ LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY By ---------------------------------------- Its ------------------------------------ #20726 EX-99 16 EXHIBIT 18(b) LBVIP SERIES FUND, INC. Power of Attorney of Directors and Officers KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and/or officers of LBVIP SERIES FUND, INC., a Minnesota corporation, does hereby make, constitute and appoint Randall L. Wetherille, James M. Odland and Otis F. Hilbert, and each or any of them, the undersigneds' true and lawful attorneys-in-fact, with power of substitution, for the undersigneds and in the undersigneds' name, place and stead, to sign and affix the undersigned names as such directors and/or officers of such Company to a Registration Statement or Registration Statements, on Form N-1A or other applicable form, and all amendments, including post-effective amendments, thereto, to be filed by such Company with the Securities and Exchange Commission, Washington, D.C., in connection with the registration under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, of shares of such Company, and to file the same, with all exhibits thereto and other supporting documents, with such Commission, granting unto such attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 4th day of May, 1990. /s/Rolf F. Bjelland - -------------------------- President, (Chief Executive Officer) Rolf F. Bjelland Chairman and Director /s/Stanley C. Townswick - -------------------------- Treasurer (Principal Financial Officer Stanley C. Townswick and Principal Accounting Officer) /s/Charles W. Arnason - -------------------------- Director Charles W. Arnason /s/Herbert F. Eggerding, Jr. - -------------------------- Director Herbert F. Eggerding, Jr. /s/Luther O. Forde - -------------------------- Director Luther O. Forde /s/Bobby I. Griffin - -------------------------- Director Bobby I. Griffin /s/Albert H. Quie - -------------------------- Director Albert H. Quie /s/Ruth E. Randall - -------------------------- Director Ruth E. Randall #20743 EX-99 17 EXHIBIT 18(c) LBVIP SERIES FUND, INC. Power of Attorney of Directors and Officers KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of LBVIP SERIES FUND, INC., a Minnesota corporation, does hereby make, constitute and appoint Randall L. Wetherille, James M. Odland and Otis F. Hilbert, and each or any of them, the undersigned's, true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned name as such officer of such Company to a Registration Statement or Registration Statements, on Form N-1A or other applicable form, and all amendments, including post-effective amendments, thereto, to be filed by such Company with the Securities and Exchange Commission, Washington, D.C., in connection with the registration under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, of shares of such Company, and to file the same, with all exhibits thereto and other supporting documents, with such Commission, granting unto such attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of April, 1992. /s/Wade M. Voigt - -------------------------- Treasurer (Principal Financial Officer Wade M. Voigt and Principal Accounting Officer) #20744 EX-27 18 GROWTH FIN SCH
6 This schedule contains summary financial information extracted from the LB Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997 and is qualified in its entirety by reference to such Annual Report. 1 LB SERIES FUND, INC. - GROWTH PORTFOLIO 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 2,190,348 2,449,976 17,629 9 0 2,467,614 41,477 0 0 41,477 0 1,792,272 112,406 85,833 0 0 374,238 0 259,628 2,426,138 22,808 8,463 0 8,300 22,971 389,813 118,291 531,075 0 22,971 239,942 0 13,520 1,580 14,634 767,557 0 224,366 0 0 8,300 0 8,300 2,075,029 19.32 0.21 4.97 0.21 2.71 0 21.58 0.40 0 0
EX-27 19 INC FIN SCH
6 This schedule contains summary financial information extracted from the LB Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997 and is qualified in its entirety by reference to such Annual Report. 2 LB SERIES FUND, INC. - INCOME PORTFOLIO 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 889,188 903,598 24,209 78 0 927,885 0 0 47,445 47,445 0 884,551 88,783 82,176 0 0 (18,522) 0 14,411 880,440 971 57,142 0 3,298 55,085 7,344 7,184 69,613 0 55,085 0 0 6,711 5,750 5,645 79,280 0 (25,866) 0 0 3,298 0 3,298 824,547 9.75 0.65 0.17 0.65 0.00 0 9.92 0.40 0 0
EX-27 20 MM FIN SCH
6 This schedule contains summary financial information extracted from the LB Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997 and is qualified in its entirety by reference to such Annual Report. 3 LB SERIES FUND, INC. - MONEY MARKET PORTFOLIO 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 120,714 120,714 450 3 0 121,167 0 0 0 0 0 121,167 121,167 103,921 0 0 0 0 0 121,167 0 6,411 0 452 5,959 0 0 5,959 0 5,959 0 0 76,691 65,403 5,959 17,247 0 0 0 0 452 0 452 113,116 1.00 0.05 0.00 0.05 0.00 0 1.00 0.40 0 0
EX-27 21 HY FIN SCH
6 This schedule contains summary financial information extracted from the LB Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997 and is qualified in its entirety by reference to such Annual Report. 4 LB SERIES FUND, INC. - HIGH YIELD PORTFOLIO 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 1,293,492 1,321,840 24,601 57 0 1,346,498 1,936 0 0 1,936 0 1,296,384 128,831 102,108 853 0 18,977 0 28,349 1,344,563 11,318 106,752 0 4,734 113,336 26,148 18,136 157,620 0 112,483 0 0 17,651 1,942 11,014 317,826 0 (7,170) 0 0 4,734 0 4,734 1,183,575 10.06 0.98 0.37 0.97 0.00 0 10.44 0.40 0 0
EX-27 22 OPP GRO FIN SCH
6 This schedule contains summary financial information extracted from the LB Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997 and is qualified in its entirety by reference to such Annual Report. 5 LB SERIES FUND, INC. - OPPORTUNITY GROWTH PORTFOLIO 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 415,816 412,606 3,465 129 0 416,200 24,736 0 0 24,736 0 393,536 33,897 21,431 0 0 1,138 0 (3,210) 391,464 841 2,578 0 1,302 2,117 4,836 1,131 8,084 0 2,117 0 0 12,916 633 183 144,912 0 (3,698) 0 0 1,302 0 1,302 325,496 11.5 0.06 0.05 0.06 0.00 0 11.55 0.40 0 0
EX-27 23 WORLD GRO FIN SCH
6 This schedule contains summary financial information extracted from the LB Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997 and is qualified in its entirety by reference to such Annual Report. 6 LB SERIES FUND, INC. - WORLD GROWTH PORTFOLIO 1,000 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 280,844 291,197 378 4,389 0 295,964 8,746 0 14 8,760 0 276,920 25,827 15,901 (0) 0 (105) 0 10,389 287,204 3,933 792 0 2,080 2,645 766 47 3,458 0 3,252 161 0 9,869 250 307 113,111 0 (103) 0 0 2,080 0 2,080 244,749 10.95 0.10 0.21 0.13 0.01 0 11.12 0.85 0 0
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