<PAGE>
PROSPECTUS
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INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACT
Issued By
LUTHERAN BROTHERHOOD
VARIABLE INSURANCE PRODUCTS COMPANY
625 Fourth Avenue South * Minneapolis, Minnesota 55415 * (612) 340-7210
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This Prospectus describes an individual flexible premium variable annuity
contract (the "Contract") being offered by Lutheran Brotherhood Variable
Insurance Products Company ("LBVIP"), a stock life insurance company that is
an indirect subsidiary of Lutheran Brotherhood. LBVIP is offering the Contract
only in situations in which the Annuitant is eligible for membership in
Lutheran Brotherhood, unless otherwise required by state law. The Contract may
be sold to or in connection with retirement plans which may or may not qualify
for special Federal tax treatment under the Internal Revenue Code. Annuity
payments under the Contract are deferred until a selected later date.
The Contract Owner may elect to have premiums accumulate on a variable basis
and/or on a fixed basis. Premiums may be allocated, as designated by the
Contract Owner, to one or more Subaccounts of LBVIP Variable Annuity Account I
(the "Variable Account"), a separate account of LBVIP, and/or to the Fixed
Account (which is the general account of LBVIP, and which pays interest at a
guaranteed fixed rate). The assets of each Subaccount will be invested solely
in a corresponding Portfolio of LB Series Fund, Inc. (the "Fund"), which is a
diversified, open-end management investment company (commonly known as a
"mutual fund"). The accompanying Prospectus for the Fund describes the
investment objectives and attendant risks of the six Portfolios of the Fund --
the Growth Portfolio, the High Yield Portfolio, the Income Portfolio, the
Opportunity Growth Portfolio, the World Growth Portfolio, and the Money Market
Portfolio. Additional Subaccounts (together with the related additional
Portfolios of the Fund) may be added in the future. The Accumulated Value of
the Contract in the Subaccounts and, except to the extent fixed amount annuity
payments are elected by the Contract Owner, the amount of annuity payments
will vary, primarily based on the investment experience of the Portfolio whose
shares are held in the Subaccounts designated. Premiums allocated to the Fixed
Account will accumulate at fixed rates of interest declared by LBVIP.
This Prospectus describes only the elements of the Contract pertaining to the
Variable Account except where reference to the Fixed Account of the Contract
is specifically made.
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.
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This Prospectus sets forth concisely the information about the Contract that a
prospective investor ought to know before investing, and should be read
and kept for future reference. It is valid only when accompanied or
preceded by the current Prospectus of LB Series Fund, Inc.
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The date of this Prospectus is May 1, 1996.
[Continued from cover page]
On the date LBVIP approves the Contract Owner's application, the initial
premium (after deduction of any required premium taxes) and any interest
accumulations accrued during the underwriting period will be allocated among
the Subaccount(s) and the Fixed Account according to the Contract Owner's
instructions. See "THE CONTRACTS--Allocation of Premiums." Subsequent premiums
will be allocated among the Subaccounts and the Fixed Account in the same
proportion as the initial premium, at the end of the Valuation Period in which
the subsequent premium is received by LBVIP.
Additional information about the Contract, LBVIP and the Variable Account,
contained in a Statement of Additional Information dated May 1, 1996, has been
filed with the Securities and Exchange Commission and is available upon
request without charge by writing to Lutheran Brotherhood Variable Insurance
Products Company, 625 Fourth Avenue South, Minneapolis, Minnesota 55415. The
Statement of Additional Information relating to the Contract having the same
date as this Prospectus is incorporated by reference in this Prospectus. The
Table of Contents for the Statement of Additional Information may be found on
page 34 of this Prospectus. Information about the Fixed Account may be found
in the Appendix to this Prospectus.
TABLE OF CONTENTS
Page
DEFINITIONS 4
SUMMARY FEE TABLE 6
SUMMARY 8
LBVIP, LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND
THE FUND 12
LBVIP and Lutheran Brotherhood 12
The Variable Account 12
LB Series Fund, Inc. 12
Addition, Deletion or Substitution of Investments 15
THE CONTRACTS 15
Issuance of a Contract 15
Free Look Period 15
Allocation of Premium 16
Accumulated Value; Accumulation Units and Accumulation Unit Value 17
Death Benefit Before the Maturity Date 18
Death Benefit After the Maturity Date 19
Surrender (Redemption) 19
Transfers 20
Telephone Transfers 20
Special Transfer Service -- Dollar Cost Averaging 20
Assignments 21
Contract Owner, Beneficiaries and Annuitants 21
CHARGES AND DEDUCTIONS 21
Surrender Charge (Contingent Deferred Sales Charge) 21
Administrative Charge 23
Mortality and Expense Risk Charge 23
Investment Advisory Fee of the Fund 23
Premium Taxes 24
Other Taxes 24
Sufficiency of Charges 24
ANNUITY PROVISIONS 24
Maturity Date 24
Settlement Options 25
Frequency and Amount of Annuity Payments 25
Subaccount Annuity Unit Value 26
Assumed Investment Rate 26
GENERAL PROVISIONS 26
Postponement of Payments 26
Date of Receipt 27
Reports to Contract Owners 27
Contract Inquiries 27
FEDERAL TAX STATUS 27
Introduction 27
LBVIP's Tax Status 27
Taxation of Annuities in General 28
Qualified Plans 29
1035 Exchanges 30
Diversification Requirements 30
Withholding 31
Other Considerations 31
EMPLOYMENT-RELATED BENEFIT PLANS 31
VOTING RIGHTS 31
SALES AND OTHER AGREEMENTS 32
LEGAL PROCEEDINGS 33
LEGAL MATTERS 33
FINANCIAL STATEMENTS AND EXPERTS 33
FURTHER INFORMATION 33
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 34
ORDER FORM 34
APPENDIX -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT 35
DEFINITIONS
Accumulated Value. The total amount of value held under a Contract at any time
prior to and including the Maturity Date. A Contract's Accumulated Value will
reflect the investment experience of the chosen Subaccounts of the Variable
Account, any amount of value in the Fixed Account, any premiums paid, any
surrenders, and any charges assessed in connection with the Contract.
Accumulation Unit. A unit of measure by which the value of the Contract's
interest in each Subaccount is determined.
Accumulation Unit Value. The value of each Accumulation Unit representing the
Contract's interest in each Subaccount.
Annuitant. The person named in the Contract whose life is used to determine
the duration of annuity payments involving life contingencies.
Annuity Unit. A unit of measure which is used in the calculation of the second
and each subsequent variable annuity payment.
Annuity Unit Value. The value of each Annuity Unit.
Beneficiary. The person named by the Contract Owner to receive the Contract's
death benefit.
Contract. The individual flexible premium variable annuity contract offered by
LBVIP and described in this Prospectus.
Contract Anniversary. The same date in each succeeding year as the Date of
Issue.
Contract Owner. The person who controls all the rights under the Contract
while the Annuitant is alive. The Annuitant is the Contract Owner, unless
another owner is named in the Contract application.
Contract Year. The period from one Contract Anniversary to the next. The first
Contract Year will be the period beginning on the Date of Issue and ending on
the first Contract Anniversary.
Date of Issue. The date on which the application and the first premium are
received by LBVIP at its Home Office.
Fixed Account. The Fixed Account is the general account of LBVIP, which
consists of all assets of LBVIP other than those allocated to a separate
account of LBVIP. Premium payments allocated to the Fixed Account will be paid
a fixed rate of interest (which may not be less than 4.0%) declared by LBVIP
at least annually. Amounts accumulated in the Fixed Account are guaranteed by
LBVIP. (See Appendix.)
Fund. LB Series Fund, Inc., which is described in the accompanying Prospectus.
Home Office. LBVIP's office at 625 Fourth Avenue South, Minneapolis, Minnesota
55415 or such other office as LBVIP shall specify in a notice to the Contract
Owner.
LBSC. Lutheran Brotherhood Securities Corp., which is an indirect subsidiary
of Lutheran Brotherhood and which acts as the principal underwriter of the
Contracts.
LBVIP. Lutheran Brotherhood Variable Insurance Products Company, which is an
indirect subsidiary of Lutheran Brotherhood and which is the issuer of the
Contracts.
LBVIP Representative. A person who is licensed by state insurance officials to
sell the Contracts and who is also a registered representative of LBSC.
Lutheran Brotherhood ("LB"). A fraternal benefit society organized under the
laws of the State of Minnesota and owned by and operated for its members, and
which acts as the investment adviser to the Fund.
Maturity Date. The date on which the annuity payments are to start as selected
by the Contract Owner, which date must be a Contract Anniversary at least
three years after the Date of Issue.
Minimum Death Benefit Date. For purposes of calculating the amount of the
death benefit before the Maturity Date, the first such date is the Date of
Issue of the Contract. Thereafter, such date occurs every six years on the
Contract Anniversary.
Portfolio. A Portfolio of the Fund. Each Subaccount invests exclusively in the
shares of a corresponding Portfolio of the Fund.
Qualified Plan. A retirement plan qualified under Section 401, 403, 408 or 457
or similar provisions of the Internal Revenue Code.
Subaccount. A subdivision of the Variable Account. Each Subaccount invests
exclusively in the shares of a corresponding Portfolio of the Fund. Currently,
there are six Subaccounts: the Growth Subaccount (which invests exclusively in
the Growth Portfolio); the High Yield Subaccount (which invests exclusively in
the High Yield Portfolio); the Income Subaccount (which invests exclusively in
the Income Portfolio); the Opportunity Growth Subaccount (which invests
exclusively in the Opportunity Growth Portfolio); the World Growth Subaccount
(which invests exclusively in the World Growth Portfolio); and the Money
Market Subaccount (which invests exclusively in the Money Market Portfolio).
Valuation Date. Each day the New York Stock Exchange is open for trading and
any other day on which there is sufficient trading in the securities of a
Portfolio of the Fund such that the current net asset value of its shares
might be materially affected, in each case excluding July 5, the day after
Thanksgiving, and the day before Christmas.
Valuation Period. The period commencing at the close of business of a
Valuation Date and ending at the close of business of the next Valuation Date.
Variable Account. LBVIP Variable Annuity Account I, which is a separate
account of LBVIP. The Subaccounts are subdivisions of the Variable Account.
Written Notice. A written request or notice signed by the Contract Owner and
received by LBVIP at its Home Office.
SUMMARY FEE TABLE
The Contract Owner may allocate premiums and transfer Accumulated Value to any
one of six Subaccounts -- Growth, High Yield, Income , Opportunity Growth,
World Growth and Money Market -- or to the Fixed Account or to any combination
of the Subaccounts and the Fixed Account. The following table shows the
various fees and expenses associated with the Contract.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchase (as a percentage of purchase payments) 0%
Maximum Deferred Sales Load (as a percentage of Excess
Amount surrendered) 6%(1)
Exchange Fee 0%
Annual Contract Fee $30.00(2)
Annual Expenses For Growth, High Yield, Income, Money Market
and Opportunity Growth Subaccounts
(as a percentage of average daily Accumulated Value or Annuity Unit Value)
Mortality and Expense Risk Fees 1.10%(3)
Total Subaccount Annual Expenses 1.10%
Annual Expenses For Growth, High Yield, Income, Money Market
and Opportunity Growth Portfolios
(as a percentage of Portfolio average daily net assets)
Management Fees (Investment Advisory Fees) 0.40%(4)
Other Expenses After Expense Reimbursement 0%(5)
Total Portfolio Annual Expenses 0.40%
EXAMPLE (6)
1 year 3 years 5 years 10 years
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If you surrender or annuitize your
Contract at the end of the
applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $71 $88 $104 $181
If you do not surrender or annuitize
your Contract:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $15 $48 $83 $181
Annual Expenses For World Growth Subaccount
(as a percentage of average daily Accumulated Value or Annuity Unit Value)
Mortality and Expense Risk Fees 1.10%(3)
Total Subaccount Annual Expenses 1.10%
Annual Expenses For World Growth Portfolio
(as a percentage of Portfolio average daily net assets)
Management Fees (Investment Advisory Fees) 0.85%(4)
Other Expenses After Expense Reimbursement 0%(5)
Total Portfolio Annual Expenses 0.85%
EXAMPLE (6)
1 year 3 years 5 years 10 years
------ ------- ------- --------
If you surrender or annuitize your
Contract at the end of the
applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets $76 $101 $127 $230
If you do not surrender or annuitize
your Contract:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $20 $62 $106 $230
_________________
(1) See "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred Sales
Charge)". A surrender charge is deducted only if a full or partial surrender
occurs during the first six Contract Years; no surrender charge is deducted
for surrenders occurring in Contract Years seven and later. The surrender
charge will also be deducted at the time annuity payments begin, except under
certain circumstances. Up to 10% of the Accumulated Value existing at the time
the first surrender in a Contract Year is made may be surrendered without
charge; only the Excess Amount will be subject to a surrender charge. The
maximum charge is 6% of the Excess Amount and is in effect for the first
Contract Year. Thereafter, the surrender charge decreases by 1% each
subsequent Contract Year.
(2) See "CHARGES AND DEDUCTIONS--Administrative Charge". A $30 annual
administrative charge is deducted on each Contract Anniversary only if, on
that Contract Anniversary, the total of premiums paid under the Contract minus
all prior surrenders is less than $5,000. The $30 fee is a Contract charge and
is deducted proportionately from the Subaccounts and the Fixed Account that
make up the Contract's Accumulated Value.
(3) See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge".
(4) See "CHARGES AND DEDUCTIONS--Investment Advisory Fee of the Fund".
(5) The amount shown for Fund Annual Expenses does not reflect a deduction for
operating expenses of the Fund, other than the investment advisory fee,
because LBVIP and its affiliate, LB, have agreed to reimburse the Fund for
these operating expenses. For the fiscal year of the Fund ending December 31,
1995, the Fund was reimbursed approximately $1,886,225 for such operating
expenses. See "LBVIP, LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE
FUND--LB Series Fund, Inc.".
(6) In this example, the $30 annual administrative charge is approximated as a
.02% charge based on LBVIP's average contract size.
The purpose of the table is to assist the Contract Owner in understanding the
various costs and expenses that a Contract Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as the
Fund. Cross-references to the relevant sections of the Prospectus for more
complete descriptions of the various costs and expenses have been provided.
Premium taxes may be applicable depending on various states' laws.
THE EXAMPLE SHOWING EXPENSES FOR SURRENDERS AT 1, 3, 5 AND 10-YEAR PERIODS
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
The Contracts
Issuance of a Contract. The Contracts are individual flexible premium variable
annuity contracts issued by LBVIP. In order to purchase a Contract,
application must be made to LBVIP through a licensed LBVIP Representative, who
is also a registered representative of LBSC. The Contracts are offered only in
situations in which the Annuitant is eligible for membership in Lutheran
Brotherhood, unless otherwise required by state law. The Contracts may be sold
to or in connection with retirement plans which may or may not qualify for
special Federal tax treatment under the Internal Revenue Code. Annuity
payments under the Contracts are deferred until a selected later date.
The minimum amount LBVIP will accept as an initial premium is $600 on an
annualized basis. For Contracts issued in Texas, the minimum amount LBVIP will
accept as an initial premium is $5,000. LBVIP may, however, in its sole
discretion, waive such minimum initial premium requirements. Subsequent
premiums may be paid under the Contracts, but LBVIP may choose not to accept
any subsequent premium if it is less than $50.
Free Look Period. The Contract Owner has the right to return the Contract
within 10 days after such Contract Owner receives the Contract. See "THE
CONTRACTS--Free Look Period".
Allocation of Premiums. Premiums under the Contract may be allocated to one or
more Subaccounts of the Variable Account and to the Fixed Account as
designated by the Contract Owner. The assets of each Subaccount will be
invested solely in a corresponding Portfolio of the Fund--the Growth
Portfolio, the High Yield Portfolio, the Income Portfolio, the Opportunity
Growth Portfolio, the World Growth Portfolio, or the Money Market Portfolio.
See "LBVIP, LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE FUND" and "THE
CONTRACTS--Allocation of Premiums". The Accumulated Value of the Contract in
the Subaccounts and, except to the extent fixed amount annuity payments are
elected by the Contract Owner, the amount of annuity payments will vary,
primarily based on the investment experience of the Portfolios whose shares
are held in the Subaccounts designated. Premiums allocated to the Fixed
Account will accumulate at fixed rates of interest declared by LBVIP. (See
Appendix.) See "THE CONTRACTS--Accumulated Value; Accumulation Units and
Accumulation Unit Value".
On the date LBVIP approves the Contract Owner's application, LBVIP will
transfer from the general account the initial premium (after deduction of any
required premium taxes) and any interest accrued during the underwriting
period among the Subaccount(s) and/or Fixed Account according to the Contract
Owner's instructions. See "THE CONTRACTS--Allocation of Premiums." Subsequent
premiums will be allocated among the Subaccounts and the Fixed Account in the
same proportion as the initial premium, at the end of the Valuation Period in
which the subsequent premium is received by LBVIP. See "THE CONTRACTS--
Allocation of Premiums".
Surrenders. If a Written Notice from the Contract Owner requesting a surrender
is received on or before the Maturity Date, all or part of the Accumulated
Value of a Contract will be paid to the Contract Owner after deducting any
applicable surrender charge. Partial surrenders must be for at least $500, and
may be requested only if the remaining Accumulated Value is not less than
$1,000 ($5,000 for Contracts issued in the state of Texas). Under certain
circumstances the Contract Owner may make surrenders after the Maturity Date.
See "THE CONTRACTS--Surrender (Redemption)".
Transfers. On or before the Maturity Date the Contract Owner may request the
transfer of all or a part of a Contract's Accumulated Value to other
Subaccounts or to the Fixed Account. The total amount transferred each time
must be at least $500 (unless the total value in the Subaccount or the Fixed
Account is less than $500, in which case the entire amount may be
transferred). LBVIP reserves the right to limit the number of transfers in any
Contract Year, provided that at least two such transfers each Contract Year
will always be allowed. For Contracts issued in the state of Texas, the
maximum number of transfers allowed in any Contract Year is twelve. With
respect to the Fixed Account, transfers out of the Fixed Account are limited
to only one each Contract Year and must be made on or within 45 days after a
Contract Anniversary. After the Maturity Date, the Contract Owner may, by
Written Notice and only once each Contract Year, change the percentage
allocation of variable annuity payments among the available Subaccounts. See
"THE CONTRACTS--Transfers".
Charges and Deductions
The following charges and deductions are made in connection with the
Contracts:
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expense is deducted from premiums at the time premiums are paid. However, if a
Contract is surrendered in whole or in part before it has been in force for
six full Contract Years, a surrender charge is deducted from the amount
surrendered; provided that in each Contract Year, a Contract Owner may
surrender without a surrender charge up to 10% of a Contract's Accumulated
Value existing at the time the first surrender is made in that Contract Year.
The maximum charge is 6% of the Excess Amount and is in effect for the first
Contract Year. Thereafter, the surrender charge decreases by 1% each
subsequent Contract Year. In no event will the total surrender charge on any
one Contract exceed 6 1/2% of total gross premiums paid under the Contract.
The surrender charge will also be deducted at the time annuity payments begin
except as set forth under the heading "CHARGES AND DEDUCTIONS--Surrender
Charge (Contingent Deferred Sales Charge)".
Administrative Charge. On each Contract Anniversary prior to and including the
Maturity Date, LBVIP deducts an annual administrative charge of $30 from the
Accumulated Value of each Contract. (This charge will be lower to the extent
legally required in some states.) No such charge is deducted if on that
Contract Anniversary the total amount of premiums paid under the Contract,
less the amount of all prior partial surrenders (which includes the amount of
related surrender charges), is equal to or greater than $5,000.
Mortality and Expense Risk Charge. LBVIP deducts a daily mortality and expense
risk charge to compensate LBVIP for assuming certain mortality and expense
risks. The charge is deducted from the net assets of the Variable Account. The
charge is currently in an amount equal to an annual rate of 1.10%
(approximately 0.80% for mortality risk and approximately 0.30% for expense
risk) of the average daily net assets of each Subaccount in the Variable
Account. This charge is guaranteed not to increase above an annual rate of
1.25%.
Investment Advisory Fee of the Fund. Because the Variable Account purchases
shares of the Fund, the net assets of the Variable Account will reflect the
investment advisory fee incurred by the Fund. LB is paid a daily fee by the
Fund for its investment management services equal to an annual rate of 0.40%
of the aggregate average daily net assets of the Money Market, Income, High
Yield, Growth and Opportunity Growth Portfolios. LB also receives a daily
investment advisory fee from the Fund equal to .85% of the aggregate average
daily net assets of the World Growth Portfolio.
Premium Taxes. If state or other premium taxes are applicable to a Contract,
they will be deducted, depending on when such taxes are paid to the taxing
authority, either (a) from premiums as they are received, or (b) from the
Accumulated Value upon (i) a partial or total surrender of the Contract or
(ii) application of the Accumulated Value to a settlement option at the
Maturity Date.
For a more detailed description of these charges and deductions, see "CHARGES
AND DEDUCTIONS".
Annuity Provisions
The Contract Owner may select an annuity settlement option or options, and may
select whether payments are to be made on a fixed or variable (or a
combination of fixed and variable) basis. The Contract Owner may also elect to
receive a single sum by surrendering the Contract on the Maturity Date and
paying any applicable surrender charge. See "ANNUITY PROVISIONS".
Federal Tax Status
For a description of the Federal income tax status of annuities, see "FEDERAL
TAX STATUS -- Taxation of Annuities in General". Generally, a distribution
from a Contract before the taxpayer attains age 59 1/2 will result in a
penalty tax of 10% of the amount of the distribution which is includable in
gross income.
Condensed Financial Information
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction
with the financial statements, related notes and other financial information
included in the Statement of Additional Information.
Selected data for Accumulation Units outstanding throughout the period ending
December 31:
<TABLE>
<CAPTION>
Growth Subaccount
----------------------
1995 1994 1993 1992 1991 1990 1989 1988
----- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $17.95 $19.04 $17.49 $16.34 $11.70 $12.070 $9.671 $10.000*
End of period 24.38 17.95 19.04 17.49 16.34 11.70 12.070 9.671
Number of Accumulation
Units outstanding at
end of period 37,698,847 34,921,280 26,757,458 12,462,929 5,373,171 2,596,180 1,125,739 165,584
High Yield Subaccount
--------------------------
1995 1994 1993 1992 1991 1990 1989 1988
----- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $18.64 $19.71 $16.21 $13.66 $10.21 $10.709 $10.503 $10.000*
End of period 22.06 18.64 19.71 16.21 13.66 10.21 10.709 10.503
Number of Accumulation
Units outstanding at
end of period 28,924,180 28,230,326 21,866,400 9,227,427 3,720,209 2,148,885 1,490,329 248,206
Income Subaccount
----------------------
1995 1994 1993 1992 1991 1990 1989 1988
----- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $16.07 $17.05 $15.43 $14.29 $12.06 $11.402 $10.275 $10.000*
End of period 18.98 16.07 17.05 15.43 14.29 12.06 11.402 10.275
Number of Accumulation
Units outstanding at
end of period 33,922,942 34,668,366 32,678,803 16,151,473 6,753,120 3,405,565 1,573,113 208,911
Money Market Subaccount
--------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
----- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period 1.36 1.33 1.30 $1.27 $1.21 $1.137 $1.054 $1.000*
End of period 1.43 1.36 1.33 1.30 1.27 1.21 1.137 1.054
Number of Accumulation
Units outstanding at
end of period 28,959,961 23,631,217 17,939,270 19,709,050 15,364,799 13,983,957 6,831.477 1,708,264
- ----------
</TABLE>
*Commencing January 4, 1988, the date the Registration Statement for the
Variable Account was declared effective.
The financial statements of LBVIP are also contained in the Statement of
Additional Information.
Calculation of Performance
From time to time the Variable Account advertises the Money Market
Subaccount'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 Subaccount refers to the income generated by an investment in
the Subaccount 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 Subaccount 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 March
31, 1996, was 4.29% and 4.38%, respectively. For more information, see the
Statement of Additional Information.
Also, the Variable Account may advertise for the Subaccounts other than the
Money Market Subaccount a yield quotation based on a 30-day (or one month)
period computed by dividing the net investment income per Accumulation Unit
earned during the period (the net investment income earned by the Fund
portfolio attributable to shares owned by the Subaccount less expenses
incurred during the period) by the maximum offering price per Accumulation
Unit on the last day of the period. The current yield for the 30-day based
period ended December 31, 1995 for the High Yield Subaccount was 8.52%. The
current yield for the same 30-day base period for the Income Subaccount was
5.02%. For more information, see the
Statement of Additional Information.
From time to time, LBVIP may advertise the average annual total return
quotations for the Subaccounts for the 1, 5 and 10-year periods computed by
finding the average annual compounded rates of return over the 1, 5 and 10-
year periods 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. If the assumed investment was made less than 10 years
from the date of the quotation, the total return from the date of such
investment will be given.
The average annual total returns for the 1, 3 and 5-year periods through
December 31, 1995 and for the period from commencement of operations through
December 31, 1995 for the Subaccounts are as follows:
Commencement
1 Year 3 Year 5 Year of Operations
----- ------ ------ --------------
Growth Subaccount (3/8/88) 28.48%* 10.36%* 15.39%* 12.07%*
High Yield Subaccount (3/8/88) 11.92%* 9.46%* 16.24%* 10.64%*
Income Subaccount (3/8/88) 11.69%* 5.83%* 9.08%* 8.54%*
Money Market Subaccount (2/18/88) -1.09%* 1.79%* 2.87%* 4.61%*
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000. Inclusion of the administrative charge
would reduce the total return figures shown above. Assumes applicable sales
charge upon surrender. Premium taxes may apply depending on various states'
laws.
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 with the quoted periods. For more information, see the Statement of
Additional Information.
The Variable Account's performance reported from time to time in
advertisements and sales literature may be compared with that of other
insurance company separate accounts or mutual funds included in the generally
accepted indices, analyses or rankings prepared by Lipper Analytical Service,
Inc., Standard & Poor's Corporation, Morningstar, Inc., VARDS, Dow Jones or
similar independent rating or statistical investment services that monitor the
performance of insurance company separate accounts or mutual funds.
Performance of the Variable Account may be quoted or compared to rankings,
yields or returns as published or prepared by independent rating or
statistical services or publishers or publications such as THE BANK RATE
MONITOR NATIONAL INDEX, BARRON'S, BUSINESS WEEK, DONOGHUE'S MONEY MARKET FUND
REPORT, FINANCIAL SERVICES WEEK, FINANCIAL TIMES, FINANCIAL WORLD, FORBES,
FORTUNE, GLOBAL INVESTOR, INSTITUTIONAL INVESTOR, INVESTOR'S DAILY,
KIPLINGER'S PERSONAL FINANCE, LIPPER ANALYTICAL SERVICES, MONEY, MUTUAL FUND
FORECASTER, NEWSWEEK, THE NEW YORK TIMES, PERSONAL INVESTOR, STANGER REPORT,
SYLVIA PORTER'S PERSONAL FINANCE, USA TODAY, U.S. NEWS AND WORLD REPORT, THE
WALL STREET JOURNAL and WIESENBERGER INVESTMENT COMPANIES SERVICE.
LBVIP, LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT
AND THE FUND
LBVIP and Lutheran Brotherhood
The Contracts are issued by LBVIP. LBVIP, organized in 1982, is a stock life
insurance company incorporated under the laws of the State of Minnesota. LBVIP
is currently licensed to transact life insurance business in 42 states and the
District of Columbia.
LBVIP is an indirect subsidiary of Lutheran Brotherhood, a fraternal benefit
society owned by and operated for its members. Lutheran Brotherhood was
founded in 1917 under the laws of the State of Minnesota, and at the end of
1995 had total assets of over $10.9 billion.
Lutheran Brotherhood has invested approximately $120.8 million in LBVIP, to
help LBVIP meet capitalization requirements of various states, and may invest
additional amounts in LBVIP in the future (though it is not currently legally
obligated to do so). The assets of Lutheran Brotherhood do not support the
benefits payable under the Contracts described in this Prospectus.
LBVIP 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 submits annual reports on its
operations and finances to insurance officials in such states and
jurisdictions. The forms of Contracts described in this Prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold. LBVIP is also subject to certain
Federal securities laws and regulations.
The Variable Account
The Variable Account is a separate account of LBVIP, established by the Board
of Directors of LBVIP in 1987 pursuant to the laws of the State of Minnesota.
The Variable Account meets the definition of a "separate account" under the
federal securities laws. LBVIP has caused the Variable Account to be
registered with the Securities and Exchange Commission (the "SEC") as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
Such registration does not involve supervision by the SEC of the management or
investment policies or practices of the Variable Account.
The assets of the Variable Account are owned by LBVIP, and LBVIP is not a
trustee with respect to such assets. However, the Minnesota laws under which
the Variable Account was established provide that the Variable Account shall
not be chargeable with liabilities arising out of any other business LBVIP may
conduct. LBVIP may transfer to its general account assets of the Variable
Account which exceed the reserves and other liabilities of the Variable
Account.
Income and realized and unrealized gains and losses from each Subaccount of
the Variable Account are credited to or charged against that Subaccount
without regard to any of LBVIP's other income, gains or losses. LBVIP may
accumulate in the Variable Account the charge for expense and mortality risk,
mortality gains and losses and investment results applicable to those assets
that are in excess of net assets supporting the Contracts.
LB Series Fund, Inc.
Each Contract Owner may allocate the premiums paid under the Contract to one
or more of the six Subaccounts of the Variable Account -- the Growth
Subaccount, the High Yield Subaccount, the Income Subaccount, the Opportunity
Growth Subaccount, the World Growth Subaccount and the Money Market
Subaccount. The assets of each such Subaccount will be invested in the
corresponding Portfolio (the Growth Portfolio, the High Yield Portfolio, the
Income Portfolio, the Opportunity Growth Portfolio, the World Growth Portfolio
or the Money Market Portfolio) of the Fund. The investment objectives of the
Portfolios of the Fund (individually a "Portfolio" and collectively 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.
High Yield Portfolio. To achieve a higher level of income through a
diversified portfolio of high yield securities ("junk bonds") which involve
greater risks than higher quality investments, while also considering 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.
Opportunity Growth Portfolio. To achieve long term growth of capital by
investing primarily in a professionally managed diversified portfolio of
smaller capitalization common stocks.
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.
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.
No assurance can be given that the Portfolios of the Fund will achieve their
respective investment objectives.
Shares of the Fund purchased by each Subaccount of the Variable Account will
be held by LBVIP as custodian for the Variable Account.
The Fund is designed to provide an investment vehicle for variable annuity and
variable life insurance contracts. Shares of the Fund will be sold to other
insurance company separate accounts of LBVIP and separate accounts of its
indirect parent, Lutheran Brotherhood ("LB"), and the Fund may in the future
create new portfolios. It is conceivable that in the future it may be
disadvantageous for both variable annuity separate accounts and variable life
insurance separate accounts and for LBVIP and LB to invest simultaneously in
the Fund, although LBVIP does not foresee any such disadvantages to either
variable annuity or variable life insurance 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. Such action could include the sale of Fund shares by one or
more of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in Federal income tax law, (3) changes in the investment
management of the Fund, or (4) differences in voting instructions between
those given by the contract owners from the different separate accounts. In
addition, if LBVIP believes the Fund's response to any of those events or
conflicts insufficiently protects Contract Owners, it will take appropriate
action on its own.
The Fund is registered with the SEC under the 1940 Act as a diversified, open-
end management investment company (commonly called a "mutual fund"). This
registration does not involve supervision by the SEC of the management or
investment practices or policies of the Fund. Shares of the Fund may be sold
to other separate accounts, and the Fund may in the future create new
Portfolios.
The Variable Account will purchase and redeem shares from the Fund at net
asset value. Shares will be redeemed to the extent necessary for LBVIP to
collect charges under the Contracts, to make payments upon surrenders, to
provide benefits under the Contracts, or to transfer assets from one
Subaccount to another as requested by Contract Owners. Any dividend or capital
gain distribution received from a Portfolio of the Fund will be reinvested
immediately at net asset value in shares of that Portfolio and retained as
assets of the corresponding Subaccount.
The Fund receives investment advice with respect to each of its Portfolios
from LB, which acts as investment adviser to the Fund. LB is a registered
investment adviser under the Investment Advisers Act of 1940. Lutheran
Brotherhood Research Corp. ("LBRC"), an indirect subsidiary of Lutheran
Brotherhood, acted as investment adviser to the Fund until January 1994, when
it was replaced by LB. LBRC provided investment advisory services to the Fund
using personnel and services provided by LB. As investment adviser to the
Fund, LB charges 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, and Opportunity Growth Portfolios. LB also
charges the Fund an annual investment advisory fee equal to .85% of the
aggregate average daily net assets of the World Growth Portfolio.
The Fund has entered into an Investment Advisory Agreement with LB under which
LB 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. LB also furnishes at its own expenses 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 LB or its
affiliates, 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. LB and LBVIP
have agreed with the Fund to pay, or to reimburse the Fund for the payment of,
all of the foregoing expenses and all other expense associated with operating
the Fund pursuant to a separate written agreement (the "Expense Reimbursement
Agreement"). The Expense Reimbursement Agreement could be terminated at any
time by the mutual agreement of the Fund, LB and LBVIP, but the Fund and LB
and LBVIP currently contemplate that the Expense Reimbursement Agreement will
continue so long as the Fund remains in existence. If the Expense
Reimbursement Agreement were terminated, the Fund would be required to pay
those operating expenses, which would reduce the net investment return on the
shares of the Fund held by the Subaccounts of the Variable Account.
LB has engaged Rowe Price-Fleming International, Inc., ("Price-Fleming") as
investment sub-adviser 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. Price-Fleming is one of the world's largest
international mutual fund asset managers with approximately $20 billion under
management as of December 31, 1995 in its offices in Baltimore, London, Tokyo
and Hong Kong. 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.
LB pays the Sub-adviser 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 that Portfolio's average daily net assets. The percentage
varies with the size of the Portfolio's net assets, decreasing as the
Portfolio's assets increase. The formula for determining the sub-advisory fee
is described fully in the prospectus for the Fund.
Each Contract Owner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Fund's various Portfolios. A full description of
the Fund, its investment objectives, policies and restrictions, its expenses,
the risks attendant to investing in the Fund's Portfolios and other aspects of
its operation is contained in the accompanying Prospectus for the Fund, which
should be carefully read together with this Prospectus.
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 a
Contract interest in a Subaccount of the Variable Account without notice and
prior approval of the SEC and state insurance authorities, to the extent
required by 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. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by LBVIP.
If any of these substitutions or changes are made, LBVIP may by appropriate
endorsement change the Contract to reflect the substitution or change. If
LBVIP deems it to be in the best interest of Contract Owners and Annuitants,
and subject to any approvals that may be required under applicable law, the
Variable Account may be operated as a management company under the 1940 Act,
it may be deregistered under that Act if registration is no longer required,
or it may be combined with other LBVIP separate accounts.
THE CONTRACTS
Issuance of a Contract
In order to purchase a Contract, application must be made to LBVIP through a
licensed LBVIP Representative, who is also a registered representative of
LBSC. LBVIP is offering Contracts only in situations in which the Annuitant is
eligible for membership in Lutheran Brotherhood, unless otherwise required by
state law. Contracts may be sold to or in connection with retirement plans
which may or may not be Qualified Plans. LBVIP reserves the right to reject an
application for any reason permitted by law.
The minimum amount LBVIP will accept as an initial premium is $600 on an
annualized basis. For Contracts issued in the state of Texas, the minimum
amount LBVIP will accept as an initial premium is $5,000. LBVIP may, however,
in its sole discretion, waive such minimum initial premium requirements.
Subsequent premiums may be paid under the Contracts, but LBVIP may choose not
to accept any subsequent premium if it is less than $50.
Free Look Period
The Contract provides for an initial "free look" period. The Contract Owner
has the right to return the Contract within 10 days after such Contract Owner
receives the Contract. When LBVIP receives the returned Contract at its Home
Office, it will be cancelled and LBVIP will refund to the Contract Owner an
amount equal to the sum of (i) the Accumulated Value (as of the date the
returned Contract is received by LBVIP at its Home Office or by the LBVIP
Representative from whom the Contract was purchased) plus (ii) the amount of
any charges made for premium taxes plus (iii) the amount attributable to the
Contract for mortality and expense risk charges and taxes, if any, deducted
from the Variable Account plus (iv) the advisory fees charged by the Fund
against the net asset value in the Fund Portfolios attributable to the
Contract's value in the corresponding Subaccounts of the Variable Account. If,
however, applicable state law so requires, the full amount of any premium
received by LBVIP will be refunded.
For Contracts issued in Pennsylvania, when LBVIP receives the returned
Contract at its Home Office, it will be canceled and LBVIP will refund to the
Contract Owner an amount equal to the sum of (i) the difference between the
premiums paid and the amount allocated to the Variable and Fixed Accounts plus
(ii) the Accumulated Value on the day the Contract is received by the LBVIP
Representative from whom the Contract was purchased.
With respect to individual retirement annuities, under the Employee Retirement
Income Security Act of 1974 ("ERISA") a Contract Owner establishing an
Individual Retirement Account must be furnished with a disclosure statement
containing certain information about the Contract and applicable legal
requirements. This statement must be furnished on or before the date the
individual retirement annuity is established. If the Contract Owner is
furnished with such disclosure statement before the seventh day preceding the
date the individual retirement annuity is established, the Contract Owner will
not have any right of revocation under ERISA. If the disclosure statement is
furnished after the seventh day preceding the establishment of the individual
retirement annuity, then the Contract Owner may give a notice of revocation to
LBVIP at any time within seven days after the Date of Issue. Upon such
revocation, LBVIP will refund the premiums paid by the Contract Owner. The
foregoing right of revocation with respect to an individual retirement annuity
is in addition to the return privilege set forth in the preceding paragraph,
i.e., LBVIP will allow a participant establishing an individual retirement
annuity a "ten day free-look", notwithstanding the provisions of ERISA.
Allocation of Premium
Until the date LBVIP approves the Contract Owner's application, the initial
premium will be deposited into LBVIP's general account. Interest will be
credited on the initial premium held in LBVIP's general account at a rate of
interest determined by LBVIP. On the date LBVIP approves the Contract Owner's
application, LBVIP will add this accumulation amount to the initial premium
and allocate this amount (after deduction of any required premium taxes) among
the Subaccount(s) and/or the Fixed Account according to the Contract Owner's
instructions. If the Date of Issue and the date of acceptance by LBVIP are the
same day, then the initial premium payment will be immediately allocated among
the chosen Subaccount(s) and/or Fixed Account according to the Contract
Owner's instructions.
This initial premium allocation procedure is designed as a way to give the
Contract Owner interest on the initial premium from the Date of Issue to the
date LBVIP approves the Contract Owner's application, with the interest
payment being paid by LBVIP. Other Contract Owners' interests will not be
adversely affected by this initial premium allocation procedure, because
LBVIP, and not the existing Contract Owners, will bear any expenses in
effecting the procedure, including the expense of crediting the interest
accumulations.
If the application is determined to be in good order, LBVIP will allocate the
premium payment (after deduction of any required premium taxes) to the chosen
subaccount and/or Fixed Account within two days of receipt of the completed
application and premium payment. If the application is determined by LBVIP not
to be in good order, LBVIP will attempt to complete the application within
five business days. If the application is not complete at the end of this
period, LBVIP will inform the applicant of the reason for the delay and that
the initial premium will be returned immediately unless the applicant
specifically consents to LBVIP keeping the initial premium until the
application is complete.
The percentages of each premium that may be allocated to any Subaccount of the
Variable Account or the Fixed Account must be in whole numbers and the sum of
the allocation percentages must be 100%. LBVIP reserves the right to adjust
allocation percentages to eliminate fractional percentages. Subsequent
premiums will be allocated among the Subaccounts and the Fixed Account in the
same proportion as the initial premium, at the end of the Valuation Period in
which the subsequent premium is received by LBVIP. The allocation proportion
for future premiums may, however, be changed without charge at any time by
providing LBVIP with Written Notice or by telephone (if the Contract Owner has
completed the Telephone Transaction Authorization Form). Premiums paid
thereafter will be allocated in the manner provided in such changed
instruction, unless another change is subsequently requested.
The values in the Subaccounts of the Variable Account will vary with the
investment experience of the Subaccounts and the Contract Owner bears the
entire investment risk. Contract Owners should periodically review their
allocations of premiums in light of market conditions and the Contract Owner's
overall financial objectives.
Accumulated Value; Accumulation Units and Accumulation Unit Value
The Accumulated Value of the Contract is the total amount of value held under
the Contract at any time prior to and including the Maturity Date. A
Contract's Accumulated Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any amount of value in the Fixed
Account, any premiums paid, any surrenders, and any charges assessed in
connection with the Contract. There is no guaranteed minimum Accumulated
Value, and, because a Contract's Accumulated Value on any future date depends
upon a number of variables, it cannot be predetermined.
Calculation of Accumulated Value. The Accumulated Value of the Contract is
determined on each Valuation Date. The Contract's Accumulated Value will be
the aggregate of the values attributable to the Contract in each of the
Subaccounts, determined for each Subaccount by multiplying the Subaccount's
Accumulation Unit Value on the relevant Valuation Date by the number of
Subaccount Accumulation Units allocated to the Contract, plus any amounts in
the Fixed Account.
Determination of Number of Accumulation Units. Any amounts allocated to the
Subaccounts will be converted into Accumulation Units of the Subaccount. The
number of Accumulation Units to be credited to the Contract is determined by
dividing the dollar amount being allocated by the Accumulation Unit Value as
of the end of the Valuation Period during which the amount was allocated. The
number of Subaccount Accumulation Units in any Subaccount will be increased by
(i) any premiums allocated to the Subaccount during the current Valuation
Period, and (ii) any Accumulated Value transferred to the Subaccount from
another Subaccount or from the Fixed Account during the current Valuation
Period. The number of Subaccount Accumulation Units in any Subaccount will be
decreased by (i) any Accumulated Value transferred from the Subaccount to
another Subaccount or to the Fixed Account during the current Valuation
Period, (ii) the amount of any partial surrender (including any related
surrender charge and any charge for premium taxes) during the current
Valuation Period, and (iii) any administrative charge taken from the
Subaccount during the current Valuation Period.
The Accumulation Unit Value is determined before any Contract transactions on
the Valuation Date that would affect the number of Subaccount Accumulation
Units (see the immediately preceding paragraph). If the Contract's Accumulated
Value in the Variable Account is to be calculated for a day that is not a
Valuation Date, the next following Valuation Date will be used.
Determination of Accumulation Unit Value. The Accumulation Unit Value for a
Subaccount is calculated on each Valuation Date by dividing (1) by (2), where
(1) is the net result of:
(a) the net asset value of the corresponding Portfolio of the Subaccount at
the end of the current Valuation Period, plus
(b) the amount of any dividend or capital gain distribution declared by the
Portfolio if the "ex-dividend" date occurs during the Valuation Period, plus
or minus
(c) a charge or credit for any taxes reserved which LBVIP determines to be a
result of the investment operation of the Portfolio, minus
(d) the mortality and expense risk charge (see "CHARGES AND DEDUCTIONS--
Mortality and Expense Risk Charge") for each day during the current Valuation
Period (a current charge of .003014%, but never to exceed .003425%, of the net
assets for each day during the current Valuation Period), and
(2) is the number of Accumulation Units for the Subaccount attributable to all
Contracts, including Accumulation Units held as reserves.
Death Benefit Before the Maturity Date
If the Annuitant, who is the Contract Owner unless another owner is named in
the application, dies before the Maturity Date, the Beneficiary will be
entitled to receive a death benefit under the Contract calculated on the later
of (a) the date LBVIP receives proof of the Annuitant's death and (b) the date
LBVIP receives a written request from the Beneficiary for either a single sum
payment or a settlement option. If no such request is made within one year
from the date of the Annuitant's death, the Beneficiary will be deemed to have
requested a single sum payment. Any proceeds not subsequently withdrawn will
be paid in a lump sum on the date five years after the date of death. (If the
Beneficiary is the spouse of the deceased Contract Owner, such spouse may, to
the extent permitted by law, elect to continue the Contract in force, in which
case such spouse shall become and be treated as the Annuitant.)
Amount of Death Benefit. If a death benefit has become payable under a
Contract as described above, the amount of the death benefit will be the
greatest of (i) the Accumulated Value calculated on the later of the date
LBVIP receives the proof of death and the written request referred to above,
(ii) the sum of the premiums received by LBVIP under the Contract to the date
of such receipt, less any previous partial surrenders (including any
applicable charges); and (iii) the Accumulated Value on the preceding Minimum
Death Benefit Date plus the sum of premiums received by LBVIP since that date,
less the amount of any partial surrenders since then (including any applicable
charges).
Manner of Payment -- Contracts Not Issued in Connection with Certain Qualified
Plans. If the Contract in question was not issued in connection with a
Qualified Plan, the following rules govern the manner of payment of the death
benefit if the Annuitant dies before the Maturity Date:
(a) if a single sum is requested, the death benefit will be paid within seven
days after the day LBVIP receives the proof of death and written request
referred to above under "Amount of Death Benefit"; or
(b) if a settlement option is requested, (i) it must be a settlement option
that the Contract Owner could have selected before the Maturity Date, and (ii)
the settlement option must provide that the entire amount due under the
Contract will be distributed (1) within five years from the date of death, or
(2) over the life of the Beneficiary or for a period not in excess of the
Beneficiary's life expectancy, provided that the distributions must begin
within one year from the date of death.
Manner of Payment -- Contracts Issued in Connection with Qualified Plans. If
the Contract in question was issued in connection with a Qualified Plan,
certain restrictions on the manner of payment of the death benefit prior to
the Maturity Date, similar to those described above under "Manner of Payment -
- - Contracts Not Issued in Connection with Certain Qualified Plans", are
applicable. The manner of payment of such death benefit under a Contract
issued in connection with a Qualified Plan will be stated in the Contract or
the plan documents. Purchasers acquiring Contracts pursuant to Qualified Plans
should consult qualified pension or tax advisers.
Death Benefit After the Maturity Date
If the Annuitant dies after the Maturity Date, the death benefit shall be as
stated in the settlement option in effect, provided, however, that death
benefit payments must be paid at least as rapidly as payments were being paid
under the settlement option in effect on the date of death. With respect to a
Contract issued in connection with a Qualified Plan, certain additional
restrictions on the manner of payment of the death benefit after the Maturity
Date, similar to those described above under "Death Benefit Before the
Maturity Date -- Manner of Payment -- Contracts Not Issued in Connection with
Certain Qualified Plans", are also applicable.
Surrender (Redemption)
If a Written Notice from the Contract Owner requesting a surrender is received
by LBVIP on or before the Maturity Date, all or part of the Accumulated Value
will be paid to the Contract Owner after deducting any applicable surrender
charge and any applicable premium tax (see "CHARGES AND DEDUCTIONS--Surrender
Charge (Contingent Deferred Sales Charge)").
A surrender will take place at the end of the Valuation Period during which
the requirements for surrender are completed and payment will be made within
seven days after such surrender. If a surrender is partial, the surrender
payments will be taken proportionately from all Subaccounts and the Fixed
Account on a basis that reflects their proportionate percentage of the
Accumulated Value. The Contract Owner may select a different allocation basis
with LBVIP's approval. Partial surrenders must be for at least $500, and may
be requested only if the remaining Accumulated Value is not less than $1,000
($5,000 for Contracts issued in the state of Texas).
Except for Contracts issued in the state of Texas, LBVIP may cancel the
Contract on any Contract Anniversary if (a) the Accumulated Value after all
charges is less than $1,000 and no premium payments have been made under the
Contract within the last 24 months or (b) the Accumulated Value as of the
Contract Anniversary is less than the administrative charge (see "CHARGES AND
DEDUCTIONS--Administrative Charge"). LBVIP will notify the Contract Owner 60
days before such Contract Anniversary and provide the Contract Owner the
minimum dollar amount required to keep the Contract in force. Failure to make
sufficient payment will result in cancellation of the Contract on the Contract
Anniversary. If such Contract Anniversary is not a Valuation Date, then the
Accumulated Value will be determined on the next Valuation Date. Upon
cancellation under (a) above, LBVIP will pay the Contract Owner the
Accumulated Value as of such Valuation Date.
After the Maturity Date, certain of the available settlement options (those
that do not involve a life contingency) also permit surrenders by the Contract
Owner. In such cases, the amount available for surrender is the commuted value
of any unpaid annuity installments, computed on the basis of the assumed
interest rate incorporated in such annuity installments. However, a surrender
charge is deducted at the time of annuitization if these settlement options
are selected (see "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent
Deferred Sales Charge")).
Consideration should be given to the tax implications of a surrender prior to
making a surrender request. See "FEDERAL TAX STATUS--Taxation of Annuities in
General".
Transfers
On or before the Maturity Date, the Contract Owner may request by Written
Notice (or by telephone if the Contract Owner has completed the Telephone
Transaction Authorization Form) the transfer, subject to any conditions the
Portfolio whose shares are involved may impose, of all or a part of a
Contract's Accumulated Value among the Subaccounts of the Variable Account and
the Fixed Account. The transfer will be made by LBVIP without charge on the
day Written Notice (or telephonic instructions) requesting such transfer is
received by LBVIP. To accomplish the transfer from the Variable Account, the
Variable Account will surrender Accumulation Units in the particular
Subaccounts and reinvest that value in Accumulation Units of other particular
Subaccounts and the Fixed Account as directed in the request. The total amount
transferred each time must be at least $500 (unless the total value in a
Subaccount of the Variable Account or the Fixed Account is less than $500, in
which case the entire amount may be transferred). LBVIP reserves the right to
limit the number of transfers in any Contract Year, provided that at least two
such transfers each Contract Year will always be allowed. (For Contracts
issued in the state of Texas, the maximum number of transfers allowed in any
Contract Year is twelve.) With respect to the Fixed Account, transfers out of
the Fixed Account are limited to only one during each Contract Year and must
be made on or within 45 days after a Contract Anniversary. To accomplish a
transfer from the Fixed Account, the Fixed Account will surrender Accumulated
Value from the Fixed Account and reinvest that value in Accumulation Units of
particular Subaccounts of the Variable Account as directed in the request.
After the Maturity Date, the Contract Owner may, by Written Notice and only
once each Contract Year, change the percentage allocation of variable annuity
payments among the available Subaccounts.
Telephone Transfers
Telephone transfers are available when the Contract Owner completes the
Telephone Transaction Authorization Form. If the Contract Owner elects to
complete the Telephone Transaction Authorization Form, the Contract Owner
thereby agrees that LBVIP, its agents and employees will not be liable for any
loss, liability cost or expense when LBVIP, its agents and employees act in
accordance with the telephone transfer instructions that have been properly
received and recorded on voice recording equipment. If a telephone
authorization or instruction, processed after the Contract Owner has completed
the Telephone Transaction Authorization Form, is later determined not to have
been made by the Contract Owner or was made without the Contract Owner's
authorization, and a loss results from such unauthorized instruction, the
Contract Owner bears the risk of this loss. LBVIP will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
In the event LBVIP does not employ such procedures, LBVIP may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring forms of personal identification prior to
acting upon telephone instructions, providing written confirmation of such
instructions and/or tape recording telephone instructions.
Special Transfer Service -- Dollar Cost Averaging
LBVIP administers a dollar cost averaging program which enables a Contract
Owner to pre-authorize a periodic exercise of the transfer rights described
above. A Contract Owner entering into a dollar cost averaging agreement will
instruct LBVIP to periodically transfer predetermined dollar amounts from the
Money Market Subaccount to as many of the five other Subaccounts or to the
Fixed Account as specified by the Contract Owner until the amount in the Money
Market Subaccount is exhausted or the agreement is terminated by the Contract
Owner. The dollar cost averaging program is generally suitable for Contract
Owners making a substantial deposit to the Contract and who wish to use the
other Subaccounts or the Fixed Account investment option, but desire to
control the risk of investing at the top of a market cycle. The dollar cost
averaging program allows such investments to be made in equal installments
over time in an effort to reduce such risk. Dollar cost averaging does not
guarantee that the Variable Account will gain in value, nor will it protect
against a decline in value if market prices fall. However, if a Contract Owner
can continue to invest regularly throughout changing market conditions, it can
be an effective strategy to help meet long-term goals. Contract Owners
interested in the dollar cost averaging program may obtain an application and
full information concerning the program and its restrictions from LBVIP.
Assignments
If the Contract is used in a Qualified Plan and the Contract Owner is a trust,
custodian or employer, then the Contract Owner may transfer ownership to the
Annuitant. Otherwise, the Contract may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for performance of an
obligation or for any other purpose to any person other than LBVIP.
If the Contract is not used in a Qualified Plan, then ownership may be
transferred, but not to a natural person, and the Contract may be assigned as
Collateral.
LBVIP shall not be bound by any sale, assignment, pledge or transfer until
Written Notice thereof is actually received by LBVIP at its Home Office and
shall not be responsible for the validity of any sale, assignment, pledge or
transfer. Any payments made or actions taken by LBVIP before LBVIP actually
receives Written Notice shall not be affected by the sale, assignment, pledge
or transfer.
Considerations should be given to the tax implications of an assignment. See
"FEDERAL TAX STATUS--Taxation of Annuities in General".
Contract Owner, Beneficiaries and Annuitants
Unless another owner is named as the Contract Owner in the application for the
Contract, the Annuitant is the Contract Owner and may exercise all of the
Contract Owner's rights under the Contract.
The Contract Owner may name a Beneficiary to receive the death benefit payable
under the Contract. If the Beneficiary is not living on the date payment is
due or if no Beneficiary has been named, the death benefit will be paid to the
estate of the Annuitant.
The Contract Owner may change the Beneficiary by giving LBVIP Written Notice
of the change, but the change shall not be effective until actually received
by LBVIP at its Home Office. Upon receipt by LBVIP of a notice of change, it
will be effective as of the date it was signed but shall not affect any
payments made or actions taken by LBVIP before LBVIP received the Written
Notice, and LBVIP shall not be responsible for the validity of any change.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
General. No charge for sales expense is deducted from premiums at the time
premiums are paid. However, within certain time limits described below a
surrender charge is deducted from the Accumulated Value of the Contract in the
case of surrender, in whole or in part, before annuity payments begin and, if
certain settlement options are selected, at the time annuity payments begin.
In the event surrender charges are not sufficient to cover sales expenses, the
loss will be borne by LBVIP; conversely, if the amount of such charges proves
more than enough, the excess will be retained by LBVIP (see "Sufficiency of
Charges" below). LBVIP does not currently believe that the surrender charges
imposed will cover the expected costs of distributing the Contracts.
If a Contract is surrendered in whole or in part before it has been in force
for six full Contract Years, a surrender charge is deducted from the amount
surrendered; provided that in each Contract Year, a Contract Owner may
surrender without a surrender charge, up to 10% of a Contract's Accumulated
Value existing at the time the first surrender is made in that Contract Year.
For example, if a total surrender is made during a Contract Year in which a
partial surrender has been made, the Contract Owner may surrender free of
charge an amount equal to 10% of the Accumulated Value of the Contract at the
time of the partial surrender less the total of the partial surrender to which
no charge was applied. This right is not cumulative from Contract Year to
Contract Year. In the event that a surrender is made in excess of the amount
which may be surrendered free of charge, only the excess (the "Excess Amount")
will be subject to a surrender charge.
The charge is applied as a percentage of the Excess Amount surrendered, but in
no event will the total surrender charge on any one Contract exceed a maximum
limit of 6 1/2% of total gross premiums paid under the Contract. Such total
charge equals the aggregate of all applicable surrender charges for total and
partial surrenders, including any charges deducted at the time annuity
payments begin (as described below).
Charges for Total and Partial Surrenders. If a Contract is surrendered, in
whole or in part, while the Contract is in force and on or before the Maturity
Date, a surrender charge is imposed on the Excess Amount of such surrender if
such surrender occurs before the Contract has been in force for six full
Contract Years as follows:
Contract Year in which
Total or Partial Charge as Percentage of
Surrender Occurs Excess Amount Surrendered*
----------------------- -------------------------
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
____________________
* Although the charge as a percentage of excess amount surrendered decreases
from 6% to 0 over time, the actual aggregate amount of surrender charge
deducted may be up to the 6 1/2% of total gross premiums paid maximum limit
described above.
For purposes hereof, the amount surrendered is equal to the amount of the
surrender request, and the amount received by the Contract Owner is equal to
the amount of the surrender request less the applicable surrender charge and
any withholding and premium tax if applicable.
No surrender charge is deducted if the surrender occurs after expiration of
the time period applicable to such charge as shown in the table above.
Surrender charges otherwise payable will be waived with respect to surrenders
made by the Contract Owner when the Annuitant is totally disabled (as defined
in the Contract).
Certain surrenders are subject to a 10% Federal tax penalty on the amount of
income withdrawn (see "FEDERAL TAX STATUS--Taxation of Annuities in General").
Charge at the Time Annuity Payments Begin. Generally, at the time annuity
payments begin, a surrender charge as described above will apply. Such charge
is the same as that which would apply had the Contract been fully surrendered
on the Maturity Date, taking into account the 10% free surrender provision
described above and subject to the maximum 6 1/2% limitation described above.
If, however, the Contract Owner has chosen a settlement option providing an
income for a fixed period (e.g., Option 3V described under "ANNUITY
PROVISIONS--Settlement Options"), for any annuitization made more than three
years after the Date of Issue, no surrender charge will be deducted from the
portion of Accumulated Value annuitized provided that payments under such a
settlement option will be made for at least five years and that proceeds may
not be withdrawn. This surrender charge will be waived if the Annuitant is
totally disabled (as defined in the Contract) on the Maturity Date. No further
surrender charge is deducted with respect to surrenders during the annuity
period under such a settlement option.
No surrender charge is imposed at the time of annuitization (if annuitization
occurs more than three years after the Date of Issue) if a settlement option
involving a life income with a guaranteed period is chosen (e.g., Option 4V
described under "ANNUITY PROVISIONS--Settlement Options"), but surrenders are
not permitted during the annuity period under such a settlement option.
Administrative Charge
On each Contract Anniversary prior to and including the Maturity Date, LBVIP
deducts from the Accumulated Value, proportionately from the Subaccounts and
the Fixed Account that make up such Accumulated Value, an annual
administrative charge of $30 to reimburse LBVIP for administrative expenses
relating to the Contract, the Variable Account and the Subaccounts. (This
charge will be lower to the extent legally required in some states.) Subject
to LBVIP's approval, the Contract Owner may specify a different allocation for
the administrative charge. No such charge is deducted if on that Contract
Anniversary the total amount of premiums paid under the Contract, less the
amount of all prior partial surrenders (which includes the amount of related
surrender charges), is equal to or greater than $5,000. LBVIP does not expect
to make a profit on this charge. No administration charge is payable during
the annuity period.
Mortality and Expense Risk Charge
The variable annuity payments made to Annuitants will vary in accordance with
the investment experience of the Subaccounts selected by the Contract Owner.
However, neither such variable annuity payments, nor fixed annuity payments if
fixed annuity payments have been selected, will be affected by the mortality
experience (death rate) of persons receiving annuity payments. LBVIP assumes
this "mortality risk" and has guaranteed the annuity rates incorporated in the
Contract, which cannot be changed. LBVIP also assumes the mortality risk that
Beneficiaries of Contract Owners or Annuitants dying before the Maturity Date
may receive amounts in excess of the then current Accumulated Value (see "THE
CONTRACTS--Death Benefit Before the Maturity Date"). In addition, LBVIP will
not increase charges for administrative expenses regardless of its actual
expenses.
To compensate LBVIP for assuming such mortality and expense risks, LBVIP
deducts a daily mortality and expense risk charge from the average daily net
assets in the Variable Account. LBVIP has determined that a mortality and
expense risk charge at an annual rate of 1.25% of the average daily net assets
of each Subaccount in the Variable Account would be reasonable in relation to
the mortality and expense risks assumed by LBVIP under the Contract. LBVIP
will, however, initially impose a daily mortality and expense risk charge in
an amount that is equal to an annual rate of 1.10% (approximately 0.80% for
mortality risk and approximately 0.30% for expense risk) of the average daily
net assets of each Subaccount in the Variable Account. The mortality and
expense risk charge is guaranteed not to increase above an annual rate of
1.25%.
If the mortality and expense risk charge is insufficient to cover the actual
cost of the mortality and expense risk undertaken by LBVIP, LBVIP will bear
the loss. Conversely, if the mortality and expense risk charge proves more
than sufficient, the excess will be profit to LBVIP and would be available for
any proper corporate purpose including, among other things, payment of sales
expenses. See "Sufficiency of Charges" below.
Investment Advisory Fee of the Fund
Because the Variable Account purchases shares of the Fund, the net assets of
the Variable Account will reflect the investment advisory fee incurred by the
Fund. LB is paid a daily fee by the Fund for its investment management
services equal to an annual rate of 0.40% of the aggregate average daily net
assets of the Money Market Portfolio, Growth Portfolio, Income Portfolio, High
Yield Portfolio and Opportunity Growth Portfolio, and .85% of the aggregate
average daily net assets of the World Growth Portfolio. See "LBVIP, LUTHERAN
BROTHERHOOD, THE VARIABLE ACCOUNT AND THE FUND--LB Series Fund, Inc.", and the
accompanying current Prospectus for the Fund.
Premium Taxes
A charge may be deducted for taxes attributable to premiums. Premium taxes
vary from state to state and are subject to change. In many jurisdictions,
there is no tax at all. Various states and other governmental entities levy a
premium tax, currently ranging from 1% to 3.5%, on annuity contracts issued by
insurance companies. If premium taxes are applicable to a Contract, they will
be deducted, depending on when such taxes are paid to the taxing authority,
either (a) from premiums as they are received, or (b) from the Accumulated
Value upon (i) a partial or total surrender of the Contract or (ii)
application of the Accumulated Value to a settlement option at the Maturity
Date. See "Appendix B--State Premium Tax Chart" in the Statement of Additional
Information.
Other Taxes
Currently, no charge will be made against the Variable Account for Federal
income taxes. LBVIP may, however, make such a charge in the future if income
or gains within the Variable Account will result in any Federal income tax
liability to LBVIP. Charges for other taxes, if any, attributable to the
Variable Account may also be made. See "FEDERAL TAX STATUS--LBVIP's Tax
Status".
Sufficiency of Charges
If the amount of all charges assessed in connection with the Contracts as
described above is not enough to cover all expenses incurred in connection
therewith, the loss will be borne by LBVIP. Any such expenses borne by LBVIP
will be paid out of its general account which may include, among other things,
proceeds derived from mortality and expense risk charges deducted from the
Variable Account. Conversely, if the amount of such charges proves more than
enough, the excess will be retained by LBVIP.
ANNUITY PROVISIONS
Maturity Date
The Contract Owner selects the Maturity Date, which must be a Contract
Anniversary at least three years after the date on which the Contract was
issued, when making application for the Contract. The Contract Owner may
change a Maturity Date selection by Written Notice received by LBVIP at least
30 days before both the Maturity Date currently in effect and the new Maturity
Date. The new date selected must satisfy the requirements for a Maturity Date.
For a Contract issued in Pennsylvania on or after March 11, 1991, the
following requirements for maximum maturity ages of the Contract will be used.
Maturity age is the last birthday of the Annuitant on the Contract Anniversary
on or immediately prior to the Maturity Date.
PENNSYLVANIA MAXIMUM MATURITY AGES
Age on Maximum
Date of Issue Maturity Age
--------------- --------------
70 or less 85
71 - 75 86
76 - 80 88
81 - 85 90
86 - 90 93
91 - 93 96
94 - 95 98
96 99
Settlement Options
The Contract Owner may select an annuity settlement option or options, and may
select whether payments are to be made on a fixed or variable (or a
combination of fixed and variable) basis. To the extent a fixed annuity is
selected, Accumulated Value will be transferred to the Fixed Account, and the
annuity payments will be guaranteed as to minimum dollar amount. See APPENDIX
- -- MORE INFORMATION ABOUT THE FIXED ACCOUNT. The Contract Owner may also
change a choice of settlement option by Written Notice received by LBVIP at
least 30 days before the Maturity Date.
The following variable annuity settlement options are generally available
under the Contract:
Option 3V--Income for a Fixed Period. Income for a fixed number of years will
be paid, not to exceed 30.
Option 4V--Life Income with Guaranteed Period. Income will be paid for the
lifetime of the payee. If the payee dies during the guaranteed period,
payments will be continued to the named Beneficiary to the end of that period.
A period of 10 or 20 years may be selected. After the first payment is made,
this option may not be revoked or changed.
Payments may be made under any other settlement option suggested by the
Contract Owner that is agreed to by LBVIP.
LBVIP also provides fixed annuity options, which are not described here. Any
one of the variable annuity options or any one of the fixed annuity options
may be selected, or any one of the variable annuity options may be selected in
combination with any one of the fixed annuity options.
If no valid selection of a settlement option has been made by the Maturity
Date, the Life Income with 10-Year Guarantee Period fixed annuity settlement
option shall be automatically effective.
It should be noted that under a settlement option providing an income for a
fixed period (e.g., Option 3V described above), for any surrender made more
than three years after the Date of Issue, no surrender charge will be deducted
from the portion of Accumulated Value surrendered, provided that payments
under such settlement option will be made for at least five years and that
proceeds may not be withdrawn. Also, no surrender charge will be imposed at
the time of annuitization (if annuitization occurs more than three years after
the Date of Issue) under a settlement option providing a life income with a
guaranteed period (e.g., Option 4V above). Surrenders after the Maturity Date
are permitted only in connection with settlement options that do not involve a
life contingency (see "THE CONTRACTS--Surrender (Redemption)").
The Contract Owner may elect the receipt of a single sum, rather than payment
pursuant to annuity settlement options, by surrendering the Contract in full
on the Maturity Date. In such case, a surrender charge will be deducted from
the Accumulated Value of the Contract if the Maturity Date occurs at any time
during the surrender charge period, taking into account the 10% free surrender
provision and subject to the maximum 6 1/2% limitation described under
"CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred Sales Charge)".
Frequency and Amount of Annuity Payments
Annuity payments under a settlement option will be paid as monthly
installments, unless the Contract Owner and LBVIP agree to a different payment
schedule. However, if the Accumulated Value at the Maturity Date is less than
$2,000, LBVIP may pay the Accumulated Value in a single sum and the Contract
will be canceled. Also, if annuity payments would be or become less than $25
($20 for Contracts issued in the state of Texas) if a single settlement option
is chosen, or $25 ($20 for Contracts issued in the state of Texas) on each
basis if a combination of variable and fixed options is chosen, LBVIP may
change the frequency of payments to intervals that will result in payments of
at least $25 ($20 for Contracts issued in the state of Texas) each from each
option chosen.
The amount of the first variable annuity payment (and, in the case of fixed
annuities, the amount of subsequent payments) is determined by applying the
Accumulated Value to be applied to the settlement option at the Maturity Date,
less any premium tax due (see "CHARGES AND DEDUCTIONS--Premium Taxes") and any
surrender charge due (see "Settlement Options" above), to the annuity table in
the Contract for the settlement option selected. The table shows the amount of
the initial annuity payment for each $1,000 applied.
Subsequent variable annuity payments vary in amount in accordance with the
investment experience of the selected Subaccount(s). Assuming annuity payments
are based on the unit values of a single Subaccount, the dollar amount of the
first annuity payment, determined as set forth above, is divided by the
Annuity Unit Value as of the Maturity Date to establish the number of Annuity
Units representing each annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent variable annuity payments is not predetermined and may change from
payment to payment. The dollar amount of the second and each subsequent
variable annuity payment is determined by multiplying the fixed number of
Annuity Units by the Annuity Unit Value (see "Subaccount Annuity Unit Value"
below) with respect to such Subaccount at the end of the last Valuation Date
of the period with respect to which the payment is due. If the payment is
based upon the Annuity Unit Values of more than one Subaccount, the foregoing
procedure is repeated for each applicable Subaccount and the sum of the
payments based on each Subaccount is the amount of the annuity payment.
The annuity tables in the Contracts are based on the mortality table specified
in the Contract. Under such tables, the longer the life expectancy of the
Annuitant under any life annuity option or the duration of any period for
which payments are guaranteed under the option, the smaller will be the amount
of the first monthly variable annuity payment. LBVIP guarantees that the
dollar amount of each fixed and variable annuity payment after the first
payment will not be affected by variations in expenses or in mortality
experience from the mortality assumptions used to determine the first payment.
Subaccount Annuity Unit Value
The value of an Annuity Unit is determined independently for each Subaccount.
For each Subaccount, the Annuity Unit Value on any Valuation Date is
determined by multiplying the Annuity Unit Value at the end of the immediately
preceding Valuation Date by the net investment factor for the Valuation Date
for which the Annuity Unit Value is being calculated, and multiplying the
result by an interest factor which offsets the effect of the assumed
investment earnings rate of 3 1/2% per annum which is assumed in the annuity
tables contained in the Contract.
The net investment factor for each Subaccount for a Valuation Date is
determined by dividing the value of an Accumulation Unit for the applicable
Subaccount as of the end of the current Valuation Period by the value of an
Accumulation Unit for the applicable Subaccount as of the end of the
immediately preceding Valuation Period.
Assumed Investment Rate
A 3 1/2% assumed investment rate is built into the annuity tables contained in
the Contracts. A higher assumption would mean a higher initial payment but
more slowly rising and more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual net investment rate
were at the annual rate of 3 1/2%, the annuity payments would be level.
GENERAL PROVISIONS
Postponement of Payments
General. LBVIP may defer payment of any surrender and annuity payment amounts,
or death benefit amounts that are in the Variable Account if (a) the New York
Stock Exchange is closed other than customary weekend and holiday closings, or
trading on the New York Stock Exchange is restricted as determined by the SEC,
or (b) an emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets.
Transfers and allocations of Accumulated Value to and against the Subaccounts
of the Variable Account may also be postponed under these circumstances.
Payment by Check. Payments under the Contract of any amounts derived from
premiums paid by check may be delayed until such time as the check has cleared
the Contract Owner's bank.
Date of Receipt
Except as otherwise stated herein, the date of receipt by LBVIP of any Written
Notice, premium payment, telephone instruction or other communication is the
actual date it is received at LBVIP's Home Office in proper form unless
received (1) after the close of the New York Stock Exchange, or (2) on a date
which is not a Valuation Date. In either of these two cases, the date of
receipt will be deemed to be the next Valuation Date.
Reports to Contract Owners
LBVIP will mail each Contract Owner, at such Contract Owner's last known
address of record, at least annually after the first Contract Year, a report
containing the Accumulated Value or current value of the Contract as of a date
not more than two months prior to the date of mailing and any further
information required by any applicable law or regulation.
Contract Inquiries
Inquiries regarding a Contract may be made by writing to LBVIP at its Home
Office, 625 Fourth Avenue South, Minneapolis, Minnesota 55415.
FEDERAL TAX STATUS
Introduction
The ultimate effect of Federal income taxes on a Contract's Accumulated Value,
on annuity payments and on the economic benefit to the Contract Owner, the
Annuitant or the Beneficiary depends upon the tax status of such person and,
if the Contract is purchased under a retirement plan, upon the tax and
employment status of the individual concerned. The discussion contained herein
is general in nature and is not intended as tax advice. No attempt is made to
consider any applicable state or other tax laws. Moreover, the discussion
contained herein is based on LBVIP's understanding of Federal income tax laws
as currently interpreted. No representation is made regarding the likelihood
of continuation of these interpretations by the Internal Revenue Service.
LBVIP does not make any guarantee regarding the tax status of any Contract.
Each person concerned should consult a qualified tax adviser.
LBVIP's Tax Status
LBVIP is taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). Although the Variable Account is not a separate
entity from LBVIP and its operations form a part of LBVIP, the Code in effect
provides that the income and gains and losses from separate account
investments are not income to the insurance company issuing the variable
contracts so long as the contracts and the separate account meet certain
requirements set forth in the Code. Because the Contracts and the Variable
Account meet such requirements, LBVIP anticipates no tax liability resulting
from the contracts, and consequently no reserve for income taxes is currently
charged against, or maintained by LBVIP with respect to, the Contracts.
LBVIP may also incur state and local taxes, in addition to premium taxes, in
several states. At present, these taxes are not significant. If there is a
material change in state or local tax laws, charges for such taxes, if any,
attributable to the Variable Account may be made.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general.
Contracts Held by Individuals. An individual Contract Owner is not taxed on
increases in the value of a Contract until a distribution occurs, either in
the form of a single sum payment or as annuity payments under the settlement
option selected.
Upon receipt of a single sum payment or of an annuity payment under the
Contract, the recipient is taxed on the portion of such payment that exceeds
the cost basis of the Contract.
For single sum payments, the taxable portion is generally the amount in excess
of the premiums paid under the Contract. Such taxable portion is taxed at
ordinary income tax rates. The investment in the Contract is not affected by
loans or assignments of the Contract but is increased by any amount included
in gross income as a result of the loan or assignment. Payments in partial or
full surrender of a Contract generally will be taxed as ordinary income to the
extent that the Accumulated Value exceeds the taxpayer's investment in the
Contract. An assignment of the Contract (other than a gift to the Contract
Owner's spouse or incident to a divorce) or the use of the Contract as
collateral for a loan will be treated in the same manner as a surrender.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity. Such taxable portion is
taxed at ordinary income tax rates. For certain types of Qualified Plans there
may be no cost basis in the Contract within the meaning of Section 72 of the
Code. In such event, the total payments received may be taxable. Contract
Owners, Annuitants and Beneficiaries under such Contracts should seek
qualified tax and financial advice about the tax consequences of distributions
under the retirement plan in connection with which such Contracts are
purchased.
Generally, a distribution from a Contract before the taxpayer attains age 59
1/2 will result in an additional tax of 10% of the amount of the distribution
which is includable in gross income. The penalty tax will not apply if the
distribution is made as follows:
(1) in connection with death or disability as described in section 72(q)(2) of
the Code;
(2) from certain Qualified Plans;
(3) under a qualified funding trust (commonly referred to as structured
settlement plans); or
(4) it is one of a series of substantially equal periodic annual payments for
the life or life expectancy of the taxpayer or the joint lives or joint life
expectancies of the taxpayer and the beneficiary; for this purpose, if there
is a significant modification of the payment schedule before the taxpayer is
age 59 1/2 or before the expiration of five years from the time of the annuity
starting date, the taxpayer's income shall be increased by the amount of tax
and deferred interest that otherwise would have been incurred.
Depending on the type of Qualified Plan, distributions may be subject to a 10%
penalty tax.
Contracts Held by Other Than Individuals. The Tax Reform Act of 1986 provides
that, except as hereafter noted, a Contract held by other than a natural
person, such as a corporation, estate or trust, will not be treated as an
annuity contract for Federal income tax purposes. The income on such a
Contract will be taxable in the year received or accrued by the Contract
Owner. The provision does not apply if the Contract Owner is acting as an
agent for an individual, if the Contract Owner is an estate which acquired the
Contract as a result of the death of the decedent, if the Contract is held by
certain Qualified Plans, if the Contract is held pursuant to a qualified
funding trust (commonly referred to as structured settlement plans), if the
Contract was purchased by an employer with respect to a terminated Qualified
Plan or if the Contract is an immediate annuity.
Multiple Contracts. Section 72(e)(11) of the Code provides that for the
purposes of determining the amount includable in gross income, all non-
qualified annuity contracts entered into on or after October 22, 1988 by the
same company with the same contract owner during any calendar year shall be
treated as one contract. The total impact of this Section is not clear. It
will likely accelerate the recognition of income by a contract owner owning
multiple contracts and may have the further effect of increasing the portion
of income that will be subject to the ten percent penalty tax.
Qualified Plans
The Contracts are designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such Qualified Plans vary according to
the type of plan and the terms and conditions of the plan. Therefore, no
attempt is made herein to provide more than general information about the use
of the Contracts with the various types of Qualified Plans. Participants under
such Qualified Plans as well as Contract Owners, Annuitants and Beneficiaries
are cautioned that the rights of any person to any benefits under such
Qualified Plans may be subject to the terms and conditions of the plans
themselves regardless of the terms and conditions of the Contracts issued in
connection therewith. Following are brief descriptions of the various types of
Qualified Plans and of the use of the Contracts in connection therewith.
Tax-Sheltered Annuities. Section 403(b) of the Code permits employers of
public school employees and of employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of the
Code to purchase on behalf of their employees annuity contracts and, subject
to certain limitations, have the amount of purchase payments excluded from the
employees' gross income for tax purposes. These annuity contracts are commonly
referred to as "tax-sheltered annuities". Purchasers of the Contracts for such
purposes should seek qualified advice as to eligibility, limitations on
permissible amounts of purchase payments and tax consequences on distribution.
An amendment to Section 403(b) of the Code, adopted pursuant to the Tax Reform
Act of 1986, imposes restrictions on certain distributions from tax-sheltered
annuity contracts meeting the requirements of Section 403(b), which will apply
to tax years beginning on or after January 1, 1989. The amendment adds a new
Section 403(b)(11) that requires that distributions from Section 403(b) tax-
sheltered annuities that are attributable to employee contributions made
pursuant to a salary reduction agreement may be paid only when the employee
reaches age 59 1/2, separates from service, dies or becomes disabled, or in
the case of hardship (hardship, for this purpose, is generally defined as an
immediate and heavy financial need, such as for paying for medical expenses,
for the purpose of a principal residence, or for paying certain tuition
expenses).
A participant in a Contract purchased as a tax-sheltered Section 403(b)
annuity contract will not, therefore, be entitled to exercise the surrender
right, described under the heading "THE CONTRACTS--Surrender (Redemption)", in
order to receive Accumulated Value attributable to elective contributions
credited under the Contract to such participant after December 31, 1988 unless
one of the above-described conditions has been satisfied. The restriction on
the right to receive a distribution does not affect the availability of the
Accumulated Value credited to the Contract as of December 31, 1988. A
participant may, however, be able to transfer Accumulated Value under the
Contract to certain other investment alternatives that are available under an
employer's Section 403(b) arrangement and that meet the requirements of
Section 403(b).
The restrictions imposed by Section 403(b)(11) of the Code conflict with
certain sections of the 1940 Act that are applicable to the Contracts. In this
regard, LBVIP is relying on a no-action letter issued by the Office of
Insurance Products and Legal Compliance of the SEC, and the requirements for
such reliance have been complied with by LBVIP.
H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of 1962, which
is commonly referred to as "H.R. 10", permits self-employed individuals to
establish Qualified Plans for themselves and their employees. The tax
consequences to participants under such plans depend upon the plan itself. In
addition, such plans are limited by law to maximum permissible contributions,
distribution dates, nonforfeitability of interest and tax rates applicable to
distributions. In order to establish such a plan, a plan document, usually in
prototype form pre-approved by the Internal Revenue Service, is adopted and
implemented by the employer. Purchasers of the Contracts for use with H.R. 10
plans should seek qualified advice as to the suitability of the proposed plan
document and of the Contracts to their specific needs.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"individual retirement annuity". These individual retirement annuities are
subject to limitations on the amount that may be contributed, on the persons
who may be eligible, and on the time when distributions may commence. In
addition, distributions from certain other types of Qualified Plans may be
placed on a tax-deferred basis into an individual retirement annuity. When
issued in connection with an individual retirement annuity, the Contracts will
be specifically amended to conform to the requirements under such plans. Sales
of the Contracts for use with individual retirement annuities may be subject
to special requirements imposed by the Internal Revenue Service. Purchasers of
the Contracts for such purposes will be provided with such supplementary
information as may be required by the Internal Revenue Service or other
appropriate agency.
Corporate Pension and Profit-Sharing Plans. Sections 401(a) and 403(a) of the
Code permit corporate employers to establish various types of retirement plans
for employees. Such retirement plans may permit the purchase of the Contracts
to provide benefits under the plans. Corporate employers intending to use the
Contracts in connection with such plans should seek qualified advice in
connection therewith.
Section 457 Plans. Section 457 of the Code permits states, local governments
and tax-exempt organizations to establish deferred compensation plans on
behalf of their employees. Such plans may permit the purchase of the Contracts
to provide benefits under the plans. Employers intending to use the Contracts
in connection with such plans should seek qualified advice in connection
therewith.
1035 Exchanges
Section 1035(a) of the Code permits the exchange of certain life insurance,
endowment and annuity contracts for an annuity contract without a taxable
event occurring. Thus, potential purchasers who already own such a contract
issued by another insurer are generally able to exchange that contract for a
Contract issued by LBVIP without a taxable event occurring. There are certain
restrictions which apply to such exchanges, including that the contract
surrendered must truly be exchanged for the Contract issued by LBVIP and not
merely surrendered in exchange for cash. Further, the same person or persons
must be the obligee or obligees under the Contract received in the exchange as
under the original contract surrendered in the exchange. Careful consideration
must be given to compliance with the Code provisions and regulations and
rulings relating to exchange requirements, and potential purchasers should be
sure that they understand any surrender charges or loss of benefits which
might arise from terminating a contract they hold. Owners considering such an
exchange should consult their tax advisers to insure that the requirements of
Section 1035 are met.
Diversification Requirements
The Code imposes certain diversification standards on the underlying assets of
variable annuity contracts. The Code provides that a variable annuity contract
shall not be treated as an annuity contract for any period (and any subsequent
period) for which the investments are not "adequately diversified". Section
817(h) of the Code also requires that investments of the Variable Account meet
certain diversification requirements stated in Section 817(h)(2) or as may be
prescribed by the Treasury Department in regulations. The assets of the Fund
will meet the diversification requirements. The Company will monitor the
Contracts and the regulations of the Treasury Department to ensure that the
Contract will continue to qualify as a variable annuity contract under
Sections 7702 and 817. Disqualification of the Contract as an annuity contract
would result in imposition of Federal income tax on the Contract Owner with
respect to earnings allocable to the Contract prior to the receipt of payments
under the Contract.
Withholding
The taxable portion of a distribution to an individual is subject to Federal
income tax withholding unless the taxpayer elects not to have withholding.
LBVIP will provide the Contract Owner with the election form and further
information as to withholding prior to the first distribution. Generally,
however, amounts are withheld from periodic payments at the same rate as wages
and at the rate of 10% from non-periodic payments.
Also, effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or 403(b) of the Code, that are not directly
rolled over to another eligible retirement plan or individual retirement
account or individual retirement annuity, are subject to a mandatory 20%
withholding for Federal income tax. The 20% withholding requirement does not
apply to: a) distributions for the life or life expectancy of the participant
or joint and last survivor expectancy of the participant and a designated
beneficiary; b) distributions for a specified period of 10 years or more; or
c) distributions which are required minimum distributions. For complete
information on withholding, a qualified tax adviser should be consulted.
Other Considerations
Because of the complexity of the law and its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Contract or the exercise of elections under a Contract. The above comments
concerning Federal income tax consequences are not exhaustive, and special
rules are provided with respect to situations not discussed in this
Prospectus.
The preceding description is based upon LBVIP's understanding of current
Federal income tax law. LBVIP cannot assess the probability that changes in
tax laws, particularly affecting annuities, will be made.
The preceding comments do not take into account state income or other tax
considerations which may be involved in the purchase of a Contract or the
exercise of elections under the Contract. For complete information on such
Federal and state tax considerations, a qualified tax adviser should be
consulted.
EMPLOYMENT-RELATED BENEFIT PLANS
The Contracts described in this Prospectus (except for Contracts issued in the
state of Montana) involve settlement option rates that distinguish between men
and women. Montana has enacted legislation requiring that optional annuity
benefits offered pursuant to Contracts purchased in Montana not vary on the
basis of sex. On July 6, 1983, the Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an
employer's deferred compensation plan could not, under Title VII of the Civil
Rights Act of 1964, vary between men and women on the basis of sex. Because of
this decision, the settlement option rates applicable to Contracts purchased
under an employment-related insurance or benefit program may in some cases not
vary on the basis of sex. Any unisex rates to be provided by LBVIP will apply
for tax-qualified plans and those plans where an employer believes that the
Norris decision applies. Employers and employee organizations should consider,
in consultation with legal counsel, the impact of Norris, and Title VII
generally, and any comparable state laws that may be applicable, on any
employment-related insurance or benefit plan for which a Contract may be
purchased.
VOTING RIGHTS
To the extent required by law, LBVIP will vote the Fund shares held in the
Variable Account at regular and special shareholder meetings of the Fund in
accordance with instructions received from persons having voting interests in
the corresponding Subaccounts of the Variable Account. If, however, the 1940
Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result LBVIP determines that it
is permitted to vote the Fund shares in its own right, it may elect to do so.
Before the Maturity Date, the Contract Owner shall have the voting interest
with respect to Fund shares attributable to the Contract. On and after the
Maturity Date, the person entitled to receive annuity payments shall have the
voting interest with respect to such shares, which voting interest will
generally decrease during the annuity period.
The number of votes which a Contract Owner or person entitled to receive
annuity payments has the right to instruct will be calculated separately for
each Subaccount. The number of votes which each Contract Owner has the right
to instruct will be determined by dividing a Contract's Accumulated Value in a
Subaccount by the net asset value per share of the corresponding Portfolio in
which the Subaccount invests. The number of votes which each person entitled
to receive annuity payments has the right to instruct will be determined by
dividing the Contract's reserves in a Subaccount by the net asset value per
share of the corresponding Portfolio in which the Subaccount invests.
Fractional shares will be counted. The number of votes of the Portfolio which
the Contract Owner or person entitled to receive annuity payments has right to
instruct will be determined as of the date coincident with the date
established by the Portfolio for determining shareholders eligible to vote at
the meeting of the Fund. Voting instructions will be solicited by written
communications prior to such meeting in accordance with procedures established
by the Fund.
Any Portfolio shares held in the Variable Account for which LBVIP does not
receive timely voting instructions, or which are not attributable to Contract
Owners, will be voted by LBVIP in proportion to the instructions received from
all Contract Owners. Any Portfolio shares held by LBVIP or its affiliates in
general accounts will, for voting purposes, be allocated to all separate
accounts of LBVIP and its affiliates having a voting interest in that
Portfolio in proportion to each such separate account's votes. Voting
instructions to abstain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Subaccount will receive proxy
materials, reports and other materials relating to the appropriate Portfolio.
SALES AND OTHER AGREEMENTS
Lutheran Brotherhood Securities Corp. ("LBSC"), 625 Fourth Avenue South,
Minneapolis, Minnesota 55415, an indirect subsidiary of Lutheran Brotherhood,
acts as the principal underwriter of the Contracts pursuant to a Distribution
Agreement to which LBVIP and the Variable Account are also parties. The
Contracts are sold through LBVIP Representatives who are licensed by state
insurance officials to sell the Contracts. These LBVIP Representatives are
also registered representatives of LBSC. The Contracts are offered in all
states where LBVIP is authorized to sell variable annuities.
Compensation of LBVIP Representatives. Commissions and other distribution
compensation to be paid to LBVIP Representatives on the sale of Contracts will
be paid by LBVIP and will not result in any charge to Contract Owners or to
the Variable Account in addition to the charges described in this Prospectus.
LBVIP Representatives selling the Contracts will be paid a commission of not
more than 4% of the premiums paid on the contracts. Further, LBVIP
Representatives may be eligible to receive certain benefits based on the
amount of earned commissions.
Service Agreement. Lutheran Brotherhood performs certain investment and
administrative duties for LBVIP pursuant to a written agreement. The agreement
is automatically renewed each year, unless either party terminates it. Under
this agreement, LBVIP pays Lutheran Brotherhood for salary costs and other
services and an amount for indirect costs incurred through LBVIP's use of
Lutheran Brotherhood's personnel and facilities.
LEGAL PROCEEDINGS
LBVIP is not involved in any legal proceedings.
LEGAL MATTERS
All matters of applicable state law pertaining to the Contracts, including
LBVIP's right to issue the Contracts thereunder, have been passed upon by
James M. Odland, counsel for LBVIP. Certain legal matters relating to the
Federal securities laws have been passed upon by the law firm of Jones &
Blouch L.L.P., Washington, D.C.
FINANCIAL STATEMENTS AND EXPERTS
Financial statements of LBVIP and the Variable Account are contained in the
Statement of Additional Information.
The financial statements of LBVIP and the Variable Account included in the
Statement of Additional Information have been so included in reliance of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in accounting and auditing.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed with
the SEC with respect to the Contracts described herein. This Prospectus does
not contain all of the information set forth in the Registration Statement and
exhibits thereto, to which reference is hereby made for further information
concerning the Variable Account, LBVIP and the Contracts. The information so
omitted may be obtained from the SEC's principal office located at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fee prescribed by
the SEC, or examined there without charge. Statements contained in this
Prospectus as to the provisions of the Contracts and other legal documents are
summaries, and reference is made to the documents as filed with the SEC for a
complete statement of the provisions thereof.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
Introduction 2
Administration of the Contracts 2
Custody of Assets 2
Independent Accountants and Financial Statements 2
Distribution of the Contracts 3
Calculation of Performance 3
Money Market Subaccount 3
Other Subaccounts 4
Financial Statements of Variable Account 7
Comment on Financial Statements of LBVIP 13
Financial Statements of LBVIP 13
Appendix B - State Premium Tax Chart XX
How To Obtain the INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACT
Statement of Additional Information
Send this request form to:
Lutheran Brotherhood Variable
Insurance Products Company
P.O. Box 288
Minneapolis, MN 55440-9041
Please send me a copy of the most recent INDIVIDUAL FLEXIBLE PREMIUM VARIABLE
ANNUITY CONTRACT SAI.
- -----------------------------------------------------------------------------
(Name) (Date)
- -----------------------------------------------------------------------------
(Street Address)
- -----------------------------------------------------------------------------
(City) (State) (Zip Code)
APPENDIX
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 ("1933
Act"), nor is the Fixed Account registered as an investment company under the
Investment Company Act of 1940 ("1940 Act"). Accordingly neither the Fixed
Account nor any interests therein are generally subject to the provisions of
the 1933 or 1940 Acts. Disclosures regarding the Fixed Account option and the
Fixed Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements in prospectuses. LBVIP has been advised that the
staff of the Securities and Exchange Commission has not reviewed disclosure
relating to the Fixed Account.
Accumulated Values allocated to the Fixed Account are combined with all the
general assets of LBVIP and are invested in those assets chosen by LBVIP and
allowed by applicable law. LBVIP allocates the investment income of the Fixed
Account to the Contracts covered by the Fixed Account in the amounts
guaranteed in such Contracts. Immediately prior to the Maturity Date, the
Accumulated Value of the Contract in the Fixed Account is subject to a
reduction for any surrender charge or premium taxes, if applicable.
Under the Fixed Account option, LBVIP allocates premium payments to the Fixed
Account, guarantees the amounts allocated to the Fixed Account, and pays a
declared interest rate. The guaranteed minimum interest credited to the Fixed
Account will be at the effective rate of 4% per year, compounded daily. LBVIP
may credit interest at a rate in excess of 4% per year; however, LBVIP is not
obligated to credit any interest in excess of 4% per year. There is no
specific formula for the determination of excess interest credits. Such
credits, if any, will be determined by LBVIP based on information as to
expected investment yields. Some of the factors that LBVIP may consider in
determining whether to credit interest above 4% to amounts allocated to the
Fixed Account, and the amount thereof, are general economic trends, rates of
return currently available and anticipated on LBVIP's investments, regulatory
and tax requirements and competitive factors. ANY INTEREST CREDIT TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4% PER YEAR WILL BE DETERMINED AT
THE SOLE DISCRETION OF LBVIP. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 4% FOR ANY GIVEN YEAR.
Nonetheless, for any amount allocated or transferred to the Fixed Account,
LBVIP guarantees that the initial interest rate will be effective for at least
12 months, and subsequent interest rates will not be changed more often than
once every 12 months.
To the extent a fixed annuity payment option is selected by the Contract
Owner, Accumulated Value at the Maturity Date will be transferred to the Fixed
Account, which supports the insurance and annuity obligations of LBVIP.
Contract Owners have no voting rights in the Variable Account with respect to
Fixed Account values.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACT
ISSUED BY
LUTHERAN BROTHERHOOD VARIABLE
INSURANCE PRODUCTS COMPANY
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus dated May 1, 1996 (the "Prospectus")
describing an individual flexible premium variable annuity contract (the
"Contract") being offered by Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP"). Purchase payments will be allocated to one or more
Subaccounts of LBVIP Variable Annuity Account I (the "Variable Account"), a
separate account of LBVIP and/or to the Fixed Account (which is the general
account of LBVIP, and which pays interest at a guaranteed fixed rate). Much
of the information contained in this Statement of Additional Information
expands upon subjects discussed in the Prospectus. A copy of the Prospectus
may be obtained from Lutheran Brotherhood Variable Insurance Products Company,
625 Fourth Avenue South, Minneapolis, Minnesota 55415.
Capitalized terms used in this Statement of Additional Information that are
not otherwise defined herein shall have the meanings given to them in the
Prospectus.
------------------------------------------------
TABLE OF CONTENTS
Page
INTRODUCTION 2
ADMINISTRATION OF THE CONTRACTS 2
CUSTODY OF ASSETS 2
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS 2
DISTRIBUTION OF THE CONTRACTS 3
CALCULATION OF PERFORMANCE 3
Money Market Subaccount 3
Other Subaccounts 4
FINANCIAL STATEMENTS OF VARIABLE ACCOUNT 7
COMMENT ON FINANCIAL STATEMENTS OF LBVIP 14
FINANCIAL STATEMENTS OF LBVIP 14
APPENDIX B - STATE PREMIUM TAX CHART xx
------------------------------------------------
The date of this Statement of Additional Information
is May 1, 1996.
INTRODUCTION
The Contracts are being offered by LBVIP, a stock life insurance company that
is an indirect subsidiary of Lutheran Brotherhood. LBVIP is offering the
Contract only to persons who are eligible for membership in Lutheran
Brotherhood, unless otherwise required by state law. The Contract may be sold
to or in connection with retirement plans which may or may not qualify for
special federal tax treatment under the Internal Revenue Code. Annuity
payments under the Contract are deferred until a selected later date.
Premiums will be allocated, as designated by the Contract Owner, to one or
more Subaccounts of the Variable Account, a separate account of LBVIP and/or
to the Fixed Account (which is the general account of LBVIP, and which pays
interest at a guaranteed fixed rate). The assets of each Subaccount will be
invested solely in a corresponding Portfolio of LB Series Fund, Inc. (the
"Fund"), which is a diversified, open-end management investment company
(commonly known as a "mutual fund"). The Prospectus for the Fund that
accompanies the Prospectus describes the investment objectives and attendant
risks of the six Portfolios of the Fund-the Growth Portfolio, the High Yield
Portfolio, the Income Portfolio, the Opportunity Growth Portfolio, the World
Growth Portfolio and the Money Market Portfolio. Additional Subaccounts
(together with the related additional Portfolios of the Fund) may be added in
the future. The Accumulated Value of the Contract and, except to the extent
fixed amount annuity payments are elected by the Contract Owner, the amount of
annuity payments will vary, primarily based on the investment experience of
the Portfolios whose shares are held in the Subaccounts designated. Premiums
allocated to the Fixed Account will accumulate at fixed rates of interest
declared by LBVIP.
ADMINISTRATION OF THE CONTRACTS
Lutheran Brotherhood performs certain investment and administrative duties for
LBVIP pursuant to a written agreement. This agreement includes services
performed for the administration of the Contracts along with other insurance
products issued by LBVIP. The agreement is automatically renewed each year,
unless either party terminates it. Under this agreement, LBVIP pays Lutheran
Brotherhood for salary costs and other services and an amount for indirect
costs incurred through LBVIP's use of Lutheran Brotherhood's personnel and
facilities. During 1995, LBVIP paid Lutheran Brotherhood $13.64 million for
all services provided pursuant to this agreement.
CUSTODY OF ASSETS
LBVIP, whose address appears on the cover of the Prospectus, maintains custody
of the assets of the Variable Account.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements of LBVIP and the Variable Account included in this
Statement of Additional Information have been so included in reliance of Price
Waterhouse LLP, independent accountants, given on authority of said firm as
experts in accounting and auditing.
The financial statements of LBVIP should be distinguished from those of the
Variable Account, and should be considered only as bearing upon the ability of
LBVIP to meet its obligations under the Contracts. The financial statements of
LBVIP should not be considered as bearing on the investment experience of the
assets held in the Variable Account.
DISTRIBUTION OF THE CONTRACTS
Lutheran Brotherhood Securities Corp. ("LBSC"), an indirect subsidiary of
Lutheran Brotherhood, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement to which LBVIP and the Variable Account
are also parties. The Contracts are sold through LBVIP Representatives who are
licensed by state insurance officials to sell the Contracts. These LBVIP
Representatives are also registered representatives of LBSC. The Contracts
are offered in all states where LBVIP is authorized to sell variable
annuities.
The offering of the Contracts is continuous.
There are no special purchase plans or exchange privileges not described in
the Prospectus (see "THE CONTRACTS--Transfers" in the Prospectus).
No charge for sales expense is deducted from premiums at the time premiums are
paid. However, a surrender charge, which may be deemed to be a contingent
deferred sales charge, is deducted from the Accumulation Value of the Contract
in the case where the Contract is surrendered, in whole or in part, before
annuity payments begin and, if certain settlement options are selected, at the
time annuity payments begin, under the circumstances described in, and in
amounts calculated as described in, the Prospectus under the heading "CHARGES
AND DEDUCTIONS--Surrender Charge (Contingent Deferred Sales Charge)". There is
no difference in the amount of this charge or any of the other charges
described in the Prospectus as between Contracts purchased by members of the
public as individuals or groups, on the one hand, and Contracts purchased by
any class of individuals, such as officers, directors or employees of LBVIP or
of LBSC, on the other hand.
CALCULATION OF PERFORMANCE
Money Market Subaccount
The Prospectus contains information with respect to the yield and effective
yield of a hypothetical preexisting account having a balance of one Money
Market Portfolio Subaccount Accumulation Unit 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 Accumulation Unit of the
Subaccount at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from Contract Owner accounts, dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return, and multiplying the base 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.
In determining the net change in the value of the account as described in the
preceding paragraph, all deductions that are charged to all Contract Owner
accounts have been reflected in proportion to the length of the seven-day base
period and the Subaccount's mean (or median) account size. Deductions from
purchase payments and surrender charges assessed have not been reflected in,
and realized gains and losses from the sale of securities and unrealized
appreciation and depreciation of the Subaccount and the related portfolio
company have been excluded from, the computation of yield.
This example illustrates the yield quotation for the Money Market Subaccount
for the seven-day period ended December 31, 1995:
Value of hypothetical pre-existing account with exactly
one Accumulation Unit at the beginning of the period $1.424299
Value of same account (excluding capital changes) at end
of the seven-day period $1.425470
Net change in account value $0.001171
Base Period Return:
Net change in account value divided by beginning account value $0.000822
Annualized Current Yield [0.000822 X (365/7)] 4.29%
Effective Yield (0.000822 + 1)365/7-1 4.38%
The annualization of a seven-day average yield is not a representation of
future actual yield.
Other Subaccounts
The Prospectus contains information with respect to yield quotations by
Subaccounts other than the Money Market Subaccount. These yield quotations are
based on a 30-day (or one month) period computed by dividing the net
investment income per accumulation unit earned during the period (the net
investment income earned by the Fund portfolio attributable to shares owned by
the Subaccount less expenses incurred during the period) by the maximum
offering price per Accumulation Unit 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 Accumulation Units outstanding during the period and
the maximum offering price per Accumulation Unit on the last day of the
period.
For fees that vary with the size of the Contract, a Contract size equal to the
mean (or median) Contract size has been assumed.
The following example illustrates the annualized current yield calculation for
the High Yield Subaccount for the 30-day base period ended December 31, 1995:
Dividends and interest earned by the High Yield Subaccount
during the base period $5,224,922
Expenses accrued for the base period $ 778,884
----------
$4,460,038(A)
----------
Product of the maximum public offering price on the
last day of the base period and the average daily
number of Units outstanding during the base period
that were entitled to receive dividends
($22.052453 x 28,881,169 Units) = $636,900,622(B)
============
Quotient of dividends and interest earned minus expenses
accrued divided by product of maximum public offering
price multiplied by average Units outstanding
(A divided by B) = 0.006981(C)
Adding one and raising total to the 6th power (C + 1)6= 1.042622(D)
Annualized current yield [2(D - 1) X 100] = 8.52%
The following example illustrates the annualized current yield calculation for
the Income Subaccount for the 30-day base period ended December 31, 1995:
Dividends and interest earned by the Income Subaccount
during the base period $ 3,448,553
Expenses accrued for the base period $ 785,178
------------
$ 2,663,375(A)
============
Product of the maximum public offering price on the
last day of the base period and the average daily
number of Units outstanding during the base period
that were entitled to receive dividends
($18.974887 x 33,881,234 Units) = $642,892,587(B)
============
Quotient of dividends and interest earned minus expenses
accrued divided by product of maximum public offering
price multiplied by average Units
outstanding (A divided by B) = 0.004143(C)
Adding one and raising total to the 6th power (C + 1)6 = 1.025116(D)
Annualized current yield [2(D-1) X 100] = 5.02%
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
Subaccounts of the Variable Account. 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 Contracts 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 Contracts 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 all Contract Owners. If recurring fees charged to Contract Owners
are paid other than by redemption of Accumulation Units, such fees will be
appropriately reflected.
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
Growth Subaccount from the date of inception through December 31, 1995:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31,
1995 (after deferred sales charge) $2,438.00
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%) 143.80%*
Average annual total return from inception through
December 31, 1995 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 seven years and 10 months; the result is
reduced by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 12.07%*
The following example illustrates the average annual total return for the High
Yield Subaccount from the date of inception through the period ended December
31, 1995:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31, 1995
(after deferred sales charge) $2,205.20
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment dividend by the hypothetical $1,000
initial investment; the result is expressed in terms of
a percentage (For example, 2 equals 200%) 120.52%*
Average annual total return from inception through
December 31, 1995 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 seven years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 10.64%*
The following example illustrates the average annual total return for the
Income Subaccount from the date of inception through December 31, 1995:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31, 1995
(after deferred sales charge) $1,897.50
Total return for the period is the difference between
the ending redeemable value and the hypothetical $1,000
initial investment dividend by the hypothetical $1,000
initial investment; the result is expressed in
terms of a percentage (For example, 2 equals 200%) 89.75%*
Average annual total return from inception through
December 31, 1995 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 seven years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 8.54%*
The following example illustrates the average annual total return for the
Money Market Subaccount from the date of inception through December 31, 1995:
Hypothetical $1,000 initial investment on February 18, 1988 $1,000
Ending redeemable value of the investment on December 31, 1995
(after deferred sales charge) $1,425.47
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%) 42.55%*
Average annual total return from inception through
December 31, 1995 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 seven years
and 11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 4.61%*
- -----------------------
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000. Premium taxes may apply depending on
various states' laws. Inclusion of the administrative charge would reduce the
total return figures shown above.
FINANCIAL STATEMENTS OF VARIABLE ACCOUNT
Set forth on the following pages are the audited financial statements of the
Variable Account.
<PAGE>
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
- -----------------------------------------------------------------
Price Waterhouse LLP [LOGO]
Report of Independent Accountants
To Lutheran Brotherhood Variable Insurance Products Company and
Contract Owners of LBVIP Variable Annuity Account I
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of LBVIP Variable
Annuity Account I and the Growth, High Yield, Income and Money Market
subaccounts thereof at December 31, 1995, the results of each of their
operations for the year then ended and the changes in each of their net
assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Lutheran Brotherhood Variable Insurance
Products Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
February 5, 1996
<PAGE>
<TABLE>
LBVIP Variable Annuity Account I
Statement of Assets and Liabilities
December 31, 1995
<CAPTION> Subaccounts
-----------------------------------------------------------------
High Money
Growth Yield Income Market
------------ ------------ ------------ -----------
ASSETS:
<S> <C> <C> <C> <C>
Investments in LB Series Fund, Inc. --
Growth Portfolio, 50,332,748 shares at net asset value
of $18.27 per share (cost $708,893,862) $919,778,068
High Yield Portfolio, 64,238,789 shares at net asset value
of $9.94 per share (cost $645,099,507) $638,413,346
Income Portfolio, 63,937,342 shares at net asset value
of $10.08 per share (cost $636,964,778) $644,374,823
Money Market Portfolio, 41,663,079 shares at net asset value
of $1.00 per share (cost $41,663,079) $41,663,079
------------ ------------ ------------ -----------
919,778,068 638,413,346 644,374,823 41,663,079
Receivable from LBVIP for units issued 756,510 238,335 195,033 --
Dividends receivable from LB Series Fund, Inc -- 279,286 215,366 12,330
------------ ------------ ------------ -----------
Total assets 920,534,578 638,930,967 644,785,222 41,675,409
------------ ------------ ------------ -----------
LIABILITIES:
Payable to LBVIP for units redeemed -- -- -- 338,078
Payable to LBVIP for mortality and expense risk charge 854,321 590,623 595,449 37,833
------------ ------------ ------------ -----------
Total liabilities 854,321 590,623 595,449 375,911
------------ ------------ ------------ -----------
NET ASSETS $919,680,257 $638,340,344 $644,189,773 $41,299,498
============ ============ ============ ==========
NET ASSETS APPLICABLE
TO ANNUITY CONTRACT OWNERS:
Contracts in accumulation period --
Growth Subaccount, 37,698,847 accumulation
units at unit value of $24.38 $919,052,849
High Yield Subaccount, 28,924,180 accumulation
units at unit value of $22.06 $637,987,551
Income Subaccount, 33,922,942 accumulation
units at unit value of $18.98 $643,870,615
Money Market Subaccount, 28,959,961
accumulation units at unit value of $1.43 $41,291,389
Reserves for contracts in annuity payment period (note 2) 627,408 352,793 319,158 8,109
------------ ------------ ------------ -----------
NET ASSETS $919,680,257 $638,340,344 $644,189,773 $41,299,498
============ ============ ============ ===========
<CAPTION>
Statement of Operations
Year Ended December 31, 1995
Subaccounts
-----------------------------------------------------------------
High Money
Growth Yield Income Market
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income $11,775,689 $58,024,022 $40,546,747 $1,849,001
Mortality and expense risk charge (8,569,971) (6,415,302) (6,539,242) (366,450)
------------ ----------- ----------- ----------
Net investment income 3,205,718 51,608,720 34,007,505 1,482,551
------------ ----------- ----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 1,029,403 (993,973) (2,122,557) --
Net change in unrealized appreciation or depreciation
of investments 226,890,499 46,159,156 66,302,071 --
------------ ----------- ----------- ----------
Net gain on investments 227,919,902 45,165,183 64,179,514 --
------------ ----------- ----------- ----------
Net increase in net assets resulting from operations $231,125,620 $96,773,903 $98,187,019 $1,482,551
============ =========== =========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
LBVIP Variable Annuity Account I
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994
<CAPTION> Growth High Yield
Subaccount Subaccount
-------------------------------------------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
<S> <C> <C> <C> <C>
Net investment income $3,205,718 $2,364,714 $51,608,720 $44,861,747
Net realized gain (loss) on investments 1,029,403 14,340,014 (993,973) 7,527,715
Net change in unrealized appreciation or depreciation
of investments 226,890,499 (51,286,112) 46,159,156 (83,257,408)
----------- ----------- ----------- -----------
Net change in net assets resulting from operations 231,125,620 (34,581,384) 96,773,903 (30,867,946)
----------- ----------- ----------- -----------
UNIT TRANSACTIONS --
Proceeds from units issued 76,005,606 67,327,179 48,983,714 57,520,185
Net asset value of units redeemed (32,834,159) (17,557,176) (31,593,966) (18,801,361)
Annuity benefit payments (20,676) (2,891) (22,321) (10,622)
Adjustments to annuity reserves (9,305) 253 (3,924) 1,064
Transfers from other subaccounts 58,315,129 157,085,119 34,834,243 141,228,812
Transfers to other subaccounts (34,089,513) (43,286,360) (30,135,037) (39,193,550)
Transfers from fixed account 5,663,208 703,908 3,990,060 835,930
Transfers to fixed account (11,455,086) (12,047,560) (10,900,222) (15,246,048)
----------- ----------- ----------- -----------
Net change in net assets from unit transactions 61,575,204 152,222,472 15,152,547 126,334,410
----------- ----------- ----------- -----------
Net increase in net assets 292,700,824 117,641,088 111,926,450 95,466,464
NET ASSETS:
Beginning of period 626,979,433 509,338,345 526,413,894 430,947,430
----------- ----------- ----------- -----------
End of period $919,680,257 $626,979,433 $638,340,344 $526,413,894
============ ============ ============ ============
<CAPTION>
Income Money Market
Subaccount Subaccount
-----------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
<S> <C> <C> <C> <C>
Net investment income $34,007,505 $33,146,177 $1,482,551 $845,352
Net realized gain (loss) on investments (2,122,557) 8,062,582 -- --
Net change in unrealized appreciation or depreciation
of investments 66,302,071 (76,267,782) -- --
------------ ------------ ----------- -----------
Net change in net assets resulting from operations 98,187,019 (35,059,023) 1,482,551 845,352
------------ ------------ ----------- -----------
UNIT TRANSACTIONS --
Proceeds from units issued 40,641,227 49,655,831 42,522,522 278,254,066
Net asset value of units redeemed (37,914,523) (25,490,194) (3,488,107) (1,929,043)
Annuity benefit payments (16,288) (3,473) (373) (19)
Adjustments to annuity reserves (3,881) 195 (36) 5
Transfers from other subaccounts 29,003,968 105,202,843 31,802,013 59,193,748
Transfers to other subaccounts (30,583,463) (62,900,750) (59,147,340) (317,329,862)
Transfers from fixed account 4,532,755 578,904 8,093,885 2,217,324
Transfers to fixed account (16,979,603) (31,858,993) (12,189,193) (12,809,326)
------------ ------------ ----------- -----------
Net change in net assets from unit transactions (11,319,808) 35,184,363 7,593,371 7,596,893
------------ ------------ ----------- -----------
Net increase in net assets 86,867,211 125,340 9,075,922 8,442,245
NET ASSETS:
Beginning of period 557,322,562 557,197,222 32,223,576 23,781,331
------------ ------------ ----------- -----------
End of period $644,189,773 $557,322,562 $41,299,498 $32,223,576
============ ============ =========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
LBVIP Variable Annuity Account I
Notes to Financial Statements
December 31, 1995
(1) ORGANIZATION
The LBVIP Variable Annuity Account I (the Variable Account), a unit
investment trust registered under the Investment Company Act of 1940, was
established as a separate account of Lutheran Brotherhood Variable Insurance
Products Company (LBVIP) in 1987, pursuant to the laws of the State of
Minnesota. LBVIP offers financial services to Lutherans and through its
parent, Lutheran Brotherhood Financial Corporation, is a wholly owned
subsidiary of Lutheran Brotherhood, a fraternal benefit society. The
Variable Account contains four subaccounts -- Growth, High Yield, Income and
Money Market -- each of which invests only in a corresponding portfolio of
the LB Series Fund, Inc. (the Fund). The Fund is registered under the
Investment Company Act of 1940 as a diversified open-end investment company.
The Variable Account is used to support only flexible premium deferred
variable annuity contracts issued by LBVIP. Under applicable insurance law,
the assets and liabilities of the Variable Account are clearly identified
and distinguished from the other assets and liabilities of LBVIP. The assets
of the Variable Account will not be charged with any liabilities arising out
of any other business conducted by LBVIP.
(2) SIGNIFICANT ACCOUNTING POLICIES
Investments
The investments in shares of the Fund are stated at the net asset value of
the Fund. The cost of shares sold and redeemed is determined on the average
cost method. Dividend distributions received from the Fund are reinvested in
additional shares of the Fund and recorded as income by the Variable Account
on the ex-dividend date.
Federal Income Taxes
LBVIP is taxed as a life insurance company and includes its flexible premium
deferred variable annuity operations in its tax return. Currently, no tax
liability is charged to the operations of the Variable Account by LBVIP.
Consequently, no provision for income taxes has been made against the
Variable Account.
Annuity Reserves
Annuity reserves are computed for currently payable contracts according to
the 1983 Table A mortality table. The assumed interest is 3.5 percent.
Changes to annuity reserves are based on actual mortality and risk
experience. If the reserves required are less than the original estimated
reserve amount held in the Variable Account, the excess is reimbursed to
LBVIP. If additional reserves are required, LBVIP reimburses the Variable
Account.
(3) RELATED PARTY TRANSACTIONS
Proceeds received by the Variable Account from units issued represent gross
contract premiums received by LBVIP less any applicable premium taxes.
Premium tax deductions were $34,975 and $318,773 in 1995 and 1994,
respectiverly. No charge for sales distribution expense is deducted from
premiums received.
A surrender charge is deducted from the accumulated value of the contract to
compensate LBVIP if a contract is surrendered in whole or in part during the
first six years the contract is in force. The surrender charge is 6% during
the first contract year, and decreases by 1% each subsequent contract year.
For purposes of the surrender charge calculation, up to 10% of a contract's
accumulated value may be excluded from the calculation each year. This
charge is deducted by redeeming units of the subaccounts of the Variable
Account. Surrender charges of $1,400,442 and $1,012,150 were deducted in
1995 and 1994, respectively.
An annual administrative charge of $30 is deducted on each contract
anniversary from the accumulated value of the contract to compensate LBVIP
for administrative expenses relating to the contract and the Variable
Account. This charge is deducted by redeeming units of the subaccounts of
the Variable Account. No such charge is deducted from contracts for which
total premiums paid, less surrenders, equals or exceeds $5,000. No
administrative charge is payable during the annuity period. Administrative
charges of $460,629 and $425,930 were deducted in 1995 and 1994,
respectively.
A daily charge is deducted from the value of the net assets of the Variable
Account to compensate LBVIP for mortality and expense risks assumed in
connection with the contract and is equivalent to an annual rate of 1.1% of
the average daily net assets of the Variable Account. Mortality and expense
risk charges of $21,890,965 and $18,983,485 were deducted in 1995 and 1994,
respectively.
A fixed account investment option is available for Contract Owners of the
flexible premium deferred variable annuity. Assets of the fixed account are
combined with the general assets of LBVIP and invested by LBVIP as allowed
by applicable law. Accordingly, the fixed account assets are not included in
the Variable Account financial statements. The asset value of net transfers
to the fixed account was $29,244,196 and $67,625,861 in 1995 and 1994,
respectively.
(4) UNIT ACTIVITY
Transactions in accumulation units (including transfers among subaccounts)
were as follows:
Subaccounts
----------------------------------------------------
High Money
Growth Yield Income Market
---------- ---------- ---------- ----------
Units outstanding at
December 31, 1993 26,757,458 21,866,400 32,678,803 17,939,270
Units issued 12,466,419 10,460,272 9,719,046 266,662,660
Units redeemed (4,302,597) (4,096,346) (7,729,483) (260,970,713)
---------- ---------- ---------- ------------
Units outstanding at
December 31, 1994 34,921,280 28,230,326 34,668,366 23,631,217
Units issued 6,784,706 4,561,500 4,457,770 61,868,337
Units redeemed (4,007,139) (3,867,646) (5,203,194) (56,539,593)
---------- ---------- ---------- -----------
Units outstanding at
December 31, 1995 37,698,847 28,924,180 33,922,942 28,959,961
========== ========== ========== ==========
(5) PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in
the LB Series Fund, Inc. were as follows:
Subaccounts
------------------------------------------------------
High Money
Growth Yield Income Market
------------ ------------ ------------ -----------
For the year ended
December 31, 1994
Purchases $175,817,308 $192,984,459 $125,123,470 $35,376,267
Sales 5,290,585 12,226,002 42,833,259 26,728,122
For the year ended
December 31, 1995
Purchases 74,140,764 84,260,446 56,576,482 28,900,946
Sales 9,619,413 17,733,922 34,405,533 19,512,750
<PAGE>
COMMENTS ON FINANCIAL STATEMENTS OF LBVIP
The financial statements of LBVIP included in this Statement of Additional
Information should be considered as bearing only upon the ability of LBVIP to
meet its obligations under the Contracts. The value of the interests of
Contract Owners, Annuitants and Beneficiaries under the Contracts are affected
primarily by the investment experience of the Subaccounts of the Variable
Account. The financial statements of LBVIP should not be considered as bearing
on the investment performance of the assets held in the Variable Account.
FINANCIAL STATEMENTS OF LBVIP
Set forth on the following pages are the audited financial statements of
LBVIP.
<PAGE>
Report of Independent Accountants
To The Board of Directors of
Lutheran Brotherhood Variable
Insurance Products Company
In our opinion, the accompanying statement of financial position and the
related statements of operations and accumulated deficit, of
stockholder's equity and of cash flows present fairly, in all material
respects, the financial position of Lutheran Brotherhood Variable
Insurance Products Company (the Company) at December 31, 1995 and 1994,
and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles
(practices prescribed or permitted by insurance regulatory authorities -
see Note 1). These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these 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 provide a reasonable
basis for the opinion expressed above.
Price Waterhouse Logo goes here.
February 23, 1996
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
STATEMENT OF FINANCIAL POSITION
(in thousands)
December 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Bonds:
U.S. government $123,962 $79,246
Mortgage-backed securities 1,251 2,076
Corporate and other 11,598 3,957
------------ -----------
136,811 85,279
Other invested assets:
Loans on insurance contracts 2,807 1,760
Cash and short-term investments 25,362 20,718
Other investments 408 -
----------- -----------
Total invested assets 165,388 107,757
Investment income due and accrued 2,418 1,947
Receivables from affiliates 1,371 -
Assets held in separate accounts 2,348,212 1,816,516
----------- -----------
Total assets $ 2,517,389 $ 1,926,220
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Contract reserves $171,140 $125,063
Benefits in process of payment 3,621 3,474
Accounts payable 2,913 2,444
Premiums in process 1,489 861
Payable to affiliate 39 884
Liabilities related to separate accounts 2,274,191 1,747,790
Interest maintenance reserve 248 266
Asset valuation reserve 123 113
----------- -----------
Total liabilities and asset reserve 2,453,764 1,880,895
=========== ===========
Stockholder's equity:
Common stock, $1 par value, 2,000,000
shares authorized,
issued and outstanding 2,000 2,000
Additional paid-in capital 118,800 118,800
Accumulated deficit (57,175) (75,475)
----------- -----------
Total stockholder's equity 63,625 45,325
----------- -----------
Total liabilities and stockholder's
equity $ 2,517,389 $ 1,926,220
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For the years ended December 31, 1995 and 1994
(in thousands)
1995 1994
--------- --------
<S> <C> <C>
Income:
Annuity considerations $ 214,697 $ 458,760
Insurance premiums 31,639 34,545
Net investment income 10,739 3,520
Income from charges to separate accounts 22,455 19,403
Commission income 76 92
--------- ---------
Total income 279,606 516,320
--------- ---------
Deductions:
Net transfer to separate accounts 78,001 336,876
Net additions to contract reserves 47,893 82,521
Benefits to contractholders 108,908 68,951
Commissions 11,477 20,590
Operating expenses charged by affiliates 13,964 22,984
Operating expenses 2,994 6,037
--------- ---------
Total deductions 263,237 537,959
--------- ---------
Net income (loss) from operations before net
realized capital losses 16,369 (21,639)
Net realized capital losses (3) (2)
--------- ---------
Net gain (loss) from operations 16,366 (21,641)
Other transactions affecting accumulated deficit:
Net unrealized capital gains (losses) (2) -
(Increase) decrease in asset valuation reserve (10) 234
Decrease (increase) in non-admitted assets 130 (15)
Decrease of death benefit guarant reserve 1,816 -
--------- ---------
Total other transactions 1,934 219
--------- ---------
Net change in accumulated deficit 18,300 (21,422)
Accumulated deficit, beginning of year (75,475) (54,053)
--------- ---------
Accumulated deficit, end of year $ (57,175) $ (75,475)
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
STATEMENT OF STOCKHOLDEROS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(in thousands)
Additional
Common Paid-In Accumulated
Stock Capital Deficit
------ -------- --------
<S> <C> <C> <C>
Balance at December 31, 1993 $2,000 $118,800 $(54,053)
Net loss (21,641)
Other surplus changes 219
------ -------- --------
Balance at December 31, 1994 $2,000 $118,800 $(75,475)
Net gain 16,366
Other surplus changes 1,934
------ -------- --------
Balance at December 31, 1995 $2,000 $118,800 $(57,175)
====== ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(in thousands)
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums and annuities considerations $246,335 $493,285
Income from charges to separate accounts 22,370 19,350
Net investment income 9,810 2,512
Insurance benefits paid (108,760) (67,157)
Commissions and operating expenses paid (28,574) (49,681)
Net transfer to separate accounts (82,823) (347,722)
Net loans on insurance contracts (1,050) (709)
Other operating items, net (1,164) (3,684)
-------- --------
Net cash provided by operating activities 56,144 46,194
-------- --------
Cash flows from investing activities:
Proceeds from bonds sold, matured or repaid 2,910 4,103
Cost of bonds purchased (54,410) (59,749)
-------- --------
Net cash used in investing activities (51,500) (55,646)
-------- --------
Net change in cash and short-term investments 4,644 (9,452)
Cash and short-term investments, beginning of year 20,718 30,170
-------- --------
Cash and short-term investments, end of year 25,362 $20,718
The accompanying notes are an integral part of the financial statements.
</TABLE>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Lutheran Brotherhood Variable Insurance Products Company (the Company)
offers financial services to Lutherans. The Company, through its parent,
Lutheran Brotherhood Financial Corporation (LBFC or Parent), is a wholly
owned subsidiary of Lutheran Brotherhood, a fraternal benefit
organization.
The accompanying financial statements have been prepared in conformity
with statutory accounting practices prescribed or permitted by the
Department of Commerce of the State of Minnesota. These statutory
practices are considered to be generally accepted accounting principles
for fraternal benefit societies and their insurance subsidiaries. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
In April 1993, the Financial Accounting Standards Board issued
Interpretation No. 40, OApplicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other EnterprisesO, which
establishes a different definition of generally accepted accounting
principles for mutual life insurance companies. Under the
Interpretation, financial statements of mutual life insurance companies
for periods beginning after December 15, 1995 which are prepared on the
basis of statutory accounting will no longer be characterized as in
conformity with generally accepted accounting principles.
In order to continue to present financial statements in accordance with
generally accepted accounting principles for general purpose
distribution in 1996, the Company expects to present its financial
statements in accordance with the requirements of the Interpretation.
Management believes that financial statements prepared on this basis
would result in an increase to unassigned surplus. The effects of this
change in accounting basis would be reported retroactively through
restatement beginning with the earliest year presented.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Valuation of Invested Assets
Invested assets are valued according to the method established by the
National Association of Insurance Commissioners (NAIC). Generally, bonds
not backed by other loans are valued at amortized cost using the
interest method. Loan-backed bonds and structured securities are valued
at amortized cost using the interest method including anticipated
prepayments at the date of purchase; significant changes in estimated
cash flows from the original purchase assumptions are accounted for
using the retrospective method. Investment in a money market instrument
is valued at market value. Loans on insurance contracts are valued at
the aggregate unpaid balances.
Cash and Short-Term Investments
Cash and short-term investments include cash, money market shares and
repurchase agr ments collateralized by U.S. government-backed
obligations maturing within one year.
Contract Reserves
Contract reserves are based on statutory mortality and interest
requirements and are designed to be sufficient to provide for all
contractual benefits. Variable life insurance reserves for contracts
issued prior to January 31, 1993 are equal to full account value.
Reserves for all other variable life contracts are determined according
to the Commissioner's Reserve Valuation Method using an interest rate of
4%. Variable annuity reserves for contracts issued prior to January 1,
1992 are equal to full account value. Reserves for all other variable
annuities are determined according to the Commissioner's Annuity Reserve
Valuation Method using interest rates ranging from 5.75% to 6.25%.
Reserves for supplemental benefits, minimum death benefit guarant s,
and other fixed benefits are maintained in the general account and are
determined using statutory mortality/morbidity bases and interest rates
predominantly ranging from 4% to 5.5%.
Annuity reserves total $2,329.7 million at December 31, 1995 and consist
of $2,177.1 million in the liabilities related to separate accounts and
$152.6 million in fixed account reserves. All of these contracts are
subject to a surrender charge upon withdrawal. All annuities have
mortality/morbidity features.
Annuity reserves for contracts in the annuity payment period are
maintained in the annuity separate account. If reserves required for
such contracts are greater than the original estimated reserve amount
held in the separate account, the Company reimburses the separate
account. If the reserves required are less than the original reserve,
the excess is reimbursed to the Company.
Claim liabilities are established in amounts estimated to cover incurred
claims. These liabilities are based on individual case estimates for
reported claims and estimates of unreported claims, based on past
experience.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future
experience could differ from these estimates.
Investment Reserves
The Company is required to maintain two reserves. The asset valuation
reserve (AVR) establishes a reserve for invested assets held by the
Company. The interest maintenance reserve (IMR) establishes a reserve
for realized gains and losses resulting from changes in interest rates
on short and long-term fixed income investments. Net realized gains and
losses charged to the IMR are amortized into investment income over the
approximate remaining life of the investment sold using the grouped
method.
Premium Income and Operating Expenses
Premiums are recorded as income over the premium paying period of the
contracts. Operating expenses, including costs of acquiring new
business, are charged to current operations as incurred.
Non-Admitted Assets
Certain assets, (principally miscellaneous receivables) have been
designated by the NAIC as non-admitted assets and are not included in
the Statement of Financial Position. Changes in non-admitted assets are
reflected directly in stockholder's equity. Non-admitted assets
approximated $.04 million and $0.2 million at December 31, 1995 and
1994, respectively.
NOTE 3 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the bases used by the Company in estimating its
fair value disclosures for financial instruments:
Bonds - Fair values are estimated using independent pricing services.
For securities not actively traded, fair values are estimated using
market quotes from brokers or internally developed pricing models.
Loans on insurance contracts - The carrying amount reported in the
Statement of Financial Position approximates fair value since loans on
insurance contracts reduce the amount payable at death or at surrender
of the contract.
Cash and short-term investments and investment income due and accrued -
The carrying amounts reported in the Statement of Financial Position
approximate fair value.
Other deposit liabilities - The carrying amount for supplemental
contracts without mortality/morbidity features of $8.4 million
approximates fair value.
NOTE 4 - INVESTMENTS
Bonds
Investments in bonds are intended to be held to maturity; therefore,
care should be exercised in drawing any conclusions from market value
information.
Investments in bonds at December 31, 1995 and 1994 follow (in
thousands):
<TABLE>
<CAPTION>
December 31, 1995
---------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Bonds Value Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government $ 123,962 $ 8,595 $ - $ 132,557
Mortgage-backed securities 1,251 12 - 1,263
All other corporate bonds 11,598 837 - 12,435
-------- -------- -------- --------
$ 136,811 $ 9,444 $ - $ 146,255
========== =========== =========== ============
December 31, 1994
---------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Bonds Value Gains Losses Value
---------- ---------- ---------- ----------
U.S. government $ 79,246 $ 16 $ 756 $ 78,506
Mortgage-Backed Securities 2,076 - 24 2,052
All Other Corporate Bonds 3,957 99 - 4,056
-------- ----------- ---------- ----------
$ 85,279 $ 115 $ 780 $ 84,614
=========== =========== =========== ============
The carrying value and estimated market value of bonds at December 31, 1995, by contractual
maturity, are as follows (in thousands):
<CAPTION>
Estimated
Carrying Market
Value Value
------ ------
<S> <C> <C>
One year or less $14,642 $14,670
Over 1 year through 5 years 37,827 39,748
Over 5 years through 10 years 84,069 91,552
Over 10 years 273 285
-------- --------
$136,811 $146,255
========= ========
Investment Income and Realized Capital Gains and Losses
Investment income and gross realized gains and losses for 1995
and 1994 are as follows (in thousands):
<CAPTION>
Year Ended December 31, 1995
-------------------------
Gross Gross
Investment Realized Realized
Income Gains Losses
------- ------- -------
<S> <C> <C> <C>
Bonds $ 8,582 $ 57 $ 2
Short-term investments 1,940 - -
Other 238 - 3
--------- ---------- --------
10,760 $ 57 $ 5
========= =========
Less investment expenses (21)
---------
Net investment income $ 10,739
==========
Year Ended December 31, 1995
-------------------------
Gross Gross
Investment Realized Realized
Income Gains Losses
------- ------- -------
Bonds $ 2,322 $ 8 $ -
Short-term investments 1,054 - -
Other 152 - 1
--------- ---------- --------
3,528 $ 8 $ 1
========= =========
Less investment expenses (8)
---------
Net investment income $ 3,520
==========
NOTE 5 - STATUTORY DEPOSIT
Bonds with a carrying value of $2.1 million and $2.1 million and a
market value of $2.2 million and $2.1 million at December 31, 1995 and
1994, respectively, are on deposit with various state insurance
departments as required by law.
NOTE 6 - SEPARATE ACCOUNT BUSINESS
Separate account assets include segregated funds invested by the Company
for the benefit of variable life insurance and variable annuity contract
owners. A portion of the contract owner's premium payments are invested
by the Company into the LBVIP Variable Insurance Account, the LBVIP
Variable Insurance Account II, or the LBVIP Variable Annuity Account I
(the Variable Accounts). The Company records these payments as assets in
the separate accounts. Separate account liabilities represent reserves
held related to the separate account business.
The excess of separate account assets over separate account liabilities
at December 31, 1995 and 1994 represents the difference betw n the full
account value of annuity contracts and reserves required to be held for
these contracts.
The Variable Accounts are unit investment trusts registered under the
Investment Company Act of 1940. Each Variable Account has four
subaccounts, each of which invests only in a corresponding portfolio of
the LB Series Fund, Inc. (the Fund). The Fund is a diversified, open-end
management investment company. The shares of the Fund are carried in the
Variable AccountsO financial statements at the net asset value.
Effective January 22, 1991, a fixed account was added as an investment
option for variable annuity contract owners. Net premiums allocated to
the fixed account are invested in the assets of the Company.
The assets and liabilities of the Variable Accounts are clearly
identified and distinguished from the other assets and liabilities of
the Company. The assets of the Variable Accounts will not be applied to
the liabilities arising out of any other business conducted by the
Company. Considerations received on variable life insurance and variable
annuity contracts are included in income and correspondingly offset by
transfers to the Variable Accounts.
The Company records premium income and considerations received from the
sale of variable insurance and annuity contracts, and pays death claims
on these contracts. The premiums and considerations received and death
claims paid are included in the Statement of Operations.
The Company assumes the mortality and expense risk associated with these
contracts for which it is compensated by the separate accounts. The
daily charges to the separate accounts are based on the average daily
net assets at the following annual rates:
<CAPTION>
1995 1994
Rate Charges Charges
------ ---------- ----------
<S> <C> <C> <C>
Variable Insurance Account 0.6% $ 516 $ 375
Variable Insurance Account II 2.3% 48 45
Variable Annuity Account I 1.1% 21,891 18,983
---------- ----------
$ 22,455 $ 19,403
=========== ==========
Income from these charges is included in the Statement of Operations.
In addition, the Company deducts certain amounts from the cash value of
the accounts invested in the separate accounts
for surrender charges and annual administrative charges as follows:
1995 1994
------ ------
Variable Insurance Account $ 7,307 $ 6,284
Variable Insurance Account II - 20
Variable Annuity Account I 1,861 1,438
---------- ----------
$ 9,168 $ 7,742
=========== ==========
These deductions are reflected in Onet transfers to separate accounts'
in the Statement of Operations.
NOTE 7 - RELATED PARTY TRANSACTIONS
Lutheran Brotherhood provides administrative services to and collects
premiums for the Company. The net receivable at December 31, 1995
represents the premiums collected but not transferred to the Company and
the unpaid balance of these administrative services. At December 31,
1994, there was a net payable due to Lutheran Brotherhood which is
included in payables to affiliates as shown below.
Lutheran Brotherhood allocated approximately $13.6 million and $22.6
million of operating expenses to the Company in 1995 and 1994,
respectively, which includes the costs for corporate officers, human
resources, and other administrative and operating functions. Lutheran
Brotherhood has agr d to provide the Company with capital requirements,
if necessary.
Payables to affiliates includes the following:
1995 1994
------ ------
Lutheran Brotherhood:
Operating expenses payable $ - $ 1,087
Premium income - (236)
-------- --------
Lutheran Brotherhood Securities Corp.:
Operating expenses payable 39 33
-------- --------
$ 39 $ 884
======== ========
Lutheran Brotherhood Securities Corp. (LBSC) is an affiliate of the
Company. The payable represents operating expenses of the Company paid
by LBSC that have not been reimbursed as of December 31, 1995 and 1994.
LBSC allocated $0.4 million and $0.4 million of operating expenses to
the Company in 1995 and 1994, respectively, which includes the costs for
various administrative and operating functions. In addition, LBSC, as
principal underwriter of the Company's variable products, received
commission income from the Company of approximately $11.5 million and
$20.6 million in 1995 and 1994, respectively.
NOTE 8 - INCOME TAXES
The Company's tax provision and related balance sh t accounts are
determined in accordance with a tax sharing agr ment with its Parent,
which allocates federal income taxes to the Company as if it filed a
separate tax return. During 1995, the Company utilized $15.5 million of
its net operating loss carryforward and $14.0 million of its alternative
minimum tax net operating loss carryforward. The Company has net
operating loss carryforwards for tax purposes of approximately $41.4
million at December 31, 1995, which expire betw n 2005 and 2009. For
alternative minimum tax calculation purposes, the Company has net
operating loss carryforwards of $42.9 million at December 31, 1995,
which expire between 2005 and 2009.
</TABLE>
APPENDIX B
STATE PREMIUM TAX CHART
Premium taxes vary according to the state and are subject to change. In many
jurisdictions there is no tax at all. For current information, a tax adviser
should be consulted.
The current premium tax rates are a guide only and should not be relied on to
determine actual premium taxes on any premium payment or Contract because the
taxes are subject to change from time to time by legislative and other
governmental action. In addition, other governmental units within a state may
levy such taxes. The timing of tax levies also varies from one taxing
authority to another. Consequently, in many cases the purchaser of a Contract
will not be able to accurately determine the premium tax applicable to the
Contract by reference to the state tax rates described below.
RATE OF TAX
----------------
QUALIFIED NON-QUALIFIED
STATE PLANS PLANS
------ --------
California .50% 2.35%*
District of Columbia 2.25% 2.25%*
Florida -- 1.00%
Kansas -- 2.00%*
Kentucky 2.00%* 2.00%*
Maine -- 2.00%
Nevada -- 3.50%*
South Dakota -- 1.25%
West Virginia 1.00% 1.00%
Wyoming -- 1.00%
* Taxes become due when annuity benefits commence, rather than when the
premiums are collected. At the time of annuitization, the premium tax payable
will be charged against the Accumulated Value.
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