Registration No. 33-15974
811-5242
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. ___24__ [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ___25___ [X]
LBVIP VARIABLE ANNUITY ACCOUNT I
(Exact Name of Registrant)
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
(Name of Depositor)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (612) 340-7215
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(3) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<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
(800) 990-6290
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This Prospectus describes an individual flexible premium variable annuity
contract (the "Contract") offered by Lutheran Brotherhood Variable Insurance
Products Company ("LBVIP" "we" or "us"). We are a stock life insurance
company that is an indirect subsidiary of Lutheran Brotherhood ("LB"). We
offer the Contract only in situations in which the Contract's Annuitant is
eligible for membership in Lutheran Brotherhood, unless otherwise required
by state law. We may sell the Contract to or in connection with retirement
plans which may or may not qualify for special Federal tax treatment under
the Internal Revenue Code.
We allocate net premiums based on the Annuitant's designation to one or more
Subaccounts of LBVIP Variable Annuity Account I (the "Variable Account"),
and/or to the Fixed Account (which is the general account of LBVIP, and
which pays interest in an amount that is at least as great as the 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 seven Portfolios of the
Fund - the Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, the
World Growth Portfolio, the Growth Portfolio, the High Yield Portfolio, the
Income Portfolio, and the Money Market Portfolio.
Additional information about LBVIP, the Contract and the Variable Account is
contained in a Statement of Additional Information (SAI) dated May 1, 2000.
That SAI was filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. You may obtain a copy of the
SAI without charge by writing to us at our address above. In addition, the
Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains the SAI. The Table of Contents for the Statement of
Additional Information may be found on Page 29 of this Prospectus. Appendix
A sets forth definitions of special terms used in this Prospectus.
An investment in the Contract is not a deposit of a bank or financial
institution and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the
Contract involves investment risk including the possible loss of principal.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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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, 2000.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY FEE TABLES
SUMMARY
The Contract
Charges and Deductions
Annuity Provisions
Federal Tax Status
Condensed Financial Information
Performance Related Information
LBVIP, LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND
THE FUND
LBVIP and Lutheran Brotherhood
The Variable Account
LB Series Fund, Inc.
Addition, Deletion or Substitution of Investments
THE CONTRACTS
Purchasing a Contract
Processing Your Application
Allocation of Premium
Free Look Period
Accumulated Value, Accumulation Units, and Accumulation Unit Value
Minimum Accumulated Value
Death Benefit Before the Maturity Date
Death Benefit After the Maturity Date
Surrender (Redemption)
Transfers
Telephone Transfers
Special Transfer Service - Dollar Cost Averaging
Assignments
Contract Owner, Beneficiaries and Annuitants
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
Administrative Charge
Mortality and Expense Risk Charge
Investment Advisory Fee of the Fund
Premium Taxes
Other Taxes
Sufficiency of Charges
ANNUITY PROVISIONS
Maturity Date
Maturity Proceeds
Settlement Options
Frequency of Annuity Payments
Amount of Variable Annuity Payments
Subaccount Annuity Unit Value
GENERAL PROVISIONS
Postponement of Payments
Payment by Check
Reports to Contract Owners
Contract Inquiries
FEDERAL TAX STATUS
Introduction
LBVIP's Tax Status
Taxation of Annuities in General
Qualified Plans
1035 Exchanges
Diversification Requirements
Withholding
Other Considerations
EMPLOYMENT-RELATED BENEFIT PLANS
VOTING RIGHTS
SALES AND OTHER AGREEMENTS
LEGAL PROCEEDINGS
LEGAL MATTERS
FINANCIAL STATEMENTS AND EXPERTS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ORDER FORM
APPENDIX A - DEFINITIONS
APPENDIX B - CONDENSED FINANCIAL INFORMATION
APPENDIX C - MORE INFORMATION ABOUT THE FIXED ACCOUNT
APPENDIX D - ILLUSTRATION OF MONTHLY VARIABLE ANNUITY
SETTLEMENT OPTION
SUMMARY FEE TABLE
The purpose of this table is to help you understand the various costs and
expenses associated with your Contract. You may allocate premiums and
transfer Accumulated Value to any one of the Subaccounts - Opportunity
Growth, Mid Cap Growth, World Growth, Growth, High Yield, Income, and Money
Market - or to the Fixed Account or to any combination of the Subaccounts
and the Fixed Account. You pay no initial sales charge when you purchase the
Contract. All costs that you bear directly or indirectly for the Subaccounts
and Portfolios are shown below. We will deduct any premium taxes that
apply.
Contract Owner 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 Subaccount Expenses
(as a percentage of average daily Accumulated Value
or Annuity Unit Value) Current(3) Maximum
Mortality and Expense Risk Fees 1.10% 1.25%
Total Subaccount Annual Expenses 1.10% 1.25%
Annual Expenses For Growth, High Yield, Income, Money Market,
Mid Cap Growth and Opportunity Growth Portfolios
(as a percentage of Portfolio average daily net assets)
Management Fees (Investment Advisory Fees) 0.40%
Other Expenses After Expense Reimbursement 0%(4)
Total Portfolio Annual Expenses 0.40%
Annual Expenses For World Growth Portfolio
(as a percentage of Portfolio average daily net assets)
Management Fees (Investment Advisory Fees) 0.85%
Other Expenses After Expense Reimbursement 0%(3)
Total Portfolio Annual Expenses 0.85%
EXAMPLE (5)
Based on current mortality and expense risk fees
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
* For all Subaccounts except
World Growth Subaccount $71 $ 87 $103 $179
* For World Growth Subaccount $75 $101 $126 $227
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
* For all Subaccounts except
World Growth Subaccount $15 $47 $ 82 $179
* For World Growth Subaccount $20 $61 $105 $227
EXAMPLE (5)
Based on maximum mortality and expense risk fees
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
* For all Subaccounts except
World Growth Subaccount $73 $ 92 $111 $195
* For World Growth Subaccount $77 $105 $134 $243
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
* For all Subaccounts except
World Growth Subaccount $17 $52 $ 90 $195
* For World Growth Subaccount $21 $66 $113 $243
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(1) 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) 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 and
the Accumulated Value 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) The current charge for mortality and expense risk fees is equal to an
annual rate of 1.10%, and we guarantee that this charge will never exceed an
annual rate of 1.25%. See Page 19.
(4) 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 LB and its affiliate, LBVIP, have agreed to reimburse the Fund for
these operating expenses. For the fiscal year of the Fund ending December
31, 1999, the Fund was reimbursed approximately $3,651,490 for such
operating expenses which would have represented approximately 0.05% of the
average daily net assets of each of the Portfolios in the Fund without the
reimbursements (see Pages 9-11). The Expense Reimbursement Agreement could
be terminated at any time by the mutual agreement of the Fund, LB and LBVIP,
but the Fund, LB and LBVIP currently contemplate that the Expense
Reimbursement Agreement will continue so long as the Fund remains in
existence. If the Expense Reimbursement Agreement were terminated, the Fund
would be required to pay these operating expenses, which would reduce the
net investment return on the shares of the Fund held by the Subaccounts of
the Variable Account.
(4) In these examples, the $30 annual administrative charge is approximated
as a 0.00% charge based on LBVIP's average contract size.
THE EXAMPLE SHOWING EXPENSES 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
Please refer to Appendix A at the end of this Prospectus for definitions of
several technical terms, which can help you understand details about your
Contract. The Summary is an introduction to various topics related to the
Contract. For more detailed information on each subject, refer to the
appropriate Page numbers.
The Contract
Detailed explanations are provided in "The Contracts" (see Pages 12-17).
Issuance of a Contract. Lutheran Brotherhood Variable Insurance Products
Company issues individual flexible premium variable annuity contracts. In
order to purchase a Contract, you must submit an application to us through
one of our licensed representatives, who is also a registered representative
of LBSC. The Contract is offered 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 minimum acceptable initial premium is $600 on an annualized basis. We
may, at our discretion, waive this initial premium requirement. You may make
subsequent premiums under the Contract, but we may choose not to accept any
subsequent premium less than $50.
Free Look Period. You have the right to return the Contract within 10 days
after you receive it.
Allocation of Premiums. You may allocate premiums under the Contract to one
or more Subaccounts of the Variable Account and to the Fixed Account. The
assets of each Subaccount will be invested solely in a corresponding
Portfolio of the Fund:
* Opportunity Growth Portfolio
* Mid Cap Growth Portfolio
* World Growth Portfolio
* Growth Portfolio
* High Yield Portfolio
* Income Portfolio
* Money Market Portfolio
The Accumulated Value of the Contract in the Subaccounts and, except to the
extent fixed amount annuity payments have been elected, 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 us. (See Appendix C.)
On the date we approve the Contract Owner's application, we 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 we receive the subsequent premium.
Surrenders. If a Written Notice from you requesting a surrender is received
on or before the Maturity Date, we will pay to you all or part of the
Accumulated Value of a Contract 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. Under
certain circumstances the Contract Owner may make surrenders after the
Maturity Date.
Transfers. On or before the Maturity Date, you may request the transfer of
all or a part of your 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). We
reserve the right to limit the number of transfers in any Contract Year;
although, we will always allow at least two transfers a year. 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, you may, by Written Notice
and only once each Contract Year, change the percentage allocation of
variable annuity payments among the available Subaccounts
Annuity Provisions
See Pages 20-21 for more details.
You 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.
Federal Tax Status
For a description of the Federal income tax status of annuities, see Pages
22-26. 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
Condensed financial information derived from the financial statements of the
Variable Account is contained in Appendix B.
The financial statements of LBVIP are also contained in the Statement of
Additional Information.
Performance Related Information
The Variable Account may advertise certain performance related information
concerning the Subaccounts.
Yields
The Variable Account may also advertise 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 December 31, 1999, was 4.44% and 4.53%, respectively. For more
information, see the Statement of Additional Information.
The Variable Account may also advertise for the other Subaccounts' yield
quotations based on a 30-day (or one month) period, which is 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 base period ended December 31, 1999
for the High Yield Subaccount was 9.93%. The current yield for the same 30-
day base period for the Income Subaccount was 5.82%. For more information,
see the Statement of Additional Information.
Total Returns. From time to time, we 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 has
less than 10 years of performance history, the total return will be shown
from commencement of operations.
The average annual total returns for the 1-year, 5-year, and 10-year periods
through December 31, 1999 and for the period from commencement of operations
through December 31, 1999 for the Subaccounts are as follows:
1 Year 5 Year 10 Year Inception
------ ------ ------- ---------
Opportunity Growth
Subaccount (1/18/96) 19.37% -- -- 8.62%*
Mid Cap Growth
Subaccount (1/30/98) 40.07 -- -- 26.20%
World Growth Subaccount (1/18/96) 25.52%* -- -- 13.61%*
Growth Subaccount (3/8/88) 34.41%* 30.28%* 18.98%* --
High Yield Subaccount (3/8/88) 3.42%* 9.05%* 10.59%* --
Income Subaccount (3/8/88) -8.32%* 5.97%* 6.74%* --
Money Market Subaccount (2/18/88) 1.81%* 3.79%* 3.94%* --
*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 and the Accumulated Value is less than
$5,000. Inclusion of the administrative charge would reduce the total
return figures shown above. Assumes applicable surrender 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.
LBVIP, LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT
AND THE FUND
LBVIP and Lutheran Brotherhood
LBVIP issues the contracts. We were organized in 1982, as a stock life
insurance company incorporated under the laws of the State of Minnesota. We
are currently licensed to transact life insurance business in 42 states and
the District of Columbia. We are an indirect subsidiary of Lutheran
Brotherhood, a fraternal benefit society owned by and operated for its
members. LB was founded in 1917 under the laws of the State of Minnesota. At
the end of 1999, LB and its subsidiaries had total assets of approximately
$22.94 billion.
To help us meet capitalization requirements of various states, LB has
invested approximately $115.8 million in LBVIP. LB may invest additional
amounts in LBVIP in the future but is not currently legally obligated to do
so. The assets of LB do not support the benefits payable under the Contracts
described in this Prospectus.
We are 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 we do business. We submit annual reports on our
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. We are also subject to certain
Federal securities laws and regulations.
The Variable Account
The Variable Account is a separate account of LBVIP, established by our
Board of Directors 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. We have 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").
This registration does not involve supervision by the SEC of the management
or investment policies or practices.
The assets of the Variable Account are owned by us, and we are 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 we may
conduct. We may transfer to our 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 our other income, gains or losses. We 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.
You may allocate the premiums paid under the Contract to one or more of the
Subaccounts of the Variable Account. We invest the assets of each Subaccount
in a corresponding Portfolio of the Fund. The Subaccounts and corresponding
Portfolios of the Fund are:
Subaccount Corresponding Portfolio
---------- ------------------------
Opportunity Growth Subaccount Opportunity Growth Portfolio
Mid Cap Growth Subaccount Mid Cap Growth Portfolio
World Growth Subaccount World Growth Portfolio
Growth Subaccount Growth Portfolio
High Yield Subaccount High Yield Portfolio
Income Subaccount Income Portfolio
Money Market Subaccount Money Market Portfolio
The Portfolios of the Fund each have an investment objective:
Opportunity Growth Portfolio. To achieve long-term growth of capital by
investing primarily in a professionally managed diversified portfolio of
smaller capitalization common stocks.
Mid Cap Growth Portfolio. To achieve long term growth of capital by
investing primarily in a professionally managed diversified portfolio of
common stocks of companies with medium market capitalizations.
World Growth Portfolio. To achieve long-term growth of capital by investing
primarily in a professionally managed diversified portfolio of common stocks
of established, non-U.S. companies.
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.
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.
We cannot assure that the Portfolios of the Fund will achieve their
respective investment objectives.
As custodian for the Variable Account, we will hold shares of the Fund
purchased by each Subaccount of the Variable Account.
The Fund is designed to provide an investment vehicle for variable annuity
and variable life insurance contracts. Shares of the Fund are sold to other
insurance company separate accounts of LBVIP and separate accounts of our
indirect parent, Lutheran Brotherhood ("LB"). 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 we do 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:
* Changes in state insurance laws
* Changes in Federal income tax law
* Changes in the investment management of the Fund
* Differences in voting instructions between those given by the
contract owners from the different separate accounts
In addition, if we believe the Fund's response to any of those events or
conflicts insufficiently protects Contract Owners, we will take appropriate
action on our 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 us 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. LB charges the
Fund a daily investment advisory fee equal to an annual rate of 0.40% of the
aggregate average daily net assets of the Opportunity Growth, Mid Cap
Growth, Growth, High Yield, Income and Money Market Portfolios. LB also
charges the Fund an annual investment advisory fee equal to 0.85% of the
aggregate average daily net assets of the World Growth Portfolio.
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 the U.S.
equivalent of $42 billion under management as of December 31, 1999 in its
offices in Baltimore, London, Tokyo, Singapore, Paris, Hong Kong and Buenos
Aires. Price-Fleming has an investment advisory group that has day-to-day
responsibility for managing the World Growth Portfolio and developing and
executing the Portfolio's investment program.
LB pays the Sub-adviser an annual fee for its sub-advisory services to the
World Growth Portfolio. The fee payable is equal to a percentage of each
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.
You should periodically evaluate your allocation among the Subaccounts in
light of current market conditions and the investment risks associated with
investing in the Fund's various Portfolios. A full description of the Fund,
its investment objectives, policies and restrictions, its expenses, the
risks associated with investing in the Fund's Portfolios and other aspects
of the Fund's operation is contained in the accompanying LB Series Fund,
Inc. Prospectus, which should be carefully read in conjunction with this
Prospectus.
Addition, Deletion or Substitution of Investments
We reserve 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 Portfolio
shares of the Fund are no longer available for investment or if in our
judgment further investment in any Portfolio should become inappropriate in
view of the purposes of the Variable Account, we may redeem the shares, if
any, of that Portfolio and substitute shares of another registered open-end
management company. We 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.
We also reserve 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, we may, in our 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 us.
If any of these substitutions or changes are made, we may by appropriate
endorsement change the Contract to reflect the substitution or change. If we
deem 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
Purchasing a Contract
You purchase a Contract by submitting an application to us through one of
our licensed representatives who is also a registered representative of
LBSC. In your application you select the features of your Contract,
including:
* The amount of your initial premium. This premium must be at least $600
on an annualized basis, though we may choose to waive this requirement.
* How you plan to pay premiums after the initial premium. We may require
any such premium to be at least $50.
* How you want your premiums allocated among the Subaccount(s) and/or Fixed
Account.
* Your age at the time you want annuity payments to begin. This will
establish the Maturity Date, which must be a Contract Anniversary at
least three years after the Date of Issue.
* The beneficiary to receive the benefit payable upon the death of the
Annuitant.
Processing your Application
We will process your application after we have received both it and your
initial premium. Your contract's Date of Issue will be the date on which we
receive the initial premium. If we determine that your application is in
good order, we will approve it within two days after the Date of Issue. If
we determine that the application is not in good order, we will attempt to
complete it within five business days. If the application is not complete
at the end of this period, we will tell you the reason for the delay and
inform you that we will return the initial premium to you unless you
specifically consent to our keeping it until the application is complete.
Allocation of Premium
If we approve your application on the Date of Issue, we will allocate the
initial premium among the Subaccount(s) and/or the Fixed Account according
to your application on that date. Otherwise, we will deposit your initial
premium in our general account where it will earn interest at a rate which
we determine. The interest and any cost of crediting interest will be paid
by us, not other Contract Owners. On the date we approve your application,
we will allocate your initial premium (including any interest earned while
in the general account) among the Subaccount(s) and/or the Fixed Account
according to your application. If any premium taxes are required, we will
deduct them from the initial premium prior to making any allocation among
the Subaccount(s) and/or the Fixed Account.
The allocation percentages which you select must be in whole numbers and
their sum must be 100% We reserve the right to adjust allocation
percentages to eliminate fractional percentages. Premiums which you pay
after the initial premium are allocated at the end of the Valuation Period
in which we receive them using the allocation percentages specified in your
application. You may change the allocation percentages for future premiums
without charge and at any time by giving us Written Notice or, if you have
completed the Telephone Transaction Authorization Form, by telephone. Any
change will apply to all future premiums unless you request another change.
The values in the Subaccounts of the Variable Account will vary with the
investment experience of the corresponding Portfolios. You bear the entire
investment risk of your contract. You should periodically review your
allocations of premiums in light of market conditions and your overall
financial objectives.
Free Look Period
After you receive your contract, you have a "free look" period of 10 days
(20 days in Nevada and North Carolina; 30 days if you are age 60 or over and
reside in California) to decide if you want to keep it. If you decide to
cancel the contract within the free look period, you may do so by returning
it to us or to the representative through whom you bought it. When we
receive the contract at our Home Office, we will cancel it and refund to you
an amount which depends on the state in which your contract was issued.
In Michigan, North Carolina, Nevada, South Carolina and Washington, we will
refund all premiums which you have paid. In Pennsylvania, we will refund
the sum of:
(a) The difference between the premiums paid and the amounts allocated to
the Variable and Fixed Accounts; and
(b) The Accumulated Value on the day the contract is first received by us
or our representative.
In all other states, we will refund the sum of:
(a) The Accumulated Value on the date the returned contract is received by
us or our representative;
(b) Any charges we made for premium taxes; and
(c) The amount attributable to your contract for risk charges and taxes, if
any, deducted from the Variable Account, and for advisory fees charged
against the net asset value in the Fund portfolios.
In addition to the "free look" period described, the Employee Retirement
Income Security Act of 1974 ("ERISA") grants certain revocation rights to
contracts issued as individual retirement annuities ("IRA"s). If your
contract is an IRA and you revoke it under the rights granted by ERISA, we
will refund all premiums which you have paid regardless of the state in
which the contract was issued.
Accumulated Value, Accumulation Units, and Accumulation Unit Value
Accumulated Value. Your Contract's value is expressed as its Accumulated
Value. On or before the Maturity Date, Your Contract's Accumulated Value is
the sum of:
* The amount which your contract has in the Fixed Account; and
* The amounts which your contract has in each of the Subaccounts. Amounts
in the Subaccounts are calculated at the end of each Valuation Period as
follows:
* First, we calculate the Accumulation Unit Value for each Subaccount.
This calculation recognizes those actions and events occurring during
the current Valuation Period which affect the total dollar value of
the Subaccount without affecting the number of Accumulation Units held
by the Subaccount. (See Accumulation Unit Value below.)
* Next, Contract transactions for the current Valuation Period are made.
These transactions in and out of each Subaccount are done in terms of
buying and selling Accumulation Units of the Subaccount at the current
(i.e. newly-calculated) Accumulation Unit Value for the Subaccount.
* Finally, we calculate the amount which your contract has in each
Subaccount by multiplying your number of Accumulation Units in the
Subaccount by the current Accumulation Unit Value for the Subaccount.
The Accumulated Value calculated at the end of a Valuation Period applies to
all days in that period, including days which are not Valuation Days. Your
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 that you pay, any surrenders you make, and any charges
we assess 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.
Determination of Number of Accumulation Units.
Transactions in and out of a Subaccount are made by buying or selling
Accumulation Units of the Subaccount at the Subaccount Accumulation Unit
Value.
Your contract buys Accumulation Units in a Subaccount when:
* You allocate premiums to that Subaccount; or
* You transfer Accumulated Value into that Subaccount from another
Subaccount or from the Fixed Account.
Accumulation Units in a Subaccount are sold when:
* You transfer Accumulated Value out of that Subaccount into another
Subaccount or the Fixed Account;
* You make a surrender from that Subaccount; or
* We deduct all or part of the Administrative Charge from that Subaccount.
Accumulation Unit Value. A Subaccount's Accumulation Unit Value is the unit
price that is used whenever Accumulation Units of the Subaccount are bought
or sold. Accumulation Unit Values may increase or decrease at the end of
each Valuation Period. We re-determine the Accumulation Unit Value for each
Subaccount at the end of each Valuation Period before making any
transactions for that period that would affect the number of units held in
the Subaccount. Each Subaccount's Accumulation Unit Value is calculated as
the total dollar value of that Subaccount divided by the total number of
Accumulation Units held by that Subaccount for all contracts (including
Accumulation Units held as reserves for variable annuities). The total
dollar value of a Subaccount is:
(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 current Valuation
Period, plus or minus
(c) a charge or credit for any taxes reserved which we determine to be a
result of the investment operation of the Portfolio, minus
(d) the mortality and expense risk charge. This charge is currently
0.003014% (but guaranteed never to exceed 0.003425%) of the net assets
of the Subaccount for each day during the current Valuation Period
(see Page 19).
Minimum Accumulated Value
We require your contract to maintain a minimum Accumulated Value. The
amount which must be maintained depends on your premium paying history as
follows:
(a) At the end of any 24month period in which you pay no premiums, your
Accumulated Value must be at least $1000 after all contract charges
have been applied.
(b) If you pay at least one premium every 24-months, we require only that
the Accumulated Value always be sufficient to cover the contract's
administrative charge (see Page 18).
If we know that your contract will not meet these requirements on an
upcoming Contract Anniversary, we will notify you 60 days before that
anniversary and inform you of the minimum dollar amount which you must pay
to keep the contract in force. If you fail to pay at least that amount, we
will terminate your contract on the Contract Anniversary. If we do so
because your contract failed to meet Requirement (a), we will pay you the
remaining Accumulated Value. If your contract fails to meet Requirement
(b), your contract terminates without value.
Death Benefit Before the Maturity Date
If the Annuitant dies before the Maturity Date, the Beneficiary will be
entitled to receive the contract's death benefit.
The amount of the death benefit will be the greatest of:
* The Accumulated Value on the date we calculate the death benefit
* The sum of all premiums we received for the contract, less the amount of
all partial surrenders (including any applicable charges) which you made
* The Accumulated Value on the preceding Minimum Death Benefit Date
plus the sum of the premiums we received for the contract after that
date, less the amount of any partial surrenders (including any applicable
charges) which you made after that date. The first Minimum Death Benefit
Date is the Date of Issue of this contract. Thereafter, Minimum Death
Benefit Dates occur every six years on the Contract Anniversary.
We calculate the death benefit on the later of:
(a) The date we receive proof of the Annuitant's death; and
(b) The date we receive a written request from the Beneficiary for either a
single sum payment or a settlement option.
If the Beneficiary requests a single sum payment, we will pay the death
benefit within seven days after the date we calculate it. If the
beneficiary requests a settlement option, it must be an option that you
could have selected before the Maturity Date, and the option must provide
that either:
a) The principal and interest are completely distributed within five years
after the date of death; or
b) If the beneficiary is a natural person, distribution of the principal
and interest is made by means of a periodic payment which begins within
one year after the date of death and is not guaranteed for a period
which extends beyond the life expectancy of the beneficiary.
If we do not receive a written request from the beneficiary within one year
from the date of the Annuitant's death, we will deem the Beneficiary 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 your spouse, he or she may, to the extent permitted by
law, elect to continue the contract in force, in which case your spouse will
become and be treated as the Annuitant.)
If your contract was issued in connection with a Qualified Plan, additional
restrictions on the manner of payment of the death benefit may apply. Any
such restrictions 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 while we are paying you an annuity income under a
settlement option, any death benefit payable will depend on the terms of the
settlement option. If a death benefit is payable, the beneficiary may elect
to receive the proceeds in the form of a settlement option, but only if the
payments are paid at least as rapidly as payments were being paid under the
settlement option in effect on the date of death. If your contract was
issued in connection with a Qualified Plan, additional restrictions on the
manner of payment of the death benefit may apply.
Surrender (Redemption)
On or before the Maturity Date, you may surrender all or part of your
contract's Accumulated Value by giving us Written Notice. Any surrender
which you request will be made at the end of the Valuation Period during
which the requirements for surrender are completed. We will pay you the
proceeds from a surrender within seven days after the surrender is made.
The proceeds will be the amount surrendered less any surrender charge and
premium tax due (see Pages 18-19.)
A surrender reduces your Accumulated Value by the amount surrendered. For
amounts surrendered from a Subaccount, this is done by selling Accumulation
Units of the Subaccount. For partial surrenders, we allocate the surrender
among the Subaccounts and the Fixed Account so that all accounts are reduced
in value by the same percentage. With our approval, you may specify a
different allocation for a partial surrender.
A partial surrender must be at least $200. and must not reduce the remaining
Accumulated Value to less than $1,000. When you request a partial
surrender, you specify the amount which you want to receive as a result of
the surrender. If there are no surrender charges, withholding taxes or
premium taxes associated with the surrender, the amount surrendered will be
the amount which you request. Otherwise, the amount surrendered will be the
amount necessary to provide the amount requested after we apply the
surrender charge and any withholding and premium taxes.
After the Maturity Date, your contract does not have an Accumulated Value
which can be surrendered. However, if you are receiving annuity payments
under certain settlement options, surrender may be allowed. Surrender is
not allowed if your settlement option involves a life income or if you
agreed not to revoke or change the option once annuity payments begin. For
other settlement options, the amount available for surrender will be the
commuted value of any unpaid annuity payments computed on the basis of the
assumed interest rate incorporated in the annuity payments.
For all surrenders, you should consider the tax implications of a surrender
before you make a surrender request. See Pages 22-26.
Transfers
On or before the Maturity Date, you may request the transfer of all or a
part of your contract's Accumulated Value among the Subaccounts of the
Variable Account and the Fixed Account. You can request a transfer in two
ways:
1) By giving us written notice
2) By telephone after completing a Telephone Transfer Authorization Form
We will make the transfer without charge at the end of the Valuation period
during which we receive your request. For transfers from the Fixed account
to a Subaccount of the Variable Account, the amount taken from the Fixed
Account is used to buy Accumulation Units of the chosen Subaccount. For
transfers from a Subaccount, Accumulation Units of the Subaccount are sold
and the resulting dollar amount is, depending on your request, either
transferred to the Fixed Account or used to buy Accumulation Units of
another Subaccount.
Transfers are subject to the following conditions:
* The total amount transferred must be at least $200. However, if the
total value in a Subaccount or the Fixed Account is less than $200, the
entire amount may be transferred.
* We reserve the right to limit the number of transfers in each Contract
Year. However, we will always allow at least two transfers per Contract
Year. (For contracts issued in Texas, we allow twelve transfers per
Contract Year.)
* In any Contract Year, only one of your allowed transfers may be from the
Fixed Account. Any transfer from the Fixed Account must be made on or
within 45 days after a Contract Anniversary.
Transfers will also be subject to any conditions which the Portfolio whose
shares are involved may impose.
After the Maturity Date, you 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 you complete the Telephone
Transaction Authorization Form. If you elect to complete the Telephone
Transaction Authorization Form, you thereby agree that we, our agents and
employees will not be liable for any loss, liability cost or expense when
we, our 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 you have completed the Telephone Transaction Authorization Form, is
later determined not to have been made by you or was made without your
authorization, and a loss results from such unauthorized instruction, you
bear the risk of this loss. We will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. In the event we do
not employ such procedures, we 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
We administer a dollar cost averaging program which enables you to pre-
authorize the periodic transfer of predetermined dollar amounts from the
Money Market Subaccount to as many of the other Subaccounts or to the Fixed
Account as you specify. This program is generally suitable if you are
making a substantial deposit to your Contract and 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. This 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 you can continue to invest regularly
throughout changing market conditions, it can be an effective strategy to
help meet your long-term goals.
If you are interested in the dollar cost averaging program you may obtain an
application and full information concerning the program and its restrictions
from us. If you enter into a dollar cost averaging agreement with us, it
will continue until the amount in the Money Market Subaccount is exhausted
or you terminate the agreement.
Assignments
Assignment is the transfer of contract ownership from one party to another.
If a 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.
We are not bound by an assignment unless it is in writing and filed at our
Home Office. We are not responsible for the validity or effect of any
assignment.
You should consider the tax implications of an assignment. (See Pages 23-
24.)
Contract Owner, Beneficiaries and Annuitants
Unless another owner is named in the application, the Annuitant is the owner
of the Contract and may exercise all of the 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 owner may change the Beneficiary by giving us Written Notice of the
change. The change will not be effective until we receive your Written
Notice at our Home Office. Once we receive it, the change will be effective
as of the date on which you signed the notice. However, the change will not
affect any payments made or actions taken by us before we received your
notice, and we will not be responsible for the validity of any change.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
We do not deduct a charge for sales expenses from premiums at the time
premiums are paid. Instead, we deduct a charge at the time you surrender
all or part of the your Accumulated Value. This surrender charge applies
only during the first six Contract Years. During those years, we calculate
the surrender charge as a percentage of the amount which you surrender,
subject to certain exceptions noted below.
Surrender Charges
Contract Year Percent Applied
------------ ----------------
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
After Contract Year 6 there is no charge for making surrenders. In addition,
during the first six Contract Years we will limit or waive surrender charges
as follows:
* Cumulative Percent-of-Premium Limit. For all surrenders, we will limit
the Surrender Charge so that on any date, the sum of all surrender
charges applied to that date will not exceed 6.5% of the total of
premiums you have paid to that date.
* Surrenders Paid Under Certain Settlement Options. For surrenders which
you make after Contract Year 3, there is no surrender charge applied
to amounts which you elect to have paid under:
1) A settlement option for a fixed amount or a fixed period (including
Option 3V described on Page 20) if the payments will be made for at
least five years and you agree at the time of settlement that after
the first payment is made, you may not revoke or change the
settlement option.
2) Options which involve a life income, including Option 4V described
on Page 20.
* Ten Percent Free Each Contract Year. In each Contract Year, you may
surrender without a Surrender Charge up to 10% of the Accumulated Value
existing at the time of your first surrender made in that Contract Year.
This "Ten Percent Free" is not cumulative. For example, if you make no
surrenders during the first three Contract Years, the percentage of
Accumulated Value which you may surrender without charge in the fourth
Contract Year is 10%, not 40%.
* Total Disability of the Annuitant. There is no surrender charge if the
Annuitant is totally disabled (as defined in your contract) on the date
of a surrender.
Certain surrenders are subject to a 10% Federal tax penalty on the amount of
income withdrawn. See Pages 22-26.
If surrender charges are not sufficient to cover our sales expenses, we will
bear the loss; conversely, if the amount of such charges proves more than
enough, we will retain the excess (see "Sufficiency of Charges" below). We
do not currently believe that the surrender charges we impose will cover our
expected costs of distributing the Contracts.
Administrative Charge
Your Contract includes an annual administrative charge of $30 (or less, if
required by the state where your contract is issued) to help us cover the
expenses we incur in administrating your contract, the Variable Account and
the Subaccounts. On each Contract Anniversary prior to and including the
Maturity Date, we will determine if this charge will be applied to your
contract. We apply the charge only on Contract Anniversaries on which the
sum of premiums you have paid less the amount of any Partial Surrenders you
have made is less than $5,000 and the Accumulated Value is less than $5,000.
We deduct the charge from your Accumulated Value, allocating the deduction
among the Subaccounts and the Fixed Account so that all accounts are reduced
in value by the same percentage. Any such deduction from a Subaccount is
made by selling Accumulation Units of the Subaccount. With our approval,
you may specify a different allocation for the administrative charge.
Mortality and Expense Risk Charge
We assume certain financial risks associated with the contracts. Those
risks are of two basic types:
* Mortality Risk. This includes our risk that (1) Death Benefits paid
before the Maturity Date will be greater than the Accumulated Value
available to pay those benefits, and (2) annuitant payments involving
life incomes will continue longer than we expected due to lower than
expected death rates of the persons receiving them.
* Expense Risk. This is the risk that the expenses we incur to issue and
maintain contracts will exceed the charges that we make to cover those
expenses.
As compensation for assuming these risks, we deduct a daily mortality and
expense risk charge from the average daily net assets in the Variable
Account. The current charge (0.003014% per day) is equal to an annual rate
of 1.10% (approximately 0.80% for mortality risk and 0.30% for expense risk)
of the average daily net assets of each Subaccount in the Variable Account.
We may change this charge in the future, but we guarantee that it will never
exceed an annual rate of 1.25% (0.003425% per day).
If the mortality and expense risk charge is insufficient to cover the actual
cost of the mortality and expense risk assumed by us, we will bear the loss.
We will not reduce annuity payments or increase the administrative charge to
compensate for the insufficiency. If the mortality and expense risk charge
proves more than sufficient, the excess will be profit available to us for
any appropriate 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. See Pages 9-11 and the accompanying current LB Series Fund, Inc.
Premium Taxes
We may deduct a charge for premium taxes. 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 E-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. We 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 us. Charges for other taxes, if any, attributable to the
Variable Account may also be made. See Page 22.
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, we will bear the loss. Any such expenses borne by us will be
paid out of our 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, we will retain the excess.
ANNUITY PROVISIONS
ANNUITY PROVISIONS
Maturity Date
The Maturity Date is the date on which we begin paying you your contract's
annuity income. This date is based on the maturity age which you specify in
your application. You may change the Maturity Date by giving us Written
Notice at least 30 days before both the Maturity Date currently in effect
and the new Maturity Date. The new date selected must satisfy our
requirements for a Maturity Date and any requirements that may be imposed by
the state in which your contract was issued.
Maturity Proceeds
The proceeds available on the Maturity Date will be the amount provided by
surrendering your contract's entire Accumulated Value on that date. If the
Maturity Date occurs within the first six Contract Years, surrender charges
will be deducted from the Accumulated Value if they apply. Premium taxes
will also be deducted if they apply. See Pages 19.
We will pay you the proceeds at maturity according to the annuity settlement
option which you select. However, we will pay the proceeds in a single sum
if the Accumulated Value on the Maturity Date is less than $2,000 or if you
elect to receive the proceeds in a single sum. If we pay you proceeds in a
single sum, your contract will terminate on the Maturity Date.
If you have not selected either a settlement option or a single sum payment
by the Maturity Date, we will pay proceeds of $2,000 or more using a fixed
annuity, life income with 10-year guarantee period.
Settlement Options
You may elect to have proceeds paid to you under an annuity settlement
option or a combination of options. Under each option, you may choose
whether annuity payments are to be made on a fixed or variable basis. You
may change your choice of settlement option by giving us Written Notice at
least 30 days before the Maturity Date.
The fixed annuity settlement options available to you are described in your
contract but are not summarized here. The variable annuity settlement
options which your contract offers are as follows:
Option 3V-Income for a Fixed Period. Under this option, we pay an annuity
income for a fixed number of years, not to exceed 30.
Option 4V-Life Income with Guaranteed Period. Under this option, we pay an
annuity income for the lifetime of the payee. If the payee dies during the
guaranteed period, payments will be continued to the end of that period and
will be paid to the Beneficiary. You may select a guaranteed period of 10
or 20 years. You may not revoke or change the option once annuity payments
begin.
In addition to these options, proceeds may be paid under any other
settlement option which you suggest and to which we agree.
Frequency of Annuity Payments
Annuity payments under a settlement option will be paid at monthly intervals
unless you and we agree to a different payment schedule. 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, we 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.
Amount of Variable Annuity Payments
The amount of the first variable annuity payment is determined by applying
the proceeds to be paid under a particular settlement option to the annuity
table in the contract for that option. The table shows the amount of the
initial annuity payment for each $1,000 applied.
Subsequent variable annuity payments vary in amount according to 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 (as determined 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 procedure described here 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 these 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. We
guarantee 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
A Subaccount's Annuity Unit Value is used to determine the dollar value of
annuity payments based on Annuity Units of the Subaccount. Annuity Unit
Values may increase or decrease during each Valuation Period. We re-
determine the Annuity Unit Value for each Subaccount at the end of each
Valuation Period before making any transactions for that period that would
affect the number of units held in the Subaccount. Each Subaccount's
Annuity Unit Value is equal to (a) times (b) times (c) where:
(a) Is that Subaccount's Annuity Unit Value at the end of the immediately
preceding Valuation Period.
(b) Is that Subaccount's investment factor for the current Valuation
Period.
(c) Is a discount factor equivalent to an assumed investment earnings rate
of 3 1/2% per year.
The investment factor used in (b) measures the investment performance of the
Subaccount during the Valuation Period. It is equal to the Subaccount's
Accumulation Unit Value at the end of the Valuation Period divided by the
Subaccount's Accumulation Unit Value at the end of the immediately preceding
Valuation Period.
The discount factor used in (c) offsets the effect of the assumed investment
earnings rate of 3.5% per year that is built into the annuity tables in the
contracts. This means that, if the investment factor calculated in (b) were
equivalent to an annual rate of 3.5%, (b) times (c) would be equal to one,
the Annuity Unit Value would remain constant and the corresponding annuity
payments would be level.
GENERAL PROVISIONS
Postponement of Payments
We may defer payment of any surrender, death benefit or annuity payment
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 from
the Subaccounts of the Variable Account may also be postponed under
these circumstances.
Payment by Check
If a payment which we make to you depends on the premiums you pay by check,
our payment may be delayed until your check has cleared your bank.
Reports to Contract Owners
At least once each year we will send you a report showing the value of your
contract. The report will include the Accumulated Value and any additional
information required by law. Values shown will be for a date no more than
two months prior to the date we mail the report.
Contract Inquiries
Inquiries regarding a contract may be made by writing to us at our 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, LBVIP, and, if the Contract is purchased under a retirement plan,
upon the type of retirement plan and 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 intend to 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 investment in 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 generally determined by a
formula which establishes the ratio that the investment in the Contract
bears to the expected return under the Contract as of the Maturity Date.
Where annuity payments are made under certain Qualified Plans, the portion
of each payment that is excluded from gross income will generally be equal
to the total amount of any investment in the Contract as of the Maturity
Date, divided by the number of anticipated payments, which are determined by
reference to the age of the Annuitant. The taxable portion is taxed at
ordinary income tax rates. For certain types of Qualified Plans there may be
no investment 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. 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, and the income on
such a Contract will be taxable in the year received or accrued by the
Contract Owner. This rule does not apply, however, 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. This section 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 10% penalty tax described above.
Qualified Plans
The Contracts are designed for use with several types of Qualified Plans.
When used in Qualified Plans, deferred annuities do not offer additional
tax-deferral benefits, and taxation rules for Qualified Plans take
precedence over annuity taxation rules. However, annuities offer other
product benefits to investors in 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.
Distributions from Section 403(b) tax-sheltered annuities that are
attributable to 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 purchase 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 unless one of the above-
described conditions has been satisfied. 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. Self-employed individuals may establish Qualified Plans
commonly referred to as "H.R. 10" 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.
Roth IRAs. Section 408A of the Code permits eligible individuals to make
nondeductible contributions to an individual retirement program known as a
"Roth IRA." Section 408A includes limits on how much an individual may
contribute to a Roth IRA and when distributions may commence. Qualified
distributions from Roth IRAs are excluded from gross income if (a) made more
than five years after the taxable year of the first contribution to the Roth
IRA, and (b) meet any of the following conditions: (1) the annuity owner
has reached age 59 1/2; (2) the distribution is paid to a beneficiary after
the owner's death; (3) the annuity owner is disabled; or (4) the
distribution (not exceeding $10,000) will be used for a first time home
purchase. Nonqualified distributions are includible in gross income only to
the extent they exceed contributions made to the Roth IRA. The taxable
portion of a nonqualified distribution may be subject to a 10% penalty tax.
Subject to certain limitations, a traditional individual retirement account
or annuity may be converted into a Roth IRA and upon such a conversion, an
individual is required to include the taxable portion of the conversion in
gross income, but is not generally subject to a 10% penalty tax.
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". The assets of the Fund are expected to meet the
diversification requirements. LBVIP 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. 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. 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
There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Variable Account are subject. Neither LBVIP nor
LBSC are involved in any litigation that is of material importance in
relation to their total assets or that relates to the Variable Account.
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
John C. Bjork, counsel for LBVIP. Certain legal matters relating to the
Federal securities laws have been passed upon by the law firm of Jones &
Blouch LLP, 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 on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
STATEMENT OF ADDITIONAL INFORMATION
Below is a copy of the Table of Contents included in the Statement of
Additional Information. To obtain a copy of this document, complete and
mail the form below.
TABLE OF CONTENTS
Page
Introduction
Administration of the Contracts
Custody of Assets
Independent Accountants and Financial Statements
Distribution of the Contracts
Calculation of Performance
Money Market Subaccount
Other Subaccounts
Financial Statements of Variable Account
Comment on Financial Statements of LBVIP
Financial Statements of LBVIP
Appendix D - Condensed Financial Information D-1
Appendix E - State Premium Tax Chart E-1
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)
<PAGE>
APPENDIX A
DEFINITIONS
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.
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 B.)
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.
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
408A 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.
Valuation Day. 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.
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.
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION
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>
Opportunity Growth Subaccount
----------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $11.29 $11.77 $11.79 $10.00*
End of period 14.25 11.29 11.77 11.79
Number of Accumulation Units
outstanding at end of period 11,816,789 13,719,220 15,467,334 10,907,991
Mid Cap Growth Subaccount
-------------------------
1999 1998
---- ----
<S> <C> <C>
Accumulation Unit Value:
Beginning of period $11.05 $10.00**
End of period 16.36 11.05
Number of Accumulation Units
outstanding at end of period 6,431,896 3,418,387
World Growth Subaccount
----------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $12.83 $11.11 $10.93 $10.00*
End of period 17.02 12.83 11.11 10.93*
Number of Accumulation Units
outstanding at end of period 13,003,269 12,306,954 12,001,805 8,406,625
Growth Subaccount
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $48.27 $38.02 $29.52 $24.38 $17.95
End of period 68.60 48.27 38.02 29.52 24.38
Number of Accumulation
Units outstanding at
end of period 39,848,868 40,609,569 40,950,649 39,275,957 37,698,847
Growth Subaccount
--------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $19.04 $17.49 $16.34 $11.70 $12.070
End of period 17.95 19.04 17.49 16.34 11.70
Number of Accumulation
Units outstanding at
end of period 34,921,280 26,757,458 12,462,929 5,373,171 2,596,180
High Yield Subaccount
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $26.78 $27.50 $24.35 $22.06 $18.64
End of period 29.28 26.78 27.50 24.35 22.06
Number of Accumulation
Units outstanding at
end of period 28,113,688 30,755,311 31,175,954 29,861,418 28,924,180
High Yield Subaccount
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $19.71 $16.21 $13.66 $10.21 $10.709
End of period 18.64 19.71 16.21 13.66 10.21
Number of Accumulation
Units outstanding at
end of period 28,230,326 21,866,400 9,227,427 3,720,209 2,148,885
Income Subaccount
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $22.57 $20.86 $19.39 $18.98 $16.07
End of period 21.87 22.57 20.86 19.39 18.98
Number of Accumulation
Units outstanding at
end of period 28,451,334 29,930,726 29,190,381 31,200,437 33,922,942
Income Subaccount
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $17.05 $15.43 $14.29 $12.06 $11.402
End of period 16.07 17.05 15.43 14.29 12.06
Number of Accumulation
Units outstanding at
end of period 34,668,366 32,678,803 16,151,473 6,753,120 3,405,565
Money Market Subaccount
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $1.61 $1.55 $1.48 $1.43 $1.36
End of period 1.67 1.61 1.55 1.48 1.43
Number of Accumulation
Units outstanding at
end of period 83,641,287 60,691,110 41,033,991 37,465,708 28,959,961
Money Market Subaccount
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $1.33 $1.30 $1.27 $1.21 $1.137
End of period 1.36 1.33 1.30 1.27 1.21
Number of Accumulation
Units outstanding at
end of period 23,631,217 17,939,270 19,709,050 15,364,799 13,983,957
- -------------
*Commencing January 18, 1996.
**Commencing January 30, 1998.
The financial statements of LBVIP are also contained in the Statement of Additional Information.
</TABLE>
<PAGE>
APPENDIX C
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>
APPENDIX D
ILLUSTRATIONS OF MONTHLY VARIABLE ANNUITY SETTLEMENT OPTION
The illustrations included in this appendix show how the monthly variable
annuity settlement option income may change with the investment experience
of the Variable Account. The illustrations show how the monthly income
would vary over time if the investment return on the assets held in each
Portfolio of the Fund were a uniform, gross, after-tax annual rate of 0
percent, 5.06 percent and 12 percent, assuming the current mortality and
expense risk fees, or 0%, 5.2%, and 12%, assuming the maximum mortality and
expense risk fees. The incomes would be different from those shown if the
gross annual investment returns average the illustrated percent over a
period of years, but fluctuated above and below these averages for
individual Contract years.
The monthly incomes reflect the fact that the net investment return of the
Subaccounts of the Variable Account is lower than the gross, after-tax
return on the assets held in the Fund as a result of the advisory fee paid
by the Fund and charges made against the Subaccounts. The incomes shown
take into account the following fees: Growth (0.40%); High Yield (0.40%);
Income (0.40%); Money Market (0.40%); Opportunity Growth (0.40%); Mid Cap
Growth (0.40%); and World Growth (0.85%); and the daily charge to each
Subaccount assuming, in the first illustration, mortality and expense risk
fees are equivalent to a charge at an annual current rate of 1.10% of the
average assets of the Subaccounts and are guaranteed never to exceed an
annual rate of 1.25%. The second illustration assumes the maximum mortality
and expense risk fees of 1.25% After deduction of these amounts, the
illustrated gross investment rates of return 0%, 5.06% and 12% correspond to
net annual rates of -1.56%, 3.50% and 10.44%, respectively, assuming current
mortality and expense risk fees and an average investment advisory fee of
0.46%. In the illustration which assumes the maximum mortality and expense
risk fees, the illustrated gross investment rates of return 0%, 5.21%, and
12% correspond to net annual rates of -1.71%, 3.50%, and 10.29%.
Both illustrations assume 100% of the assets are invested in Subaccounts of
the Variable Account. For comparison purposes, a current fixed annuity
income, available through the Fixed Account, is also provided. The first
variable payment is always based on an investment rate of 3.50%. After the
first variable annuity payment, future variable payments will increase if
the annualized net rate of return exceeds the 3.50%, and will decrease if
the annualized net rate of return is less than the 3.50%.
The hypothetical values shown are based upon a male, age 65 selecting a life
income with a 10-year guaranteed period and having $100,000 of non-qualified
funds at settlement. Upon request, LBVIP will provide a comparable
illustration based upon the proposed Annuitant's age, gender (except for
Contracts issued in the state of Montana), settlement option, type of funds
and cash available at settlement. Contracts purchased in Montana cannot
vary on the basis of the Annuitant's gender.
<PAGE>
Variable Annuity Payout Illustration
(Assuming current mortality and expense risk fees)
Prepared for: Prospect Commencement Date: 4/30/2000
Prepared by: Lutheran Brotherhood Cash Available at Settlement: $100,000
Variable Insurance
Products Company
Sex: Male Date of Birth: 4/30/1935 Funds: Nonqualified
State: MN Initial Monthly Income: $608
Income Option: Life Income with 10 Year Guaranteed Period
The monthly variable annuity income amount shown below assumes a
constant annual investment return. The assumed investment rate of 3.50% is
used to calculate the first monthly payment. Thereafter, monthly payments
will increase or decrease based upon the relationship between 3.50% and the
performance of the Subaccounts selected. The investment returns shown are
hypothetical and not a representation of future results.
Annual Rate of Return
--------------------------------------
0% Gross 5.06% Gross 12.00% Gross
Date Age (-1.56% Net) (3.50% Net) (10.44% Net)
- ---------------- --- ----------- ---------- ------------
April 30, 2000 65 $608 $608 $ 608
April 30, 2001 66 578 608 649
April 30, 2002 67 550 608 692
April 30, 2003 68 523 608 739
April 30, 2004 69 498 608 788
April 30, 2009 74 387 608 1,090
April 30, 2014 79 301 608 1,508
April 30, 2019 84 235 608 2,087
April 30, 2024 89 183 608 2,886
April 30, 2029 94 142 608 3,993
April 30, 2034 99 111 608 5,524
April 30, 2035 100 105 608 5,894
If 100% of your cash available at settlement was applied to provide a fixed
annuity on the commencement date of this illustration, the fixed annuity
income amount would be $709.
Net rates of return reflect expenses totaling 1.56%, which consist of the
current 1.10% Variable Account mortality and expense risk charge and 0.46%
for the Fund advisory fee (this is an average with the actual varying from
0.40% to 0.85%).
This is an illustration only and not a contract.
<PAGE>
Variable Annuity Payout Illustration
(Assuming maximum mortality and expense risk fees)
Prepared for: Prospect Commencement Date: 4/30/2000
Prepared by: Lutheran Brotherhood Cash Available at Settlement: $100,000
Variable Insurance
Products Company
Sex: Male Date of Birth: 4/30/1935 Funds: Nonqualified
State: MN Initial Monthly Income: $608
Income Option: Life Income with 10 Year Guaranteed Period
The monthly variable annuity income amount shown below assumes a
constant annual investment return. The assumed investment rate of 3.50% is
used to calculate the first monthly payment. Thereafter, monthly payments
will increase or decrease based upon the relationship between 3.50% and the
performance of the Subaccounts selected. The investment returns shown are
hypothetical and not a representation of future results.
Annual Rate of Return
--------------------------------------
0% Gross 5.21% Gross 12.00% Gross
Date Age (-1.71% Net) (3.50% Net) (10.29% Net)
- ---------------- --- ----------- ---------- ------------
April 30, 2000 65 $608 $608 $ 608
April 30, 2001 66 577 608 648
April 30, 2002 67 548 608 690
April 30, 2003 68 521 608 736
April 30, 2004 69 495 608 784
April 30, 2009 74 382 608 1,077
April 30, 2014 79 295 608 1,480
April 30, 2019 84 228 608 2,033
April 30, 2024 89 176 608 2,794
April 30, 2029 94 136 608 3,839
April 30, 2034 99 105 608 5,274
April 30, 2035 100 100 608 5,620
If 100% of your cash available at settlement was applied to provide a fixed
annuity on the commencement date of this illustration, the fixed annuity
income amount would be $709.
Net rates of return reflect expenses totaling 1.71%, which consist of the
maximum 1.25% Variable Account mortality and expense risk charge and 0.46%
for the Fund advisory fee (this is an average with the actual varying from
0.40% to 0.85%).
This is an illustration only and not a contract.
<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, 2000 (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
ADMINISTRATION OF THE CONTRACTS
CUSTODY OF ASSETS
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
DISTRIBUTION OF THE CONTRACTS
CALCULATION OF PERFORMANCE
Money Market Subaccount
Other Subaccounts
FINANCIAL STATEMENTS OF VARIABLE ACCOUNT
COMMENT ON FINANCIAL STATEMENTS OF LBVIP
FINANCIAL STATEMENTS OF LBVIP
APPENDIX E - STATE PREMIUM TAX CHART E-1
------------------------------------------------
The date of this Statement of Additional Information
is May 1, 2000.
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 seven Portfolios of the Fund-the Growth Portfolio, the Mid Cap
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 1999, LBVIP paid Lutheran Brotherhood $21.02 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 on the
reports of PricewaterhouseCoopers 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)".
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, 1999:
Value of hypothetical pre-existing account with exactly
one Accumulation Unit at the beginning of the period $1.670557
Value of same account (excluding capital changes) at end
of the seven-day period $1.671978
Net change in account value $0.001421
Base Period Return:
Net change in account value divided by beginning account value $0.000851
Annualized Current Yield [0.000851 X (365/7)] 4.44%
Effective Yield (0.000851 + 1)365/7-1 4.53%
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,
1999:
Dividends and interest earned by the High Yield Subaccount
during the base period $7,777,655
Expenses accrued for the base period $1,040,262
----------
$6,737,393 (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
($29.277071 x 28,389,319 Units) = $831,156,108 (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) = 0.008106(C)
Adding one and raising total to the 6th power (C + 1)6= 1.049632(D)
Annualized current yield [2(D - 1) X 100] = 9.93%
The following example illustrates the annualized current yield calculation
for the Income Subaccount for the 30-day base period ended December 31,
1999:
Dividends and interest earned by the Income Subaccount
during the base period $3,806,025
Expenses accrued for the base period $ 797,455
------------
$3,008,570 (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
($21.870525 x 28,723,698 Units) = $628,202,355 (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) = 0.004789(C)
Adding one and raising total to the 6th power (C + 1)6 = 1.02908(D)
Annualized current yield [2(D-1) X 100] = 5.82%
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, 1999:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31,
1999 (after deferred sales charge) $6,860
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%) 586%*
Average annual total return from inception through
December 31, 1999 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 eleven years and 10 months; the result is
reduced by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 17.69*
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, 1999:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $2,928
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%) 192.77%*
Average annual total return from inception through
December 31, 1999 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 eleven years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 9.51%*
The following example illustrates the average annual total return for the
Income Subaccount from the date of inception through December 31, 1999
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $2,187
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%) 118.71%*
Average annual total return from inception through
December 31, 1998 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 eleven years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 6.84%*
The following example illustrates the average annual total return for the
Money Market Subaccount from the date of inception through December 31,
1999:
Hypothetical $1,000 initial investment on February 18, 1988 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,672
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%) 67.22%*
Average annual total return from inception through
December 31, 19998 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 eleven years
and 11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 4.42%*
- -----------------------
The following example illustrates the average annual total return for the
Opportunity Growth Subaccount from the date of inception through the period
ended December 31, 1999:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1999 (after deferred sales charge) $1,387
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%) 38.66%*
Average annual total return from inception through December
31, 1999 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 three years and 347 days; the result is
reduced by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 8.62%*
The following example illustrates the average annual total return for the
World Growth Subaccount from the date of inception through December 31,
1999:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,656
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%) 65.63%*
Average annual total return from inception through December
31, 1999 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 three years and 347 days; the result is
reduced by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 13.61%*
The following example illustrates the average annual total return for the
Mid Cap Growth Subaccount from the date of inception through December 31,
1999:
Hypothetical $1,000 initial investment on January 30, 1998 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,562
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%) 56.25%*
Average Annual total return from inception through December 31,
1999 is the sum of the total return calculated above plus one;
such sum is raised to the power of 1/n where n is expressed as
one year and 335 days; the result is reduced by one and is
expressed in terms of a percentage (For example, 0.2 equals
20%) 26.20%*
- -----------------------------
*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 or the Accumulated Value 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>
PricewaterhouseCoopers
[GRAPHIC OMITTED: PRINTER STRIP IN LOGO]
PricewaterhouseCoopers LLP
650 Third Avenue South
Park Building
Suite 1300
Minneapolis MN 55402-4333
Telephone (612) 596 6000
Facsimile (612) 373 7160
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 statements 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 the
Opportunity Growth, Mid Cap Growth, World Growth, Growth, High Yield,
Income, and Money Market subaccounts of LBVIP Variable Annuity Account I
at December 31, 1999, the results of each of their operations for the
year then ended and the changes in each of their net assets for the
periods indicated, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States 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/PricewaterhouseCoopers LLP
March 31, 2000
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
Opportunity Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
Opportunity Growth Portfolio 11,992,741
shares at net asset value of $14.10 per share
(cost $139,035,072) $ 169,147,046
Receivable from LBVIP for units issued 140,080
Receivable from LBVIP for
annuity reserve adjustment 11,583
--------------
Total assets 169,298,709
--------------
LIABILITIES:
Payable to LBVIP for mortality and
expense risk charge 148,477
--------------
NET ASSETS $ 169,150,232
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 11,816,789 $ 168,399,700
Reserves for contracts in annuity payment
period (note 2) 750,532
--------------
NET ASSETS $ 169,150,232
==============
Unit Value (net assets divided by units outstanding) $14.25
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ --
Mortality and expense risk charge (1,536,923)
--------------
Net investment loss (1,536,923)
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (1,960,094)
Net change in unrealized appreciation
of investments 37,766,570
--------------
Net gain on investments 35,806,476
--------------
Net increase in net assets resulting
from operations $ 34,269,553
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (1,536,923) $ (1,325,312)
Net realized loss on investments (1,960,094) (1,153,335)
Net change in unrealized appreciation or depreciation
of investments 37,766,570 (5,939,043)
-------------- --------------
Net change in net assets resulting from operations 34,269,553 (8,417,690)
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 9,857,507 17,107,197
Net asset value of units redeemed (12,400,767) (14,381,438)
Annuity benefit payments (40,049) (19,506)
Adjustments to annuity reserves 10,672 256
Transfers from other subaccounts 16,827,980 27,210,452
Transfers to other subaccounts (34,338,018) (48,501,649)
Transfers from fixed account 107,111 409,522
Transfers to fixed account (208,188) (489,746)
-------------- --------------
Net change in net assets from unit transactions (20,183,752) (18,664,912)
-------------- --------------
Net change in net assets 14,085,801 (27,082,602)
NET ASSETS:
Beginning of period 155,064,431 182,147,033
-------------- --------------
End of period $ 169,150,232 $ 155,064,431
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
Mid Cap Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
Mid Cap Growth Portfolio 6,357,646 shares
at net asset value of $16.62 per share
(cost $73,824,366) $ 105,691,997
Receivable from LBVIP for units issued 284,435
Receivable from LBVIP for
annuity reserve adjustment 7,723
--------------
Total assets 105,984,155
--------------
LIABILITIES:
Payable to LBVIP for mortality and
expense risk charge 89,020
--------------
Total liabilities 89,020
--------------
NET ASSETS $ 105,895,135
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 6,431,896 $ 105,230,811
Reserves for contracts in annuity payment
period (note 2) 664,324
--------------
NET ASSETS $ 105,895,135
==============
Unit Value (net assets divided by units outstanding) $16.36
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ 153,123
Mortality and expense risk charge (657,064)
--------------
Net investment loss (503,941)
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 324,421
Net change in unrealized appreciation
of investments 29,687,036
--------------
Net gain on investments 30,011,457
--------------
Net increase in net assets resulting
from operations $ 29,507,516
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
For the period from
January 30, 1998
(effective date) to
1999 December 31, 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (503,941) $ (111,641)
Net realized gain (loss) on investments 324,421 (663,014)
Net change in unrealized appreciation or depreciation
of investments 29,687,036 2,180,594
-------------- --------------
Net increase in net assets resulting from operations 29,507,516 1,405,939
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 15,342,552 13,588,973
Net asset value of units redeemed (5,371,614) (1,661,291)
Annuity benefit payments (17,018) (573)
Adjustments to annuity reserves 7,603 120
Transfers from other subaccounts 44,324,606 36,854,771
Transfers to other subaccounts (16,088,889) (12,886,529)
Transfers from fixed account 504,722 697,284
Transfers to fixed account (116,226) (196,811)
-------------- --------------
Net increase in net assets from unit transactions 38,585,736 36,395,944
-------------- --------------
Net increase in net assets 68,093,252 37,801,883
NET ASSETS:
Beginning of period 37,801,883 --
-------------- --------------
End of period $ 105,895,135 $ 37,801,883
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
World Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
World Growth Portfolio 13,132,754 shares
at net asset value of $16.93 per share
(cost $146,115,600) $ 222,366,535
Receivable from LBVIP for units issued 559,947
Receivable from LBVIP for
annuity reserve adjustment 27,238
--------------
Total assets 222,953,720
--------------
LIABILITIES:
Payable to LBVIP for mortality and
expense risk charge 194,376
--------------
NET ASSETS $ 222,759,344
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 13,003,269 $ 221,357,886
Reserves for contracts in annuity payment
period (note 2) 1,401,458
--------------
NET ASSETS $ 222,759,344
==============
Unit Value (net assets divided by units outstanding) $17.02
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ 774,126
Mortality and expense risk charge (1,894,494)
--------------
Net investment loss (1,120,368)
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 2,361,925
Net change in unrealized appreciation
of investments 52,931,218
--------------
Net gain on investments 55,293,143
--------------
Net increase in net assets resulting
from operations $ 54,172,775
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (1,120,368) $ 989,571
Net realized gain on investments 2,361,925 2,062,615
Net change in unrealized appreciation or depreciation
of investments 52,931,218 17,350,067
-------------- --------------
Net increase in net assets resulting from operations 54,172,775 20,402,253
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 16,992,497 19,440,522
Net asset value of units redeemed (13,469,955) (11,963,630)
Annuity benefit payments (66,175) (25,670)
Adjustments to annuity reserves 27,085 (359)
Transfers from other subaccounts 38,884,212 33,138,225
Transfers to other subaccounts (31,986,681) (36,371,997)
Transfers from fixed account 267,426 478,861
Transfers to fixed account (177,135) (424,085)
-------------- --------------
Net increase in net assets from unit transactions 10,471,274 4,271,867
-------------- --------------
Net increase in net assets 64,644,049 24,674,120
NET ASSETS:
Beginning of period 158,115,295 133,441,175
-------------- --------------
End of period $ 222,759,344 $ 158,115,295
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
Growth Portfolio 91,094,048 shares
at net asset value of $30.24 per share
(cost $1,539,471,223) $2,754,667,084
Receivable from LBVIP for units issued 234,996
Receivable from LBVIP for
annuity reserve adjustment 243,140
--------------
Total assets 2,755,145,220
--------------
LIABILITIES:
Payable to LBVIP for mortality and
expense risk charge 2,469,892
--------------
NET ASSETS $2,752,675,328
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 39,848,868 $2,733,617,303
Reserves for contracts in annuity payment
period (note 2) 19,058,025
--------------
NET ASSETS $2,752,675,328
==============
Unit value (net assets divided by units outstanding) $68.60
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ 9,703,926
Mortality and expense risk charge (24,609,911)
--------------
Net investment loss (14,905,985)
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 234,596,766
Net change in unrealized appreciation
of investments 601,977,872
--------------
Net gain on investments 836,574,638
--------------
Net increase in net assets resulting
from operations $ 821,668,653
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (14,905,985) $ (3,066,535)
Net realized gain on investments 234,596,766 258,618,664
Net change in unrealized appreciation or depreciation
of investments 601,977,872 161,386,043
-------------- --------------
Net increase in net assets resulting from operations 821,668,653 416,938,172
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 133,669,650 137,876,803
Net asset value of units redeemed (171,790,242) (142,393,425)
Annuity benefit payments (868,142) (225,696)
Adjustments to annuity reserves 319,011 (75,626)
Transfers from other subaccounts 221,233,159 167,704,108
Transfers to other subaccounts (212,895,257) (174,840,753)
Transfers from fixed account 3,162,041 4,163,642
Transfers to fixed account (4,877,859) (4,648,732)
-------------- --------------
Net change in net assets from unit transactions (32,047,639) (12,439,679)
-------------- --------------
Net increase in net assets 789,621,014 404,498,493
NET ASSETS:
Beginning of period 1,963,054,314 1,558,555,821
-------------- --------------
End of period $2,752,675,328 $1,963,054,314
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
High Yield Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
High Yield Portfolio 91,281,420 shares
at net asset value of $9.09 per share
(cost $908,841,123) $ 829,907,503
Receivable from LBVIP for units issued 102,248
Receivable from LBVIP for
annuity reserve adjustment 96,233
--------------
Total assets 830,105,984
--------------
LIABILITIES
Payable to LBVIP for mortality and
expense risk charge 769,466
--------------
NET ASSETS $ 829,336,518
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 28,113,688 $ 823,086,418
Reserves for contracts in annuity payment
period (note 2) 6,250,100
--------------
NET ASSETS $ 829,336,518
==============
Unit value (net assets divided by units outstanding) $29.28
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ 88,727,783
Mortality and expense risk charge (9,105,238)
--------------
Net investment income 79,622,545
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (7,949,109)
Net change in unrealized appreciation
of investments 1,843,483
--------------
Net loss on investments (6,105,626)
--------------
Net increase in net assets resulting
from operations $ 73,516,919
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 79,622,545 $ 78,209,593
Net realized gain (loss) on investments (7,949,109) 9,128,361
Net change in unrealized appreciation or depreciation
of investments 1,843,483 (111,679,139)
-------------- --------------
Net change in net assets resulting from operations 73,516,919 (24,341,185)
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 56,351,017 83,363,298
Net asset value of units redeemed (81,867,351) (77,744,982)
Annuity benefit payments (426,356) (145,016)
Adjustments to annuity reserves 82,362 12,241
Transfers from other subaccounts 57,245,113 74,078,085
Transfers to other subaccounts (99,113,099) (89,424,429)
Transfers from fixed account 963,952 3,017,151
Transfers to fixed account (2,274,342) (2,261,712)
-------------- --------------
Net change in net assets from unit transactions (69,038,704) (9,105,364)
-------------- --------------
Net change in net assets 4,478,215 (33,446,549)
NET ASSETS:
Beginning of period 824,858,303 858,304,852
-------------- --------------
End of period $ 829,336,518 $ 824,858,303
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
Income Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
Income Portfolio 66,603,755 shares
at net asset value of $9.41 per share
(cost $661,749,966) $ 626,989,870
Receivable from LBVIP for
annuity reserve adjustment 55,602
--------------
Total assets 627,045,472
--------------
LIABILITIES:
Payable to LBVIP for units redeemed 57,385
Payable to LBVIP for mortality and
expense risk charge 589,721
--------------
Total liabilities 647,106
--------------
NET ASSETS $ 626,398,366
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 28,451,334 $ 622,245,615
Reserves for contracts in annuity payment
period (note 2) 4,152,751
--------------
NET ASSETS $ 626,398,366
==============
Unit Value (net assets divided by units outstanding) $21.87
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ 40,052,857
Mortality and expense risk charge (7,239,173)
--------------
Net investment income 32,813,684
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (1,578,697)
Net change in unrealized depreciation
of investments (52,265,894)
--------------
Net loss on investments (53,844,591)
--------------
Net change in net assets resulting
from operations $ (21,030,907)
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 32,813,684 $ 31,586,672
Net realized gain (loss) on investments (1,578,697) 262,456
Net change in unrealized appreciation or depreciation
of investments (52,265,894) 18,341,219
-------------- --------------
Net change in net assets resulting from operations (21,030,907) 50,190,347
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 51,225,225 59,706,120
Net asset value of units redeemed (65,411,377) (60,178,080)
Annuity benefit payments (342,045) (95,876)
Adjustments to annuity reserves 40,192 11,645
Transfers from other subaccounts 59,156,023 79,863,269
Transfers to other subaccounts (72,369,877) (63,108,457)
Transfers from fixed account 1,526,047 2,442,972
Transfers to fixed account (3,055,202) (1,584,770)
-------------- --------------
Net change in net assets from unit transactions (29,231,014) 17,056,823
-------------- --------------
Net change in net assets (50,261,921) 67,247,170
NET ASSETS:
Beginning of period 676,660,287 609,413,117
-------------- --------------
End of period $ 626,398,366 $ 676,660,287
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LBVIP Variable Annuity Account I
Money Market Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<S> <C>
ASSETS:
Investment in LB Series Fund, Inc. --
Money Market Portfolio 140,261,357 shares
at net asset value of $1.00 per share
(cost $140,261,357) $ 140,261,357
Receivable from LBVIP for units issued 257,145
Receivable from LBVIP for
annuity reserve adjustment 3,669
--------------
Total assets 140,522,171
--------------
LIABILITIES:
Payable to LBVIP for mortality and
expense risk charge 125,568
--------------
NET ASSETS $ 140,396,603
==============
NET ASSETS APPLICABLE TO ANNUITY
CONTRACT OWNERS:
Contracts in accumulation period, accumulation
units outstanding of 83,641,287 $ 139,862,937
Reserves for contracts in annuity payment
period (note 2) 533,666
--------------
NET ASSETS $ 140,396,603
==============
Unit Value (net assets divided by units outstanding) $ 1.67
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1999
<S> <C>
INVESTMENT INCOME:
Dividend Income $ 5,710,403
Mortality and expense risk charge (1,295,969)
--------------
Net investment income $ 4,414,434
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1999 and 1998
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 4,414,434 $ 3,038,582
-------------- --------------
UNIT TRANSACTIONS:
Proceeds from units issued 39,905,830 38,033,206
Net asset value of units redeemed (30,634,674) (14,834,691)
Annuity benefit payments (24,284) (90,675)
Adjustments to annuity reserves 5,766 (2,562)
Transfers from other subaccounts 154,914,021 121,661,091
Transfers to other subaccounts (125,447,281) (115,376,186)
Transfers from fixed account 2,412,937 2,118,762
Transfers to fixed account (2,950,112) (567,618)
-------------- --------------
Net increase in net assets from unit transactions 38,182,203 30,941,327
-------------- --------------
Net increase in net assets 42,596,637 33,979,909
NET ASSETS:
Beginning of period 97,799,966 63,820,057
-------------- --------------
End of period $ 140,396,603 $ 97,799,966
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
LBVIP Variable Annuity Account I
Notes to Financial Statements
December 31, 1999
(1) ORGANIZATION
The LBVIP Variable Annuity Account I (the Variable Account), is
registered as a unit investment trust under the Investment Company Act
of 1940, and is a separate account of Lutheran Brotherhood Variable
Insurance Products Company (LBVIP). 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 seven
subaccounts -- Opportunity Growth, Mid Cap Growth, World Growth, Growth,
High Yield, Income and Money Market -- each of which invests 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 fund 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. LBVIP
anticipates no tax liability resulting from the operations of the
Variable Account. Consequently, no provision for income taxes has been
charged against the Variable Account. LBVIP reserves the right to charge
for taxes in the future.
Annuity Reserves
Annuity reserves are computed for currently payable contracts according
to the 1983 Table A mortality table and the 2000 IAM 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.
Other
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
(3) 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 $2,622 and $8,946 in 1999 and 1998,
respectively. 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
$1,188,051 and $1,324,032 were deducted in 1999 and 1998, 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 which total premiums paid, less surrenders, equals or exceeds
$5,000. No administrative charge is payable during the annuity period.
Administrative charges of $166,675 and $266,652 were deducted in 1999
and 1998, 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 $46,338,773 and $40,091,338 were
deducted in 1999 and 1998, 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 from (to) the fixed account was
($4,714,829) and $3,154,720 in 1999 and 1998, respectively.
<TABLE>
<CAPTION>
(4) UNIT ACTIVITY
Transactions in accumulation units (including transfers among subaccounts) were as follows:
Subaccounts
- ---------------------------------------------------------------------------------------------------------------------
Opportunity Mid Cap World High Money
Growth Growth Growth Growth Yield Income Market
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1997 15,467,334 -- 12,001,805 40,950,649 31,175,954 29,190,381 41,033,991
Units issued 4,266,658 4,990,424 4,481,243 7,761,820 6,141,616 6,832,844 103,097,291
Units redeemed (6,014,772) (1,572,037) (4,176,094) (8,102,900) (6,562,259) (6,092,499) (83,440,172)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Units outstanding at
December 31, 1998 13,719,220 3,418,387 12,306,954 40,609,569 30,755,311 29,930,726 60,691,110
Units issued 2,478,341 4,814,693 4,202,164 6,728,144 4,259,435 5,321,776 121,041,072
Units redeemed (4,380,772) (1,801,184) (3,505,849) (7,488,845) (6,901,058) (6,801,168) (98,090,895)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Units outstanding at
December 31, 1999 11,816,789 6,431,896 13,003,269 39,848,868 28,113,688 28,451,334 83,641,287
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
(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
- ---------------------------------------------------------------------------------------------------------------------
Opportunity Mid Cap World High Money
Growth Growth Growth Growth Yield Income Market
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1998
Purchases $9,337,898 $40,052,689 $17,733,479 $306,608,975 $126,645,234 $73,912,791 $74,646,754
Sales 26,901,111 3,786,695 11,289,646 78,040,478 44,092,967 25,179,289 40,834,770
For the year ended
December 31, 1999
Purchases 2,998,477 40,577,950 21,625,714 256,024,663 92,721,862 57,557,928 87,648,812
Sales 24,904,904 2,680,984 12,868,414 103,336,770 82,747,658 53,939,704 45,173,728
</TABLE>
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 and Stockholder of
Lutheran Brotherhood Variable Insurance Products Company:
In our opinion, the accompanying balance sheet and the related statements of
income, 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, 1999 and 1998, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. 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 auditing standards generally accepted in the United States 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.
March 17, 2000
<PAGE>
LUTHERAN BROTHERHOD VARIABLE INSURANCE PRODUCTS COMPANY
Balance Sheet
December 31, 1999 and 1998
(Dollars in thousands)
- ----------------------------------------------------------------------------
ASSETS 1999 1998
Investments:
Fixed income securities available for sale,
at fair value $ 301,070 $ 274,022
Loans to contractholders 10,796 8,662
---------- ----------
Total investments 311,866 282,684
Cash and cash equivalents 6,116 10,480
Deferred policy acquisition costs 167,248 163,273
Investment income due and accrued 3,457 3,197
Other assets 10,635 7,224
Separate account assets 5,126,811 4,129,161
---------- ----------
Total assets $5,626,133 $4,596,019
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Contract reserves $ 290,790 $ 250,350
Benefits in the process of payment 14,244 10,823
Other liabilities 24,325 26,785
Separate account liabilities 5,126,811 4,129,161
---------- ----------
Total liabilities 5,456,170 4,417,119
---------- ----------
Stockholder's equity:
Common stock ($2.50 par value, 2,000,000
shares authorized, issued and outstanding) 5,000 2,000
Additional paid-in capital 100,800 113,800
Accumulated other comprehensive (loss) income (5,331) 5,392
Retained earnings 69,494 57,708
---------- ----------
Total stockholder's equity 169,963 178,900
---------- ----------
Total liabilities and stockholder's equity $5,626,133 $4,596,019
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
LUTHERAN BROTHERHOD VARIABLE INSURANCE PRODUCTS COMPANY
Statement of Income
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
- ----------------------------------------------------------------------------
1999 1998 1997
Revenues:
Net investment income $ 19,597 $17,285 $14,771
Net realized investment (losses) gains (395) 104 374
Contract charges 60,720 54,031 46,523
Annuity considerations and other income 25,191 22,365 22,054
-------- ------- -------
Total revenues 105,113 93,785 83,722
Benefits and other deductions:
Net additions to contract reserves 21,126 20,503 20,843
Contractholder benefits 22,446 17,284 13,718
Commissions and operating expenses 21,620 16,327 15,005
Amortization of deferred policy
acquisition costs 24,239 20,424 6,833
-------- ------- -------
Total benefits and other deductions 89,431 74,538 56,399
-------- ------- -------
Income from operations before income taxes 15,682 19,247 27,323
Provision for income taxes 3,896 5,182 7,090
-------- ------- -------
Net income $ 11,786 $14,065 $20,233
======== ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
Statement of Stockholder's Equity
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Comprehensive Common Paid-in Comprehensive Retained Stockholder's
Income Stock Capital Income (Loss) Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $2,000 $118,800 $ 292 $23,410 $144,502
Comprehensive income:
Net income $20,233 - - - 20,233 20,233
Other comprehensive income (loss):
Unrealized gains-investments 3,805 - - 3,805 - 3,805
Unrealized losses-acquisition costs (1,596) - - (1,596) - (1,596)
-------
Total comprehensive income $22,442
=======
Return of capital - (5,000) - - (5,000)
------ -------- ------- ------- --------
Balance at December 31, 1997 2,000 113,800 2,501 43,643 161,944
Comprehensive income:
Net income $14,065 - - - 14,065 14,065
Other comprehensive income (loss):
Unrealized gains-investments 4,130 - - 4,130 - 4,130
Unrealized losses-acquisition costs (1,239) - - (1,239) - (1,239)
------- ------ -------- ------- ------- --------
Total comprehensive income $16,956
=======
Balance at December 31, 1998 2,000 113,800 5,392 57,708 178,900
Comprehensive income:
Net income $11,786 - - - 11,786 11,786
Other comprehensive income (loss):
Unrealized losses-investments (16,501) - - (16,501) - 16,501)
Unrealized gains-acquisition costs 5,778 - - 5,778 - 5,778
-------
Total comprehensive income $ 6,008
=======
Recapitalization of common stock 3,000 (3,000) - - -
Return of capital - (10,000) - - (10,000)
------ -------- ------- ------- --------
Balance at December 31, 1999 $5,000 $100,800 $(5,331) $69,494 $169,963
======== ======= ======= ========
</TABLE>
<PAGE>
LUTHERAN BROTHERHOD VARIABLE INSURANCE PRODUCTS COMPANY
Statement of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
- ----------------------------------------------------------------------------
1999 1998 1997
Cash flows from operating activities:
Net income $ 11,786 $ 14,065 $ 20,233
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred policy acquisition costs 1,804 (3,816) (17,799)
Realized net investment (gains) losses 395 (104) (374)
Bond amortization 560 334 99
Change in operating assets and liabilities:
Loans to contractholders (2,134) (2,688) (1,294)
Investment income due and accrued
and other assets (3,671) (2,444) (1,095)
Contract reserves 40,440 28,107 42,151
Other liabilities 3,313 5,410 3,288
Benefits in process of payment 3,421 3,307 2,350
----------- -------- --------
Net cash provided by
operating activities 55,914 42,171 47,559
----------- -------- --------
Cash flows from investing activities:
Proceeds from sale of fixed income
securities available for sale 60,152 45,603 27,888
Purchase of fixed income securities
available for sale (110,430) (84,041) (82,235)
----------- -------- --------
Net cash used in investing
activities (50,278) (38,438) (54,347)
----------- -------- --------
Cash flows from financing activities:
Return of capital (10,000) - (5,000)
----------- -------- --------
Net cash used in financing
activities (10,000) - (5,000)
----------- -------- --------
Net (decrease) increase in cash and
cash equivalents (4,364) 3,733 (11,788)
Cash and cash equivalents, beginning
of year 10,480 6,747 18,535
----------- -------- --------
Cash and cash equivalents, end of year $ 6,116 $ 10,480 $ 6,747
=========== ======== ========
<PAGE>
LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS COMPANY
Notes to Financial Statements
(Dollars in thousands unless otherwise stated)
- ----------------------------------------------------------------------------
1. ORGANIZATION
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.
In 1999, in response to regulatory requirements, the Company approved a
change in par value to the authorized and outstanding shares of common
stock from $1.00 per share to $2.50 per share. The change in par value
did not affect any of the existing rights of stockholders and has been
recorded as an adjustment to additional paid-in capital and common
stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
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 and disclosure of contingent 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.
FINANCIAL STATEMENT PRESENTATION
Certain prior year amounts, in the financial statements and notes to
the financial statements, have been reclassified to conform to the 1999
financial statement presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market
instruments and other debt issues with an original maturity of 90 days
or less.
INVESTMENTS
See disclosures regarding the determination of fair value of financial
instruments at Note 9.
Carrying value of investments is determined as follows:
Fixed income securities Fair value
Loans to contractholders Unpaid principal balance
Fixed income securities which may be sold prior to maturity are
classified as available for sale.
Realized investment gains and losses on sales of securities are
determined on a first in, first out method for fixed income securities
and are reported in the Statement of Income. Unrealized investment
gains and losses on fixed income securities classified as available for
sale, net of the impact of unrealized investment gains and losses on
deferred policy acquisitions costs, are reported as other comprehensive
income.
DEFERRED POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are
primarily related to the production of new business, are deferred.
Such costs include commissions, certain costs of contract issuance and
underwriting, and certain variable agency expenses. Deferred policy
acquisition costs are subject to recoverability testing at the time of
contract issue and loss recognition testing at the end of each
accounting period. Deferred policy acquisition costs are adjusted for
the impact of unrealized gains or losses on investments as if those
gains or losses had been realized, with corresponding credits or
charges included in equity.
For universal life-type and investment-type contracts, deferred
acquisition costs are amortized over the average expected life of the
contracts in proportion to estimated gross profits from mortality,
investment, and expense margins and surrender charges. The effects of
revisions to experience on previous amortization of deferred
acquisition costs are reflected in earnings and change in unrealized
investment gains (losses) in the period estimated gross profits are
revised.
SEPARATE ACCOUNTS
Separate account assets include segregated funds invested by the
Company for the benefit of variable life insurance and variable annuity
contract owners. The assets (principally investments) and liabilities
(principally to contractholders) of each account are clearly
identifiable and distinguishable from other assets and liabilities of
the Company. Assets are valued at fair value. The investment income,
gains and losses of these accounts generally accrue to the
contractholders, and, therefore, are not included in the Company's net
income.
FUTURE CONTRACT BENEFITS
Liabilities for future contract benefits on universal life-type and
investment-type contracts are based on the contract account balance.
PREMIUM REVENUE AND BENEFITS TO CONTRACTHOLDERS
Recognition of Universal Life-Type Contract Revenue and Benefits to
Contractholders
Universal life-type contracts are insurance contracts with terms that
are not fixed and guaranteed. The terms that may be changed could
include one or more of the amounts assessed the contractholder,
premiums paid by the contractholder or interest accrued to
contractholder balances. Amounts received as payments for such
contracts are not reported as premium revenues.
Revenues for universal life-type contracts consist of investment
income, charges assessed against contract account values for deferred
contract loading, the cost of insurance and contract administration.
Contract benefits and claims that are charged to expense include
interest credited to contracts and benefit claims incurred in the
period in excess of related contract account balances.
Recognition of Investment Contract Revenue and Benefits to
Contractholders
Contracts that do not subject the Company to risks arising from
contractholder mortality or morbidity are referred to as investment
contracts. Certain deferred annuities are considered investment
contracts. Amounts received as payments for such contracts are not
reported as premium revenues.
Revenues for investment products consist of investment income and
contract administration charges. Contract benefits that are charged to
expense include benefit claims incurred in the period in excess of
related contract balances, and interest credited to contract balances.
Recognition of Limited-Payment Contract Revenue and Benefits to
Contractholders
Limited-payment contracts subject the Company to contractholder
mortality and morbidity risks over a period that extends beyond the
premium paying period. Annuities with life contingencies are
considered limited-payment contracts. Considerations are recognized as
revenue when due. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision
for liabilities for future contract benefits and the amortization of
deferred policy acquisition costs.
3. INCOME TAXES
The Company's tax provision and related balance sheet accounts are
determined in accordance with a tax sharing agreement with its Parent,
which allocates federal income taxes to the Company as if it filed a
separate tax return. Federal income taxes are charged or credited to
operations based on amounts estimated to be payable or recoverable as a
result of taxable operations for the current year. Deferred income tax
assets and liabilities are recognized based on the temporary
differences between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and
laws.
The 1999 and 1998 provisions for income taxes reflected on the
Statement of Income consisted entirely of deferred federal and state
income tax expense. Net deferred income tax liabilities are included
on the balance sheet in "Other Liabilities" and consist of the
following:
1999 1998
Deferred policy acquisition costs $(54,317) $(52,038)
Reserves for future benefits 9,960 19,276
Net operating loss carryforwards 11,879 7,988
Other 7,979 (1,603)
-------- --------
Net deferred income tax liability $(24,499) $(26,377)
======== ========
The Company has net operating loss carryforwards for tax purposes of
approximately $34 million at December 31, 1999, which expire between
2002 and 2014. For alternative minimum tax calculation purposes, the
Company has net operating loss carryforwards of $36 million at December
31, 1999, which expire between 2002 and 2014.
The Company's effective tax rate differs from the statutory rate due to
dividends received deductions.
4. INVESTMENTS
FIXED INCOME SECURITIES
Investments in fixed income securities are primarily intended to back
long-term liabilities; therefore, care should be exercised in drawing
any conclusions from market value information.
Investments in fixed income securities at December 31, 1999 and 1998
follow:
Available for Sale (Carried at Fair Value)
December 31, 1999
--------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Fixed income securities:
U.S. government $166,510 $ 827 $ 6,055 $161,282
Mortgage-backed securities 59,961 - 1,796 58,165
All other corporate bonds 85,395 3 3,775 81,623
-------- ------- -------- --------
Total available for sale $311,866 $ 830 $ 11,626 $301,070
======== ======= ======== ========
Available for Sale (Carried at Fair Value)
December 31, 1998
--------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Fixed income securities:
U.S. government $119,915 $ 6,989 $ 130 $126,774
Mortgage-backed securities 41,986 1,015 - 43,001
All other corporate bonds 100,641 3,722 116 104,247
-------- ------- -------- --------
Total available for sale $262,542 $11,726 $ 246 $274,022
======== ======= ======== ========
CONTRACTUAL MATURITY OF FIXED INCOME SECURITIES
The amortized cost and fair value of fixed income securities available
for sale as of December 31, 1999 are shown below by contractual
maturity. Actual maturities may differ from contractual maturities
because securities may be restructured, called or prepaid.
Amortized Fair
Years to Maturity Cost Value
One year or less $ - $ -
After one year through five years 60,407 60,337
After five years through ten years 115,880 110,468
After ten years 75,618 72,100
Mortgage-backed securities 59,961 58,165
-------- --------
Total available for sale $311,866 $301,070
======== ========
5. INVESTMENT INCOME AND REALIZED GAINS AND LOSSES
Investment income summarized by type of investment was as follows:
Year Ended December 31,
---------------------------
1999 1998 1997
Fixed income securities $18,349 $16,513 $13,472
Loans to contractholders 707 549 367
Cash, cash equivalents and other 573 242 952
------- ------- -------
Gross investment income 19,629 17,304 14,791
Investment expenses 32 19 20
------- ------- -------
Net investment income $19,597 $17,285 $14,771
======= ======= =======
Gross realized investment gains and losses on sales of all types of
investments are as follows:
Year Ended December 31,
---------------------------
1999 1998 1997
Fixed income securities:
Realized gains $ 538 $ 238 $ 426
Realized losses 933 129 53
Other investments:
Realized gains - - 1
Realized losses - 5 -
------- ------- -------
Total net realized investment
(losses) gains $ (395) $ 104 $ 374
======= ======= =======
6. STATUTORY DEPOSIT
Bonds with a carrying value of $2.7 million and $2.7 million and a
market value of $2.4 million and $2.9 million at December 31, 1999 and
1998, respectively, are on deposit with various state insurance
departments as required by law.
7. 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 Variable Accounts are unit investment trusts registered under the
Investment Company Act of 1940. Each Variable Account has seven
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 Accounts' financial statements at the net asset
value of the Fund.
A fixed account is also included 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.
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:
1999 1998 1997
Rate Charges Charges Charges
Variable Insurance Account 0.6% $ 1,383 $ 1,118 $ 911
Variable Insurance Account II 2.3% 66 60 55
Variable Annuity Account I 1.1% 46,339 40,092 34,251
------- ------- -------
$47,788 $41,270 $35,217
======= ======= =======
Income from these charges is included in the Statement of Income.
In addition, the Company deducts certain amounts from the cash value of
the accounts invested in the separate accounts for surrender charges,
annual administrative charges and cost of insurance charges as follows:
1999 1998 1997
Variable Insurance Account $10,777 $10,145 $ 9,030
Variable Insurance Account II - - -
Variable Annuity Account I 1,355 1,591 1,807
------- ------- -------
$12,132 $11,736 $10,837
======= ======= =======
8. RELATED PARTY TRANSACTIONS
Lutheran Brotherhood provides administrative services to and collects
premiums for the Company. The net receivable at December 31, 1999
represents the premiums collected but not transferred to the Company
net of the unpaid balance of administrative services.
Lutheran Brotherhood allocated approximately $22.8 million, $20.5
million and $18.2 million of operating expenses to the Company in 1999,
1998 and 1997, respectively, which includes the costs for corporate
officers, human resources, and other administrative and operating
functions. Lutheran Brotherhood has agreed to provide the Company with
capital requirements, if necessary.
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, 1999 and 1998.
LBSC allocated $0.6 million, $0.5 million and $0.4 million of operating
expenses to the Company in 1999, 1998 and 1997, 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
$15.9 million, $16.7 million and $17.2 million in 1999, 1998 and 1997,
respectively.
Payables to (receivables from) affiliates includes the following:
1999 1998
Lutheran Brotherhood:
Operating expenses payable $ 1,891 $1,546
Premium income (receivable) payable (5,582) 1,299
Lutheran Brotherhood Securities Corp.:
Operating expenses payable 1 15
------- ------
$(3,690) $2,860
======= ======
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair
value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument.
Fixed Income Securities: Fair values for fixed income securities are
based on quoted market prices, where available. For fixed maturities
not actively traded in the market, fair values are estimated using
market quotes from brokers or internally developed pricing methods.
Loans to Contractholders: The carrying amount reported in the balance
sheet approximates fair value since loans on insurance contracts reduce
the amount payable at death or at surrender of the contract.
Cash and Cash Equivalents: The carrying amounts for these assets
approximate the assets' fair values.
Separate Account Assets and Liabilities: The carrying amounts reported
for separate account assets and liabilities approximate their
respective fair values.
Other Financial Instruments Recorded as Assets: The carrying amounts
for these financial instruments (primarily premiums and other accounts
receivable and accrued investment income), approximate those assets'
fair values.
Investment Contract Liabilities: The fair value for deferred annuities
was estimated to be the amount payable on demand at the reporting date
as those investment contracts have no defined maturity and are similar
to a deposit liability. The amount payable at the reporting date was
calculated as the account balance less applicable surrender charges.
The fair values for supplementary contracts without life contingencies
and immediate annuities were estimated using discounted cash flow
analyses using similar maturities or by using cash surrender value.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed income securities $ 301,070 $ 301,070 $ 274,022 $ 274,022
Loans to contractholders 10,796 10,796 8,662 8,662
Cash and cash equivalents 6,116 6,116 10,480 10,480
Separate account assets 5,126,811 5,126,811 4,129,161 4,129,161
Other financial instruments recorded as assets 14,092 14,092 10,421 10,421
Financial instruments recorded as liabilities:
Investment contracts:
Deferred annuities 109,741 108,828 109,707 108,344
Supplementary contracts and immediate annuities 71,501 71,501 54,616 54,616
Separate account liabilities 5,126,811 5,126,811 4,129,161 4,129,161
</TABLE>
10. STATUTORY FINANCIAL INFORMATION
Accounting practices used to prepare statutory financial statements for
regulatory filing of life insurance companies differ from accounting
principles generally accepted in the United States (GAAP). The
following reconciles the Company's statutory net change in surplus and
statutory surplus determined in accordance with accounting practices
prescribed or permitted by the Department of Commerce of the State of
Minnesota with net income and stockholder's equity on a GAAP basis.
Year Ended
December 31,
--------------------
1999 1998
Net change in statutory accumulated deficit $ 2,151 $ 49
Change in asset valuation reserves (24) 80
-------- --------
Net change in statutory accumulated deficit
and asset valuation reserves 2,127 129
Adjustments:
Future contract benefits and
contractholders' account balances 16,963 16,271
Deferred policy acquisition costs (1,804) 3,816
Investment losses (937) (424)
Other, net (4,563) (5,727)
-------- --------
Net income $ 11,786 $ 14,065
======== ========
Year Ended
December 31,
--------------------
1999 1998
Statutory stockholder's equity $ 72,783 $ 80,632
Asset valuation reserves 473 497
-------- --------
Statutory stockholder's equity and
asset valuation reserves 73,256 81,129
Adjustments:
Future contract benefits and
contractholders' account balances (36,792) (53,172)
Deferred policy acquisition costs 167,247 163,273
Interest maintenance reserves 1,221 2,158
Valuation of investments (10,796) 11,480
Tax adjustment (24,499) (26,377)
Other, net 326 409
-------- --------
Stockholder's equity $169,963 $178,900
======== ========
11. LEGAL MATTERS
The Company and Lutheran Brotherhood (the Society) are involved in
various pending or threatened legal proceedings arising out of the
normal course of business. Also, each has been named in civil
litigation proceedings alleging inappropriate life insurance sales
practices, which appear to be similar to claims asserted in class
actions brought against many other life insurers. These matters are
sometimes referred to as market conduct lawsuits. The Company and the
Society believe they have substantial defenses to these actions and
intend to assert them in the courts where the actions were filed.
While the ultimate resolution of such litigation cannot be predicted
with certainty at this time, in the opinion of management such matters
will not have a material adverse effect on the financial position or
results of operations of the Company.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A: None.
Part B: Financial Statements of Lutheran Brotherhood Variable
Insurance Products Company. (3)
Financial Statements of LBVIP Variable Annuity Account I.
(3)
(b) Exhibits:
1. Resolution of the Board of Directors of Lutheran Brotherhood
Variable Insurance Products Company ("Depositor") authorizing
the establishment of LBVIP Variable Annuity Account I
("Registrant"). (1)
2. Not Applicable.
3.(a) Form of Distribution Agreement between Depositor and
Lutheran Brotherhood Securities Corp ("LBSC"). (1)
(b) Forms of General Agent's Agreement and Selected Registered
Representative Agreement between LBSC and agents with
respect to the sale of Contracts. (1)
4. Form of Contract. (1)
5. Contract Application Form. (1)
6.(a) Articles of Incorporation of Depositor (incorporated by
reference to Exhibit A(6)(a) to Registrant's Registration
Statement No. 33-3243). (1)
(b) Bylaws of Depositor (incorporated by reference to Exhibit
A(6)(b) to Registrant's Registration Statement No. 33-
3243). (1)
7. Not Applicable.
8. Form of Management Service Agreement among Lutheran
Brotherhood, LBSC and Depositor. (1)
9. Opinion of Counsel as to the legality of the securities being
registered (including written consent). (1)
10. Not Applicable.
11. Not Applicable.
12. Not Applicable.
13. Computations of Performance Data. (1)
14. Consent of Independent Accountant. (3)
15. Powers of Attorney. (2)
16. Consent of Counsel. (3)
________________________________
(1) Included in Post-Effective Amendment No. 20 filed April 29, 1998.
(2) Included in Post-Effective Amendment No. 23 filed February 29,2000.
(3) Filed herewith.
Item 25. Directors and Officers of the Depositor
NAME POSITIONS AND OFFICES WITH DEPOSITOR
Directors
Bruce J. Nicholson President, Chief Operating Officer and CEO-
Elect of Lutheran Brotherhood
David W. Angstadt Executive Vice President and Chief Marketing
Officer of Lutheran Brotherhood
Rolf F. Bjelland Executive Vice President of Lutheran
Brotherhood
Randall L. Boushek Senior Vice President and Chief Investment
Officer of Lutheran Brotherhood
Michael E. Loken Senior Vice President of Lutheran Brotherhood
Jennifer H. Martin Senior Vice President of Lutheran Brotherhood
James R. Olson Senior Vice President of Lutheran Brotherhood
Jerald E. Sourdiff Senior Vice President and Chief Financial
Officer of Lutheran Brotherhood
Daniel G. Walseth Senior Vice President of Lutheran Brotherhood
EXECUTIVE OFFICERS POSITIONS WITH THE DEPOSITOR
Bruce J. Nicholson Chairman, President and Chief Executive
Officer
Jerald E. Sourdiff Vice President and Chief Financial Officer
David K. Stewart Treasurer
David W. Angstadt Vice President and Chief Marketing Officer
Rolf F. Bjelland Vice President
Randall L. Boushek Vice President and Chief Investment Officer
David J. Christianson Vice President
Otis F. Hilbert Vice President and Assistant Secretary
David J. Larson Vice President and Secretary
Susan Oberman Smith Vice President
James R. Olson Vice President
Richard B. Ruckdashel Vice President
James M. Walline Vice President
Daniel G. Walseth Vice President
The principal business address of each of the foregoing directors and
officers is 625 Fourth Avenue South, Minneapolis, Minnesota 55415.
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant
Registrant is a separate account of Depositor, established by the Board of
Directors of Depositor in 1987 pursuant to the laws of the State of
Minnesota.
Depositor is an indirect subsidiary of Lutheran Brotherhood, a fraternal
benefit society founded under the laws of the State of Minnesota. Lutheran
Brotherhood's other direct and indirect subsidiaries are (a) Lutheran
Brotherhood Financial Corporation, a Minnesota corporation which is a
holding company that has no independent operations, (b) LBSC, a Pennsylvania
corporation which is a registered broker-dealer, (c) Lutheran Brotherhood
Research Corp., a Minnesota corporation which is a licensed investment
adviser, and (d) Lutheran Brotherhood Real Estate Products Company, a
Minnesota corporation.
Item 27. Number of Contract Owners
There were 88,642 Contract Owners at March 31, 2000.
Item 28. Indemnification
Reference is hereby made to Section 4.01 of Depositor's Bylaws, filed as an
Exhibit to this Registration Statement, and to Section 5 of LBSC's By-Laws,
which mandate indemnification by Depositor and LBSC of directors, officers
and certain others under certain conditions. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of Depositor or LBSC, pursuant
to the foregoing provisions or otherwise, Depositor and LBSC have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Depositor or LBSC of
expenses incurred or paid by a director or officer or controlling person of
Depositor or LBSC in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of
Depositor or LBSC in connection with the securities being registered,
Depositor or LBSC will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether or not such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
An insurance company blanket bond is maintained providing $15,000,000
coverage for officers, employees, and agents of Lutheran Brotherhood, LBVIP
and LBSC.
Item 29. Principal Underwriters
(a) LBSC, the principal underwriter of the Contracts, is also named as
distributor of the stock of The Lutheran Brotherhood Family of Funds, a
diversified open-end investment company organized as a Delaware business
trust, consisting of the following series: Lutheran Brotherhood Opportunity
Growth Fund, Lutheran Brotherhood Mid Cap Growth Fund, Lutheran Brotherhood
World Growth Fund, Lutheran Brotherhood Growth Fund, Lutheran Brotherhood
Fund, Lutheran Brotherhood Value Fund, Lutheran Brotherhood High Yield Fund,
Lutheran Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund,
Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood
Money Market Fund. LBSC also acts or will act as the principal underwriter
of the following variable contracts: flexible premium variable life
insurance contracts issued by Lutheran Brotherhood through LB Variable
Insurance Account I, a separate account of Lutheran Brotherhood registered
as a unit investment trust under the Investment Company Act of 1940;
flexible premium deferred variable annuity contracts issued by Lutheran
Brotherhood through LB Variable Annuity Account I, a separate account of
Depositor registered as a unit investment trust under the Investment Company
Act of 1940; flexible premium variable life insurance contracts issued by
Depositor through LBVIP Variable Insurance Account, a separate account of
Depositor registered as a unit investment trust under the Investment Company
Act of 1940; and of single premium variable life insurance contracts issued
by Depositor through LBVIP Variable Insurance Account II, a separate account
of Depositor registered as a unit investment trust under the Investment
Company Act of 1940.
(b) The directors and officers of LBSC are as follows:
Bruce J. Nicholson Chairman and Director
David W. Angstadt President and Director
Rolf F. Bjelland Director
Randall L. Boushek Director
Michael E. Loken Director
Jennifer H. Martin Director
James R. Olson Vice President and Director
Jerald E. Sourdiff Chief Financial Officer and Director
Daniel G. Walseth Director
David K. Stewart Treasurer
Colleen Both Vice President and Chief Compliance
Officer
Otis F. Hilbert Vice President and Secretary
Larry A. Borlaug Vice President
J. Keith Both Vice President
Mitchell F. Felchle Vice President
Wayne A. Hellbusch Vice President
Douglas B. Miller Vice President
Richard B. Ruckdashel Vice President
Vicki R. Brandt Assistant Vice President
David J. Christianson Assistant Vice President
Katie S. Kloster Assistant Vice President
Frederick P. Johnson Assistant Vice President
Brenda J. Pederson Assistant Vice President
Marie A. Sorensen Assistant Vice President
John C. Bjork Assistant Secretary
Marlene J. Nogle Assistant Secretary
The principal business address of each of the foregoing officers is 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of Registrant are located, in whole or in part, at
the office of Depositor at 625 Fourth Avenue South, Minneapolis, Minnesota
55415.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant will file a post-effective amendment to this Registration
Statement as frequently as is necessary to ensure that the audited financial
statements in this Registration Statement are never more than 16 months old
for so long as payments under the Contracts may be accepted.
Registrant will include either (1) as part of any application to purchase a
Contract offered by the Prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information.
Registrant will deliver any Statement of Additional Information and any
financial statements required to be made available under this form promptly
upon written or oral request.
Registrant understands that the restrictions imposed by Section 403(b)(11)
of the Internal Revenue Code conflict with certain sections of the
Investment Company Act of 1940 that are applicable to the Contracts. In
this regard, Registrant is relying on a no-action letter issued by the
Office of Insurance Product and Legal Compliance of the SEC and the
requirements for such reliance have been complied with by Registrant.
Lutheran Brotherhood Variable Insurance Products Company hereby represents
that, as to the individual flexible premium variable annuity contracts that
are the subject of this registration statement, File Number 33-15974, that
the fees and charges deducted under the contracts, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by Lutheran Brotherhood Variable Insurance
Products Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all of the requirements for effectiveness of this
amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota
on the 27th day of April, 2000.
LBVIP VARIABLE ANNUITY ACCOUNT I
(Registrant)
By LUTHERAN BROTHERHOOD VARIABLE
INSURANCE PRODUCTS COMPANY
(Depositor)
By /s/ Bruce J. Nicholson*
----------------------------
Bruce J. Nicholson, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, the Depositor
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis and State of Minnesota on the 27th day of April, 2000.
LUTHERAN BROTHERHOOD VARIABLE
INSURANCE PRODUCTS COMPANY
(Depositor)
By /s/ Bruce J. Nicholson*
----------------------------
Bruce J. Nicholson, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on the 27th day of April, 2000
by the following directors and officers of Depositor in the capacities
indicated:
/s/ Bruce J. Nicholson* Chairman, President and Chief Executive
----------------------- Officer (Chief Executive Officer)
Bruce J. Nicholson
/s/ Jerald E. Sourdiff* Vice President and Chief Financial
----------------------- Officer (Principal Financial Officer)
Jerald E. Sourdiff
/s/ David K. Stewart* Treasurer (Principal Accounting Officer)
-----------------------
David K. Stewart
A Majority of the Board of Directors:*
Bruce J. Nicholson
David W. Angstadt
Rolf F. Bjelland
Randall L. Boushek
Michael E. Loken
Jennifer H. Martin
James R. Olson
Jerald E. Sourdiff
Daniel G. Walseth
*By: /s/ John C. Bjork
------------------------------
John C. Bjork, Attorney-in-Fact,
Pursuant to Powers of Attorney
Filed with Post-Effective
Amendment No. 23.
<PAGE>
INDEX TO EXHIBITS
LBVIP VARIABLE ANNUITY ACCOUNT I
EXHIBIT NO.
- -----------
14 Consent of Independent Accountant.
16 Consent of Counsel.
- - 1 -
<PAGE>
EXHIBIT 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 24 to the
registration statement on Form N-4 (the "Registration Statement") of our
report dated March 31, 2000, relating to the financial statements of LBVIP
Variable Annuity Account I, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the heading "Financial Statements and
Experts" in such Prospectus and under the heading "Independent Accountants
and Financial Statements" in such Statement of Additional Information.
We also consent to the use in such Statement of Additional Information of
our report dated March 17, 2000, relating to the financial statements of
Lutheran Brotherhood Variable Insurance Products Company which appear in
such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
April 27, 2000
#29190
<PAGE>
EXHIBIT 16
625 Fourth Avenue South
Minneapolis, Minnesota 55415
[logo] LUTHERAN BROTHERHOOD
VARIABLE INSURANCE
PRODUCTS COMPANY
April 27, 2000
Lutheran Brotherhood Variable
Insurance Products Company
625 Fourth Avenue South
Minneapolis, MN 55415
Ladies and Gentlemen:
I consent to the use of my name under the heading "Legal Matters" in the
prospectus contained in Post-Effective Amendment No. 24 to the registration
statement, on Form N-4, File No. 33-15974, to be filed with the Securities
and Exchange Commission.
Very truly yours,
/s/ John C. Bjork
John C. Bjork
Assistant Secretary
(612) 340-7005
#29191
<PAGE>
EXHIBIT 16
JONES & BLOUCH L.L.P.
SUITE 405 WEST
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007-0805
JORDEN BURT BERENSON & JOHNSON LLP TELEPHONE (202) 223-3500
AFFILIATED COUNSEL TELECOPIER (202) 223-4593
April 27, 2000
Lutheran Brotherhood Variable Insurance
Products Company
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Re: LBVIP Variable Annuity Account I
Gentlemen:
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 24 to
the registration statement, on Form N-4, File No. 33-15974, to be filed with
the Securities and Exchange Commission.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
#29192
