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VARIABLE ANNUITY
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and LB SERIES FUND, INC.
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[ARTWORK HERE]
Prospectuses
April 28, 1995
[LOGO HERE]
Lutheran Brotherhood's Variable Annuity: Providing tax-deferred growth for
your retirement plan
Lutheran Brotherhood's Variable Annuity, also known as Flexible Premium
Deferred Variable Annuity, offers investors a number of advantages. Here's
how you benefit:
* Tax deferral increases your income at retirement. In a tax-deferred
annuity, all of your interest, dividends and capital gains are reinvested
and remain untaxed until withdrawal are made from the plan. Because it's tax
deferred, you build a larger retirement nest egg which means more income
when you retire.
* You decide how your annuity is invested. Variable annuities are different
from traditional annuities in that you decide the investment mix of your
annuity's accumulated value. You select from a variety of investment choices
based on your objectives. If your objectives change, you have the
flexibility and control to redirect your investments.
* Performance potential helps you beat inflation. While your retirement plan
may appear to cover future needs at first glance, it might not be adequate
years down the road. The increased cost of living -- inflation -- can eat
away at your retirement nest egg.
The stock and bond investments available through Lutheran Brotherhood's
Variable Annuity provide investors with the opportunity to beat inflation.
While there are risks associated with investing, many choose to invest in
stocks and bonds for potentially higher returns.
Lutheran Brotherhood's Variable Annuity offers tax-deferred earnings, a
hedge against inflation, and a variety of investment options, all in a
single retirement product.
Five options to help you meet your retirement goals
Lutheran Brotherhood's Variable Annuity offers four subaccounts that invest
in corresponding portfolios of LB Series Fund, Inc. and a fixed account:
Growth Subaccount. This subaccount invests in the Growth Portfolio. Its
objective is to seek long-term growth of capital by investing primarily in
common stocks of established corporations.
High Yield Subaccount. This subaccount invests in the High Yield Portfolio.
Its objective is to seek high current income and growth of capital by
investing primarily in high-yielding (junk) corporate bonds.
Income Subaccount. This subaccount invests in the Income Portfolio. Its
objective is to seek a high level of income while preserving principal by
investing primarily in intermediate- to long-term bonds.
Money Market Subaccount. This subaccount invests in the Money Market
Portfolio.** Its objective is to seek current income with stability of
principal by investing in high-quality, short-term debt securities.
Fixed Account. The Fixed Account is part of the general account of Lutheran
Brotherhood and provides guaranteed safety of principal. (These guarantees
are based on the financial strength of Lutheran Brotherhood.)
**Investments in this portfolio are not insured or guaranteed by the U.S.
government. There are no assurances the portfolio will maintain a stable net
asset value of $1.
The Importance of the Prospectus
The purpose of the prospectus is to provide meaningful information about
Lutheran Brotherhood's Variable Annuity. A prospectus must be given before
you can invest, and updated prospectuses are sent to all existing contract
owners on an annual basis.
Please refer to the Table of Contents for more information about this
booklet. You're encouraged to review this prospectus and file it for future
reference.
This page does not constitute part of the prospectuses.
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PROSPECTUS
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACT
ISSUED BY
LUTHERAN BROTHERHOOD
625 Fourth Avenue South * Minneapolis, Minnesota 55415 * (612) 339-8091
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This Prospectus describes an individual flexible premium deferred variable
annuity contract (the "Contract") being offered by Lutheran Brotherhood
("LB"), a fraternal benefit society organized under the laws of the state of
Minnesota. LB is offering the Contract only in situations in which the
Annuitant is eligible for membership in Lutheran Brotherhood. The Contract
may be sold to or in connection with retirement plans which may or may not
qualify for special Federal tax treatment under the Internal Revenue Code.
Annuity payments under the Contract are deferred until a selected later
date.
The Contract Owner may elect to have premiums accumulate on a variable basis
and/or on a fixed basis. Premiums may be allocated, as designated by the
Contract Owner, to one or more Subaccounts of LB Variable Annuity Account I
(the "Variable Account"), a separate account of LB, and/or to the Fixed
Account (which is the general account of LB, and which pays interest at a
guaranteed fixed rate). The assets of each Subaccount will be invested
solely in a corresponding Portfolio of LB Series Fund, Inc. (the "Fund"),
which is a diversified, open-end management investment company (commonly
known as a "mutual fund"). The accompanying Prospectus for the Fund
describes the investment objectives and attendant risks of the four
Portfolios of the Fund -- the Growth Portfolio, the High Yield Portfolio,
the Income Portfolio and the Money Market Portfolio. Additional Subaccounts
(together with the related additional Portfolios of the Fund) may be added
in the future. The Accumulated Value of the Contract in the Subaccounts and,
except to the extent fixed amount annuity payments are elected by the
Contract Owner, the amount of annuity payments will vary, primarily based on
the investment experience of the Portfolio whose shares are held in the
Subaccounts designated. Premiums allocated to the Fixed Account will
accumulate at fixed rates of interest declared by LB.
This Prospectus describes only the elements of the Contract pertaining to
the Variable Account except where reference to the Fixed Account of the
Contract is specifically made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Prospectus sets forth concisely the information about the Contract that
a prospective investor ought to know before investing, and should be read
and kept for future reference. It is valid only when accompanied
or preceded by the current Prospectus of LB Series Fund, Inc.
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The date of this Prospectus is April 28, 1995.
[Continued from cover page]
On the date LB approves the Contract Owner's application, the initial
premium and any interest accumulations accrued during the underwriting
period will be allocated among the Subaccount(s) and the Fixed Account
according to the Contract Owner's instructions. See "THE CONTRACTS--
Allocation of Premiums." Subsequent premiums will be allocated among the
Subaccounts and the Fixed Account in the same proportion as the initial
premium, at the end of the Valuation Period in which the subsequent premium
is received by LB.
Additional information about the Contract, LB and the Variable Account,
contained in a Statement of Additional Information dated April 28, 1995, has
been filed with the Securities and Exchange Commission and is available upon
request without charge by writing to Lutheran Brotherhood, 625 Fourth Avenue
South, Minneapolis, Minnesota 55415. The Statement of Additional Information
relating to the Contract having the same date as this Prospectus is
incorporated by reference in this Prospectus. The Table of Contents for the
Statement of Additional Information may be found on page 32 of this
Prospectus. Information about the Fixed Account may be found in the Appendix
to this Prospectus.
TABLE OF CONTENTS
Page
DEFINITIONS 4
SUMMARY FEE TABLE 6
SUMMARY 7
LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE FUND 11
Lutheran Brotherhood 11
The Variable Account 11
LB Series Fund, Inc. 11
Addition, Deletion or Substitution of Investments 13
THE CONTRACTS 14
Issuance of a Contract 14
Free Look Period 14
Allocation of Premium 15
Accumulated Value; Accumulation Units
and Accumulation Unit Value 15
Death Benefit Before the Maturity Date 16
Death Benefit After the Maturity Date 17
Surrender (Redemption) 17
Transfers 18
Telephone Transfers 18
Special Transfer Service -- Dollar Cost Averaging 19
Assignments 19
Contract Owner, Beneficiaries and Annuitants 19
CHARGES AND DEDUCTIONS 20
Surrender Charge (Contingent Deferred Sales Charge) 20
Administrative Charge 21
Mortality and Expense Risk Charge 21
Investment Advisory Fee of the Fund 22
Taxes 22
Sufficiency of Charges 22
ANNUITY PROVISIONS 22
Maturity Date 22
Settlement Options 23
Frequency and Amount of Annuity Payments 24
Subaccount Annuity Unit Value 24
Assumed Investment Rate 25
GENERAL PROVISIONS 25
Postponement of Payments 25
Date of Receipt 25
Reports to Contract Owners 25
Contract Inquiries 25
FEDERAL TAX STATUS 25
Introduction 25
Variable Account Tax Status 26
Taxation of Annuities in General 26
Qualified Plans 27
1035 Exchanges 28
Diversification Requirements 29
Withholding 29
Other Considerations 29
EMPLOYMENT-RELATED BENEFIT PLANS 29
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS 30
VOTING RIGHTS 30
SALES AND OTHER AGREEMENTS 31
LEGAL PROCEEDINGS 31
LEGAL MATTERS 31
FINANCIAL STATEMENTS AND EXPERTS 31
FURTHER INFORMATION 31
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 32
ORDER FORM 32
APPENDIX -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT 33
DEFINITIONS
Accumulated Value. The total amount of value held under a Contract at any
time prior to and including the Maturity Date. A Contract's Accumulated
Value will reflect the investment experience of the chosen Subaccounts of
the Variable Account, any amount of value in the Fixed Account, any premiums
paid, any surrenders, and any charges assessed in connection with the
Contract.
Accumulation Unit. A unit of measure by which the value of the Contract's
interest in each Subaccount is determined.
Accumulation Unit Value. The value of each Accumulation Unit representing
the Contract's interest in each Subaccount.
Annuitant. The person(s) named in the Contract whose life is used to
determine the duration of annuity payments involving life contingencies.
Annuity Unit. A unit of measure which is used in the calculation of the
second and each subsequent variable annuity payment.
Annuity Unit Value. The value of each Annuity Unit.
Beneficiary. The person(s) named by the Contract Owner to receive the
Contract's death benefit.
Contract. The individual flexible premium deferred variable annuity contract
offered by LB and described in this Prospectus.
Contract Anniversary. The same date in each succeeding year as the Date of
Issue.
Contract Owner. The person(s) who controls all the rights under the Contract
while an Annuitant is alive. The Annuitant is the Contract Owner, unless
another owner is named in the Contract application. While an Annuitant is
living, the Contract Owner may exercise all rights set out in the Contract.
If there are two Contract Owners, both must act in concert to exercise
ownership rights.
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 LB at its Home Office.
Fixed Account. The Fixed Account is the general account of LB, which
consists of all assets of LB other than those allocated to a separate
account of LB. Premium payments allocated to the Fixed Account will be paid
a fixed rate of interest (which may not be less than 3.0%) declared by LB at
least annually. Amounts accumulated in the Fixed Account are guaranteed by
LB. (See Appendix.)
Fund. LB Series Fund, Inc., which is described in the accompanying
Prospectus.
Home Office. LB's office at 625 Fourth Avenue South, Minneapolis, Minnesota
55415 or such other office as LB shall specify in a notice to the Contract
Owner.
LB Representative. A person who is licensed by state insurance officials to
sell the Contracts and who is also a registered representative of LBSC.
LBSC. Lutheran Brotherhood Securities Corp., which is an indirect subsidiary
of Lutheran Brotherhood and which acts as the principal underwriter of the
Contracts.
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
the issuer of the Contracts, and which acts as investment adviser to the
Fund.
Maturity Date. The date on which the annuity payments are to start as
selected by the Contract Owner, which date must be a Contract Anniversary at
least three years after the Date of Issue.
Minimum Death Benefit Date. For purposes of calculating the amount of the
death benefit before the Maturity Date, the first such date is the Date of
Issue of the Contract. Thereafter, such date occurs every six years on the
Contract Anniversary.
Portfolio. A Portfolio of the Fund. Each Subaccount invests exclusively in
the shares of a corresponding Portfolio of the Fund.
Qualified Plan. A retirement plan qualified under Section 401, 403, 408 or
457 or similar provisions of the Internal Revenue Code.
Subaccount. A subdivision of the Variable Account. Each Subaccount invests
exclusively in the shares of a corresponding Portfolio of the Fund.
Currently, there are four Subaccounts: the Growth Subaccount (which invests
exclusively in the Growth Portfolio); the High Yield Subaccount (which
invests exclusively in the High Yield Portfolio); the Income Subaccount
(which invests exclusively in the Income Portfolio); and the Money Market
Subaccount (which invests exclusively in the Money Market Portfolio).
Valuation Date. Each day the New York Stock Exchange is open for trading and
any other day on which there is sufficient trading in the securities of a
Portfolio of the Fund such that the current net asset value of its shares
might be materially affected, in each case excluding July 3 and the day
after Thanksgiving.
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. LB Variable Annuity Account I, which is a separate account
of LB. The Subaccounts are subdivisions of the Variable Account.
Written Notice. A written request or notice signed by the Contract Owner and
received by LB at its Home Office.
SUMMARY FEE TABLE
The Contract Owner may allocate premiums and transfer Accumulated Value to
any one of four Subaccounts -- Growth, High Yield, Income and Money Market
- -- or to the Fixed Account or to any combination of the Subaccounts and the
Fixed Account. The following table shows the various fees and expenses
associated with the Contract.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchase
(as a percentage of purchase payments) 0%
Maximum Deferred Sales Load (as a percentage
of Excess Amount surrendered) 6%(1)
Exchange Fee 0%
Annual Contract Fee $30.00(2)
The fees shown below are equally applicable to each Subaccount, therefore,
only one table is shown.
Variable Account Annual Expenses (as a percentage of average daily
Accumulated Value or Annuity Unit Value)
Mortality and Expense Risk Fees 1.10%(3)
Total Variable Account Annual Expenses 1.10%
Fund Annual Expenses (as a percentage of Fund average daily net assets)
Management Fees (Investment Advisory Fees) 0.40%(4)
Other Expenses After Expense Reimbursement 0%(5)
Total Fund Annual Expenses 0.40%
EXAMPLE (6)
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the
applicable time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual
return on assets $71 $88 $104 $181
If you do not surrender your Contract:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual
return on assets $15 $48 $83 $181
</TABLE>
- ----------
(1) See "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred Sales
Charge)". A surrender charge is deducted only if a full or partial surrender
occurs during the first six Contract Years; no surrender charge is deducted
for surrenders occurring in Contract Years seven and later. Up to 10% of the
Accumulated Value existing at the time the first surrender in a Contract
Year is made may be surrendered without charge; only the Excess Amount will
be subject to a surrender charge. The maximum charge is 6% of the Excess
Amount and is in effect for the first Contract Year. Thereafter, the
surrender charge decreases by 1% each subsequent Contract Year.
(2) See "CHARGES AND DEDUCTIONS--Administrative Charge". A $30 annual
administrative charge is deducted on each Contract Anniversary only if, on
that Contract Anniversary, the total of premiums paid under the Contract
minus all prior surrenders is less than $5,000. The $30 fee is a Contract
charge and is deducted proportionately from the Subaccounts and the Fixed
Account that make up the Contract's Accumulated Value.
(3) See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge".
(4) See "CHARGES AND DEDUCTIONS--Investment Advisory Fee of the Fund".
(5) The amount shown for Fund Annual Expenses does not reflect a deduction
for operating expenses of the Fund, other than the investment advisory fee,
because LB and its affiliates have agreed to reimburse the Fund for these
operating expenses. For the fiscal year of the Fund ending December 31,
1994, the Fund was reimbursed approximately $2,238,502 for such operating
expenses. See "LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE FUND--LB
Series Fund, Inc.".
(6) In this example, the $30 annual administrative charge is approximated as
a .02% charge based on the average contract size of a substantially
identical contract issued by Lutheran Brotherhood Variable Insurance
Products Company, an affiliate of LB.
The purpose of the table is to assist the Contract Owner in understanding
the various costs and expenses that a Contract Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as
the Fund. Cross-references to the relevant sections of the Prospectus for
more complete descriptions of the various costs and expenses have been
provided.
THE EXAMPLE SHOWING EXPENSES FOR SURRENDERS AT 1, 3, 5, AND 10-YEAR PERIODS
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
The Contracts
Issuance of a Contract. The Contracts are individual flexible premium
deferred variable annuity contracts issued by LB. In order to purchase a
Contract, application must be made to LB through a licensed LB
Representative, who is also a registered representative of LBSC. The
Contracts are offered only in situations in which the Annuitant is eligible
for membership in Lutheran Brotherhood. The Contracts may be sold to or in
connection with retirement plans which may or may not qualify for special
Federal tax treatment under the Internal Revenue Code. Annuity payments
under the Contracts are deferred until a selected later date.
The minimum amount LB will accept as an initial premium is $600 on an
annualized basis. LB may, however, in its sole discretion, waive such
minimum initial premium requirements. Subsequent premiums may be paid under
the Contracts, but LB may choose not to accept any subsequent premium if it
is less than $50.
Free Look Period. The Contract Owner has the right to return the Contract
within 10 days after such Contract Owner receives the Contract. See "THE
CONTRACTS--Free Look Period".
Allocation of Premiums. Premiums under the Contract may be allocated to one
or more Subaccounts of the Variable Account and to the Fixed Account as
designated by the Contract Owner. The assets of each Subaccount will be
invested solely in a corresponding Portfolio of the Fund--the Growth
Portfolio, the High Yield Portfolio, the Income Portfolio or the Money
Market Portfolio. See "LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE
FUND" and "THE CONTRACTS--Allocation of Premiums". The Accumulated Value of
the Contract in the Subaccounts and, except to the extent fixed amount
annuity payments are elected by the Contract Owner, the amount of annuity
payments will vary, primarily based on the investment experience of the
Portfolio whose shares are held in the Subaccounts designated. Premiums
allocated to the Fixed Account will accumulate at fixed rates of interest
declared by LB. (See Appendix.) See "THE CONTRACTS--Accumulated Value;
Accumulation Units and Accumulation Unit Value".
On the date LB approves the Contract Owner's application, LB will transfer
from the general account the initial premium and any interest accumulations
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 to the
Subaccounts and the Fixed Account in the same proportion as the initial
premium, at the end of the Valuation Period in which the subsequent premium
is received by LB. See "THE CONTRACTS--Allocation of Premiums".
Surrenders. If a Written Notice from the Contract Owner requesting a
surrender is received on or before the Maturity Date, all or part of the
Accumulated Value of a Contract will be paid to the Contract Owner after
deducting any applicable surrender charge. Partial surrenders must be for at
least $500, and may be requested only if the remaining Accumulated Value is
not less than $1,000. Under certain circumstances the Contract Owner may
make surrenders after the Maturity Date. See "THE CONTRACTS--Surrender
(Redemption)".
Transfers. On or before the Maturity Date the Contract Owner may request the
transfer of all or a part of a Contract's Accumulated Value to other
Subaccounts or to the Fixed Account. The total amount transferred each time
must be at least $500 (unless the total value in the Subaccount or the Fixed
Account is less than $500, in which case the entire amount may be
transferred). LB reserves the right to limit the number of transfers in any
Contract Year, provided that at least two such transfers each Contract Year
will always be allowed.With respect to the Fixed Account, transfers out of
the Fixed Account are limited to only one each Contract Year and must be
made on or within 45 days after a Contract Anniversary. After the Maturity
Date, the Contract Owner may, by Written Notice and only once each Contract
Year, change the percentage allocation of variable annuity payments among
the available Subaccounts. See "THE CONTRACTS--Transfers".
Charges and Deductions
The following charges and deductions are made in connection with the
Contracts:
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expense is deducted from premiums at the time premiums are paid. However, if
a Contract is surrendered in whole or in part before it has been in force
for six full Contract Years, a surrender charge is deducted from the amount
surrendered; provided that in each Contract Year, a Contract Owner may
surrender without a surrender charge up to 10% of a Contract's Accumulated
Value existing at the time the first surrender is made in that Contract
Year. The maximum charge is 6% of the Excess Amount and is in effect for the
first Contract Year. Thereafter, the surrender charge decreases by 1% each
subsequent Contract Year. In no event will the total surrender charge on any
one Contract exceed 6 1/2% of total gross premiums paid under the Contract.
The surrender charge will also be deducted at the time annuity payments begin
if the Maturity Date occurs during the first six full Contract Years except as
set forth under the heading "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)".
Administrative Charge. On each Contract Anniversary prior to and including
the Maturity Date, LB deducts an annual administrative charge of $30 from
the Accumulated Value of each Contract. No such charge is deducted if on
that Contract Anniversary the total amount of premiums paid under the
Contract, less the amount of all prior partial surrenders (which includes
the amount of related surrender charges), is equal to or greater than
$5,000.
Mortality and Expense Risk Charge. LB deducts a daily mortality and expense
risk charge to compensate LB for assuming certain mortality and expense
risks. The charge is deducted from the net assets of the Variable Account.
The charge is currently in an amount equal to an annual rate of 1.10%
(approximately 0.80% for mortality risk and approximately 0.30% for expense
risk) of the average daily net assets of each Subaccount in the Variable
Account. This charge is guaranteed not to increase above an annual rate of
1.25%.
Investment Advisory Fee of the Fund. Because the Variable Account purchases
shares of the Fund, the net assets of the Variable Account will reflect the
investment advisory fee incurred by the Fund. LB is paid a daily fee by the
Fund for its investment management services equal to an annual rate of 0.40%
of the aggregate average daily net assets of the Fund.
For a more detailed description of these charges and deductions, see
"CHARGES AND DEDUCTIONS".
Annuity Provisions
The Contract Owner may select an annuity settlement option or options, and
may select whether payments are to be made on a fixed or variable (or a
combination of fixed and variable) basis. The Contract Owner may also elect
to receive a single sum by surrendering the Contract on the Maturity Date
and paying any applicable surrender charge. See "ANNUITY PROVISIONS".
Federal Tax Status
For a description of the Federal income tax status of annuities, see
"FEDERAL TAX STATUS --Taxation of Annuities in General". Generally, a
distribution from a Contract before the taxpayer attains age 59 1/2 will
result in a penalty tax of 10% of the amount of the distribution which is
includable in gross income.
Condensed Financial Information
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction
with the financial statements, related notes and other financial information
included in the Statement of Additional Information.
Selected data for Accumulation outstanding throughout the period ending
December 31:
Growth Subaccount
-----------------
1994
----
Accumulation Unit Value:
Beginning of period $19.68*
End of period 17.95
Number of Accumulation Units
outstanding at end of period 3,142,640
High Yield Subaccount
----------------------
1994
----
Accumulation Unit Value:
Beginning of period $20.41
End of period 18.64
Number of Accumulation Units
outstanding at end of period 2,514,043
Income Subaccount
-----------------
1994
----
Accumulation Unit Value:
Beginning of period $17.21
End of period 16.07
Number of Accumulation Units
outstanding at end of period 2,264,894
Money Market Subaccount
------------------------
1994
----
Accumulation Unit Value:
Beginning of period $1.33
End of period 1.36
Number of Accumulation Units
outstanding at end of period 5,984,694
- ----------
*Commencing February 1, 1994, the date the Registration Statement for the
Variable Account was declared effective.
The financial statements of LB are also contained in the Statement of
Additional Information.
Calculation of Performance
From time to time the Variable Account will 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 annualized current yield and effective yield for the
seven-day base period ended March 31, 1995, was 4.67% and 4.78%,
respectively. For more information, see the Statement of Additional
Information.
Also, the Variable Account may advertise for the Subaccounts other than the
Money Market Subaccount a yield quotation based on a 30-day (or one month)
period computed by dividing the net investment income per Accumulation Unit
earned during the period (the net investment income earned by the Fund
portfolio attributable to shares owned by the Subaccount less expenses
incurred during the period) by the maximum offering price per Accumulation
Unit on the last day of the period. The current yield for the 30-day based
period ended March 31, 1995 for the High Yield Subaccount was 9.50%. The
current yield for the same 30-day base period for the Income Subaccount was
5.96%. For more information, see the Statement of Additional Information.
From time to time, LB 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. For periods prior to February 1, 1994, total
return figures are based on a hypothetical Contract assumed to have been
invested in a Portfolio of the Fund when that Portfolio was first available
for investment under a variable annuity contract issued by an LB affiliate,
Lutheran Brotherhood Variable Insurance Products Company. If the assumed
investment was made less than 10 years from the date of the quotation, the
total return from the date of such investment will be given.
The average annual total returns for the 1, 3 and 5-year periods through
March 31, 1995 and for the period from commencement of operations through
March 31, 1995 for the Subaccounts are as follows:
Commencement
1 Year 3 Year 5 Year of Operations
------- ------ ------ --------------
Growth Subaccount (3/8/88) 2.08%* 5.57% 10.36% 9.96%*
High Yield Subaccount (3/8/88) -4.69%* 8.37%* 13.11%* 9.97%*
Income Subaccount (3/8/88) -2.72%* 4.22%* 7.78%* 7.61%*
Money Market Subaccount (2/18/88) -2.04%* 1.23%* 3.22%* 4.62%*
*Does not include the annual administative 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. Assumes applicable sales charge upon
surrender.
Average annual total return quotations assume a steady rate of growth.
Actual performance fluctuates and will vary from the quoted results for
periods of time within the quoted periods. For more information, see the
Statement of Additional Information.
The Variable Account's performance reported from time to time in
advertisements and sales literature may be compared with that of other
insurance company separate accounts or mutual funds included in the
generally accepted indices, analyses or rankings prepared by Lipper
Analytical Service, Inc., Standard & Poor's Corporation, Morningstar, Inc.,
VARDS, Dow Jones or similar independent rating or statistical investment
services that monitor the performance of insurance company separate accounts
or mutual funds. Performance of the Variable Account may be quoted or
compared to rankings, yields or returns as published or prepared by
independent rating or statistical services or publishers of publications
such as THE BANK RATE MONITOR NATIONAL INDEX, BARRON'S, BUSINESS WEEK,
DONOGHUE'S MONEY MARKET FUND REPORT, FINANCIAL SERVICES WEEK, FINANCIAL
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, GLOBAL INVESTOR, INSTITUTIONAL
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LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT
AND THE FUND
Lutheran Brotherhood
The Contracts are issued by LB. Lutheran Brotherhood, a fraternal benefit
society owned and operated for its members, was founded in 1917 under the
laws of the State of Minnesota. LB is currently licensed to transact life
insurance business in all 50 states and the District of Columbia and is
offering the Contracts in states where it has authority to issue variable
contracts. At the end of 1994, LB had total assets of approximately $9.4
billion.
LB is subject to regulation by the Insurance Division of the State of
Minnesota as well as by the insurance departments of all the other states
and jurisdictions in which it does business. LB submits annual reports on
its operations and finances to insurance officials in such states and
jurisdictions. The forms of Contracts described in this Prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold. LB is also subject to certain
Federal securities laws and regulations.
The Variable Account
The Variable Account is a separate account of LB, established by the Board
of Directors of LB in 1993 pursuant to the laws of the State of Minnesota.
The Variable Account meets the definition of a "separate account" under the
federal securities laws. LB has caused the Variable Account to be registered
with the Securities and Exchange Commission (the "SEC") as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"). Such
registration does not involve supervision by the SEC of the management or
investment policies or practices of the Variable Account.
The assets of the Variable Account are owned by LB, and LB is not a trustee
with respect to such assets. However, the Minnesota laws under which the
Variable Account was established provide that the Variable Account shall not
be chargeable with liabilities arising out of any other business LB may
conduct. LB may transfer to its general account assets of the Variable
Account which exceed the reserves and other liabilities of the Variable
Account.
Income and realized and unrealized gains and losses from each Subaccount of
the Variable Account are credited to or charged against that Subaccount
without regard to any of LB's other income, gains or losses. LB may
accumulate in the Variable Account the charge for expense and mortality
risk, mortality gains and losses and investment results applicable to those
assets that are in excess of net assets supporting the Contracts.
LB Series Fund, Inc.
Each Contract Owner may allocate the premiums paid under the Contract to one
or more of the four Subaccounts of the Variable Account -- the Growth
Subaccount, the High Yield Subaccount, the Income Subaccount and the Money
Market Subaccount. The assets of each such Subaccount will be invested in
the corresponding Portfolio (the Growth Portfolio, the High Yield Portfolio,
the Income Portfolio or the Money Market Portfolio) of the Fund. The
investment objectives of the Portfolios of the Fund (individually a
"Portfolio" and collectively the "Portfolios") are:
Growth Portfolio. To achieve long-term growth of capital through investment
primarily in common stocks of established corporations that appear to offer
attractive prospects of a high total return from dividends and capital
appreciation.
High Yield Portfolio. To achieve a higher level of income through a
diversified portfolio of high yield securities ("junk bonds") which involve
greater risks than higher quality investments, while also considering growth
of capital as a secondary objective.
Income Portfolio. To achieve a high level of income over the longer term
while providing reasonable safety of capital through investment primarily in
readily marketable intermediate and long-term fixed income securities.
Money Market Portfolio. To achieve the maximum current income that is
consistent with stability of capital and maintenance of liquidity through
investment in high-quality, short-term debt obligations.
No assurance can be given that the Portfolios of the Fund will achieve their
respective investment objectives.
Shares of the Fund purchased by each Subaccount of the Variable Account will
be held by LB as custodian for the Variable Account.
The Fund is designed to provide an investment vehicle for variable annuity
and variable life insurance contracts. Shares of the Fund will be sold to
other insurance company separate accounts of LB and separate accounts of its
wholly owned indirect subsidiary, Lutheran Brotherhood Variable Insurance
Products Company ("LBVIP"), and the Fund may in the future create new
portfolios. It is conceivable that in the future it may be disadvantageous
for both variable annuity separate accounts and variable life insurance
separate accounts to invest simultaneously in the Fund, although LB does not
foresee any such disadvantages to either variable annuity or variable life
insurance contract owners. The management of the Fund intends to monitor
events in order to identify any material conflicts between such contract
owners and to determine what action, if any, should be taken in response.
Such action could include the sale of Fund shares by one or more of the
separate accounts, which could have adverse consequences. Material conflicts
could result from, for example, (1) changes in state insurance laws, (2)
changes in Federal income tax law, (3) changes in the investment management
of the Fund, or (4) differences in voting instructions between those given
by the contract owners from the different separate accounts. In addition, if
LB believes the Fund's response to any of those events or conflicts
insufficiently protects Contract Owners, it will take appropriate action on
its own.
The Fund is registered with the SEC under the 1940 Act as a diversified,
open-end management investment company (commonly called a "mutual fund").
This registration does not involve supervision by the SEC of the management
or investment practices or policies of the Fund. Shares of the Fund may be
sold to other separate accounts, and the Fund may in the future create new
Portfolios.
The Variable Account will purchase and redeem shares from the Fund at net
asset value. Shares will be redeemed to the extent necessary for LB to
collect charges under the Contracts, to make payments upon surrenders, to
provide benefits under the Contracts, or to transfer assets from one
Subaccount to another as requested by Contract Owners. Any dividend or
capital gain distribution received from a Portfolio of the Fund will be
reinvested immediately at net asset value in shares of that Portfolio and
retained as assets of the corresponding Subaccount.
The Fund receives investment advice with respect to each of its Portfolios
from LB, which acts as investment adviser to the Fund. LB is a registered
investment adviser under the Investment Advisers Act of 1940. Lutheran
Brotherhood Research Corp. ("LBRC"), an indirect subsidiary of Lutheran
Brotherhood, acted as investment adviser to the Fund until January 1994,
when it was replaced by LB. LBRC provided investment advisory services to
the Fund using personnel and services provided by LB. The identical
personnel that performed the investment advisory services for LBRC are
performing the same investment advisory services for LB. As investment
adviser to the Fund, LB charges the Fund a daily investment advisory fee
equal to an annual rate of .40% of the aggregate average daily net assets of
the Fund, as described in the accompanying current Prospectus for the Fund.
The Fund has entered into an Investment Advisory Agreement with LB under
which LB will, subject to the direction of the Board of Directors of the
Fund, carry on the day-to-day management of the Fund, and provide advice and
recommendations with respect to investments and the purchase and sale of
securities in accordance with the Fund's investment objectives, policies and
restrictions. LB also furnishes at its own expenses all necessary
administrative services, office space, equipment and clerical personnel for
servicing the investments of the Fund and maintaining its organization, and
investment advisory facilities and executive and supervisory personnel for
managing the investments and effecting the portfolio transactions of the
Fund. The Investment Advisory Agreement provides that the Fund will pay, or
provide for the payment of, all of its own expenses, including, without
limitation, the compensation of the directors who are not affiliated with LB
or its affiliates, governmental fees, interest charges, taxes, membership
dues in the Investment Company Institute allocable to the Fund, fees and
expenses of the independent auditors, of legal counsel and of any transfer
agent, registrar and dividend disbursing agent of the Fund, expenses of
preparing, printing and mailing prospectuses, shareholders' reports,
notices, proxy statements and reports to governmental officers and
commissions, expenses connected with the execution, recording and settlement
of portfolio security transactions, insurance premiums, fees and expenses of
the Fund's custodian for all services to the Fund, including safekeeping of
funds and securities and keeping of books and calculating the net asset
value of the shares of the Portfolios of the Fund, expenses of shareholders'
meetings and expenses relating to the issuance, registration and
qualification of shares of the Fund. LB and LBVIP have agreed with the Fund
to pay, or to reimburse the Fund for the payment of, all of the foregoing
expenses and all other expense associated with operating the Fund pursuant
to a separate written agreement (the "Expense Reimbursement Agreement"). The
Expense Reimbursement Agreement could be terminated at any time by the
mutual agreement of the Fund, LB and LBVIP, but the Fund and LB and LBVIP
currently contemplate that the Expense Reimbursement Agreement will continue
so long as the Fund remains in existence. If the Expense Reimbursement
Agreement were terminated, the Fund would be required to pay those operating
expenses, which would reduce the net investment return on the shares of the
Fund held by the Subaccounts of the Variable Account.
Each Contract Owner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Fund's various Portfolios. A full description
of the Fund, its investment objectives, policies and restrictions, its
expenses, the risks attendant to investing in the Fund's Portfolios and
other aspects of its operation is contained in the accompanying Prospectus
for the Fund, which should be carefully read together with this Prospectus.
Addition, Deletion or Substitution of Investments
LB reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Variable Account or that the Variable Account may purchase. If the shares of
a Portfolio of the Fund are no longer available for investment or if in LB's
judgment further investment in any Portfolio should become inappropriate in
view of the purposes of the Variable Account, LB may redeem the shares, if
any, of that Portfolio and substitute shares of another registered open-end
management company. LB 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.
LB also reserves the right to establish additional Subaccounts of the
Variable Account, each of which would invest in shares corresponding to a
new Portfolio of the Fund or in shares of another investment company having
a specified investment objective. Subject to applicable law and any required
SEC approval, LB may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by LB.
If any of these substitutions or changes are made, LB may by appropriate
endorsement change the Contract to reflect the substitution or change. If LB
deems it to be in the best interest of Contract Owners and Annuitants, and
subject to any approvals that may be required under applicable law, the
Variable Account may be operated as a management company under the 1940 Act,
it may be deregistered under that Act if registration is no longer required,
or it may be combined with other LB separate accounts.
THE CONTRACTS
Issuance of a Contract
In order to purchase a Contract, application must be made to LB through a
licensed LB Representative, who is also a registered representative of LBSC.
LB is offering Contracts only in situations in which the Annuitant is
eligible for membership in Lutheran Brotherhood. Contracts may be sold to or
in connection with retirement plans which may or may not be Qualified Plans.
LB reserves the right to reject an application for any reason permitted by
law.
The minimum amount LB will accept as an initial premium is $600 on an
annualized basis. LB may, however, in its sole discretion, waive such
minimum initial premium requirements. Subsequent premiums may be paid under
the Contracts, but LB may choose not to accept any subsequent premium if it
is less than $50.
Free Look Period
The Contract provides for an initial "free look" period. The Contract Owner
has the right to return the Contract within 10 days after such Contract
Owner receives the Contract. When LB receives the returned Contract at its
Home Office, it will be cancelled and LB will refund to the Contract Owner
an amount equal to the sum of (i) the Accumulated Value (as of the date the
returned Contract is received by LB at its Home Office or by the LB
Representative from whom the Contract was purchased) plus (ii) the amount
attributable to the Contract for mortality and expense risk charges deducted
from the Variable Account plus (iii) the advisory fees charged by the Fund
against the net asset value in the Fund Portfolios attributable to the
Contract's value in the corresponding Subaccounts of the Variable Account.
If, however, applicable state law so requires, the full amount of any
premium received by LB will be refunded.
For Contracts issued in Pennsylvania, when LB receives the returned Contract
at its Home Office, it will be canceled and LB will refund to the Contract
Owner an amount equal to the sum of (i) the difference between the premiums
paid and the amount allocated to the Variable and Fixed Accounts plus (ii)
the Accumulated Value on the day the Contract is received by the LB
Representative from whom the Contract was purchased.
With respect to individual retirement annuities, under the Employee
Retirement Income Security Act of 1974 ("ERISA") a Contract Owner
establishing an Individual Retirement Account must be furnished with a
disclosure statement containing certain information about the Contract and
applicable legal requirements. This statement must be furnished on or before
the date the individual retirement annuity is established. If the Contract
Owner is furnished with such disclosure statement before the seventh day
preceding the date the individual retirement annuity is established, the
Contract Owner will not have any right of revocation under ERISA. If the
disclosure statement is furnished after the seventh day preceding the
establishment of the individual retirement annuity, then the Contract Owner
may give a notice of revocation to LB at any time within seven days after
the Date of Issue. Upon such revocation, LB will refund the premiums paid by
the Contract Owner. The foregoing right of revocation with respect to an
individual retirement annuity is in addition to the return privilege set
forth in the preceding paragraphs, i.e., LB will allow a participant
establishing an individual retirement annuity a "ten day free-look",
notwithstanding the provisions of ERISA.
Allocation of Premium
Until the date LB approves the Contract Owner's application, the initial
premium will be deposited into LB's general account. Interest will be
credited on the initial premium held in LB's general account at a rate of
interest determined by LB. On the date LB approves the Contract Owner's
application, LB will add this accumulation amount to the initial premium and
allocate this amount among the Subaccount(s) and/or the Fixed Account
according to the Contract Owner's instructions. If the Date of Issue and the
date of acceptance by LB are the same day, then the initial premium payment
will be immediately allocated among the chosen Subaccount(s) and/or Fixed
Account according to the Contract Owner's instructions.
This initial premium allocation procedure is designed as a way to give the
Contract Owner interest on the initial premium from the Date of Issue to the
date LB approves the Contract Owner's application, with the interest payment
being paid by LB. Other Contract Owners' interests will not be adversely
affected by this initial premium allocation procedure, because LB, and not
the existing Contract Owners, will bear any expenses in effecting the
procedure, including the expense of crediting the interest accumulations.
If the application is determined to be in good order, LB will allocate the
premium payment to the chosen subaccount and/or Fixed Account within two
days of receipt of the completed application and premium payment. If the
application is determined by LB not to be in good order, LB will attempt to
complete the application within five business days. If the application is
not complete at the end of this period, LB will inform the applicant of the
reason for the delay and that the initial premium will be returned
immediately unless the applicant specifically consents to LB keeping the
initial premium until the application is complete.
The percentages of each premium that may be allocated to any Subaccount of
the Variable Account or the Fixed Account must be in whole numbers and the
sum of the allocation percentages must be 100%. LB reserves the right to
adjust allocation percentages to eliminate fractional percentages.
Subsequent premiums will be allocated among the Subaccounts and the Fixed
Account in the same proportion as the initial premium, at the end of the
Valuation Period in which the subsequent premium is received by LB. The
allocation proportion for future premiums may, however, be changed without
charge at any time by providing LB with Written Notice or by telephone (if
the Contract Owner has completed the Telephone Transaction Authorization
Form). Premiums paid thereafter will be allocated in the manner provided in
such changed instruction, unless another change is subsequently requested.
The values in the Subaccounts of the Variable Account will vary with the
investment experience of the Subaccounts and the Contract Owner bears the
entire investment risk. Contract Owners should periodically review their
allocations of premiums in light of market conditions and the Contract
Owner's overall financial objectives.
Accumulated Value; Accumulation Units and Accumulation Unit Value
The Accumulated Value of the Contract is the total amount of value held
under the Contract at any time prior to and including the Maturity Date. A
Contract's Accumulated Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any amount of value in the Fixed
Account, any premiums paid, any surrenders, and any charges assessed in
connection with the Contract. There is no guaranteed minimum Accumulated
Value, and, because a Contract's Accumulated Value on any future date
depends upon a number of variables, it cannot be predetermined.
Calculation of Accumulated Value. The Accumulated Value of the Contract is
determined on each Valuation Date. The Contract's Accumulated Value will be
the aggregate of the values attributable to the Contract in each of the
Subaccounts, determined for each Subaccount by multiplying the Subaccount's
Accumulation Unit Value on the relevant Valuation Date by the number of
Subaccount Accumulation Units allocated to the Contract, plus any amounts in
the Fixed Account.
Determination of Number of Accumulation Units. Any amounts allocated to the
Subaccounts will be converted into Accumulation Units of the Subaccount. The
number of Accumulation Units to be credited to the Contract is determined by
dividing the dollar amount being allocated by the Accumulation Unit Value as
of the end of the Valuation Period during which the amount was allocated.
The number of Subaccount Accumulation Units in any Subaccount will be
increased by (i) any premiums allocated to the Subaccount during the current
Valuation Period, and (ii) any Accumulated Value transferred to the
Subaccount from another Subaccount or from the Fixed Account during the
current Valuation Period. The number of Subaccount Accumulation Units in any
Subaccount will be decreased by (i) any Accumulated Value transferred from
the Subaccount to another Subaccount or to the Fixed Account during the
current Valuation Period, (ii) the amount of any partial surrender
(including any related surrender charge) during the current Valuation
Period, and (iii) any administrative charge taken from the Subaccount during
the current Valuation Period.
In computing the Contract's Accumulated Value, the number of Subaccount
Accumulation Units allocated to the Contract is determined after any
Contract transactions on the Valuation Date that would affect the number of
Subaccount Accumulation Units (see the immediately preceding paragraph). If
the Contract's Accumulated Value in the Variable Account is to be calculated
for a day that is not a Valuation Date, the next following Valuation Date
will be used.
Determination of Accumulation Unit Value. The Accumulation Unit Value for a
Subaccount is calculated on each Valuation Date by dividing (1) by (2),
where
(1) is the net result of:
(a) the net asset value of the corresponding Portfolio of the Subaccount at
the end of the current Valuation Period, plus
(b) the amount of any dividend or capital gain distribution declared by the
Portfolio if the "ex-dividend" date occurs during the Valuation Period, plus
or minus
(c) a charge or credit for any taxes reserved which LB determines to be a
result of the investment operation of the Portfolio, less
(d) the mortality and expense risk charge (see "CHARGES AND DEDUCTIONS
- --Mortality and Expense Risk Charge") for each day during the current
Valuation Period (a current charge of .003014%, but never to exceed
.003425%, of the net assets for each day during the current Valuation
Period), and
(2) is the number of Accumulation Units for the Subaccount attributable to
all Contracts, including Accumulation Units held as reserves for the
Contracts.
Death Benefit Before the Maturity Date
If an Annuitant, who is the Contract Owner unless another owner is named in
the application, dies before the Maturity Date, the Beneficiary will be
entitled to receive a death benefit under the Contract calculated on the
later of (a) the date LB receives proof of the Annuitant's death and (b) the
date LB receives a written request from the Beneficiary for either a single
sum payment or a settlement option. If no such request is made within one
year from the date of the Annuitant's death, the Beneficiary will be deemed
to have requested a single sum payment. Any proceeds not subsequently
withdrawn will be paid in a lump sum on the date 5 years after the date of
death. If the Contract has two Annuitants, LB will pay the Beneficiary in
the manner described above on the death of the first Annuitant. (If the
Beneficiary is the spouse of the deceased Contract Owner, such spouse may,
to the extent permitted by law, elect to continue the Contract in force, in
which case such spouse shall become and be treated as the Annuitant. This
election will be automatic if the spouse Beneficiary is also an Annuitant.)
Amount of Death Benefit. If a death benefit has become payable under a
Contract as described above, the amount of the death benefit will be the
greatest of (i) the Accumulated Value calculated on the later of the date LB
receives the proof of death and the written request referred to above, (ii)
the sum of the premiums received by LB under the Contract to the date of
such receipt, less any previous partial surrenders (including any applicable
charges); and (iii) the Accumulated Value on the preceding Minimum Death
Benefit Date plus the sum of premiums received by LB since that date, less
the amount of any partial surrenders since then (including any related
surrender charge). For Contracts issued in North Carolina the amount of the
death benefit will be the greater of (i) and (ii) as described above.
Manner of Payment -- Contracts Not Issued in Connection with Certain
Qualified Plans. If the Contract in question was not issued in connection
with a Qualified Plan under Section 401(a), 403(a), 403(b), 408 or 457 of
the Internal Revenue Code, the following rules govern the manner of payment
of the death benefit if the Annuitant dies before the Maturity Date:
(a) if a single sum is requested, the death benefit will be paid within
seven days after the day LB receives the proof of death and written request
referred to above under "Amount of Death Benefit"; or
(b) if a settlement option is requested, (i) it must be a settlement option
that the Contract Owner could have selected before the Maturity Date, and
(ii) the settlement option must provide that the entire amount due under the
Contract will be distributed (1) within five years from the date of death,
or (2) over the life of the Beneficiary or for a period not in excess of the
Beneficiary's life expectancy, provided that the distributions must begin
within one year from the date of death.
Manner of Payment -- Contracts Issued in Connection with Qualified Plans. If
the Contract in question was issued in connection with a Qualified Plan
other than one qualified under Section 401(a), 403(a), 403(b), 408 or 457 of
the Internal Revenue Code, certain restrictions on the manner of payment of
the death benefit prior to the Maturity Date, similar to those described
above under "Manner of Payment -- Contracts Not Issued in Connection with
Certain Qualified Plans", are applicable. The manner of payment of such
death benefit under a Contract issued in connection with a Qualified Plan
under Section 401(a), 403(a), 403(b), 408 or 457 of the Internal Revenue
Code 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 an Annuitant dies after the Maturity Date, the death benefit, if any,
shall be as stated in the settlement option in effect, provided, however,
that death benefit payments must be paid at least as rapidly as payments
were being paid under the settlement option in effect on the date of death.
With respect to a Contract issued in connection with a Qualified Plan other
than one qualified under Section 401(a), 403(a), 403(b), 408 or 457 of the
Internal Revenue Code, certain additional restrictions on the manner of
payment of the death benefit after the Maturity Date, similar to those
described above under "Death Benefit Before the Maturity Date -- Manner of
Payment -- Contracts Not Issued in Connection with Certain Qualified Plans",
are also applicable.
Surrender (Redemption)
If a Written Notice from the Contract Owner requesting a surrender is
received by LB on or before the Maturity Date, all or part of the
Accumulated Value will be paid to the Contract Owner after deducting any
applicable surrender charge (see "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)").
A surrender will take place at the end of the Valuation Period during which
the requirements for surrender are completed and payment will be made within
seven days after such surrender. If a surrender is partial, the surrender
payments will be taken proportionately from all Subaccounts and the Fixed
Account on a basis that reflects their proportionate percentage of the
Accumulated Value. The Contract Owner may select a different allocation
basis with LB's approval. Partial surrenders must be for at least $500, and
may be requested only if the remaining Accumulated Value is not less than
$1,000.
LB may cancel the Contract on any Contract Anniversary if (a) the
Accumulated Value is less than $1,000 and no premium payments have been made
under the Contract within the last 24 months or (b) the Accumulated Value as
of the Contract Anniversary is less than the administrative charge (see
"CHARGES AND DEDUCTIONS--Administrative Charge"). LB will notify the
Contract Owner 60 days before such Contract Anniversary and provide the
Contract Owner the minimum dollar amount required to keep the Contract in
force. Failure to make sufficient payment will result in cancellation of the
Contract on the Contract Anniversary. If such Contract Anniversary is not a
Valuation Date, then the Accumulated Value will be determined on the next
Valuation Date. Upon cancellation under (a) above, LB will pay the Contract
Owner the Accumulated Value as of such Valuation Date.
After the Maturity Date, certain of the available settlement options (those
that do not involve a life contingency) also permit surrenders by the
Contract Owner. In such cases, the amount available for surrender is the
commuted value of any unpaid annuity installments, computed on the basis of
the assumed interest rate incorporated in such annuity installments.
However, a surrender charge is deducted at the time of annuitization if
these settlement options are selected (see "CHARGES AND DEDUCTIONS--
Surrender Charge (Contingent Deferred Sales Charge").
Consideration should be given to the tax implications of a surrender prior
to making a surrender request. See "FEDERAL TAX STATUS--Taxation of
Annuities in General".
Transfers
On or before the Maturity Date, the Contract Owner may request by Written
Notice (or by telephone if the Contract Owner has completed the Telephone
Transaction Authorization Form) the transfer, subject to any conditions the
Portfolio whose shares are involved may impose, of all or a part of a
Contract's Accumulated Value among the Subaccounts of the Variable Account
and the Fixed Account. The transfer will be made by LB without charge on the
day Written Notice (or telephonic instructions) requesting such transfer is
received by LB. To accomplish a transfer from the Variable Account, the
Variable Account will surrender Accumulation Units in the particular
Subaccounts and reinvest that value in Accumulation Units of other
particular Subaccounts and the Fixed Account as directed in the request. The
total amount transferred each time must be at least $500 (unless the total
value in a Subaccount of the Variable Account or the Fixed Account is less
than $500, in which case the entire amount may be transferred). LB reserves
the right to limit the number of transfers in any Contract Year, provided
that at least two such transfers each Contract Year will always be allowed.
With respect to the Fixed Account, transfers out of the Fixed Account are
limited to only one during each Contract Year and must be made on or within
45 days after a Contract Anniversary. To accomplish a transfer from the
Fixed Account, the Fixed Account will surrender Accumulated Value from the
Fixed Account and reinvest that value in Accumulation Units of particular
Subaccounts of the Variable Account as directed in the request.
After the Maturity Date, the Contract Owner may, by Written Notice and only
once each Contract Year, change the percentage allocation of variable
annuity payments among the available Subaccounts.
Telephone Transfers
Telephone transfers are available when the Contract Owner completes the
Telephone Transaction Form. If the Contract Owner elects to complete the
Telephone Transaction Authorization Form, the Contract Owner thereby agrees
that LB, its agents and employees will not be liable for any loss, liability
cost or expense when LB, its agents and employees act in accordance with the
telephone transfer instructions that have been properly received and
recorded on voice recording equipment. If a telephone authorization or
instruction, processed after the Contract Owner has completed the Telephone
Transaction Authorization Form, is later determined not to have been made by
the Contract Owner or was made without the Contract Owner's authorization,
and a loss results from such unauthorized instruction, the Contract Owner
bears the risk of this loss. LB will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. In the event LB
does not employ such procedures, LB 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
LB administers a dollar cost averaging program which enables a Contract
Owner to pre-authorize a periodic exercise of the transfer rights described
above. A Contract Owner entering into a dollar cost averaging agreement will
instruct LB to periodically transfer predetermined dollar amounts from the
Money Market Subaccount to as many of the three other Subaccounts or to the
Fixed Account as specified by the Contract Owner until the amount in the
Money Market Subaccount is exhausted or the agreement is terminated by the
Contract Owner. The dollar cost averaging program is generally suitable for
Contract Owners making a substantial deposit to the Contract and who wish to
use the other Subaccounts or the Fixed Account investment option, but desire
to control the risk of investing at the top of a market cycle. The dollar
cost averaging program allows such investments to be made in equal
installments over time in an effort to reduce such risk. Dollar cost
averaging does not guarantee that the Variable Account will gain in value,
nor will it protect against a decline in value if market prices fall.
However, if a Contract Owner can continue to invest regularly throughout
changing market conditions, it can be an effective strategy to help meet
long-term goals. Contract Owners interested in the dollar cost averaging
program may obtain an application and full information concerning the
program and its restrictions from LB.
Assignments
If the Contract is used in a Qualified Plan and the Contract Owner is a
trust, custodian or employer, then the Contract Owner may transfer ownership
to the Annuitant. Otherwise, the Contract may not be sold, assigned,
discounted or pledged as collateral for a loan or as security for
performance of an obligation or for any other purpose to any person other
than LB.
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.
LB shall not be bound by any sale, assignment, pledge or transfer until
Written Notice thereof is actually received by LB at its Home Office and
shall not be responsible for the validity of any sale, assignment, pledge or
transfer. Any payments made or actions taken by LB before LB actually
receives Written Notice shall not be affected by the sale, assignment,
pledge or transfer.
Considerations should be given to the tax implications of an assignment. See
"FEDERAL TAX STATUS--Taxation of Annuities in General".
Contract Owner, Beneficiaries and Annuitants
Unless another owner is named as the Contract Owner in the application for
the Contract, the Annuitant is the Contract Owner and may exercise all of
the Contract Owner's rights under the Contract.
The Contract Owner may name a Beneficiary to receive the death benefit
payable under the Contract. If the Beneficiary is not living on the date
payment is due or if no Beneficiary has been named, the death benefit will
be paid to the estate of the Annuitant.
The Contract Owner may change the Beneficiary by giving LB Written Notice of
the change, but the change shall not be effective until actually received by
LB at its Home Office. Upon receipt by LB of a notice of change, it will be
effective as of the date it was signed but shall not affect any payments
made or actions taken by LB before LB received the Written Notice, and LB
shall not be responsible for the validity of any change.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
General. No charge for sales expense is deducted from premiums at the time
premiums are paid. However, within certain time limits described below a
surrender charge is deducted from the Accumulated Value of the Contract in
the case of surrender, in whole or in part, before annuity payments begin
and, if certain settlement options are selected, at the time annuity
payments begin. In the event surrender charges are not sufficient to cover
sales expenses, the loss will be borne by LB; conversely, if the amount of
such charges proves more than enough, the excess will be retained by LB (see
"Sufficiency of Charges" below). LB does not currently believe that the
surrender charges imposed will cover the expected costs of distributing the
Contracts.
If a Contract is surrendered in whole or in part before it has been in force
for six full Contract Years, a surrender charge is deducted from the amount
surrendered; provided that in each Contract Year, a Contract Owner may
surrender without a surrender charge, up to 10% of a Contract's Accumulated
Value existing at the time the first surrender is made in that Contract
Year. For example, if a total surrender is made during a Contract Year in
which a partial surrender has been made, the Contract Owner may surrender
free of charge an amount equal to 10% of the Accumulated Value of the
Contract at the time of the partial surrender less the total of the partial
surrender to which no charge was applied. This right is not cumulative from
Contract Year to Contract Year. In the event that a surrender is made in
excess of the amount which may be surrendered free of charge, only the
excess (the "Excess Amount") will be subject to a surrender charge.
The charge is applied as a percentage of the Excess Amount surrendered, but
in no event will the total surrender charge on any one Contract exceed a
maximum limit of 6 1/2% of total gross premiums paid under the Contract.
Such total charge equals the aggregate of all applicable surrender charges
for total and partial surrenders, including any charges deducted at the time
annuity payments begin (as described below).
Charges for Total and Partial Surrenders. If a Contract is surrendered, in
whole or in part, while the Contract is in force and on or before the
Maturity Date, a surrender charge is imposed on the Excess Amount of such
surrender if such surrender occurs before the Contract has been in force for
six full Contract Years as follows:
Contract Year in which
Total or Partial Charge as Percentage of
Surrender Occurs Excess Amount Surrendered*
----------------------- ---------------------------
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
- ------------
* Although the charge as a percentage of Excess Amount surrendered decreases
from 6% to 0 over time, the actual aggregate amount of surrender charge
deducted may be up to the 6 1/2% of total gross premiums paid maximum limit
described above.
For purposes hereof, the amount surrendered is equal to the amount of the
surrender request, and the amount received by the Contract Owner is equal to
the amount of the surrender request less the applicable surrender charge and
any withholding if applicable.
No surrender charge is deducted if the surrender occurs after expiration of
the time period applicable to such charge as shown in the table above.
Surrender charges otherwise payable will be waived with respect to
surrenders made by the Contract Owner when the Annuitant is totally disabled
(as defined in the Contract) or confined to a hospital, nursing home or a
hospice if the confinement begins while the Contract is in force and has
continued for six consecutive months.
Certain surrenders are subject to a 10% Federal tax penalty on the amount of
income withdrawn (see "FEDERAL TAX STATUS--Taxation of Annuities in
General").
Charge at the Time Annuity Payments Begin. Generally, at the time annuity
payments begin, a surrender charge as described above will apply. Such
charge is the same as that which would apply had the Contract been fully
surrendered on the Maturity Date, taking into account the 10% free surrender
provision described above and subject to the maximum 6 1/2% limitation
described above. If, however, the Contract Owner has chosen a settlement
option providing an income for a fixed period (e.g., Option 3V described
under "Annuity Provisions--Settlement Options"), for any surrender made more
than three years after the Date of Issue, no surrender charge will be
deducted from the portion of Accumulated Value surrendered provided that
payments under such a settlement option will be made for at least five years
and that proceeds may not be withdrawn. This surrender charge will be waived
if the Annuitant is totally disabled (as defined in the Contract) or
confined to a hospital, nursing home or a hospice if the confinement begins
while the Contract is in force and has continued for six consecutive months
on the Maturity Date. No further surrender charge is deducted with respect
to surrenders during the annuity period under such a settlement option.
No surrender charge is imposed at the time of annuitization (if
annuitization occurs more than three years after the Date of Issue) if a
settlement option involving a life income with a guaranteed period is chosen
(e.g., Option 4V or Option 5V described under "ANNUITY PROVISIONS--
Settlement Options"), but surrenders are not permitted during the annuity
period under such a settlement option.
Administrative Charge
On each Contract Anniversary prior to and including the Maturity Date, LB
deducts from the Accumulated Value, proportionately from the Subaccounts and
the Fixed Account that make up such Accumulated Value, an annual
administrative charge of $30 to reimburse LB for administrative expenses
relating to the Contract, the Variable Account and the Subaccounts. Subject
to LB's approval, the Contract Owner may specify a different allocation for
the administrative charge. No such charge is deducted if on that Contract
Anniversary the total amount of premiums paid under the Contract, less the
amount of all prior partial surrenders (which includes the amount of related
surrender charges), is equal to or greater than $5,000. LB does not expect
to make a profit on this charge. No administration charge is payable during
the annuity period.
Mortality and Expense Risk Charge
The variable annuity payments made to Annuitants will vary in accordance
with the investment experience of the Subaccounts selected by the Contract
Owner. However, neither such variable annuity payments, nor fixed annuity
payments if fixed annuity payments have been selected, will be affected by
the mortality experience (death rate) of persons receiving annuity payments.
LB assumes this "mortality risk" and has guaranteed the annuity rates
incorporated in the Contract, which cannot be changed. LB also assumes the
mortality risk that Beneficiaries of Contract Owners or Annuitants dying
before the Maturity Date may receive amounts in excess of the then current
Accumulated Value (see "THE CONTRACTS--Death Benefit Before the Maturity
Date"). In addition, LB will not increase charges for administrative
expenses regardless of its actual expenses.
To compensate LB for assuming such mortality and expense risks, LB deducts a
daily mortality and expense risk charge from the average daily net assets in
the Variable Account. LB has determined that a mortality and expense risk
charge at an annual rate of 1.25% of the average daily net assets of each
Subaccount in the Variable Account would be reasonable in relation to the
mortality and expense risks assumed by LB under the Contract. LB will,
however, initially impose a daily mortality and expense risk charge in an
amount that is equal to an annual rate of 1.10% (approximately 0.80% for
mortality risk and approximately 0.30% for expense risk) of the average
daily net assets of each Subaccount in the Variable Account. The mortality
and expense risk charge is guaranteed not to increase above an annual rate
of 1.25%.
If the mortality and expense risk charge is insufficient to cover the actual
cost of the mortality and expense risk undertaken by LB, LB will bear the
loss. Conversely, if the mortality and expense risk charge proves more than
sufficient, the excess will be profit to LB and would be available for any
proper corporate purpose including, among other things, payment of sales
expenses. See "Sufficiency of Charges" below.
Investment Advisory Fee of the Fund
Because the Variable Account purchases shares of the Fund, the net assets of
the Variable Account will reflect the investment advisory fee incurred by
the Fund. LB is paid a daily fee by the Fund for its investment management
services equal to an annual rate of 0.40% of the aggregate average daily net
assets of the Fund. See "LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE
FUND--LB Series Fund, Inc.", and the accompanying current Prospectus for the
Fund.
Taxes
Currently, no charge will be made against the Variable Account for Federal
income taxes. LB 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 LB. Charges for other taxes, if any, attributable to the
Variable Account may also be made. See "FEDERAL TAX STATUS".
Sufficiency of Charges
If the amount of all charges assessed in connection with the Contracts as
described above is not enough to cover all expenses incurred in connection
therewith, the loss will be borne by LB. Any such expenses borne by LB will
be paid out of its general account which may include, among other things,
proceeds derived from mortality and expense risk charges deducted from the
Variable Account. Conversely, if the amount of such charges proves more than
enough, the excess will be retained by LB.
ANNUITY PROVISIONS
Maturity Date
The Contract Owner selects the Maturity Date, which must be a Contract
Anniversary at least three years after the Date of Issue, when making
application for the Contract. The Contract Owner may change a Maturity Date
selection by Written Notice received by LB at least 30 days before both the
Maturity Date currently in effect and the new Maturity Date. The new date
selected must satisfy the requirements for a Maturity Date.
For a Contract issued in Pennsylvania, the following requirements for
maximum maturity ages of the Contract will be used. Maturity age is the last
birthday of the Annuitant on the Contract Anniversary on or immediately
prior to the Maturity Date.
PENNSYLVANIA MAXIMUM MATURITY AGES
Age on Maximum
Date of Issue Maturity Age
-------------- -------------
70 or less 85
71 - 75 86
76 - 80 88
81 - 85 90
86 - 90 93
91 - 93 96
94 - 95 98
96 99
Settlement Options
The Contract Owner may select an annuity settlement option or options, and
may select whether payments are to be made on a fixed or variable (or a
combination of fixed and variable) basis. To the extent a fixed annuity is
selected, Accumulated Value will be transferred to the Fixed Account, and
the annuity payments will be guaranteed as to minimum dollar amount. See
APPENDIX -- MORE INFORMATION ABOUT THE FIXED ACCOUNT. The Contract Owner may
also change a choice of settlement option by Written Notice received by LB
at least 30 days before the Maturity Date.
The following variable annuity settlement options are generally available
under the Contract:
Option 3V--Income for a Fixed Period. Income will be paid for a fixed number
of years not to exceed 30.
Option 4V--Life Income with Guaranteed Period. Income will be paid for the
lifetime of the payee. If the payee dies during the guaranteed period,
payments will be continued to the named Beneficiary to the end of that
period. A period of 10 or 20 years may be selected. After the first payment
is made, this option may not be revoked or changed.
Option 5V--Joint and Survivor Life Income with Guaranteed Period. Income
will be paid for as long as at least one of two payees is alive. If both
payees die during the guaranteed period, payments will be continued to the
named Beneficiary to the end of that period. A period of 10 or 20 years may
be selected. After the first payment is made, this option may not be revoked
or changed.
Payments may be made under any other settlement option suggested by the
Contract Owner that is agreed to by LB.
LB also provides fixed annuity options, which are not described here. Any
one of the variable annuity options or any one of the fixed annuity options
may be selected, or any one of the variable annuity options may be selected
in combination with any one of the fixed annuity options.
If no valid selection of a settlement option has been made by the Maturity
Date and one Annuitant is living on the Maturity Date, the Life Income with
10-Year Guarantee Period fixed annuity settlement option shall be
automatically effective. If no valid selection of a settlement option has
been made by the Maturity Date and two Annuitants are living on the Maturity
Date, the Joint and Survivor Life Income with 10-Year Guarantee Period fixed
annuity settlement option shall be automatically effective.
It should be noted that under a settlement option providing an income for a
fixed period (e.g., Option 3V described above), for any surrender made more
than three years after the Date of Issue, no surrender charge will be
deducted from the portion of Accumulated Value surrendered, provided that
payments under such settlement option will be made for at least five years
and that proceeds may not be withdrawn. No surrender charge is imposed at
the time of annuitization (if annuitization occurs more than three years
after the Date of Issue) under a settlement option providing a life income
with a guaranteed period (e.g., Option 4V or Option 5V above). Surrenders
after the Maturity Date are permitted only in connection with settlement
options that do not involve a life contingency (see "THE CONTRACTS--
Surrender (Redemption)").
The Contract Owner may elect the receipt of a single sum, rather than
payment pursuant to annuity settlement options, by surrendering the Contract
in full on the Maturity Date. In such case, a surrender charge will be
deducted from the Accumulated Value of the Contract if the Maturity Date
occurs at any time during the surrender charge period, taking into account
the 10% free surrender provision and subject to the maximum 6 1/2%
limitation described under "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)".
Frequency and Amount of Annuity Payments
Annuity payments under a settlement option will be paid as monthly
installments, unless the Contract Owner and LB agree to a different payment
schedule. However, if the Accumulated Value at the Maturity Date is less
than $2,000 or would not result in a payment of at least $25, LB may pay the
Accumulated Value in a single sum and the Contract will be canceled. Also,
if annuity payments would be or become less than $25 if a single settlement
option is chosen, or $25 on each basis if a combination of variable and
fixed options is chosen, LB may change the frequency of payments to
intervals that will result in payments of at least $25 each from each option
chosen.
The amount of the first variable annuity payment (and, in the case of fixed
annuities, the amount of subsequent payments) is determined by applying the
Accumulated Value to be applied to the settlement option at the Maturity
Date, less any surrender charge due (see "Settlement Options" above), to the
annuity table in the Contract for the settlement option selected. The table
shows the amount of the initial annuity payment for each $1,000 applied.
Subsequent variable annuity payments vary in amount in accordance with the
investment experience of the selected Subaccount(s). Assuming annuity
payments are based on the unit values of a single Subaccount, the dollar
amount of the first annuity payment, determined as set forth above, is
divided by the Annuity Unit Value as of the Maturity Date to establish the
number of Annuity Units representing each annuity payment. This number of
Annuity Units remains fixed during the annuity payment period. The dollar
amount of the second and subsequent variable annuity payments is not
predetermined and may change from payment to payment. The dollar amount of
the second and each subsequent variable annuity payment is determined by
multiplying the fixed number of Annuity Units by the Annuity Unit Value (see
"Subaccount Annuity Unit Value" below) with respect to such Subaccount at
the end of the last Valuation Date of the period with respect to which the
payment is due. If the payment is based upon the Annuity Unit Values of more
than one Subaccount, the foregoing procedure is repeated for each applicable
Subaccount and the sum of the payments based on each Subaccount is the
amount of the annuity payment.
The annuity tables in the Contracts are based on the mortality table
specified in the Contract. Under such tables, the longer the life expectancy
of the Annuitant under any life annuity option or the duration of any period
for which payments are guaranteed under the option, the smaller will be the
amount of the first monthly variable annuity payment. LB guarantees that the
dollar amount of each fixed and variable annuity payment after the first
payment will not be affected by variations in expenses or in mortality
experience from the mortality assumptions used to determine the first
payment.
Subaccount Annuity Unit Value
The value of an Annuity Unit is determined independently for each
Subaccount.
For each Subaccount, the Annuity Unit Value on any Valuation Date is
determined by multiplying the Annuity Unit Value at the end of the
immediately preceding Valuation Date by the net investment factor for the
Valuation Date for which the Annuity Unit Value is being calculated, and
multiplying the result by an interest factor which offsets the effect of the
assumed investment earnings rate of 3 1/2% per annum which is assumed in the
annuity tables contained in the Contract.
The net investment factor for each Subaccount for a Valuation Date is
determined by dividing the value of an Accumulation Unit for the applicable
Subaccount as of the end of the current Valuation Period by the value of an
Accumulation Unit for the applicable Subaccount as of the end of the
immediately preceding Valuation Period.
Assumed Investment Rate
A 3 1/2% assumed investment rate is built into the annuity tables contained
in the Contracts. A higher assumption would mean a higher initial payment
but more slowly rising and more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual net investment rate
were at the annual rate of 3 1/2%, the annuity payments would be level.
GENERAL PROVISIONS
Postponement of Payments
General. LB may defer payment of any surrender and annuity payment amounts,
or death benefit amounts that are in the Variable Account if (a) the New
York Stock Exchange is closed other than customary weekend and holiday
closings, or trading on the New York Stock Exchange is restricted as
determined by the SEC, or (b) an emergency exists, as determined by the SEC,
as a result of which disposal of securities is not reasonably practicable or
it is not reasonably practicable to determine the value of the Variable
Account's net assets. Transfers and allocations of Accumulated Value to and
against the Subaccounts of the Variable Account may also be postponed under
these circumstances.
Payment by Check. Payments under the Contract of any amounts derived from
premiums paid by check may be delayed until such time as the check has
cleared the Contract Owner's bank.
Date of Receipt
Except as otherwise stated herein, the date of receipt by LB of any Written
Notice, premium payment, telephone instruction or other communication is the
actual date it is received at LB's Home Office in proper form unless
received (1) after the close of the New York Stock Exchange, or (2) on a
date which is not a Valuation Date. In either of these two cases, the date
of receipt will be deemed to be the next Valuation Date.
Reports to Contract Owners
LB will mail each Contract Owner, at such Contract Owner's last known
address of record, at least annually after the first Contract Year, a report
containing the Accumulated Value or current value of the Contract as of a
date not more than two months prior to the date of mailing and any further
information required by any applicable law or regulation.
Contract Inquiries
Inquiries regarding a Contract may be made by writing to LB at its Home
Office, 625 Fourth Avenue South, Minneapolis, Minnesota 55415.
FEDERAL TAX STATUS
Introduction
The ultimate effect of Federal income taxes on a Contract's Accumulated
Value, on annuity payments and on the economic benefit to the Contract
Owner, the Annuitant or the Beneficiary depends upon the tax status of such
person and, if the Contract is purchased under a retirement plan, upon the
tax and employment status of the individual concerned. The discussion
contained herein is general in nature and is not intended as tax advice. No
attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion contained herein is based on LB'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. LB does not make any guarantee regarding the tax
status of any Contract. Each person concerned should consult a qualified tax
adviser.
Variable Account Tax Status
The Internal Revenue Code of 1986, as amended (the "Code") in effect
provides that the income and gains and losses from separate account
investments are not income to the insurance company issuing the variable
contracts so long as the contracts and the separate account meet certain
requirements set forth in the Code. Because the Contracts and the Variable
Account meet such requirements, LB anticipates no tax liability resulting
from the contracts, and consequently no reserve for income taxes is
currently charged against, or maintained by LB with respect to, the
Contracts. LB is currently exempt from state and local taxes. If there is a
material change in state or local tax laws, charges for such taxes, if any,
attributable to the Variable Account may be made.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general.
Contracts Held by Individuals. An individual Contract Owner is not taxed on
increases in the value of a Contract until a distribution occurs, either in
the form of a single sum payment or as annuity payments under the settlement
option selected.
Upon receipt of a single sum payment or of an annuity payment under the
Contract, the recipient is taxed on the portion of such payment that exceeds
the cost basis of the Contract.
For single sum payments, the taxable portion is generally the amount in
excess of the premiums paid under the Contract. Such taxable portion is
taxed at ordinary income tax rates. The investment in the Contract is not
affected by loans or assignments of the Contract but is increased by any
amount included in gross income as a result of the loan or assignment.
Payments in partial or full surrender of a Contract generally will be taxed
as ordinary income to the extent that the Accumulated Value exceeds the
taxpayer's investment in the Contract. An assignment of the Contract (other
than a gift to the Contract Owner's spouse or incident to a divorce) or the
use of the Contract as collateral for a loan will be treated in the same
manner as a surrender.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity. Such taxable portion
is taxed at ordinary income tax rates. For certain types of Qualified Plans
there may be no cost basis in the Contract within the meaning of Section 72
of the Code. In such event, the total payments received may be taxable.
Contract Owners, Annuitants and Beneficiaries under such Contracts should
seek qualified tax and financial advice about the tax consequences of
distributions under the retirement plan in connection with which such
Contracts are purchased.
Generally, a distribution from a Contract before the taxpayer attains age 59
1/2 will result in an additional tax of 10% of the amount of the
distribution which is includable in gross income. The penalty tax will not
apply if the distribution is made as follows:
(1) in connection with death or disability as described in section 72(q)(2)
of the Code;
(2) from certain Qualified Plans;
(3) under a qualified funding trust (commonly referred to as structured
settlement plans); or
(4) it is one of a series of substantially equal periodic annual payments
for the life or life expectancy of the taxpayer or the joint lives or joint
life expectancies of the taxpayer and the beneficiary; for this purpose, if
there is a significant modification of the payment schedule before the
taxpayer is age 59 1/2 or before the expiration of five years from the time
of the annuity starting date, the taxpayer's income shall be increased by
the amount of tax and deferred interest that otherwise would have been
incurred.
Depending on the type of Qualified Plan, distributions may be subject to a
10% penalty tax.
Contracts Held by Other Than Individuals. The Tax Reform Act of 1986
provides that, except as hereafter noted, a Contract held by other than a
natural person, such as a corporation, estate or trust, will not be treated
as an annuity contract for Federal income tax purposes. The income on such a
Contract will be taxable in the year received or accrued by the Contract
Owner. The provision does not apply if the Contract Owner is acting as an
agent for an individual, if the Contract Owner is an estate which acquired
the Contract as a result of the death of the decedent, if the Contract is
held by certain Qualified Plans, if the Contract is held pursuant to a
qualified funding trust (commonly referred to as structured settlement
plans), if the Contract was purchased by an employer with respect to a
terminated Qualified Plan or if the Contract is an immediate annuity.
Multiple Contracts. Section 72(e)(11) of the Code provides that for the
purposes of determining the amount includable in gross income, all non-
qualified annuity contracts entered into on or after October 22, 1988 by the
same company with the same contract owner during any calendar year shall be
treated as one contract. The total impact of this Section is not clear. It
will likely accelerate the recognition of income by a contract owner owning
multiple contracts and may have the further effect of increasing the portion
of income that will be subject to the 10% penalty tax.
Qualified Plans
The Contracts are designed for use with several types of Qualified Plans.
The tax rules applicable to participants in such Qualified Plans vary
according to the type of plan and the terms and conditions of the plan.
Therefore, no attempt is made herein to provide more than general
information about the use of the Contracts with the various types of
Qualified Plans. Participants under such Qualified Plans as well as Contract
Owners, Annuitants and Beneficiaries are cautioned that the rights of any
person to any benefits under such Qualified Plans may be subject to the
terms and conditions of the plans themselves regardless of the terms and
conditions of the Contracts issued in connection therewith. Following are
brief descriptions of the various types of Qualified Plans and of the use of
the Contracts in connection therewith.
Tax-Sheltered Annuities. Section 403(b) of the Code permits employers of
public school employees and of employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of
the Code to purchase on behalf of their employees annuity contracts and,
subject to certain limitations, have the amount of purchase payments
excluded from the employees' gross income for tax purposes. These annuity
contracts are commonly referred to as "tax-sheltered annuities". Purchasers
of the Contracts for such purposes should seek qualified advice as to
eligibility, limitations on permissible amounts of purchase payments and tax
consequences on distribution.
An amendment to Section 403(b) of the Code, adopted pursuant to the Tax
Reform Act of 1986, imposes restrictions on certain distributions from tax-
sheltered annuity contracts meeting the requirements of Section 403(b),
which will apply to tax years beginning on or after January 1, 1989. The
amendment adds a new Section 403(b)(11) that requires that distributions
from Section 403(b) tax-sheltered annuities that are attributable to
employee contributions made pursuant to a salary reduction agreement may be
paid only when the employee reaches age 59 1/2, separates from service, dies
or becomes disabled, or in the case of hardship (hardship, for this purpose,
is generally defined as an immediate and heavy financial need, such as for
paying for medical expenses, for the 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, LB 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 LB.
H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of 1962,
which is commonly referred to as "H.R. 10", permits self-employed
individuals to establish Qualified Plans for themselves and their employees.
The tax consequences to participants under such plans depend upon the plan
itself. In addition, such plans are limited by law to maximum permissible
contributions, distribution dates, nonforfeitability of interest and tax
rates applicable to distributions. In order to establish such a plan, a plan
document, usually in prototype form pre-approved by the Internal Revenue
Service, is adopted and implemented by the employer. Purchasers of the
Contracts for use with H.R. 10 plans should seek qualified advice as to the
suitability of the proposed plan document and of the Contracts to their
specific needs.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"individual retirement annuity". These individual retirement annuities are
subject to limitations on the amount that may be contributed, on the persons
who may be eligible, and on the time when distributions may commence. In
addition, distributions from certain other types of Qualified Plans may be
placed on a tax-deferred basis into an individual retirement annuity. When
issued in connection with an individual retirement annuity, the Contracts
will be specifically amended to conform to the requirements under such
plans. Sales of the Contracts for use with individual retirement annuities
may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for such purposes will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency.
Corporate Pension and Profit-Sharing Plans. Sections 401(a) and 403(a) of
the Code permit corporate employers to establish various types of retirement
plans for employees. Such retirement plans may permit the purchase of the
Contracts to provide benefits under the plans. Corporate employers intending
to use the Contracts in connection with such plans should seek qualified
advice in connection therewith.
Section 457 Plans. Section 457 of the Code permits states, local governments
and tax-exempt organizations to establish deferred compensation plans on
behalf of their employees. Such plans may permit the purchase of the
Contracts to provide benefits under the plans. Employers intending to use
the Contracts in connection with such plans should seek qualified advice in
connection therewith.
1035 Exchanges
Section 1035(a) of the Code permits the exchange of certain life insurance,
endowment and annuity contracts for an annuity contract without a taxable
event occurring. Thus, potential purchasers who already own such a contract
issued by another insurer are generally able to exchange that contract for a
Contract issued by LB 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 LB and not
merely surrendered in exchange for cash. Further, the same person or persons
must be the obligee or obligees under the Contract received in the exchange
as under the original contract surrendered in the exchange. Careful
consideration must be given to compliance with the Code provisions and
regulations and rulings relating to exchange requirements, and potential
purchasers should be sure that they understand any surrender charges or loss
of benefits which might arise from terminating a contract they hold. Owners
considering such an exchange should consult their tax advisers to insure
that the requirements of Section 1035 are met.
Diversification Requirements
The Code imposes certain diversification standards on the underlying assets
of variable annuity contracts. The Code provides that a variable annuity
contract shall not be treated as an annuity contract for any period (and any
subsequent period) for which the investments are not "adequately
diversified". Section 817(h) of the Code also requires that investments of
the Variable Account meet certain diversification requirements stated in
Section 817(h)(2) or as may be prescribed by the Treasury Department in
regulations. The assets of the Fund will meet the diversification
requirements. The Company will monitor the Contracts and the regulations of
the Treasury Department to ensure that the Contract will continue to qualify
as a variable annuity contract under the Code. 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.
LB will provide the Contract Owner with the election form and further
information as to withholding prior to the first distribution. Generally,
however, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non-periodic payments.
Also, effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or 403(b) of the Code, that are not directly
rolled over to another eligible retirement plan or individual retirement
account or individual retirement annuity, are subject to a mandatory 20%
withholding for Federal income tax. The 20% withholding requirement does not
apply to: a) distributions for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and a
designated beneficiary; b) distributions for a specified period of 10 years
or more; or c) distributions which are required minimum distributions. For
complete information on withholding, a qualified tax adviser should be
consulted.
Other Considerations
Because of the complexity of the law and its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Contract or the exercise of elections under a Contract. The above comments
concerning Federal income tax consequences are not exhaustive, and special
rules are provided with respect to situations not discussed in this
Prospectus.
The preceding description is based upon LB's understanding of current
Federal income tax law. LB 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 LB 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.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
LB holds the assets of the Variable Account. The assets are kept physically
segregated and held separate and apart from the general account of LB. LB
maintains records of all purchases and redemptions of Fund shares by each of
the Subaccounts. Additional protection for the assets of the Variable
Account is afforded by a blanket fidelity bond providing $10,000,000
coverage for officers and employees and $750,000 coverage for general agents
and LB Representatives, both subject to a $100,000 deductible.
VOTING RIGHTS
To the extent required by law, LB 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 LB 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 the 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 LB does not
receive timely voting instructions, or which are not attributable to
Contract Owners, will be voted by LB in proportion to the instructions
received from all Contract Owners. Any Portfolio shares held by LB or its
affiliates in general accounts will, for voting purposes, be allocated to
all separate accounts of LB 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 LB and the Variable Account are also
parties. The Contracts are sold through LB Representatives who are licensed
by state insurance officials to sell the Contracts. These LB Representatives
are also registered representatives of LBSC. The Contracts are offered in
all states where LB is authorized to sell variable annuities.
Compensation of LB Representatives. Commissions and other distribution
compensation to be paid to LB Representatives on the sale of Contracts will
be paid by LB and will not result in any charge to Contract Owners or to the
Variable Account in addition to the charges described in this Prospectus. LB
Representatives selling the Contracts will be paid a commission of not more
than 3% of the premiums paid on the contracts. Further, LB Representatives
may be eligible to receive certain benefits based on the amount of earned
commissions.
Bonding Arrangement. An insurance company blanket bond is maintained
providing $10,000,000 coverage for officers and employees of LB and LBSC,
and $750,000 coverage for their general agents and LB Representatives, both
subject to a $100,000 deductible.
LEGAL PROCEEDINGS
LB is not involved in any legal proceedings.
LEGAL MATTERS
All matters of applicable state law pertaining to the Contracts, including
LB's right to issue the Contracts thereunder, have been passed upon by James
M. Odland, Counsel for LB. Certain legal matters relating to the Federal
securities laws have been passed upon by the law firm of Jones & Blouch,
Washington, D.C.
FINANCIAL STATEMENTS AND EXPERTS
Financial statements of LB and the Variable Account are contained in the
Statement of Additional Information.
The financial statements of LB and the Variable Account included in the
Statement of Additional Information have been so included in reliance of
Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC with respect to the Contracts described herein. This Prospectus
and the Statement of Additional Information do not contain all of the
information set forth in the Registration Statement and exhibits thereto, to
which reference is hereby made for further information concerning the
Variable Account, LB and the Contracts. The information so omitted may be
obtained from the SEC's principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fee prescribed by the SEC, or
examined there without charge. Statements contained in this Prospectus as to
the provisions of the Contracts and other legal documents are summaries, and
reference is made to the documents as filed with the SEC for a complete
statement of the provisions thereof.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
Introduction 2
Custody of Assets 2
Independent Accountants and Financial Statements 2
Distribution of the Contracts 2
Calculation of Performance 3
Money Market Subaccount 3
Other Subaccounts 4
Financial Statements of Variable Account 8
Comment on Financial Statements of LB 13
Financial Statements of LB 13
How To Obtain the INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY CONTRACT
Statement of Additional Information
Send this request form to:
Lutheran Brotherhood
P.O. Box 288
Minneapolis, MN 55440-9041
Please send me a copy of the most recent INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY CONTRACT SAI.
- ---------------------------------------------------------------------------
(Name) (Date)
- ---------------------------------------------------------------------------
(Street Address)
- ---------------------------------------------------------------------------
(City) (State) (Zip Code)
APPENDIX
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 ("1933
Act"), nor is the Fixed Account registered as an investment company under
the Investment Company Act of 1940 ("1940 Act"). Accordingly neither the
Fixed Account nor any interests therein are generally subject to the
provisions of the 1933 or 1940 Acts. Disclosures regarding the Fixed Account
option and the Fixed Account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements in prospectuses. LB 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 LB and are invested in those assets chosen by LB and
allowed by applicable law. LB 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, if applicable.
Under the Fixed Account option, LB 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 3% per year, compounded
daily. LB may credit interest at a rate in excess of 3% per year; however,
LB is not obligated to credit any interest in excess of 3% per year. There
is no specific formula for the determination of excess interest credits.
Such credits, if any, will be determined by LB based on information as to
expected investment yields. Some of the factors that LB may consider in
determining whether to credit interest above 3% to amounts allocated to the
Fixed Account, and the amount thereof, are general economic trends, rates of
return currently available and anticipated on LB's investments, regulatory
and tax requirements and competitive factors. ANY INTEREST CREDIT TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE DETERMINED
AT THE SOLE DISCRETION OF LB. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 3% FOR ANY GIVEN YEAR.
Nonetheless, for any amount allocated or transferred to the Fixed Account,
LB 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 LB.
Contract Owners have no voting rights in the Variable Account with respect
to Fixed Account values.
INSERT 1615 LB SERIES HERE
ARBITRATION AGREEMENT
Applications for variable life insurance and variable annuity contracts
issued by Lutheran Brotherhood are subject to an Arbitration Agreement
between Contract Owners and Lutheran Brotherhood and Lutheran Brotherhood
Securities Corp. to submit disputes to arbitration. That agreement reads as
follows:
I agree to arbitrate any disputes between Lutheran Brotherhood, Lutheran
Brotherhood Securities Corp. and me. I specifically agree and recognize that
all controversies which may arise between Lutheran Brotherhood, Lutheran
Brotherhood Securities Corp., its agents, representatives or employees and
me, concerning any transaction, account or the interpretation, performance
or breach of this agreement between Lutheran Brotherhood, Lutheran
Brotherhood Securities Corp. and me will be determined by arbitration to the
full extent provided by law. Such arbitration will be in accordance with the
rules then in effect of the National Association of Securities Dealers, Inc.
I further understand and agree that:
1. Arbitration is final and binding on all parties.
2. I am waiving my right to seek remedies in court, including the right to a
jury trial.
3. Pre-arbitration discovery is generally more limited than and different
from court proceedings.
4. The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or seek modification of
rulings by the arbitrators is strictly limited.
5. The panel of arbitrators will typically include a minority of arbitrators
who are affiliated with the securities industry.
(This page is not a part of the prospectuses.)
Diversifying Your Variable Annuity
Investments in different asset categories react differently to changes in
the economy. The same economic condition that causes one asset to become
more valuable may cause another to become less valuable. By diversifying
your investment dollars among several categories--fixed income, equities and
cash equivalents--you can reduce your overall risk. In addition, investing
for the long term allows your assets to weather multiple market cycles,
allowing more time for capital appreciation. This reduces the risk of
selling the assets for less than your original investment.
Shown below are samples of three diversified portfolios. Each is structured
with a different objective in mind. As the investor, it is important for you
to determine your primary goals and objectives, and structure your portfolio
accordingly.
[PIE CHART HERE
High Yield 5%
Growth 25%
Income 55%
Money Market 15%]
CONSERVATIVE
PORTFOLIO
This portfolio has income and preservation of capital as its primary
objectives. The allocation to money market instruments would provide
stability, while income-oriented investments such as high-quality bonds
would provide income. This portfolio should also include growth-oriented and
high-yield (junk) bond investments in order to maintain a hedge against
inflation.
[PIE CHART HERE
Growth 50%
High Yield 10%
Money Market 10%
Income 30%]
MODERATE
PORTFOLIO
The moderate investment port-folio provides a balance of growth and income-
oriented investments. This portfolio would experience more volatility than
the conservative portfolio due to its higher concentration in growth-
oriented and high-yield (junk) bond investments. However, it also provides
the investor with greater potential earnings and growth.
[PIE CHART HERE
Growth 70%
Money Market 5%
Income 10%
High Yield 15%]
AGGRESSIVE
PORTFOLIO
This portfolio has long-term growth as its primary objective. With the
majority of assets invested in growth-oriented investments and high-yield
(junk) bonds, the aggressive investment portfolio would experience the most
volatility of our three examples. However, by including both money market
instruments and fixed income investments, it has an element of stability
that a portfolio invested solely in growth-oriented investments would not
have. Over the long term, this portfolio offers the greatest potential
return.
This page does not constitute part of the prospectuses.
[6 SOLID BOXES CENTERED HERE]
BULK RATE
U.S. Postage
PAID
Lutheran
Brotherhood
No person has been given the authority to give any information or to make
any representations other than those contained in these Prospectuses. If
given or made, such information or representations must not be relied upon
as having been authorized. These Prospectuses do not constitute an offer to
any person in a state where it is unlawful to make such as offer.
Distributed by Lutheran Brotherhood Securities Corp.
VP 63-1 (LB)
[LOGO HERE]
625 Fourth Avenue South Minneapolis, Minnesota 55415
