<PAGE>
Registration No. 33-67012
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. ___6___ [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ___7___ [X]
LB VARIABLE ANNUITY ACCOUNT I
(Exact Name of Registrant)
LUTHERAN BROTHERHOOD
(Name of Depositor)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Depositor's Principal Executive Offices) ( Zip Code)
Depositor's Telephone Number, including Area Code: (612) 340-7215
David J. Larson
Senior Vice President, Secretary and General Counsel
Lutheran Brotherhood
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(iii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
============================================================================
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:
[X] filed the Notice required by that Rule on February 25, 1997; or
[ ] intends to file the Notice required by that Rule on or about (date);
or
[ ] during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
<PAGE>
LB VARIABLE ANNUITY ACCOUNT I
CROSS REFERENCE SHEET
Pursuant to Rule 495 under the Securities Act of 1933 indicating the
location in the Prospectus of the information called for by the Items of
Parts A and B of Form N-4.
Part A
Item Number and Caption Location
- ----------------------- --------
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis or Highlights Summary
4. Condensed Financial
Information Condensed Financial Information
5. General Description of Registrant,
Depositor, and Portfolio Companies Lutheran Brotherhood, the Variable
Account and the Fund; Voting
Rights; Sales and Other Agreements
6. Deductions Charges and Deductions; Sales and
Other Agreements
7. General Description of
Variable Annuity Contracts Lutheran Brotherhood, the Variable
Account and the Fund -- Addition,
Deletion or Substitution of
Investments; The Contracts --
Allocation of Premiums; --
Surrenders (Redemptions); --
Transfers; -- Contract Owner,
Beneficiaries and
Annuitants; Annuity Provisions --
Frequency and Amount of Annuity
Payments; General Provisions --
Postponement of Payments
8. Annuity Period Annuity Provisions
9. Death Benefit The Contracts -- Death Benefit
Before the Maturity Date; -- Death
Benefit After the Maturity Date
10. Purchases and Contract Value The Contracts -- Issuance of a
Contract; -- Allocation of
Premiums; -- Accumulated Value;
Accumulation Units and Accumulation
Unit Value; Sales and Other
Agreements
11. Redemptions The Contracts -- Free Look Period;
-- Surrender (Redemptions); General
Provisions -- Postponement of
Payments
12. Taxes Charges and Deductions -- Other
Taxes; Federal Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement
of Additional Information Statement of Additional Information
Table of Contents
Part B
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Introduction
18. Services Administration of the Contracts;
Custody of Assets; Independent
Public Accountants and Financial
Statements
19. Purchase of Securities Being
Offered Distribution of the Contracts
20. Underwriters Distribution of the Contracts
21. Calculation of Yield Quotations of
Money Market Sub-Accounts Calculation of Yield
22. Annuity Payments See "Annuity Provisions" in Part A
23. Financial Statements Independent Public Accountants and
Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
----------------------------------
INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACT
ISSUED BY
LUTHERAN BROTHERHOOD
625 Fourth Avenue South * Minneapolis, Minnesota 55415
(800) 423-7056 * (612) 340-7210
----------------------------------
This Prospectus describes an individual flexible premium 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 six
Portfolios of the Fund -- the Growth Portfolio, the High Yield Portfolio,
the Income Portfolio, the Opportunity Growth Portfolio, the World Growth
Portfolio, and the Money Market Portfolio. Additional Subaccounts (together
with the related additional Portfolios of the Fund) may be added in the
future. The Accumulated Value of the Contract in the Subaccounts and, except
to the extent fixed amount annuity payments are elected by the Contract
Owner, the amount of annuity payments will vary, primarily based on the
investment experience of the Portfolio whose shares are held in the
Subaccounts designated. Premiums allocated to the Fixed Account will
accumulate at fixed rates of interest declared by 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.
----------------------------------
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.
----------------------------------
The date of this Prospectus is May 1, 1997.
[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 May 1, 1997, 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 35 of this
Prospectus. Information about the Fixed Account may be found in the Appendix
to this Prospectus.
TABLE OF CONTENTS
Page
DEFINITIONS
SUMMARY FEE TABLE
SUMMARY
LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT AND THE FUND
Lutheran Brotherhood
The Variable Account
LB Series Fund, Inc.
Addition, Deletion or Substitution of Investments
THE CONTRACTS
Issuance of a Contract
Free Look Period
Allocation of Premium
Accumulated Value; Accumulation Units
and Accumulation Unit Value
Death Benefit Before the Maturity Date
Death Benefit After the Maturity Date
Surrender (Redemption)
Transfers
Telephone Transfers
Special Transfer Service -- Dollar Cost Averaging
Assignments
Contract Owner, Beneficiaries and Annuitants
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
Administrative Charge
Mortality and Expense Risk Charge
Investment Advisory Fee of the Fund
Taxes
Sufficiency of Charges
ANNUITY PROVISIONS
Maturity Date
Settlement Options
Frequency and Amount of Annuity Payments
Subaccount Annuity Unit Value
Assumed Investment Rate
GENERAL PROVISIONS
Postponement of Payments
Date of Receipt
Reports to Contract Owners
Contract Inquiries
FEDERAL TAX STATUS
Introduction
Variable Account Tax Status
Taxation of Annuities in General
Qualified Plans
1035 Exchanges
Diversification Requirements
Withholding
Other Considerations
EMPLOYMENT-RELATED BENEFIT PLANS
VOTING RIGHTS
SALES AND OTHER AGREEMENTS
LEGAL PROCEEDINGS
LEGAL MATTERS
FINANCIAL STATEMENTS AND EXPERTS
FURTHER INFORMATION
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
ORDER FORM
APPENDIX -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT
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 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 six Subaccounts: the Growth Subaccount (which invests
exclusively in the Growth Portfolio); the High Yield Subaccount (which
invests exclusively in the High Yield Portfolio); the Income Subaccount
(which invests exclusively in the Income Portfolio); the Opportunity Growth
Subaccount (which invests exclusively in the Opportunity Growth Portfolio);
the World Growth Subaccount (which invests exclusively in the World Growth
Portfolio); and the Money Market Subaccount (which invests exclusively in
the Money Market Portfolio).
Valuation Date. Each day the New York Stock Exchange is open for trading and
any other day on which there is sufficient trading in the securities of a
Portfolio of the Fund such that the current net asset value of its shares
might be materially affected.
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 six Subaccounts -- Growth, High Yield, Income , Opportunity
Growth, World Growth and Money Market -- or to the Fixed Account or to any
combination of the Subaccounts and the Fixed Account. The following table
shows the various fees and expenses associated with the Contract.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchase (as a percentage of purchase payments) 0%
Maximum Deferred Sales Load (as a percentage of Excess
Amount surrendered) 6%(1)
Exchange Fee 0%
Annual Contract Fee $30.00(2)
Annual Expenses For Growth, High Yield, Income, Money Market
and Opportunity Growth Subaccounts
(as a percentage of average daily Accumulated Value or Annuity Unit Value)
Mortality and Expense Risk Fees 1.10%(3)
Total Subaccount Annual Expenses 1.10%
Annual Expenses For Growth, High Yield, Income, Money Market
and Opportunity Growth Portfolios
(as a percentage of Portfolio average daily net assets)
Management Fees (Investment Advisory Fees) 0.40%(4)
Other Expenses After Expense Reimbursement 0%(5)
Total Portfolio Annual Expenses 0.40%
EXAMPLE (6)
1 year 3 years 5 years 10 years
------ ------- ------- -------
If you surrender or annuitize your
Contract at the end of the
applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $71 $88 $104 $181
If you do not surrender or annuitize your
Contract:
You would pay the following expenses on
a $1,000 investment, assuming 5%
annual return on assets $15 $48 $83 $181
Annual Expenses For World Growth Subaccount
(as a percentage of average daily Accumulated
Value or Annuity Unit Value)
Mortality and Expense Risk Fees 1.10%(3)
Total Subaccount Annual Expenses 1.10%
Annual Expenses For World Growth Portfolio
(as a percentage of Portfolio average daily net assets)
Management Fees (Investment Advisory Fees) 0.85%(4)
Other Expenses After Expense Reimbursement 0%(5)
Total Portfolio Annual Expenses 0.85%
EXAMPLE (6)
1 year 3 years 5 years 10 years
------ ------- ------- --------
If you surrender or annuitize your
Contract at the end
of the applicable time period:
You would pay the following expenses on
a $1,000 investment, assuming 5%
annual return on assets $76 $101 $127 $230
If you do not surrender or annuitize your
Contract:
You would pay the following expenses on
a $1,000 investment, assuming 5%
annual return on assets $20 $62 $106 $230
_________________
(1) See "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred Sales
Charge)". A surrender charge is deducted only if a full or partial surrender
occurs during the first six Contract Years; no surrender charge is deducted
for surrenders occurring in Contract Years seven and later. The surrender
charge will also be deducted at the time annuity payments begin, except
under certain circumstances. Up to 10% of the Accumulated Value existing at
the time the first surrender in a Contract Year is made may be surrendered
without charge; only the Excess Amount will be subject to a surrender
charge. The maximum charge is 6% of the Excess Amount and is in effect for
the first Contract Year. Thereafter, the surrender charge decreases by 1%
each subsequent Contract Year.
(2) See "CHARGES AND DEDUCTIONS--Administrative Charge". A $30 annual
administrative charge is deducted on each Contract Anniversary only if, on
that Contract Anniversary, the total of premiums paid under the Contract
minus all prior surrenders is less than $5,000. The $30 fee is a Contract
charge and is deducted proportionately from the Subaccounts and the Fixed
Account that make up the Contract's Accumulated Value.
(3) See "CHARGES AND DEDUCTIONS--Mortality and Expense Risk Charge".
(4) See "CHARGES AND DEDUCTIONS--Investment Advisory Fee of the Fund".
(5) The amount shown for Fund Annual Expenses does not reflect a deduction
for operating expenses of the Fund, other than the investment advisory fee,
because LB and its affiliates have agreed to reimburse the Fund for these
operating expenses. For the fiscal year of the Fund ending December 31,
1996, the Fund was reimbursed approximately $2,589,413 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 LB's average contract size.
The purpose of the table is to assist the Contract Owner in understanding
the various costs and expenses that a Contract Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as
the Fund. Cross-references to the relevant sections of the Prospectus for
more complete descriptions of the various costs and expenses have been
provided.
THE EXAMPLE SHOWING EXPENSES FOR SURRENDERS AT 1, 3, 5, AND 10-YEAR PERIODS
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
The Contracts
Issuance of a Contract. The Contracts are individual flexible premium
variable annuity contracts issued by 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, the Opportunity
Growth Portfolio, the World Growth 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 $200, 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 $200 (unless the total value in the Subaccount or the Fixed
Account is less than $200, 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 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 Money Market Portfolio,
Growth Portfolio, Income Portfolio, High Yield Portfolio, and Opportunity
Growth Portfolio. LB also receives a daily investment advisory fee from the
Fund equal to .85% of the aggregate average daily net assets of the World
Growth Portfolio.
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.
<PAGE>
Selected data for Accumulation Units outstanding throughout the period
ending December 31:
Opportunity Growth Subaccount
-----------------------------
1996
----
Accumulation Unit Value:
Beginning of period $10.00**
End of period 11.79
Number of Accumulation Units
outstanding at end of period 8,925,231
World Growth Subaccount
-----------------------
1996
----
Accumulation Unit Value:
Beginning of period $10.00**
End of period 10.93
Number of Accumulation Units
outstanding at end of period 6,809,063
Growth Subaccount
-----------------
1996 1995 1994
---- ---- ----
Accumulation Unit Value:
Beginning of period $24.38 $17.95 $19.68*
End of period 29.52 24.38 17.95
Number of Accumulation Units
outstanding at end of period 13,809,177 7,742,874 3,142,640
High Yield Subaccount
----------------------
1996 1995 1994
---- ---- ----
Accumulation Unit Value:
Beginning of period $22.06 $18.64 $20.41
End of period 24.35 22.06 18.64
Number of Accumulation Units
outstanding at end of period 10,632,678 5,577,895 2,514,043
<PAGE>
Income Subaccount
-----------------
1996 1995 1994
---- ---- ----
Accumulation Unit Value:
Beginning of period $18.98 $16.07 $17.21
End of period 19.39 18.98 16.07
Number of Accumulation Units
outstanding at end of period 9,066,360 5,274,785 2,264,894
Money Market Subaccount
-----------------------
1996 1995 1994
---- ---- ----
Accumulation Unit Value:
Beginning of period $1.43 $1.33 $1.33
End of period 1.48 1.43 1.36
Number of Accumulation Units
outstanding at end of period 31,024,219 15,771,786 5,984,694
- ----------
*Commencing February 1, 1994, the date the Registration Statement for the
Variable Account was declared effective.
**Commencing January 18, 1996.
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 December 31, 1996, was 4.01% and 4.09%,
respectively. For more information, see the Statement of Additional
Information.
Also, the Variable Account may advertise for the Subaccounts other than the
Money Market Subaccount a yield quotation based on a 30-day (or one month)
period computed by dividing the net investment income per Accumulation Unit
earned during the period (the net investment income earned by the Fund
portfolio attributable to shares owned by the Subaccount less expenses
incurred during the period) by the maximum offering price per Accumulation
Unit on the last day of the period. The current yield for the 30-day based
period ended December 31, 1996 for the High Yield Subaccount was 9.08%. The
current yield for the same 30-day base period for the Income Subaccount was
5.55%. 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
December 31, 1996 and for the period from commencement of operations through
December 31, 1996 for the Subaccounts are as follows:
Commencement
1 Year 3 Year 5 Year of Operations
------- ------ ------ -------------
Growth Subaccount (3/8/88) 14.55%* 14.33%* 12.13%* 13.06%*
High Yield Subaccount (3/8/88) 4.47%* 6.00%* 11.84%* 10.62%*
Income Subaccount (3/8/88) -3.34%* 3.10%* 5.91%* 7.79%*
Money Market Subaccount (2/18/88) -1.55%* 2.56%* 2.74%* 4.55%*
Opportunity Growth
Subaccount (1/18/96) -- -- -- 11.56%
World Growth Subaccount (1/18/96) -- -- -- 3.36%
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000. Inclusion of the administrative charge
would reduce the total return figures shown above. Assumes applicable sales
charge upon surrender.
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
INVESTOR, INVESTOR'S DAILY, KIPLINGER'S PERSONAL FINANCE, LIPPER ANALYTICAL
SERVICES, MONEY, MUTUAL FUND FORECASTER, NEWSWEEK, THE NEW YORK TIMES,
PERSONAL INVESTOR, STANGER REPORT, SYLVIA PORTER'S PERSONAL FINANCE, USA
TODAY, U.S. NEWS AND WORLD REPORT, THE WALL STREET JOURNAL and WIESENBERGER
INVESTMENT COMPANIES SERVICE.
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 1996, LB had total assets of nearly $11.8 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 six Subaccounts of the Variable Account -- the Growth
Subaccount, the High Yield Subaccount, the Income Subaccount, the
Opportunity Growth Subaccount, the World Growth Subaccount and the Money
Market Subaccount. The assets of each such Subaccount will be invested in
the corresponding Portfolio (the Growth Portfolio, the High Yield Portfolio,
the Income Portfolio, the Opportunity Growth Portfolio, the World Growth
Portfolio or the Money Market Portfolio) of the Fund. The investment
objectives of the Portfolios of the Fund (individually a "Portfolio" and
collectively the "Portfolios") are:
Growth Portfolio. To achieve long-term growth of capital through investment
primarily in common stocks of established corporations that appear to offer
attractive prospects of a high total return from dividends and capital
appreciation.
High Yield Portfolio. To achieve a higher level of income through a
diversified portfolio of high yield securities ("junk bonds") which involve
greater risks than higher quality investments, while also considering growth
of capital as a secondary objective.
Income Portfolio. To achieve a high level of income over the longer term
while providing reasonable safety of capital through investment primarily in
readily marketable intermediate and long-term fixed income securities.
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.
Opportunity Growth Portfolio. To achieve long term growth of capital by
investing primarily in a professionally managed diversified portfolio of
smaller capitalization common stocks.
World Growth Portfolio. To achieve long-term growth of capital by investing
primarily in a professionally managed diversified portfolio of common stocks
of established, non-U.S. companies.
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. As investment adviser
to the Fund, LB charges the Fund a daily investment advisory fee equal to an
annual rate of .40% of the aggregate average daily net assets of the Money
Market, Income, High Yield, Growth, and Opportunity Growth Portfolios. LB
also charges the Fund an annual investment advisory fee equal to .85% of the
aggregate average daily net assets of the World Growth Portfolio.
The Fund has entered into an Investment Advisory Agreement with LB under
which LB will, subject to the direction of the Board of Directors of the
Fund, carry on the day-to-day management of the Fund, and provide advice and
recommendations with respect to investments and the purchase and sale of
securities in accordance with the Fund's investment objectives, policies and
restrictions. LB also furnishes at its own expenses all necessary
administrative services, office space, equipment and clerical personnel for
servicing the investments of the Fund and maintaining its organization, and
investment advisory facilities and executive and supervisory personnel for
managing the investments and effecting the portfolio transactions of the
Fund. The Investment Advisory Agreement provides that the Fund will pay, or
provide for the payment of, all of its own expenses, including, without
limitation, the compensation of the directors who are not affiliated with LB
or its affiliates, governmental fees, interest charges, taxes, membership
dues in the Investment Company Institute allocable to the Fund, fees and
expenses of the independent auditors, of legal counsel and of any transfer
agent, registrar and dividend disbursing agent of the Fund, expenses of
preparing, printing and mailing prospectuses, shareholders' reports,
notices, proxy statements and reports to governmental officers and
commissions, expenses connected with the execution, recording and settlement
of portfolio security transactions, insurance premiums, fees and expenses of
the Fund's custodian for all services to the Fund, including safekeeping of
funds and securities and keeping of books and calculating the net asset
value of the shares of the Portfolios of the Fund, expenses of shareholders'
meetings and expenses relating to the issuance, registration and
qualification of shares of the Fund. LB and LBVIP have agreed with the Fund
to pay, or to reimburse the Fund for the payment of, all of the foregoing
expenses and all other expense associated with operating the Fund pursuant
to a separate written agreement (the "Expense Reimbursement Agreement"). The
Expense Reimbursement Agreement could be terminated at any time by the
mutual agreement of the Fund, LB and LBVIP, but the Fund and LB and LBVIP
currently contemplate that the Expense Reimbursement Agreement will continue
so long as the Fund remains in existence. If the Expense Reimbursement
Agreement were terminated, the Fund would be required to pay those operating
expenses, which would reduce the net investment return on the shares of the
Fund held by the Subaccounts of the Variable Account.
LB has engaged Rowe Price-Fleming International, Inc., ("Price-Fleming") as
investment sub-adviser for the World Growth Portfolio. Price-Fleming was
founded in 1979 as a joint venture between T. Rowe Price Associates, Inc.
and Robert Fleming Holdings Limited. Price-Fleming is one of the world's
largest international mutual fund asset managers with approximately $29.2
billion under management as of December 31, 1996 in its offices in
Baltimore, London, Tokyo and Hong Kong. Price-Fleming has an investment
advisory group that has day-to-day responsibility for managing the World
Growth Portfolio and developing and executing the Portfolio's investment
program.
LB pays the Sub-adviser for the World Growth Portfolio an annual sub-
advisory fee for the performance of sub-advisory services. The fee payable
is equal to a percentage of that Portfolio's average daily net assets. The
percentage varies with the size of the Portfolio's net assets, decreasing as
the Portfolio's assets increase. The formula for determining the sub-
advisory fee is described fully in the prospectus for the Fund.
Each Contract Owner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Fund's various Portfolios. A full description
of the Fund, its investment objectives, policies and restrictions, its
expenses, the risks attendant to investing in the Fund's Portfolios and
other aspects of its operation is contained in the accompanying Prospectus
for the Fund, which should be carefully read together with this Prospectus.
Addition, Deletion or Substitution of Investments
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.
The Accumulation Unit Value is determined before any Contract transactions
on the Valuation Date that would affect the number of Subaccount
Accumulation Units (see the immediately preceding paragraph). If the
Contract's Accumulated Value in the Variable Account is to be calculated for
a day that is not a Valuation Date, the next following Valuation Date will
be used.
Determination of Accumulation Unit Value. The Accumulation Unit Value for a
Subaccount is calculated on each Valuation Date by dividing (1) by (2),
where
(1) is the net result of:
(a) the net asset value of the corresponding Portfolio of the Subaccount at
the end of the current Valuation Period, plus
(b) the amount of any dividend or capital gain distribution declared by the
Portfolio if the "ex-dividend" date occurs during the Valuation Period, plus
or minus
(c) a charge or credit for any taxes reserved which 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, 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,
certain restrictions on the manner of payment of the death benefit prior to
the Maturity Date, similar to those described above under "Manner of Payment
- -- Contracts Not Issued in Connection with Certain Qualified Plans", are
applicable. The manner of payment of such death benefit under a Contract
issued in connection with a Qualified Plan will be stated in the Contract or
the plan documents. Purchasers acquiring Contracts pursuant to Qualified
Plans should consult qualified pension or tax advisers.
Death Benefit After the Maturity Date
If 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,
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 $200, 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 $200 (unless the total
value in a Subaccount of the Variable Account or the Fixed Account is less
than $200, 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 five other Subaccounts or to the
Fixed Account as specified by the Contract Owner until the amount in the
Money Market Subaccount is exhausted or the agreement is terminated by the
Contract Owner. The dollar cost averaging program is generally suitable for
Contract Owners making a substantial deposit to the Contract and who wish to
use the other Subaccounts or the Fixed Account investment option, but desire
to control the risk of investing at the top of a market cycle. The dollar
cost averaging program allows such investments to be made in equal
installments over time in an effort to reduce such risk. Dollar cost
averaging does not guarantee that the Variable Account will gain in value,
nor will it protect against a decline in value if market prices fall.
However, if a Contract Owner can continue to invest regularly throughout
changing market conditions, it can be an effective strategy to help meet
long-term goals. Contract Owners interested in the dollar cost averaging
program may obtain an application and full information concerning the
program and its restrictions from 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 annuitization made
more than three years after the Date of Issue, no surrender charge will be
deducted from the portion of Accumulated Value annuitized provided that
payments under such a settlement option will be made for at least five years
and that proceeds may not be withdrawn. This surrender charge will be waived
if the Annuitant is totally disabled (as defined in the Contract) 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 Money Market Portfolio, Growth Portfolio, Income Portfolio,
High Yield Portfolio and Opportunity Growth Portfolio, and .85% of the
aggregate average daily net assets of the World Growth Portfolio. See
"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. Also, no surrender charge will be
imposed at the time of annuitization (if annuitization occurs more than
three years after the Date of Issue) under a settlement option providing a
life income with a guaranteed period (e.g., Option 4V 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, LB, and, if the Contract is purchased under a retirement plan, upon
the type of retirement plan and upon the tax and employment status of the
individual concerned. The discussion contained herein is general in nature
and is not intended as tax advice. No attempt is made to consider any
applicable state or other tax laws. Moreover, the discussion contained
herein is based on 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 intend to 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 investment in the Contract.
For single sum payments, the taxable portion is generally the amount in
excess of the premiums paid under the Contract. Such taxable portion is
taxed at ordinary income tax rates. The investment in the Contract is not
affected by loans or assignments of the Contract but is increased by any
amount included in gross income as a result of the loan or assignment.
Payments in partial or full surrender of a Contract generally will be taxed
as ordinary income to the extent that the Accumulated Value exceeds the
taxpayer's investment in the Contract. An assignment of the Contract (other
than a gift to the Contract Owner's spouse or incident to a divorce) or the
use of the Contract as collateral for a loan will be treated in the same
manner as a surrender.
For annuity payments, the taxable portion is generally determined by a
formula which establishes the ratio that the investment in the Contract
bears to the expected return under the Contract as of the Maturity Date.
Where annuity payments are made under certain Qualified Plans, the portion
of each payment that is excluded from gross income will generally be equal
to the total amount of any investment in the Contract as of the Maturity
Date, divided by the number of anticipated payments, which are determined by
reference to the age of the Annuitant. The taxable portion is taxed at
ordinary income tax rates. For certain types of Qualified Plans there may be
no investment in the Contract within the meaning of Section 72 of the Code.
In such event, the total payments received may be taxable. Contract Owners,
Annuitants and Beneficiaries under such Contracts should seek qualified tax
and financial advice about the tax consequences of distributions under the
retirement plan in connection with which such Contracts are purchased.
Generally, a distribution from a Contract before the taxpayer attains age 59
1/2 will result in an additional tax of 10% of the amount of the
distribution which is includable in gross income. The penalty tax will not
apply if the distribution is made as follows:
(1) in connection with death or disability as described in section 72(q)(2)
of the Code;
(2) from certain Qualified Plans;
(3) under a qualified funding trust (commonly referred to as structured
settlement plans); or
(4) it is one of a series of substantially equal periodic annual payments
for the life or life expectancy of the taxpayer or the joint lives or joint
life expectancies of the taxpayer and the beneficiary; for this purpose, if
there is a significant modification of the payment schedule before the
taxpayer is age 59 1/2 or before the expiration of five years from the time
of the annuity starting date, the taxpayer's income shall be increased by
the amount of tax and deferred interest that otherwise would have been
incurred.
Depending on the type of Qualified Plan, distributions may be subject to a
10% penalty tax.
Contracts Held by Other Than Individuals. 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. This section will likely accelerate the recognition
of income by a contract owner owning multiple contracts and may have the
further effect of increasing the portion of income that will be subject to
the 10% penalty tax.
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
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". The Code contains a safe harbor provision which provides that
annuity contracts such as the Contract meet the diversification requirements
if, as of the end of each quarter, no more than fifty-five percent (55%) of
the total assets underlying the Variable Account consist of cash, cash
items, U.S. government securities and securities of other regulated
investment companies.
On March 1, 1989, the Treasury Department adopted regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investments
underlying variable contracts such as the Contract. The regulations amplify
the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described
above. Under the regulations, the Variable Account will be deemed
adequately diversified if: (1) no more than 55% of the value of the total
assets of the account is represented by any one investment; (2) no more than
70% of the value of the total assets of the account is represented by any
two investments; (3) no more than 80% of the value of the total assets of
the account is represented by any three investments; and (4) no more than
90% of the value of the total assets of the account is represented by any
four investments.
The assets of the Fund are expected to 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. 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.
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 4% of the premiums paid on the contracts. Further, LB Representatives
may be eligible to receive certain benefits based on the amount of earned
commissions.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Variable Account are subject. Neither LB nor
LBSC are involved in any litigation that is of material importance in
relation to their total assets or that relates to the Variable Account.
LEGAL MATTERS
All matters of applicable state law pertaining to the Contracts, including
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
L.L.P., 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 on the
report 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.
<PAGE>
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 7
Comment on Financial Statements of LB 16
Financial Statements of LB 17
How To Obtain the INDIVIDUAL FLEXIBLE PREMIUM
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
VARIABLE
ANNUITY CONTRACT SAI.
- ---------------------------------------------------------------------------
(Name) (Date)
- ---------------------------------------------------------------------------
(Street Address)
- ---------------------------------------------------------------------------
(City) (State) (Zip Code)
<PAGE>
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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACT
Issued By
LUTHERAN BROTHERHOOD
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus dated May 1, 1997 (the "Prospectus")
describing an individual flexible premium variable annuity contract (the
"Contract") being offered by Lutheran Brotherhood ("LB"). Purchase payments
will be allocated 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). Much of the information contained in this Statement
of Additional Information expands upon subjects discussed in the Prospectus.
A copy of the Prospectus may be obtained from Lutheran Brotherhood, 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
Capitalized terms used in this Statement of Additional Information that are
not otherwise defined herein shall have the meanings given to them in the
Prospectus.
--------------------------------------------------
TABLE OF CONTENTS
Page
INTRODUCTION
CUSTODY OF ASSETS
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
DISTRIBUTION OF THE CONTRACTS
CALCULATION OF PERFORMANCE
Money Market Subaccount
Other Subaccounts
FINANCIAL STATEMENTS OF VARIABLE ACCOUNT
COMMENT ON FINANCIAL STATEMENTS OF LB
FINANCIAL STATEMENTS OF LB
--------------------------------------------------
The date of this Statement of Additional Information
is May 1, 1997.
INTRODUCTION
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. At the
end of 1996, LB had total assets of nearly $11.8 billion. The Contract may
be sold to or in connection with retirement plans which may or may not
qualify for special federal tax treatment under the Internal Revenue Code.
Annuity payments under the Contract are deferred until a selected later
date.
Premiums will be allocated, as designated by the Contract Owner, to one or
more Subaccounts of the Variable Account, a separate account of 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 Prospectus for the Fund that
accompanies the Prospectus describes the investment objectives and attendant
risks of the six Portfolios of the Fund-the Growth Portfolio, the High Yield
Portfolio, the Income Portfolio, the Opportunity Growth Portfolio, the World
Growth Portfolio and the Money Market Portfolio. Additional Subaccounts
(together with the related additional Portfolios of the Fund) may be added
in the future. The Accumulated Value of the Contract and, except to the
extent fixed amount annuity payments are elected by the Contract Owner, the
amount of annuity payments will vary, primarily based on the investment
experience of the Portfolios whose shares are held in the Subaccounts
designated. Premiums allocated to the Fixed Account will accumulate at
fixed rates of interest declared by LB.
CUSTODY OF ASSETS
LB, whose address appears on the cover of the Prospectus, maintains custody
of the assets of the Variable Account.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements of LB and the Variable Account included in this
Statement of Additional Information have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of LB should be considered only as bearing upon the
ability of LB to meet its obligations under the Contracts. The financial
statements of LB should not be considered as bearing on the investment
experience of the assets held in the Variable Account.
DISTRIBUTION OF THE CONTRACTS
Lutheran Brotherhood Securities Corp. ("LBSC"), an indirect subsidiary of
Lutheran Brotherhood, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement to which 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.
The offering of the Contracts is continuous.
There are no special purchase plans or exchange privileges not described in
the Prospectus (see "THE CONTRACTS--Transfers" in the Prospectus).
No charge for sales expense is deducted from premiums at the time premiums
are paid. However, a surrender charge, which may be deemed to be a
contingent deferred sales charge, is deducted from the Accumulation Value of
the Contract in the case where the Contract is surrendered, in whole or in
part, before annuity payments begin and, if certain settlement options are
selected, at the time annuity payments begin, under the circumstances
described in, and in amounts calculated as described in, the Prospectus
under the heading "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent
Deferred Sales Charge)". There is no difference in the amount of this charge
or any of the other charges described in the Prospectus as between Contracts
purchased by members of the public as individuals or groups, on the one
hand, and Contracts purchased by any class of individuals, such as officers,
directors or employees of LB or of LBSC, on the other hand.
CALCULATION OF PERFORMANCE
Money Market Subaccount
The Prospectus contains information with respect to the yield and effective
yield of a hypothetical preexisting account having a balance of one Money
Market Portfolio Subaccount Accumulation Unit at the beginning of a
specified seven-day period. Such yield quotations have been calculated by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit
of the Subaccount at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, dividing the net
change by the value of the account at the beginning of the period to obtain
the base period return, and multiplying the base period return by 365/7. The
effective yield has been calculated by compounding the yield quotation for
such period by adding 1 and raising the sum to a power equal to 365/7, and
subtracting 1 from the result.
In determining the net change in the value of the account as described in
the preceding paragraph, all deductions that are charged to all Contract
Owner accounts have been reflected in proportion to the length of the seven-
day base period and the mean (or median) account size under a substantially
identical contract issued by an LB affiliate. Deductions from purchase
payments and surrender charges assessed have not been reflected in, and
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation of the Subaccount and the related portfolio
company have been excluded from, the computation of yield.
This example illustrates the yield quotation for the Money Market Subaccount
for the seven-day period ended December 31, 1996:
Value of hypothetical pre-existing account with exactly
one Accumulation Unit at the beginning of the period $1.482250
Value of same account (excluding capital changes) at end
of the seven-day period $1.483390
Net change in account value $0.001140
Base Period Return:
Net change in account value divided by beginning account value $0.000769
Annualized Current Yield [0.000769 X (365/7)] 4.01%
Effective Yield (0.000769 + 1)365/7-1 4.09%
The annualization of a seven-day average yield is not a representation of
future actual yield.
Other Subaccounts
The Prospectus contains information with respect to yield quotations by
Subaccounts other than the Money Market Subaccount. These yield quotations
are based on a 30-day (or one month) period computed by dividing the net
investment income per accumulation unit earned during the period (the net
investment income earned by the Fund portfolio attributable to shares owned
by the Subaccount less expenses incurred during the period) by the maximum
offering price per Accumulation Unit on the last day of the period, by
setting yield equal to two times the difference between the sixth power of
one plus the designated ratio and one, where the designated ratio is the
difference between the net investment income earned during the period and
the expenses accrued for the period (net of reimbursement) divided by the
product of the average daily number of Accumulation Units outstanding during
the period and the maximum offering price per Accumulation Unit on the last
day of the period.
For fees that vary with the size of the Contract, a Contract size equal to
the mean (or median) contract size of a substantially identical contract
issued by an LB affiliate has been assumed.
The following example illustrates the annualized current yield calculation
for the High Yield Subaccount for the 30-day base period ended December 31,
1996:
Dividends and interest earned by the High Yield
Subaccount during the base period $2,181,750
Expenses accrued for the base period $ 308,172
------------
$1,873,578(A)
============
Product of the maximum public offering price on
the last day of the base period and the average
daily number of Units outstanding during
the base period that were entitled to receive
dividends ($24.352467 x 10,357,472 Units) = $252,229,995(B)
=============
Quotient of dividends and interest earned minus
expenses accrued divided by product of maximum
public offering price multiplied by average
Units outstanding (A divided by B) = .007428(C)
Adding one and raising total to the
6th power (C + 1)6= 1.045404(D)
Annualized current yield [2(D - 1) X 100] = 9.08%
The following example illustrates the annualized current yield calculation
for the Income Subaccount for the 30-day base period ended December 31,
1996:
Dividends and interest earned by the Income
Subaccount during the base period $1,006,096
Expenses accrued for the base period $ 213,980
------------
$ 792,116(A)
============
Product of the maximum public offering price on
the last day of the base period and the average
daily number of Units outstanding during
the base period that were entitled to receive
dividends ($19.388079 x 8,929,977 Units) = $173,135,100(B)
Quotient of dividends and interest earned minus
expenses accrued divided by product of maximum
public offering price multiplied by average
Units outstanding (A divided by B) = 0.004575(C)
Adding one and raising total to the 6th power (C + 1)6 = 1.027767(D)
Annualized current yield [2(D-1) X 100] = 5.55%
Annualized current yield of any specific base period is not a representation
of future actual yield.
The Prospectus contains information with respect to performance data
relating to the Contracts. Such performance data includes average annual
total return quotations 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, by equating the ending redeemable value to the product of
a hypothetical initial payment of $1,000, and one plus the average annual
total return raised to a power equal to the applicable number of years. 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.
Such performance data assumes that any applicable charges have been deducted
from the initial $1,000 payment and includes all recurring fees that are
charged to all Contract Owners. If recurring fees charged to Contract Owners
are paid other than by redemption of Accumulation Units, such fees will be
appropriately reflected.
Average annual total return for any specific period is not a representation
of future actual results. Average annual total return assumes a steady rate
of growth. Actual performance fluctuates and will vary from the quoted
results for periods of time within the quoted periods.
The following example illustrates the average annual total return for the
Growth Subaccount of a hypothetical Contract invested in the Growth
Portfolio of the Fund from the date the Portfolio was first available for
investment under a contract issued by an LB affiliate through December 31,
1996:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on
December 31, 1996 (after deferred sales charge) $2,952
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000 initial
investment divided by the hypothetical $1,000 initial
investment; the result is expressed in terms of a percentage
(For example, 2 equals 200%) 195.22%*
Average annual total return from inception through
December 31, 1996 is the sum of the total return
calculated above plus one; such sum is raised to
the power of 1/n where n is expressed as eight years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 13.06%*
The following example illustrates the average annual total return for the
High Yield Subaccount of a hypothetical Contract invested in the High Yield
Portfolio of the Fund from the date the Portfolio was first available for
investment under a contract issued by an LB affiliate through December 31,
1996:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on
December 31, 1996 (after deferred sales charge) $2,435
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms of
a percentage (For example, 2 equals 200%) 143.52%*
Average annual total return from inception through
December 31, 1996 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as eight years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 10.62%*
The following example illustrates the average annual total return for the
Income Subaccount of a hypothetical Contract invested in the Income
Portfolio of the Fund from the date the Portfolio was first available for
investment under a contract issued by an LB affiliate through December 31,
1996:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31, 1996
(after deferred sales charge) $1,939
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms
of a percentage (For example, 2 equals 200%) 93.88%*
Average annual total return from inception through
December 31, 1996 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as eight years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 7.79%*
The following example illustrates the average annual total return for the
Money Market Subaccount of a hypothetical Contract invested in the Money
Market Portfolio of the Fund from the date the Portfolio was first available
for investment under a contract issued by an LB affiliate through December
31, 1996:
Hypothetical $1,000 initial investment on February 18, 1988 $1,000
Ending redeemable value of the investment on December 31, 1996
(after deferred sales charge) $1,484
Total return for the period is the difference between
the ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms
of a percentage (For example, 2 equals 200%) 48.36%*
Average annual total return from inception through
December 31, 1996 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as eight years and
11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 4.55%*
The following example illustrates the average annual total return for the
Opportunity Growth Subaccount from the date of inception through the period
ended December 31, 1996:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1996 (after deferred sales charge) $1,116
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms of
a percentage (For example, 2 equals 200%) 11.56%*
The following example illustrates the average annual total return for the
World Growth Subaccount from the date of inception through December 31,
1996:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on December 31, 1996
(after deferred sales charge) $1,034
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms
of a percentage (For example, 2 equals 200%) 3.36%*
- -----------------------------
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000. Inclusion of the administrative
charge would reduce the total return figures shown above.
FINANCIAL STATEMENTS OF VARIABLE ACCOUNT
Set forth on the following pages are the audited financial statements of the
Variable Account.
<PAGE>
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse LLP
[LOGO OMITTED]
Report of Independent Accountants
To Lutheran Brotherhood and Contract
Owners of LB Variable Annuity Account I
In our opinion, the accompanying statements of assets and liabilities
and the related statements of operations and of changes in net assets
present fairly, in all material respects, the financial position of the
Opportunity Growth, World Growth, Growth, High Yield, Income, and Money
Market subaccounts of the LB Variable Annuity Account I at December 31,
1996, the results of each of their operations for the year or period
then ended and the changes in each of their net assets for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Lutheran
Brotherhood's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/S/PRICE WATERHOUSE LLP
February 5, 1997
<PAGE>
LB Variable Annuity Account I
Opportunity Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
ASSETS:
Investment in LB Series Fund, Inc. 9,082,930
shares at net asset value of $11.50 per share
(cost $108,371,505) $104,495,147
Receivable from LB for units issued 863,135
------------
Total assets 105,358,282
------------
LIABILITIES:
Payable to LB for mortality and expense
risk charge 99,548
------------
NET ASSETS $105,258,734
============
Number of units outstanding 8,925,231
============
Unit Value (net assets divided by units outstanding) $11.79
============
Statement of Operations
For the Period From January 18, 1996
(effective date) to December 31, 1996
INVESTMENT INCOME:
Dividend Income $ 146,297
Mortality and expense risk charge (545,748)
------------
Net investment loss (399,451)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 3,482,409
Net change in unrealized depreciation
of investments (3,876,358)
------------
Net loss on investments (393,949)
------------
Net change in net assets resulting
from operations $(793,400)
============
<PAGE>
Statement of Changes in Net Assets
For the period from
January 18, 1996
(effective date) to
December 31, 1996
---------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (399,451)
Net realized loss on investments 3,482,409
Net change in unrealized appreciation or
depreciation of investments (3,876,358)
------------
Net change in net assets resulting from operations (793,400)
------------
UNIT TRANSACTIONS:
Proceeds from units issued 82,789,088
Net asset value of units redeemed (1,318,472)
Transfers from other subaccounts 28,509,130
Transfers to other subaccounts (4,938,549)
Transfers from fixed account 1,050,449
Transfers to fixed account (39,512)
------------
Net increase in net assets from unit transactions 106,052,134
------------
Net increase in net assets 105,258,734
NET ASSETS:
Beginning of period --
------------
End of period $105,258,734
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LB Variable Annuity Account I
World Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
ASSETS:
Investment in LB Series Fund, Inc. 6,750,857
shares at net asset value of $10.95 per share
(cost $69,786,714) $ 73,920,446
Receivable from LB for units issued 546,097
------------
Total assets 74,466,543
------------
LIABILITIES:
Payable to LB for mortality and expense
risk charge 71,238
------------
NET ASSETS $ 74,395,305
============
Number of units outstanding 6,809,063
============
Unit Value (net assets divided by units outstanding) $10.93
============
Statement of Operations
For the Period From January 18, 1996
(effective date) to December 31, 1996
INVESTMENT INCOME:
Dividend Income $ 608,436
Mortality and expense risk charge (391,148)
------------
Net investment income 217,288
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 990
Net change in unrealized appreciation
of investments 4,133,732
------------
Net gain on investments 4,134,722
------------
Net increase in net assets resulting
from operations $ 4,352,010
============
<PAGE>
Statement of Changes in Net Assets
For the period from
January 18, 1996
(effective date) to
December 31, 1996
---------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 217,288
Net realized gain on investments 990
Net change in unrealized appreciation or
depreciation of investments 4,133,732
------------
Net increase in net assets resulting from operations 4,352,010
------------
UNIT TRANSACTIONS:
Proceeds from units issued 53,280,698
Net asset value of units redeemed (1,095,783)
Transfers from other subaccounts 19,907,516
Transfers to other subaccounts (2,825,123)
Transfers from fixed account 798,420
Transfers to fixed account (22,433)
------------
Net increase in net assets from unit transactions 70,043,295
------------
Net increase in net assets 74,395,305
NET ASSETS:
Beginning of period --
------------
End of period $ 74,395,305
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LB Variable Annuity Account I
Growth Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
ASSETS:
Investment in LB Series Fund, Inc 21,053,266
shares at net asset value of $19.32 per share
(cost $349,708,609) $406,822,285
Receivable from LB for units issued 1,260,132
------------
Total assets 408,082,417
------------
LIABILITIES:
Payable to LB for mortality and expense
risk charge 412,373
------------
NET ASSETS $407,670,044
============
Number of units outstanding 13,809,177
============
Unit Value (net assets divided by units outstanding) $29.52
============
Statement of Operations
Year ended December 31, 1996
INVESTMENT INCOME:
Dividend Income $ 4,364,138
Mortality and expense risk charge (3,254,086)
------------
Net investment income 1,110,052
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 27,647,204
Net change in unrealized appreciation
of investments 28,567,353
------------
Net gain on investments 56,214,557
------------
Net increase in net assets resulting
from operations $ 57,324,609
============
<PAGE>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
-------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,110,052 $ 601,195
Net realized gain on investments 27,647,204 37,620
Net change in unrealized appreciation
or depreciation of investments 28,567,353 29,290,583
------------ ------------
Net increase in net assets resulting
from operations 57,324,609 29,929,398
------------ ------------
UNIT TRANSACTIONS:
Proceeds from units issued 169,902,448 82,049,665
Net asset value of units redeemed (8,581,093) (2,375,506)
Transfers from other subaccounts 37,521,563 28,525,452
Transfers to other subaccounts (38,282,281) (5,713,020)
Transfers from fixed account 1,379,808 553,165
Transfers to fixed account (356,880) (621,883)
------------ ------------
Net increase in net assets from unit
transactions 161,583,565 102,417,873
------------ ------------
Net increase in net assets 218,908,174 132,347,271
NET ASSETS:
Beginning of period 188,761,870 56,414,599
------------ ------------
End of period $407,670,044 $188,761,870
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LB Variable Annuity Account I
High Yield Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
ASSETS:
Investment in LB Series Fund, Inc. 25,657,536
shares at net asset value of $10.06 per share
(cost $254,355,274) $257,996,967
Receivable from LB for units issued 1,191,254
------------
Total assets 259,188,221
------------
LIABILITIES:
Payable to LB for mortality and
expense risk charge 256,278
------------
NET ASSETS $258,931,943
============
Number of units outstanding 10,632,678
============
Unit Value (net assets divided by units outstanding) $24.35
======
Statement of Operations
Year ended December 31, 1996
INVESTMENT INCOME:
Dividend Income $ 18,463,121
Mortality and expense risk charge (2,070,074)
------------
Net investment income 16,393,047
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 682
Net change in unrealized appreciation
of investments 1,879,021
------------
Net gain on investments 1,879,703
------------
Net increase in net assets resulting
from operations $ 18,272,750
============
<PAGE>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
-------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 16,393,047 $ 6,753,662
Net realized gain (loss) on investments 682 (673)
Net change in unrealized appreciation or
depreciation of investments 1,879,021 5,397,450
------------ ------------
Net increase in net assets resulting
from operations 18,272,750 12,150,439
------------ ------------
UNIT TRANSACTIONS:
Proceeds from units issued 122,024,025 52,906,716
Net asset value of units redeemed (6,153,855) (2,196,323)
Transfers from other subaccounts 22,925,879 17,387,777
Transfers to other subaccounts (21,972,449) (3,823,068)
Transfers from fixed account 1,085,659 469,977
Transfers to fixed account (282,809) (727,722)
------------ ------------
Net increase in net assets from unit
transactions 117,626,450 64,017,357
------------ ------------
Net increase in net assets 135,899,200 76,167,796
NET ASSETS:
Beginning of period 123,032,743 46,864,947
------------ ------------
End of period $258,931,943 $123,032,743
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LB Variable Annuity Account I
Income Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
ASSETS:
Investment in LB Series Fund, Inc. 17,996,583
shares at net asset value of $9.75 per share
(cost $173,628,461) $175,454,499
Receivable from LB for units issued 502,714
------------
Total assets 175,957,213
------------
LIABILITIES:
Payable to LB for mortality and expense
risk charge 177,921
------------
NET ASSETS $175,779,292
============
Number of units outstanding 9,066,360
============
Unit Value (net assets divided by units outstanding) $19.39
======
Statement of Operations
Year ended December 31, 1996
INVESTMENT INCOME:
Dividend Income $ 9,264,878
Mortality and expense risk charge (1,557,660)
------------
Net investment income 7,707,218
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 7,088
Net change in unrealized appreciation
of investments (2,869,862)
------------
Net loss on investments (2,862,774)
------------
Net increase in net assets resulting
from operations $4,844,444
============
<PAGE>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
-------- --------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 7,707,218 $ 3,316,992
Net realized gain on investments 7,088 4,312
Net change in unrealized appreciation
or depreciation of investments (2,869,862) 6,149,569
------------ ------------
Net increase in net assets resulting
from operations 4,844,444 9,470,873
------------ ------------
UNIT TRANSACTIONS:
Proceeds from units issued 82,629,245 46,881,706
Net asset value of units redeemed (5,629,826) (1,947,850)
Transfers from other subaccounts 14,441,126 12,257,769
Transfers to other subaccounts (20,758,730) (2,686,503)
Transfers from fixed account 580,605 483,796
Transfers to fixed account (444,722) (746,778)
------------ ------------
Net increase in net assets from unit
transactions 70,817,698 54,242,140
------------ ------------
Net increase in net assets 75,662,142 63,713,013
NET ASSETS:
Beginning of period 100,117,150 36,404,137
------------ ------------
End of period $175,779,292 $100,117,150
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LB Variable Annuity Account I
Money Market Subaccount
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
ASSETS:
Investment in LB Series Fund, Inc. 45,107,028
shares at net asset value of $1.00 per share
(cost $45,107,028) $45,107,028
Receivable from LB for units issued 962,592
------------
Total assets 46,069,620
------------
LIABILITIES:
Payable to LB for mortality and expense
risk charge 43,461
------------
NET ASSETS $46,026,159
============
Number of units outstanding 31,024,219
============
Unit Value (net assets divided by units outstanding) $ 1.48
======
Statement of Operations
Year ended December 31, 1996
INVESTMENT INCOME:
Dividend Income $1,613,129
Mortality and expense risk charge (350,930)
------------
Net investment income $1,262,199
============
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
--------- ---------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,262,199 $ 553,952
------------ ------------
UNIT TRANSACTIONS:
Proceeds from units issued 59,027,074 64,868,424
Net asset value of units redeemed (1,675,110) (773,124)
Transfers from other subaccounts 13,036,406 8,073,348
Transfers to other subaccounts (47,564,488) (54,021,755)
Transfers from fixed account 546,795 469,406
Transfers to fixed account (1,094,085) (4,843,454)
------------ ------------
Net increase in net assets from unit
transactions 22,276,592 13,772,845
------------ ------------
Net increase in net assets 23,538,791 14,326,797
NET ASSETS:
Beginning of period 22,487,368 8,160,571
------------ ------------
End of period $ 46,026,159 $ 22,487,368
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LB Variable Annuity Account I
Notes to Financial Statements
December 31, 1996
(1) ORGANIZATION
The LB Variable Annuity Account I (the Variable Account), a unit
investment trust registered under the Investment Company Act of 1940,
was established as a separate account of Lutheran Brotherhood (LB) in
1993, pursuant to the laws of the State of Minnesota. LB offers
financial services to Lutherans and is a fraternal benefit society owned
by and operated for its members. The Variable Account contains six
subaccounts--Opportunity Growth, World Growth, Growth, High Yield,
Income and Money Market--each of which invests only in a corresponding
portfolio of the LB Series Fund, Inc. (the Fund). The Fund is registered
under the Investment Company Act of 1940 as a diversified open-end
investment company.
The Variable Account is used to support only flexible premium deferred
variable annuity contracts issued by LB. Under applicable insurance law,
the assets and liabilities of the Variable Account are clearly
identified and distinguished from the other assets and liabilities of
LB. The assets of the Variable Account will not be charged with any
liabilities arising out of any other business conducted by LB.
The Opportunity Growth and World Growth Subaccount's registration was
declared effective by the Securities Exchange Commission and began
operations as separate subaccounts of the Variable Account on January
18, 1996. On January 18, 1996, LB invested $500,000 in each of the
Opportunity Growth and World Growth Subaccounts and acquired 50,000
units in each subaccount.
(2) SIGNIFICANT ACCOUNTING POLICIES
Investments
The investments in shares of the Fund are stated at the net asset value
of the Fund. The cost of shares sold and redeemed is determined on the
average cost method. Dividend distributions received from the Fund are
reinvested in additional shares of the Fund and recorded as income by
the Variable Account on the ex-dividend date.
Federal Income Taxes
LB qualifies as a tax-exempt organization under the Internal Revenue
Code. Accordingly, no provision for income taxes has been charged
against the Variable Account.
(3) RELATED PARTY TRANSACTIONS
Proceeds received by the Variable Account for units issued represent
gross contract premiums received by LB. No charge for sales distribution
expense is deducted from premiums received.
A surrender charge is deducted by LB if a contract is surrendered in
whole or in part during the first six years the contract is in force.
The surrender charge is 6% during the first contract year, and decreases
by 1% each subsequent contract year. For purposes of the surrender
charge calculation, up to 10% of a contract's accumulated value may be
excluded from the calculation each year. Surrender charges of $336,096
and $137,692 were deducted in 1996 and 1995, respectively.
An annual administrative charge of $30 is deducted on each contract
anniversary from the accumulated value of the contract to compensate LB
for administrative expenses relating to the contract and the Variable
Account. This charge is deducted by redeeming units of the subaccounts
of the Variable Account. No such charge is deducted from contracts for
which total premiums paid, less surrenders, equals or exceeds $5,000.
No administrative charge is payable during the annuity period.
Administrative charges of $165,767 and $83,208 were deducted in 1996 and
1995, respectively.
A daily charge is deducted from the value of the net assets of the
Variable Account to compensate LB for mortality and expense risks
assumed in connection with the contract and is equivalent to an annual
rate of 1.1% of the average daily net assets of the Variable Account.
Mortality and expense risk charges of $8,169,646 and $2,834,197 were
deducted in 1996 and 1995, respectively.
A fixed account investment option is available for Contract Owners of
the flexible premium deferred variable annuity. Assets of the fixed
account are combined with the general assets of LB and invested by LB as
allowed by applicable law. Accordingly, the fixed account assets are not
included in the Variable Account financial statements. The asset value
of net transfers to the fixed account was $3,201,295 and $4,963,494 in
1996 and 1995, respectively.
<PAGE>
<TABLE>
<CAPTION>
(4) UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) were as follows:
Subaccounts
-------------------------------------------------------------------------------------
Opportunity World High Money
Growth Growth Growth Yield Income Market
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1994 N/A N/A 3,142,640 2,514,043 2,264,894 5,984,694
Units issued N/A N/A 5,171,607 3,523,167 3,427,902 56,150,961
Units redeemed N/A N/A (571,373) (459,315) (418,011) (46,363,869)
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 1995 N/A N/A 7,742,874 5,577,895 5,274,785 15,771,786
Units issued 9,659,172 7,335,630 8,077,479 6,430,892 5,401,769 52,009,809
Units redeemed (733,941) (526,567) (2,011,176) (1,376,109) (1,610,194) (36,757,376)
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 1996 8,925,231 6,809,063 13,809,177 10,632,678 9,066,360 31,024,219
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(5) PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the LB Series Fund, Inc. were as follows:
Subaccounts
-------------------------------------------------------------------------------------
Opportunity World High Money
Growth Growth Growth Yield Income Market
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1995
Purchases N/A N/A $102,658,812 $ 70,335,357 $57,309,262 $24,669,368
Sales N/A N/A 346,775 36,624 392,104 10,431,893
For the year ended
December 31, 1995
Purchases $108,462,323 $69,846,540 190,486,874 133,738,546 79,688,912 40,423,773
Sales 101,856 60,816 17,012 64,594 777,602 17,362,280
</TABLE>
<PAGE>
COMMENTS ON FINANCIAL STATEMENTS OF LB
The financial statements of LB included in this Statement of Additional
Information should be considered as bearing only upon the ability of LB to
meet its obligations under the Contracts. The value of the interests of
Contract Owners, Annuitants and Beneficiaries under the Contracts are
affected primarily by the investment experience of the Subaccounts of the
Variable Account. The financial statements of LB should not be considered
as bearing on the investment performance of the assets held in the Variable
Account.
FINANCIAL STATEMENTS OF LB
Set forth on the following pages are the audited financial statements of LB.
<PAGE>
3100 Multifoods Tower Telephone 612 332 7000
33 South Sixth Street Facsimile 612 332 6711
Minneapolis, MN 55402-3795
Price Waterhouse LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
March 14, 1997
To The Board of Directors and Members
of Lutheran Brotherhood
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of members' equity and of cash flows
present fairly, in all material respects, the financial position of Lutheran
Brotherhood (the Society) and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Society's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
<PAGE>
LUTHERAN BROTHERHOOD
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
(in millions)
1996 1995
---- ----
ASSETS
------
Investments:
Fixed income securities available for sale,
at fair value $ 6,200 $ 6,302
Equity securities available for sale, at fair value 532 392
Mortgage loans 2,437 2,403
Real estate 45 73
Loans to contractholders 652 627
Short-term investments 219 159
Other invested assets 96 96
--------- ---------
Total investments 10,181 10,052
Cash and cash equivalents 500 664
Deferred policy acquisition costs 915 776
Investment income due and accrued 117 114
Other assets 101 99
Separate account assets 4,011 2,794
--------- ---------
Total assets $ 15,825 $ 14,499
========= =========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Liabilities:
Contract reserves $ 9,268 $ 9,032
Benefits in the process of payment 37 33
Dividends payable 84 80
Amounts due to brokers 376 623
Other liabilities 209 170
Separate account liabilities 4,011 2,794
--------- ---------
Total liabilities 13,985 12,732
Members' equity:
Net unrealized gains 120 224
Retained earnings 1,720 1,543
--------- ---------
Total members' equity 1,840 1,767
--------- ---------
Total liabilities and members' equity $ 15,825 $ 14,499
========= =========
The accompanying notes are an
integral part of these financial statements.
<PAGE>
LUTHERAN BROTHERHOOD
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in millions)
1996 1995 1994
---- ---- ----
Revenues:
Premiums $ 457 $ 442 $ 426
Net investment income 719 706 648
Net realized investment gains (losses) 66 63 (1)
Contract charges 126 107 93
Other income 73 55 44
------- ------- -------
Total revenues 1,441 1,373 1,210
======= ======= =======
Benefits and other deductions:
Net additions to contract reserves 280 269 269
Contractholder benefits 563 544 500
Dividends 164 155 145
Commissions 96 86 89
Operating expenses 154 136 143
Increase in deferred policy acquisition costs (63) (50) (98)
Fraternal activities 59 50 49
------- ------- -------
Total benefits and other deductions 1,253 1,190 1,097
Income from operations before income taxes 188 183 113
Provision for income taxes 11 11 3
------- ------- -------
Net income $ 177 $ 172 $ 110
======= ======= =======
The accompanying notes are an
integral part of these financial statements.
<PAGE>
LUTHERAN BROTHERHOOD
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in millions)
Unrealized Gains (Losses) Total
-------------------------
Acquisition Retained Members'
Investments Costs Earnings Equity
----------- ----- -------- ------
Statutory unassigned surplus
December 31, 1993 $ 480
Cumulative effect of change
in accounting principles 962
Balance at January 1, 1994 $ 295 $ (114) $1,261 1,442
1994 transactions:
Net income - - 110 110
Unrealized gains (losses) (521) 192 - (329)
------ ------- ------ ------
Balance at December 31, 1994 (226) 78 1,371 1,223
1995 transactions:
Net income - - 172 172
Unrealized gains (losses) 572 (200) - 372
------ ------- ------ ------
Balance at December 31, 1995 346 (122) 1,543 1,767
1996 transactions:
Net income - - 177 177
Unrealized gains (losses) (179) 75 - (104)
------ ------- ------ ------
Balance at December 31, 1996 $ 167 $ (47) $1,720 $1,840
====== ======= ====== ======
The accompanying notes are an
integral part of these financial statements.
<PAGE>
LUTHERAN BROTHERHOOD
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in millions)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net Income $ 177 $ 172 $ 110
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization (4) 3 (6)
Deferred policy acquisition costs (63) (50) (98)
Realized investment (gains) and losses, net (66) (63) 1
Other items, net - - 2
Change in operating assets and liabilities:
Loans to contractholders (24) (31) (32)
Other assets (10) (32) 3
Contract reserves 235 626 655
Other liabilities 49 34 (30)
---- ---- ----
Total adjustments 117 487 495
---- ---- ----
Net cash provided by operating activities 294 659 605
---- ---- ----
Cash flows from investing activities:
Proceeds from investments sold, matured
or repaid:
Fixed income securities available for
sale 8,588 4,703 2,388
Equity securities available for sale 430 351 488
Mortgage loans 265 170 134
Short-term investments 678 592 149
Other invested assets 56 13 16
Costs of investments acquired
Fixed income securities available for
sale (8,917) (4,893) (2,239)
Equity securities available for sale (509) (464) (409)
Mortgage loans (295) (426) (460)
Short-term investments (729) (675) (186)
Other invested assets (25) (32) (15)
---- ---- ----
Net cash (used in) investing activities (458) (661) (134)
---- ---- ----
Net (decrease) increase in cash and
cash equivalents (164) (2) 471
---- ---- ----
Cash and cash equivalents, beginning of year 664 666 195
---- ---- ----
Cash and cash equivalents, end of year $ 500 $ 664 $ 666
======= ======= =======
The accompanying notes are an
integral part of these financial statements.
<PAGE>
LUTHERAN BROTHERHOOD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions unless otherwise stated)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
Nature of Operations and Principles of Consolidation
- ----------------------------------------------------
The accompanying consolidated financial statements include the accounts of
Lutheran Brotherhood (the Society), a fraternal benefit organization
offering life insurance, and related financial service products as well as
fraternal benefits for Lutherans throughout the United States. Also
included in the accounts of the Society are its wholly owned subsidiary,
Lutheran Brotherhood Financial Corporation (LBFC), which is the parent
company of Lutheran Brotherhood Variable Insurance Products Company (LBVIP),
a stock life insurance company; an investment adviser; a broker-dealer; a
real estate development company and a property and casualty agency. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Basis of Presentation - New Accounting Pronouncements
- -----------------------------------------------------
In April 1993, the Financial Accounting Standards Board issued
interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," which
establishes a new definition of generally accepted accounting principles for
mutual and fraternal life insurers. Under the interpretation, financial
statements for periods beginning after December 15, 1995, which are prepared
on the basis of statutory accounting, will no longer be characterized as in
conformity with generally accepted accounting principles.
Accordingly, the Society has adopted the accounting changes required in
order to continue to present its financial statements in conformity with
generally accepted accounting principles. The effect of the changes is
reported retroactively through restatement of all previously issued
financial statements beginning with the 1994 amounts. The effect on the
December 31, 1993 financial position is included in Members' Equity at
January 1, 1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with an original maturity of 90 days or less.
Investments
- -----------
See disclosures regarding the determination of fair value of financial
instruments at Note 8.
Carrying value of investments is determined as follows:
Fixed income securities Fair value
Equity securities Fair value
Mortgage loans on real estate Amortized cost less impairment allowance
Investment real estate Cost less accumulated depreciation and
impairment allowance
Real estate joint ventures Equity accounting method
Real estate acquired through
foreclosure Lower of cost or fair value less
estimated cost to sell
Loans to contractholders Amortized cost
Short-term investments Amortized cost
Other invested assets Equity accounting method
Fixed income securities which may be sold prior to maturity and equity
securities (common stock and nonredeemable preferred stock) are classified
as available for sale.
Realized investment gains and losses on sales of securities are determined
on a first in, first out method for fixed income securities and the average
cost method for equity securities and are reported in the Consolidated
Statement of Income. Unrealized investment gains and losses on fixed income
and equity securities classified as available for sale, net of the impact of
unrealized investment gains and losses on deferred acquisitions costs, are
excluded from net income and reported in a separate component of members'
equity.
Mortgage loans are considered impaired when it is probable that the Society
will be unable to collect all amounts according to the contractual terms of
the loan agreement. Real estate is considered impaired when the carrying
value exceeds the fair value. In cases where impairment is present,
valuation allowances are utilized and netted against the asset categories to
which they apply and changes in the valuation allowances are included in
realized investment gains or losses.
Deferred Acquisition Costs
- --------------------------
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent
that such costs are deemed recoverable from future profits. Such costs
include commissions, certain costs of contract issuance and underwriting,
and certain variable agency expenses.
For participating-type long duration contracts, deferred acquisition costs
are amortized over the expected average life of the contracts in proportion
to estimated gross margins. The effects of revisions to experience on
previous amortization of deferred acquisition costs are reflected in
earnings and change in unrealized investment gains (losses) in the period
estimated gross profits are revised.
For universal life-type and investment-type contracts, deferred acquisition
costs are amortized over the average expected life of the contracts in
proportion to estimated gross profits from mortality, investment, and
expense margins. The effects of revisions to experience on previous
amortization of deferred acquisition costs are reflected in earnings and
change in unrealized investment gains (losses) in the period estimated gross
profits are revised.
For health insurance and certain term life insurance contracts, deferred
acquisition costs are amortized over the average expected premium paying
period, in proportion to expected premium revenues at the time of issue.
Separate Accounts
- -----------------
Separate account assets include segregated funds invested by the Society for
the benefit of variable life insurance and variable annuity contract owners.
The assets (principally investments) and liabilities (principally to
contractholders) of each account are clearly identifiable and
distinguishable from other assets and liabilities of the Society. Assets
are valued at market. The investment income, gains and losses of these
accounts generally accrue to the contractholders, and, therefore, are not
included in the Society's consolidated net income.
Derivative Financial Instruments
- --------------------------------
The Society's current utilization of derivative financial instruments is not
significant. Most of the Society's derivative transactions are used to
reduce or modify interest rate risk and to replicate assets in certain
markets. These strategies use option contracts, interest rate swaps and
structured securities. The society does not use derivative instruments for
speculative purposes. Changes in the market value of these contracts are
deferred and realized upon disposal of the hedged assets. The effect of
derivative transactions is not significant to the Society's results from
operations or financial position.
Other Assets
- ------------
Other assets include property and equipment reported at depreciated cost.
The Society provides for depreciation of property and equipment using the
straight-line method over the useful lives of the assets which are three to
ten years for equipment and forty years for property.
Future Contract Benefits
- ------------------------
Liabilities for future contract benefits on participating-type long duration
contracts are primarily based on the net level premium reserve for death
benefits. Liabilities are calculated using dividend fund interest rates and
mortality rates guaranteed in calculating cash surrender values.
Liabilities for future contract and contract benefits on universal life-type
and investment-type contracts are based on the contract account balance.
Liabilities for future contract benefits on health insurance and certain
term life insurance contracts are calculated using the net level premium
method and assumptions as to investment yields, mortality, morbidity and
withdrawals. The assumptions are based on projections of past experience
and include provisions for possible unfavorable deviation. These
assumptions are made at the time the contract is issued.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future experience
could differ from these estimates.
Premium Revenue and Benefits to Contractholders
- -----------------------------------------------
Recognition of Certain Participating-type Contracts Revenue and Benefits to
Contractholders
- ----------------------------------------------------------------------------
Participating contracts are long-duration participating contracts with
expected dividends to contractholders based on actual experience for which
contractholder dividends are paid in accordance with the contribution
principle. Premiums are recognized as revenues when due. Death and
surrender benefits incurred are reported as expenses. Dividends to
contractholders based on estimates of amounts to be paid for the period are
reported separately as expenses.
Recognition of Universal Life-Type Contracts Revenue and Benefits to
Contractholders
- ----------------------------------------------------------------------------
Universal life-type contracts are insurance contracts with terms that are
not fixed and guaranteed. The terms that may be changed could include one
or more of the amounts assessed the contractholder, premiums paid by the
contractholder or interest accrued to contractholder balances. Amounts
received as payments for such contracts are not reported as premium
revenues.
Revenues for universal-type contracts consist of investment income, charges
assessed against contract account values for deferred contract loading, the
cost of insurance and contract administration. Contract benefits and claims
that are charged to expense include interest credited to contracts and
benefit claims incurred in the period in excess of related contract account
balances.
Recognition of Investment Contract Revenue and Benefits to Contractholders
- --------------------------------------------------------------------------
Contracts that do not subject the Society to risks arising from
contractholder mortality or morbidity are referred to as investment
contracts. Certain deferred annuities are considered investment contracts.
Amounts received as payments for such contracts are not reported as premium
revenues.
Revenues for investment products consist of investment income and contract
administration charges. Contract benefits that are charged to expense
include benefit claims incurred in the period in excess of related contract
balances, and interest credited to contract balances.
Recognition of Term Life, Health and Annuity Premium Revenue and Benefits to
Contractholders
- ----------------------------------------------------------------------------
Products with fixed and guaranteed premiums and benefits consist principally
of health insurance contracts, certain term life contracts and annuities
with life contingencies (immediate annuities). Premiums are recognized as
revenue when due. Benefits and expenses are associated with earned premiums
so as to result in recognition of profits over the life of the contracts.
This association is accomplished by means of the provision for liabilities
for future contract benefits and the amortization of deferred contract
acquisition costs.
Dividends
- ---------
The dividend scale, approved annually by the Board of Directors, seeks to
achieve equity among contractholders. Dividends charged to operations
represent an estimation of those incurred during the current year.
Income Taxes
- ------------
Lutheran Brotherhood qualifies as a tax-exempt organization under the
Internal Revenue Code. Accordingly, no provision for income taxes has been
made. Lutheran Brotherhood's subsidiary, Lutheran Brotherhood Financial
Corporation (LBFC) is a taxable entity. LBFC and its subsidiaries file a
consolidated federal income tax return. Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or
recoverable as a result of taxable operations for the current year.
Deferred income tax assets and liabilities are recognized based on the
temporary differences between financial statement carrying amounts and
income tax bases of assets and liabilities using enacted income tax rates
and laws.
The provision for income taxes reflected on the Consolidated Statement of
Income consisted of federal and state income tax expense of $11. At
December 31, 1996, LBFC had recorded a current federal income tax liability
of $4 and a deferred federal income tax liability of $18. The deferred tax
liability is mainly due to the net effect of the temporary differences of
reserves held for future benefits and deferred acquisitions costs as
computed for financial statement and tax return purposes.
<PAGE>
NOTE 3 - INVESTMENTS
- --------------------
Fixed Income Securities
- -----------------------
Investments in fixed income securities are primarily intended to back long-
term liabilities; therefore, care should be exercised in drawing any
conclusions from market value information.
Investments in fixed income securities at December 31, 1996 and 1995 follow:
Available for Sale (Carried at Fair Value)
December 31, 1996
------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Fixed income securities:
U.S. government $ 635 $ 6 $ 4 $ 637
Mortgage-backed securities 2,225 26 16 2,235
Non-investment grade bonds 376 14 3 387
All other corporate bonds 2,860 105 24 2,941
------ ---- --- ------
Total available for sale $6,096 $151 $47 $6,200
====== ==== === ======
Available for Sale (Carried at Fair Value)
December 31, 1995
------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Fixed income securities:
U.S. government $ 976 $ 33 $ - $1,009
Mortgage-backed securities 2,083 77 3 2,157
Non-investment grade bonds 244 11 2 253
All other corporate bonds 2,689 202 8 2,883
------ ---- --- ------
Total available for sale $5,992 $323 $13 $6,302
====== ==== === ======
<PAGE>
Equity Securities
- -----------------
Investments in equity securities and preferred stock at December 31, 1996
and 1995 are as follows:
1996 1995
---- ----
Cost $469 $356
Gross unrealized gains 75 49
Gross unrealized losses 12 13
Carrying value $532 $392
==== ====
Contractual Maturity of Fixed Income Securities
- -----------------------------------------------
The amortized cost and fair value of fixed income securities available for
sale as of December 31, 1996 are shown below by contractual maturity.
Actual maturities may differ from contractual maturities because securities
may be restructured, called or prepaid.
Amortized Fair
Due to Maturity Cost Value
- --------------- ---- -----
One year or less $ 77 $ 78
After one year through five years 873 895
After five years through ten years 1,498 1,533
After ten years 1,423 1,459
Mortgage-backed securities 2,225 2,235
------ ------
Total available for sale $6,096 $6,200
====== ======
<PAGE>
Mortgage Loans and Real Estate: The Society's mortgage loans and real
- -------------------------------
estate investments are diversified by property type and location and, for
mortgage loans, borrower and loan size.
At December 31, the carrying values of mortgage loans and real estate
investments were as follows:
1996 1995
---- ----
Mortgage loans:
Residential and commercial $2,132 $2,131
Loans to Lutheran Churches 305 272
------ ------
Total mortgage loans $2,437 $2,403
====== ======
Real estate:
To be disposed of $ 12 $ 32
To be held and used 33 41
------ ------
Total real estate $ 45 $ 73
====== ======
Securities Loaned
- -----------------
To generate additional income, the Society participates in a securities
lending program administered by the Society's custodian bank. Securities
are periodically loaned to brokers, banks and other institutional borrowers
of securities, for which collateral in the form of cash or U.S. Government
securities is received by the custodian in an amount at least equal to 102%
of the market value of the securities loaned. Collateral received in the
form of cash is invested in short-term investments by the custodian from
which earnings are shared between the borrower, custodian and the Society at
negotiated rates. The Society may experience delays in recovery of the
collateral should the borrower of securities fail financially. As of
December 31, 1996, the market value of securities loaned and the cash
collateral received were $402 and $417, respectively.
NOTE 4 - INVESTMENT INCOME AND REALIZED GAINS AND LOSSES
- --------------------------------------------------------
Investment income summarized by type of investment was as follows:
1996 1995 1994
---- ---- ----
Fixed income securities $393 $398 $382
Equity securities 10 9 8
Mortgage loans 214 202 180
Real estate 15 16 16
Contract loans 42 40 38
Other invested assets 15 15 22
Short-term investments 59 56 24
---- ---- ----
Gross investment income 748 736 670
Investment expenses 29 30 22
---- ---- ----
Net investment income $719 $706 $648
==== ==== ====
<PAGE>
Gross realized investment gains and losses on sales of all types of
investments are as follows:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Fixed income securities:
Realized gains $84 $52 $21
Realized losses 65 23 39
Equity securities:
Realized gains 62 45 33
Realized losses 27 16 20
Other investments:
Realized gains 22 12 7
Realized losses 10 7 3
--- --- ---
Total net realized investment gains (losses) $66 $63 $(1)
=== === ===
NOTE 5 - EMPLOYEE BENEFIT PLANS
- -------------------------------
Pension Plans
- -------------
Defined Benefit
- ---------------
Lutheran Brotherhood has noncontributory defined benefit plans which cover
substantially all employees. The Society's policy is to fund all accrued
defined benefit pension costs using the aggregate level value method. In
comparison to other acceptable methods, the annual contributions under the
aggregate level method are generally higher in the earlier years and
decrease over time.
Components of net pension cost for the year ended December 31 were as
follows (in thousands):
1996 1995 1994
Service cost - benefits earned during the year $3,322 $3,181 $2,692
Interest cost on projected benefit obligations 7,084 6,745 5,981
Actual return on assets (6,769) (6,212) (5,828)
Net amortization and deferral 127 127 127
------ ------ ------
Net pension cost $3,764 $3,841 $2,972
====== ====== ======
<PAGE>
The following rates were used in computing the pension cost for each of the
three years in the period ended December 31:
Discount rates used to determine expense 8.00%
Assumed rates of compensation increases 6.00%
Expected long-term rates of return 8.00%
The following table summarizes the status as of December 31 of the pension
plan and the amounts for the actuarial present value of benefit obligations
shown in the accompanying balance sheet at December 31 (in thousands):
1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $88,307 $82,832
Accumulated benefit obligation 90,340 84,647
Projected benefit obligation 97,206 92,619
Less plan assets at fair value (92,427) (84,625)
------- -------
Projected benefit obligation in excess of plan assets 4,779 7,994
Unrecognized net gain (loss) 605 (2,214)
Unrecognized prior service cost
Unrecognized transition obligation (1,539) (1,667)
------ ------
Accrued pension cost included in other liabilities $3,845 $4,113
====== ======
Plan assets are invested primarily in corporate bonds and mortgage loans.
Plan contributions are accumulated in a deposit administration fund, which
is a part of the general investment fund of the Society.
The following rates were used in computation of the funded status for the
plan:
1996 1995
---- ----
Discount rates used for obligations 8.00% 8.00%
Assumed rates of compensation increases 6.00% 6.00%
Defined Contribution
- --------------------
The Society has noncontributory defined contribution retirement plans which
cover substantially all employees and field representatives and a
noncontributory non-qualified deferred compensation plan which covers
substantially all of its general agents. As of January 1, 1996,
approximately $114 of the defined contribution retirement plans' assets were
held by the Society and the remaining $79 were held in a separate trust.
The accrued retirement liability at December 31, 1996, of $121 is included
in contract reserves. Expenses related to the retirement plan for the years
ended December 31, 1996, 1995 and 1994 were $10, $9 and $10, respectively.
Accumulated vested deferred compensation benefits at December 31, 1996 total
$48 and are included in other liabilities.
Postretirement Benefits Other than Pensions
- -------------------------------------------
The Society has no obligation for post-retirement medical benefits for
retirees. The Society does provide a minor subsidy of certain medical
benefits for eligible early retirees until age 65.
The Society's post retirement medical benefit plan is currently not funded.
The accumulated postretirement benefit obligation (APBO) and the accrued
postretirement benefit liability were $5 and $7, respectively, at December
31, 1996 and $5 and $6, respectively, at December 31, 1995. The assumed
discount rate used in determining the APBO was 8% at January 1, 1997 and
1996. Net periodic postretirement benefit costs were $1 and $1 for the
years ended December 31, 1996 and 1995, respectively.
The assumed health care cost trend rate used in measuring the APBO as of
January 1, 1997 was 12% decreasing gradually to 6% in the year 2007 and
thereafter. The assumed health care cost trend rate used in measuring the
APBO as of January 1, 1996 was 12%, decreasing gradually to 6% in the year
2007 and thereafter. A 1% increase in the assumed health care cost trend
rate for each year would increase the APBO as of December 31, 1996 by
approximately $1.
The valuation of retirement and post-retirement medical benefits based on
the actuarial present value of future plan benefits involves estimation of
future mortality and morbidity. Actual future experience could differ from
those estimates.
NOTE 6 - REINSURANCE
- --------------------
In the normal course of business, the Society seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by
ceding business to other insurance enterprises or reinsurers under
reinsurance contracts. As of December 31, 1996, total life insurance
inforce approximated $44 billion, of which approximately $837 had been ceded
to various reinsurers. The Society retains a maximum of $2 of coverage per
individual life. Premiums ceded to other companies of $5 are reported as a
reduction in premium income and benefits were reduced by $2 for reinsurance
recoverable for the year ended December 31, 1996.
Reinsurance contracts do not relieve the Society from its obligations to
contractholders. Failure of reinsurers to honor their obligations could
result in losses to the Society; consequently, allowances are established
for amounts deemed uncollectible. The amount of the allowance for
uncollectible reinsurance receivables was immaterial at December 31, 1996.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
IRS Audit
- ---------
The consolidated federal income tax returns of LBFC and subsidiaries for the
years 1993 through 1995 are under examination by the Internal Revenue
Service. Discussions are being held with the Service regarding several
proposed adjustments relating to the examination of returns for the years
1990 through 1992. Management is unable to estimate the impact of the
resolution of the examinations; however, the impact is not anticipated to
have a material effect on members' equity or net income.
Financial Commitments
- ---------------------
The Society has committed to extend credit for mortgage loans of $66 and
$140 at December 31, 1996 and 1995, respectively. Commitments to other
invested assets were $14 and $2 at December 31, 1996 and 1995, respectively.
NOTE 8 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument.
Fixed Income Securities: Fair values for fixed income securities are based
- -----------------------
on quoted market prices, where available. For fixed maturities not actively
traded in the market, fair values are estimated using market quotes from
brokers or internally developed pricing methods.
Equity Securities: Fair value equals carrying value as these securities are
- -----------------
carried at quoted market value.
Mortgage Loans: The fair values for mortgage loans are estimated using
- --------------
discounted cash flow analyses, using interest rates currently being offered
in the marketplace for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes of
the calculations.
Loans on Insurance Contracts: The carrying amount reported in the balance
- ----------------------------
sheet approximates fair value since loans on insurance contracts reduce the
amount payable at death or at surrender of the contract.
Cash and Cash Equivalents, Short-Term Investments: The carrying amounts for
- -------------------------------------------------
these assets approximate the assets' fair values.
Other Financial Instruments Reported as Assets: The carrying amounts for
- ----------------------------------------------
these financial instruments (primarily premiums and other accounts
receivable and accrued investment income), approximate those assets' fair
values.
Investment Contract Liabilities: The fair value for deferred annuities was
- -------------------------------
estimated to be the amount payable on demand at the reporting date as those
investment contracts have no defined maturity and are similar to a deposit
liability. The amount payable at the reporting date was calculated as the
account balance less applicable surrender charges.
The fair values for supplementary contracts and immediate annuities without
life contingencies were estimated using discounted cash flow analyses using
similar maturities or by using cash surrender value.
The carrying amounts reported for other investment contracts which includes
participating pension contracts and retirement plan deposits approximate
those liabilities' fair value.
Other Deposit Liabilities: The carrying amounts for dividend accumulations
- -------------------------
and premium deposit funds approximate the liabilities' fair value.
Financial Guarantee: The fair values of financial guarantees were estimated
- -------------------
using discounted cash flow analyses based upon the expected future net
amounts to be expended. The estimated net amounts to be expended were
determined based on projected cash flows and a valuation of the underlying
collateral.
Interest Rate Swaps: The fair value for interest rate swaps was estimated
- -------------------
using discounted cash flow analyses. The discount rate was based upon rates
currently being offered for similar interest rate swaps available from
similar counterparties.
Currency Swaps: The fair value for currency swaps was estimated using
- --------------
market quotes from counterparties.
<PAGE>
The carrying amounts and estimated fair values of the Society's financial
instruments are as follows:
1996 1995
------------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial instruments recorded
as assets:
Fixed income securities $6,200 $6,200 $6,302 $6,302
Equity securities 532 532 392 392
Mortgage loans:
Commercial 2,132 2,195 2,131 2,286
Church 305 303 272 281
Contract loans 652 652 627 627
Cash and cash equivalents 500 500 664 664
Short-term investments 219 219 159 159
Other financial instruments
recorded as assets 270 270 296 296
Financial instruments recorded
as liabilities:
Investment contracts:
Deferred annuities 7,048 6,832 6,103 5,895
Supplementary contracts and
immediate annuities 256 256 212 212
Other deposit liabilities:
Dividend accumulations 33 33 33 33
Premium deposit funds 3 3 3 3
Off-balance sheet financial instruments:
Financial guarantees - 79 - 142
Interest rate swaps - 17 - 19
Currency swaps - 20 - 35
<PAGE>
NOTE 9 - STATUTORY FINANCIAL INFORMATION
- ----------------------------------------
Accounting practices used to prepare statutory financial statements for
regulatory filing of fraternal life insurance companies differ from
generally accepted accounting principles. The following reconciles the
Society's statutory net change in surplus and statutory surplus determined
in accordance with accounting practices prescribed or permitted by the
Insurance Department of the State of Minnesota with net income and members'
equity on a generally accepted accounting principles basis.
Year Ended
December 31,
------------
1996 1995
---- ----
Net change in statutory surplus $ 150 $ 129
Change in asset valuation reserves 40 59
------ ------
Net change in statutory surplus and asset
valuation reserves 190 188
Adjustments:
Future contract benefits and contractholders'
account balances (52) (54)
Deferred acquisition costs 63 50
Investment losses (11) (9)
Other, net (13) (3)
------ ------
Net income $ 177 $ 172
====== ======
Year Ended
December 31,
------------
1996 1995
---- ----
Statutory surplus $ 811 $ 661
Asset valuation reserves 218 178
------ ------
Statutory surplus and asset valuation reserves 1,029 839
<PAGE>
Adjustments:
Future contract benefits and contractholders'
account balances (359) (306)
Deferred acquisition costs 915 779
Interest maintenance reserves 109 99
Valuation of investments 114 313
Unearned revenue liability (45) (42)
Dividend liability 84 80
Other, net (7) 5
------ ------
Members' equity $1,840 $1,767
====== ======
NOTE 10 - SUPPLEMENTARY FINANCIAL DATA
- --------------------------------------
Following is a condensed synopsis of statutory financial information of the
Society (excluding affiliated subsidiaries) at December 31, 1996 and 1995.
This information is included to satisfy certain state reporting requirements
for fraternals.
December 31,
1996 1995
---- ----
Invested and other admitted assets $10,670 $10,508
Assets held in separate accounts 1,108 446
------- -------
Total assets 11,778 10,954
------ -------
Contract reserves 8,822 8,620
Liabilities related to separate accounts 1,057 427
Other liabilities and assets reserves 1,088 1,246
------ -------
Total liabilities and asset reserves 10,967 10,293
------ -------
Unassigned surplus 811 661
------ -------
Total liabilities, asset reserves and surplus 11,778 10,954
------ -------
Savings from operations before net realized capital gains 110 104
Net realized capital gains 34 26
------ -------
Net savings from operations 144 130
Total other changes 6 (1)
Net increase in unassigned surplus $ 150 $ 129
======= =======
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A: None.
Part B: Financial Statements of Lutheran Brotherhood. (3)
Financial Statements of LB Variable Annuity Account I. (3)
(b) Exhibits:
1. Resolution of the Board of Directors of Lutheran Brotherhood
("Depositor") authorizing the establishment of LB Variable
Annuity Account I ("Registrant"). (1)
2. Not Applicable.
3.(a) Form of Distribution Agreement between Depositor and
Lutheran Brotherhood Securities Corp ("LBSC"). (1)
(b) Forms of General Agent's Agreement and Selected Registered
Representative Agreement between LBSC and agents with
respect to the sale of Contracts. (1)
4. Form of Contract. (1)
5. Contract Application Form. (1)
6. Articles of Incorporation and Bylaws of Depositor. (1)
7. Not Applicable.
8. Not Applicable.
9. Opinion of counsel as to the legality of the securities being
registered (including written consent). (2)
10. Not Applicable.
11. Not Applicable.
12. Not Applicable.
13. Computations of Performance Data. (1)
14. Consent of Independent Accountant. (3)
15. Powers of Attorney. (1)
16. Consent of Counsel. (3)
________________________________
(1) Included in the Registration Statement on Form N-4, Registration No.
33-67012, filed by the Account pursuant to the Securities Act of 1933,
as amended, on August 4, 1993.
(2) Included in the Registration Statement on Form N-4, Registration No.
33-67012, filed by the Account pursuant to the Securities Act of 1933,
as amended, on January 20, 1994.
(3) Filed herewith.
(4) To be filed by subsequent amendment.
Item 25. Directors and Officers of the Depositor
DIRECTORS POSITIONS AND OFFICES WITH DEPOSITOR
Robert O. Blomquist Chairman of the Board
Lutheran Brotherhood of Directors
625 Fourth Avenue South
Minneapolis, Minnesota
Robert P. Gandrud President, Chief Executive
Lutheran Brotherhood Officer and Director
625 Fourth Avenue South
Minneapolis, Minnesota
Richard W. Duesenberg Director
Retired, formerly Senior Vice President
General Counsel and Secretary
Monsanto Company
One Indian Creek Lane
St. Louis, Missouri
Bobby I. Griffin Director
Executive Vice President
Medtronic, Inc.
7000 Central Avenue Northeast
Minneapolis, Minnesota
William R. Halling Director
The Economic Club of Detroit
333 W. Fort Street, Suite 100
Detroit, Michigan
James M. Hushagen Director
Partner, Eisenhower & Carlson
1200 First Interstate Plaza
Tacoma, Washington
Herbert D. Ihle Director
Retired, formerly President
Diversified Financial Services
10453 Shelter Grove
Eden Prairie, Minnesota
Richard C. Kessler Director
President
The Kessler Enterprise, Inc.
6649 Westwood Boulevard, Suite 130
Orlando, Florida
Judith K. Larsen Director
Vice President
Dataquest
3790 La Selva
Palo Alto, California
Dr. Luther S. Luedtke Director
California Lutheran University
60 West Olsen Road
Thousand Oaks, California
John P. McDaniel Director
President
Medlantic Healthcare Group
100 Irving Street, N.W.
Washington, D.C.
Mary Ellen H. Schmider Director
Retired, formerly Dean of Graduate Studies
Coordinator of Grants
Moorhead State University
7701 Island Lane, 180th Street
Chippewa Falls, Wisconsin
Russel M. Smith Director
Retired
906 Dunes
Rockport, Texas
OFFICERS POSITIONS AND OFFICES WITH DEPOSITOR
Robert P. Gandrud President and Chief Executive
Officer
Rolf F. Bjelland Executive Vice President -
Investments
David J. Larson Senior Vice President, Secretary
and General Counsel
Dr. Edward A. Lindell Senior Vice President - External
Affairs
Michael E. Loken Senior Vice President - Management
Information Services
Bruce J. Nicholson Executive Vice President and Chief
Chief Financial Officer
Paul R. Ramseth Executive Vice President - Strategic
Development
William H. Reichwald Executive Vice President - Marketing
Jennifer H. Smith Senior Vice President - Human
Resources
Jerald E. Sourdiff Senior Vice President - Controller's
Mary M. Abbey Vice President - Client Systems
Galen R. Becklin Vice President - Tech Support & Data
Processing
Larry A. Borlaug Vice President - Prototype
Development
Colleen Both Vice President - Chief Compliance
Officer
J. Keith Both Senior Vice President - Marketing
Randall L. Boushek Vice President - Portfolio Manager
Michael R. Braun Vice President - Management
Information Services
David J. Christianson Vice President - Insurance Services
Craig R. Darrington Vice President - Marketing
Pamela H. Desnick Vice President - Communications
Mitchell F. Felchle Vice President - Institutional
Relations Group
Charles E. Heeren Vice President - Bond Investments
Wayne A. Hellbusch Vice President - Agency Services
Otis F. Hilbert Vice President - Law
Gary J. Kallsen Vice President - Mortgages and Real
Estate
Fred O. Konrath Vice President - Marketing
Douglas B. Miller Regional Vice President - Marketing
C. Theodore Molen Regional Vice President - Marketing
Susan Oberman Smith Vice President - Product Management
James R. Olson Vice President - Investor
Services/Administration
Kay J. Owen Vice President - Corporate
Administration
Dennis K. Peterson Vice President
Bruce M. Piltingsrud Vice President - Research/Marketing
Strategies
Richard B. Ruckdashel Vice President - Product Marketing
Rolf H. Running Vice President - New Ventures Group
Lynette J.C. Stertz Vice President - Controller's
John O. Swanson, M.D. Vice President and Medical Director
Louise K. Thoresen Vice President - Fraternal
James M. Walline Vice President - Equities/Mutual
Funds Investment
Daniel G. Walseth Vice President - Law
Anita J.T. Young Vice President and Treasurer
The principal business address of each of the foregoing officers is 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant
Registrant is a separate account of Depositor, established by the Board of
Directors of Depositor in 1993 pursuant to the laws of the State of
Minnesota. Depositor is a fraternal insurance society organized under the
laws of the state of Minnesota and is owned by and operated for its members.
It has no stockholders nor is it subject to the control of any affiliated
persons. Depositor controls the following wholly owned direct and indirect
subsidiaries: (a) Lutheran Brotherhood Financial Corporation ("LBFC"), a
Minnesota corporation which is a holding company that has no independent
operations; (b) Lutheran Brotherhood Variable Insurance Products Company
("LBVIP"), a Minnesota corporation organized as a stock life insurance
company; (c) LBSC, a Pennsylvania corporation which is a registered broker-
dealer; (d) Lutheran Brotherhood Research Corp., a Minnesota corporation
which is a licensed investment adviser; and (e) Lutheran Brotherhood Real
Estate Products Company, a Minnesota corporation.
Item 27. Number of Contract Owners
There were 50,396 Contract Owners as of April 24, 1997.
Item 28. Indemnification
Reference is hereby made to Section 5 of Depositor's Bylaws, filed as an
Exhibit to this Registration Statement, and to Section 5 of LBSC's By-Laws,
which mandate indemnification by Depositor and LBSC of directors, officers
and certain others under certain conditions. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of Depositor or LBSC, pursuant
to the foregoing provisions or otherwise, Depositor and LBSC have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Depositor or LBSC of
expenses incurred or paid by a director or officer or controlling person of
Depositor or LBSC in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of
Depositor or LBSC in connection with the securities being registered,
Depositor or LBSC will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether or not such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
An insurance company blanket bond is maintained providing $10,000,000
coverage for officers and employees of Lutheran Brotherhood, Depositor and
LBSC, and $750,000 coverage for their general agents and Depositor's
Representatives, both subject to a $100,000 deductible.
Item 29. Principal Underwriter
(a) LBSC, the principal underwriter of the Contracts, is also named as
distributor of the stock of The Lutheran Brotherhood Family of Funds, a
diversified open-end investment company organized as a Delaware business
trust, consisting of the following series: Lutheran Brotherhood Money Market
Fund, Lutheran Brotherhood Opportunity Growth Fund, Lutheran Brotherhood
Fund, Lutheran Brotherhood World Growth Fund, Lutheran Brotherhood Income
Fund, Lutheran Brotherhood High Yield Fund, and Lutheran Brotherhood
Municipal Bond Fund. LBSC also acts or will act as the principal
underwriter of the following variable contracts: flexible premium variable
life insurance contracts issued by Depositor through LB Variable Insurance
Account I, a separate account of Depositor to be registered as a unit
investment trust under the Investment Company Act of 1940; flexible premium
deferred variable annuity contracts issued by LBVIP through LBVIP Variable
Annuity Account I, a separate account of LBVIP registered as a unit
investment trust under the Investment Company Act of 1940; flexible premium
variable life insurance contracts issued by LBVIP through LBVIP Variable
Insurance Account, a separate account of LBVIP registered as a unit
investment trust under the Investment Company Act of 1940; and of single
premium variable life insurance contracts issued by LBVIP through LBVIP
Variable Insurance Account II, a separate account of LBVIP registered as a
unit investment trust under the Investment Company Act of 1940.
(b) The directors and officers of LBSC are as follows:
Robert P. Gandrud Chairman and Director
Rolf F. Bjelland Director
Bruce J. Nicholson Director
Paul R. Ramseth Director
William H. Reichwald President and Director
Anita J.T. Young Treasurer
Jerald E. Sourdiff Controller
Otis F. Hilbert Vice President and Secretary
Mitchell F. Felchle Vice President
James R. Olson Vice President
Larry A. Borlaug Assistant Vice President
J. Keith Both Assistant Vice President
Craig R. Darrington Assistant Vice President
Wayne A. Hellbusch Assistant Vice President
Douglas B. Miller Assistant Vice President
C. Theodore Molen Assistant Vice President
Wayne H. Peterson Assistant Vice President
Richard B. Ruckdashel Assistant Vice President
Marie A. Sorensen Assistant Vice President
Daniel J. Young Assistant Vice President
James M. Odland Assistant Secretary
The principal business address of each of the foregoing officers is 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of Registrant are located at the office of
Depositor at 625 Fourth Avenue South, Minneapolis, Minnesota 55415.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant will file a post-effective amendment to this Registration
Statement as frequently as is necessary to ensure that the audited financial
statements in this Registration Statement are never more than 16 months old
for so long as payments under the Contracts may be accepted.
Registrant will include either (1) as part of any application to purchase a
Contract offered by the Prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information.
Registrant will deliver any Statement of Additional Information and any
financial statements required to be made available under this form promptly
upon written or oral request.
Lutheran Brotherhood hereby represents that, as to the individual flexible
premium variable annuity contracts that are the subject of this registration
statement, File Number 33-67012, that the fees and charges deducted under
the contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by
Lutheran Brotherhood.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it meets all of the requirements for effectiveness
of this amendment to the Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota
on the 29th day of April, 1997.
LB VARIABLE ANNUITY ACCOUNT I
(Registrant)
By LUTHERAN BROTHERHOOD
(Depositor)
By /s/ Robert P. Gandrud
----------------------------
Robert P. Gandrud, President
Pursuant to the requirements of the Securities Act of 1933, the
Depositor has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis and State of Minnesota on the 29th day of April, 1997.
LUTHERAN BROTHERHOOD
(Depositor)
By /s/ Robert P. Gandrud
---------------------------
Robert P. Gandrud, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed on the 29th day of
April, 1997 by the following directors and officers of Depositor in the
capacities indicated:
/s/ Robert P. Gandrud President and Chief Executive Officer
----------------------- (Chief Executive Officer)
Robert P. Gandrud
/s/ Bruce J. Nicholson Chief Financial Officer (Principal
----------------------- Financial Officer)
Bruce J. Nicholson
/s/ Anita J.T. Young Treasurer (Principal Accounting Officer)
-----------------------
Anita J.T. Young
A Majority of the Board of Directors:
Robert O. Blomquist Richard Kessler
Richard W. Duesenberg Judith K. Larsen
Robert P. Gandrud Luther S. Luedtke
Bobby I. Griffin John P. McDaniel
William R. Halling Mary Ellen H. Schmider
James M. Hushagen Russel M. Smith
Herbert D. Ihle
Otis F. Hilbert, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named directors of Lutheran
Brotherhood pursuant to powers of attorney duly executed by such persons.
/s/ Otis F. Hilbert
--------------------------------
Otis F. Hilbert, Attorney-in-Fact
<PAGE>
LB VARIABLE ANNUITY ACCOUNT I
INDEX TO EXHIBITS
Exhibit Sequential Page
Number Exhibit Number
--------- ------- ---------------
14 Consent of Independent Accountant
16 Consent of Counsel of James M. Odland and
J. Sumner Jones
27 Financial Data Schedule
75
<PAGE>
EXHIBIT 14
3100 Multifoods Tower Telephone 612 332 7000
33 South Sixth Street Facsimile 612 332 6711
Minneapolis, MN 55402-3795
Price Waterhouse LLP [LOGO]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated
February 5, 1997, relating to the financial statements of LB Variable
Annuity Account I, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the heading "Financial Statements and
Experts" in such Prospectus and under the heading "Independent Accountants
and Financial Statements" in such Statement of Additional Information.
We also consent to the use in such Statement of Additional Information of
our report dated March 14, 1997, relating to the financial statements of
Lutheran Brotherhood which appears in such Statement of Additional
Information.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
April 29, 1997
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(612) 340-5727
Fax: (612) 340-7062
[logo] LUTHERAN
BROTHERHOOD EXHIBIT 16
James M. Odland
Assistant Vice President
Law Division
April 29, 1997
Lutheran Brotherhood
625 Fourth Avenue South
Minneapolis, MN 55415
Ladies and Gentlemen:
I consent to the use of my name under the heading "Legal Matters" in the
Prospectuses constituting part of the Registration Statement, on Form N-4
(File No. 33-67012), of LB Variable Annuity Account I.
Very truly yours,
/s/ James M. Odland
James M. Odland
JMO:ah\exh-16
JONES & BLOUCH L.L.P.
SUITE 405 WEST
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007-0805
JORDEN BURT BERENSON & JOHNSON LLP TELEPHONE (202) 223-3500
AFFILIATED COUNSEL TELECOPIER (202) 223-4593
April 26, 1997 EXHIBIT 16
Lutheran Brotherhood
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Re: LB Variable Annuity Account I
Gentlemen:
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 6 to
the registration statement, on Form N-4, File No. 33-67012, to be filed with
the Securities and Exchange Commission.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
exh-16jj
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Variable Annuity Accout I Annual Report to Shareholders dated December 31,
1996 and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,000,957,591
<INVESTMENTS-AT-VALUE> 1,063,796,372
<RECEIVABLES> 5,325,924
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,069,122,296
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,060,819
<TOTAL-LIABILITIES> 1,060,819
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,068,061,477
<DIVIDEND-INCOME> 34,459,999
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8,169,646
<NET-INVESTMENT-INCOME> 26,290,353
<REALIZED-GAINS-CURRENT> 31,138,373
<APPREC-INCREASE-CURRENT> 27,833,886
<NET-CHANGE-FROM-OPS> 85,262,612
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,914,751
<NUMBER-OF-SHARES-REDEEMED> 43,015,363
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 633,662,346
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
