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. ___7___ [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ___8___ [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
[ ] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[X] on May 1, 1998 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:
[ ] filed the Notice required by that Rule on February 25, 1997; or
[X] intends to file the Notice required by that Rule on or about March
15, 1998; 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 * (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 Mid Cap 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, 1998.
[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, 1998, 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 __ 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 A -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT
APPENDIX B -- ILLUSTRATION OF MONTHLY VARIABLE
ANNUITY SETTLEMENT OPTION
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
A.)
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 Mid Cap Growth
Subaccount (which invests in the Mid Cap 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, Mid
Cap 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,
Mid Cap Growth 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,
Mid Cap Growth 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 $____ $____ $____ $____
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 $____ $____ $____ $____
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 $____ $____ $____ $____
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 $____ $____ $____ $____
_________________
(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 and the Accumulated Value is less
than $5,000. The $30 fee is a Contract charge and is deducted proportionately
from the Subaccounts and the Fixed Account that make up the Contract's
Accumulated Value.
(3) 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, 1997,
the Fund was reimbursed approximately $___________ 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 Mid Cap 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 A.) See "THE CONTRACTS--Accumulated Value;
Accumulation Units and Accumulation Unit Value".
On the date LB approves the Contract Owner's application, LB will transfer
from the general account the initial premium and any interest accumulations
accrued during the underwriting period among the Subaccount(s) and/or Fixed
Account according to the Contract Owner's instructions. See "THE CONTRACTS--
Allocation of Premiums." Subsequent premiums will be allocated to the
Subaccounts and the Fixed Account in the same proportion as the initial
premium, at the end of the Valuation Period in which the subsequent premium is
received by LB. See "THE CONTRACTS--Allocation of Premiums".
Surrenders. If a Written Notice from the Contract Owner requesting a surrender
is received on or before the Maturity Date, all or part of the Accumulated
Value of a Contract will be paid to the Contract Owner after deducting any
applicable surrender charge. Partial surrenders must be for at least $500, and
may be requested only if the remaining Accumulated Value is not less than
$1,000. Under certain circumstances the Contract Owner may make surrenders
after the Maturity Date. See "THE CONTRACTS--Surrender (Redemption)".
Transfers. On or before the Maturity Date the Contract Owner may request the
transfer of all or a part of a Contract's Accumulated Value to other
Subaccounts or to the Fixed Account. The total amount transferred each time
must be at least $500 (unless the total value in the Subaccount or the Fixed
Account is less than $500, in which case the entire amount may be
transferred). LB reserves the right to limit the number of transfers in any
Contract Year, provided that at least two such transfers each Contract Year
will always be allowed. With respect to the Fixed Account, transfers out of
the Fixed Account are limited to only one each Contract Year and must be made
on or within 45 days after a Contract Anniversary. After the Maturity Date,
the Contract Owner may, by Written Notice and only once each Contract Year,
change the percentage allocation of variable annuity payments among the
available Subaccounts. See "THE CONTRACTS--Transfers".
Charges and Deductions
The following charges and deductions are made in connection with the
Contracts:
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expense is deducted from premiums at the time premiums are paid. However, if a
Contract is surrendered in whole or in part before it has been in force for
six full Contract Years, a surrender charge is deducted from the amount
surrendered; provided that in each Contract Year, a Contract Owner may
surrender without a surrender charge up to 10% of a Contract's Accumulated
Value existing at the time the first surrender is made in that Contract Year.
The maximum charge is 6% of the Excess Amount and is in effect for the first
Contract Year. Thereafter, the surrender charge decreases by 1% each
subsequent Contract Year. In no event will the total surrender charge on any
one Contract exceed 6 1/2% of total gross premiums paid under the Contract.
The surrender charge will also be deducted at the time annuity payments begin
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 or the
Accumulated Value is 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, Mid Cap Growth
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.
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 24.52 22.06 18.64
Number of Accumulation Units
outstanding at end of period 10,632,678 5,577,895 2,514,043
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, 1997, was ____% and ____%, 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, 1997 for the High Yield Subaccount was ____%. The
current yield for the same 30-day base period for the Income Subaccount was
____%. 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, 1997 and for the period from commencement of operations through
December 31, 1997 for the Subaccounts are as follows:
Commencement
1 Year 3 Year 5 Year of Operations
------- ------ ------ -------------
Growth Subaccount (3/8/88) ____%* ____%* ____%* ____%*
High Yield Subaccount (3/8/88) ____%* ____%* ____%* ____%*
Income Subaccount (3/8/88) ____%* ____%* ____%* ____%*
Money Market Subaccount (2/18/88) ____%* ____%* ____%* ____%*
Opportunity Growth
Subaccount (1/18/96) ____%* ____%* ____%* ____%*
World Growth Subaccount (1/18/96) ____%* ____%* ____%* ____%*
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000 or the Accumulated Value is less than
$5,000. 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 1997, LB had total assets of nearly $_____ 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 Mid Cap 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.
Mid Cap Growth Portfolio. To achieve long term growth of capital by investing
primarily in a professionally managed diversified portfolio of common stocks
of companies with medium market capitalizations.
World Growth Portfolio. To achieve long-term growth of capital by investing
primarily in a professionally managed diversified portfolio of common stocks
of established, non-U.S. companies.
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 $_____ billion
under management as of December 31, 1997 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 or the Accumulated
Value is 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, Mid Cap Growth 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
___________________, Counsel for LB. Certain legal matters relating to the
Federal securities laws have been passed upon by the law firm of
______________________________.
FINANCIAL STATEMENTS AND EXPERTS
Financial statements of LB and the Variable Account are contained in the
Statement of Additional Information.
The financial statements of LB and the Variable Account included in the
Statement of Additional Information have been so included in reliance of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed with
the SEC with respect to the Contracts described herein. This Prospectus and
the Statement of Additional Information do not contain all of the information
set forth in the Registration Statement and exhibits thereto, to which
reference is hereby made for further information concerning the Variable
Account, LB and the Contracts. The information so omitted may be obtained from
the SEC's principal office located at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fee prescribed by the SEC, or examined there
without charge. Statements contained in this Prospectus as to the provisions
of the Contracts and other legal documents are summaries, and reference is
made to the documents as filed with the SEC for a complete statement of the
provisions thereof.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
Introduction
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
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)
APPENDIX A
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.
APPENDIX B
ILLUSTRATION OF MONTHLY VARIABLE ANNUITY SETTLEMENT OPTION
The illustration included in this appendix shows how the monthly variable
annuity settlement option income may change with the investment experience of
the Variable Account. The illustration shows how the monthly income would
vary over time if the investment return on the assets held in each Portfolio
of the Fund were a uniform, gross, after-tax annual rate of 0 percent, 5.06
percent and 12 percent. The incomes would be different from those shown if
the gross annual investment returns average 0 percent, 5.06 percent and 12
percent over a period of years, but fluctuated above and below these averages
for individual Contract years.
The monthly incomes reflect the fact that the net investment return of the
Subaccounts of the Variable Account is lower than the gross, after-tax return
on the assets held in the Fund as a result of the advisory fee paid by the
Fund and charges made against the Subaccounts. The incomes shown take into
account the following fees: Growth (0.40%); High Yield (0.40%); Income
(0.40%); Money Market (0.40%); Opportunity Growth (0.40%); Mid Cap Growth
(0.40%); and World Growth (0.85%); and the daily charge to each Subaccount
for assuming mortality and expense risks which is equivalent to a charge at an
annual current rate of 1.10% of the average assets of the Subaccounts and
which is guaranteed never to exceed an annual rate of 1.25%. After deduction
of these amounts, the illustrated gross investment rates of return 0%, 5.06%
and 12% correspond to net annual rates of -1.56%, 3.50% and 10.44%,
respectively, assuming an average investment advisory fee of 0.46%.
The illustration assumes 100% of the assets are invested in Subaccounts of the
Variable Account. For comparison purposes, a current fixed annuity income,
available through the Fixed Account, is also provided. The first variable
payment is always based on an investment rate of 3.50%. After the first
variable annuity payment, future variable payments will increase if the
annualized net rate of return exceeds the 3.50%, and will decrease if the
annualized net rate of return is less than the 3.50%.
The hypothetical values shown are based upon a male, age 65 selecting a life
income with a 10-year guaranteed period and having $100,000 of non-qualified
funds at settlement. Upon request, LB(VIP) will provide a comparable
illustration based upon the proposed Annuitant's age, gender (except for
Contracts issued in the state of Montana), settlement option, type of funds
and cash available at settlement. Contracts purchased in Montana cannot vary
on the basis of the Annuitant's gender.
<PAGE>
Variable Annuity Payout Illustration
Prepared for: Prospect Commencement Date: 4/30/1998
Prepared by: Lutheran Brotherhood Cash Available at Settlement: $100,000
(Variable Insurance
Products Company)
Sex: Male Date of Birth: 4/30/1933 Funds: Nonqualified
State: MN Initial Monthly Income: $608
Income Option: Life Income with 10 Year Guaranteed Period
The monthly variable annuity income amount shown below assumes a constant
annual investment return. The assumed investment rate of 3.50% is used to
calculate the first monthly payment. Thereafter, monthly payments will
increase or decrease based upon the relationship between 3.50% and the
performance of the Subaccounts selected. The investment returns shown are
hypothetical and not a representation of future results.
Annual Rate of Return
--------------------------------------
0% Gross 5.06% Gross 12.00% Gross
Date Age (-1.56% Net) (3.50% Net) (10.44% Net)
- ----------------------- --- ------------ ------------ ------------
April 30, 1998 65 $608 $608 $ 608
April 30, 1999 66 578 608 649
April 30, 2000 67 550 608 692
April 30, 2001 68 523 608 739
April 30, 2002 69 498 608 788
April 30, 2007 74 387 608 1,090
April 30, 2012 79 301 608 1,508
April 30, 2017 84 235 608 2,087
April 30, 2022 89 183 608 2,886
April 30, 2027 94 142 608 3,993
April 30, 2032 99 111 608 5,524
April 30, 2033 100 105 608 5,894
If 100% of your cash available at settlement was applied to provide a fixed
annuity on the commencement date of this illustration, the fixed annuity
income amount would be $687.
Net rates of return reflect expenses totaling 1.56%, which consist of the
current 1.10% Variable Account mortality and expense risk charge and 0.46% for
the Fund advisory fee (this is an average with the actual varying from 0.40%
to 0.85%).
This is an illustration only and not a contract.
<PAGE>
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, 1998 (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, 1998.
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 1997, LB had total assets of nearly $______ 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 Mid Cap 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 ___________________, 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, 1997:
Value of hypothetical pre-existing account with exactly
one Accumulation Unit at the beginning of the period $______
Value of same account (excluding capital changes) at end
of the seven-day period $______
Net change in account value $______
Base Period Return:
Net change in account value divided by beginning account value $______
Annualized Current Yield [______________ X (365/7)] ______%
Effective Yield (_____________ + 1)365/7-1 ______%
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, 1997:
Dividends and interest earned by the High Yield Subaccount
during the base period $_________
Expenses accrued for the base period $_________
------------
$__________(A)
============
Product of the maximum public offering price on
the last day of the base period and the average
daily number of Units outstanding during
the base period that were entitled to receive
dividends ($__________ x ____________ Units) = $__________(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) = __________(C)
Adding one and raising total to the
6th power (C + 1)6= __________(D)
Annualized current yield [2(D - 1) X 100] = ___________%
The following example illustrates the annualized current yield calculation for
the Income Subaccount for the 30-day base period ended December 31, 1997:
Dividends and interest earned by the Income Subaccount
during the base period $_________
Expenses accrued for the base period $_________
------------
$_________(A)
============
Product of the maximum public offering price on
the last day of the base period and the average
daily number of Units outstanding during
the base period that were entitled to receive
dividends ($_______ x _______ Units) = $_________(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) = _________(C)
Adding one and raising total to the 6th power (C + 1)6 = _________(D)
Annualized current yield [2(D-1) X 100] = _________%
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, 1997:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on
December 31, 1997 (after deferred sales charge) $_____
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%) _____%*
Average annual total return from inception through
December 31, 1997 is the sum of the total return
calculated above plus one; such sum is raised to
the power of 1/n where n is expressed as nine years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) _____%*
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,
1997:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on
December 31, 1997 (after deferred sales charge) $_____
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%) _____%*
Average annual total return from inception through
December 31, 1997 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as nine years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) _____%*
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, 1997:
Hypothetical $1,000 initial investment on March 8, 1988 $1,000
Ending redeemable value of the investment on December 31, 1997
(after deferred sales charge) $_____
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%) _____%*
Average annual total return from inception through
December 31, 1997 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as nine years
and 10 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) _____%*
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,
1997:
Hypothetical $1,000 initial investment on February 18, 1988 $1,000
Ending redeemable value of the investment on December 31, 1997
(after deferred sales charge) $_____
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%) _____%*
Average annual total return from inception through
December 31, 1997 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as nine years and
11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) _____%*
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, 1997:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1997 (after deferred sales charge) $_____
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%) _____%*
The following example illustrates the average annual total return for the
World Growth Subaccount from the date of inception through December 31, 1997:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on December 31, 1997
(after deferred sales charge) $______
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%) _____%*
- -----------------------------
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000 or the Accumulated Value is less than
$5,000. 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.
VARIABLE ACCOUNT FINANCIALS TO BE INCLUDED IN SUBSEQUENT AMENDMENT.
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.
LB FINANCIALS TO BE INCLUDED IN SUBSEQUENT AMENDMENT.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A: None.
Part B: Financial Statements of Lutheran Brotherhood. (4)
Financial Statements of LB Variable Annuity Account I. (4)
(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. (4)
15. Powers of Attorney. (1)
16. Consent of Counsel. (4)
________________________________
(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 180th Street
Chippewa Falls, Wisconsin
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 Operating Officer
Paul R. Ramseth Executive Vice President - Strategic
Development
William H. Reichwald Executive Vice President - Marketing
David W. Angstadt Executive Vice President - Marketing
Jennifer H. Martin Senior Vice President - Human
Resources
Jerald E. Sourdiff Senior Vice President and Chief
Financial Officer
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
David K. Stewart Vice President and Treasurer
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
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 65,099 Contract Owners as of February 20, 1998.
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 Mid
Cap 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
J. Keith Both President
William H. Reichwald Director
David K. Stewart 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
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(a) 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 25th day
of February, 1998.
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 25th day of February, 1998.
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 25th day of
February, 1998 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/ Jerald E. Sourdiff Chief Financial Officer (Principal
----------------------- Financial Officer)
Jerald E. Sourdiff
/s/ David K. Stewart Treasurer (Principal Accounting Officer)
-----------------------
David K. Stewart
A Majority of the Board of Directors:
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
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
