Registration No. 33-67012
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. ___12__ [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ___13__ [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 (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(3) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
PROSPECTUS
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INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACT
ISSUED BY
LUTHERAN BROTHERHOOD
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(612) 340-7210
(800) 990-6290
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This Prospectus describes an individual flexible premium variable annuity
contract (the "Contract") offered by Lutheran Brotherhood ("LB" "we" or
"us"), a fraternal benefit society organized under Minnesota law. We offer
the Contract only in situations in which the Contract's Annuitant is
eligible for membership in Lutheran Brotherhood. We may sell the Contract to
or in connection with retirement plans which may or may not qualify for
special Federal tax treatment under the Internal Revenue Code.
We allocate net premiums based on the Annuitant's designation to one or more
Subaccounts of LB Variable Annuity Account I (the "Variable Account"),
and/or to the Fixed Account (which is the general account of LB, and which
pays interest in an amount that is at least as great as the guaranteed fixed
rate). The assets of each Subaccount will be invested solely in a
corresponding Portfolio of LB Series Fund, Inc. (the "Fund"), which is a
diversified, open-end management investment company (commonly known as a
"mutual fund"). The accompanying Prospectus for the Fund describes the
investment objectives and attendant risks of the seven Portfolios of the
Fund -- the Opportunity Growth Portfolio, the Mid Cap Growth Portfolio, the
World Growth Portfolio, the Growth Portfolio, the High Yield Portfolio, the
Income Portfolio, and the Money Market Portfolio.
Additional information about LB, the Contract and the Variable Account is
contained in a Statement of Additional Information (SAI) dated May 1, 2000.
That SAI was filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. You may obtain a copy of the
SAI without charge by writing to us at our address above. In addition, the
Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains the SAI. The Table of Contents for the Statement of
Additional Information may be found on Page 31 of this Prospectus. Appendix
A sets forth definitions of special terms used in this Prospectus.
An investment in the Contract is not a deposit of a bank or financial
institution and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the
Contract involves investment risk including the possible loss of principal.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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This Prospectus sets forth concisely the information about the Contract that
a prospective investor ought to know before investing, and should be read
and kept for future reference. It is valid only when accompanied or preceded
by the current Prospectus of LB Series Fund, Inc.
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The date of this Prospectus is May 1, 2000.
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TABLE OF CONTENTS
Page
SUMMARY FEE TABLE
SUMMARY
The Contract
Charges and Deductions
Annuity Provisions
Federal Tax Status
Condensed Financial Information
Performance Related Information
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
Purchasing a Contract
Processing Your Application
Allocation of Premium
Free Look Period
Accumulated Value, Accumulation Units and Accumulation Unit Value
Minimum Accumulated Value
Death Benefit Before the Maturity Date
Death Benefit After the Maturity Date
Surrender (Redemption)
Transfers
Telephone Transfers
Special Transfer Service -- Dollar Cost Averaging
Assignments
Contract Owner, Beneficiaries and Annuitants
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
Administrative Charge
Mortality and Expense Risk Charge
Investment Advisory Fee of the Fund
Taxes
Sufficiency of Charges
ANNUITY PROVISIONS
Maturity Date
Maturity Proceeds
Settlement Options
Frequency of Annuity Payments
Amount of Variable Annuity Payments
Subaccount Annuity Unit Value
GENERAL PROVISIONS
Postponement of Payments
Payment by Check
Reports to Contract Owners
Contract Inquiries
FEDERAL TAX STATUS
Introduction
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
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ORDER FORM
APPENDIX A - DEFINITIONS
APPENDIX B - CONDENSED FINANCIAL INFORMATION
APPENDIX C - MORE INFORMATION ABOUT THE FIXED ACCOUNT
APPENDIX D - ILLUSTRATION OF MONTHLY VARIABLE ANNUITY
SETTLEMENT OPTION
SUMMARY FEE TABLE
The purpose of this table is to help you understand the various costs and
expenses associated with your Contract. You may allocate premiums and
transfer Accumulated Value to any one of the Subaccounts - Opportunity
Growth, Mid Cap Growth, World Growth, Growth, High Yield, Income, and Money
Market - or to the Fixed Account or to any combination of the Subaccounts
and the Fixed Account. You pay no initial sales charge when you purchase the
Contract. All costs that you bear directly or indirectly for the Subaccounts
and Portfolios are shown below. We will deduct any premium taxes that
apply.
Contract Owner Expenses
Sales Load Imposed on Purchase (as a percentage of purchase
payments) 0%
Maximum Deferred Sales Load (as a percentage of Excess
Amount surrendered) 6%(1)
Exchange Fee 0%
Annual Contract Fee $30.00(2)
Annual 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%
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%
Other Expenses After Expense Reimbursement 0%(3)
Total Portfolio Annual Expenses 0.40%
EXAMPLE (4)
1 year 3 years 5 years 10 years
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If you surrender or annuitize your
Contract at the end of the
applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $71 $88 $104 $180
If you do not surrender or annuitize
your Contract:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $15 $48 $ 82 $180
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%
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%
Other Expenses After Expense Reimbursement 0%(3)
Total Portfolio Annual Expenses 0.85%
EXAMPLE (4)
1 year 3 years 5 years 10 years
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If you surrender or annuitize your
Contract at the end of the
applicable time period:
You would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets $76 $101 $127 $229
If you do not surrender or annuitize
your Contract:
You would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets $20 $ 62 $106 $229
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(1) A surrender charge is deducted only if a full or partial surrender
occurs during the first six Contract Years; no surrender charge is deducted
for surrenders occurring in Contract Years seven and later. The surrender
charge will also be deducted at the time annuity payments begin, except
under certain circumstances. Up to 10% of the Accumulated Value existing at
the time the first surrender in a Contract Year is made may be surrendered
without charge; only the Excess Amount will be subject to a surrender
charge. The maximum charge is 6% of the Excess Amount and is in effect for
the first Contract Year. Thereafter, the surrender charge decreases by 1%
each subsequent Contract Year.
(2) A $30 annual administrative charge is deducted on each Contract
Anniversary only if, on that Contract Anniversary, the total of premiums
paid under the Contract minus all prior surrenders is less than $5,000 and
the Accumulated Value is less than $5,000. The $30 fee is a Contract charge
and is deducted proportionately from the Subaccounts and the Fixed Account
that make up the Contract's Accumulated Value.
(3) The amount shown for Fund Annual Expenses does not reflect a deduction
for operating expenses of the Fund, other than the investment advisory fee,
because LB and its affiliate, Lutheran Brotherhood Variable Insurance
Products Company ("LBVIP"), have agreed to reimburse the Fund for these
operating expenses. For the fiscal year of the Fund ending December 31,
1999, the Fund was reimbursed approximately $3,651,490 for such operating
expenses. See Pages 10-12. The Expense Reimbursement Agreement could be
terminated at any time by the mutual agreement of the Fund, LB and LBVIP,
but the Fund, LB and LBVIP currently contemplate that the Expense
Reimbursement Agreement will continue so long as the Fund remains in
existence. If the Expense Reimbursement Agreement were terminated, the Fund
would be required to pay these operating expenses, which would reduce the
net investment return on the shares of the Fund held by the Subaccounts of
the Variable Account.
(4) In these examples, the $30 annual administrative charge is approximated
as a 0.01% charge based on LB's average contract size.
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
Please refer to Appendix A at the end of this Prospectus for definitions of
several technical terms, which can help you understand details about your
Contract. The Summary is an introduction to various topics related to the
Contract. For more detailed information on each subject, refer to the
appropriate page numbers.
The Contract
Detailed explanations are provided in "The Contracts" - pages 13-18.
Issuance of a Contract. Lutheran Brotherhood issues individual flexible
premium variable annuity contracts. In order to purchase a Contract, you
must submit an application to us through one of our licensed
representatives, who is also a registered representative of Lutheran
Brotherhood Securities Corp. ("LBSC"). The Contracts are offered 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 minimum acceptable initial premium is $600 on an annualized basis. We
may, at our discretion, waive this initial premium requirement. You may make
subsequent premiums under the Contracts, but we may choose not to accept any
subsequent premium less than $50.
Free Look Period. You have the right to return the Contract within 10 days
after you receive it.
Allocation of Premiums. You may allocate premiums under the Contract to one
or more Subaccounts of the Variable Account and to the Fixed Account. The
assets of each Subaccount will be invested solely in a corresponding
Portfolio of the Fund-
* Opportunity Growth Portfolio
* Mid Cap Growth Portfolio
* World Growth Portfolio
* Growth Portfolio
* High Yield Portfolio
* Income Portfolio
* Money Market Portfolio
The Accumulated Value of the Contract in the Subaccounts and, except to the
extent fixed amount annuity payments have been elected, the amount of
annuity payments will vary, primarily based on the investment experience of
the Portfolios whose shares are held in the Subaccounts designated. Premiums
allocated to the Fixed Account will accumulate at fixed rates of interest
declared by us. (See Appendix C.)
On the date we approve the Contract Owner's application, we will transfer
from the general account the initial premium (after deduction of any
required premium taxes) and any interest accrued during the underwriting
period among the Subaccount(s) and/or Fixed Account according to the
Contract Owner's instructions. See "The Contracts--Allocation of Premiums."
Subsequent premiums will be allocated among the Subaccounts and the Fixed
Account in the same proportion as the initial premium, at the end of the
Valuation Period in which we receive the subsequent premium
Surrenders. If a Written Notice from you requesting a surrender is received
on or before the Maturity Date, we will pay to you all or part of the
Accumulated Value of a Contract after deducting any applicable surrender
charge. Partial surrenders must be for at least $500, and may be requested
only if the remaining Accumulated Value is not less than $1,000. Under
certain circumstances the Contract Owner may make surrenders after the
Maturity Date.
Transfers. On or before the Maturity Date, you may request the transfer of
all or a part of your Contract's Accumulated Value to other Subaccounts or
to the Fixed Account. The total amount transferred each time must be at
least $500 (unless the total value in the Subaccount or the Fixed Account is
less than $500, in which case the entire amount may be transferred). We
reserve the right to limit the number of transfers in any Contract Year;
although, we will always allow at least two transfers a year. With respect
to the Fixed Account, transfers out of the Fixed Account are limited to only
one each Contract Year and must be made on or within 45 days after a
Contract Anniversary. After the Maturity Date, you may, by Written Notice
and only once each Contract Year, change the percentage allocation of
variable annuity payments among the available Subaccounts
Annuity Provisions
See pages 21-22 for more details.
You may select an annuity settlement option or options, and may select
whether payments are to be made on a fixed or variable (or a combination of
fixed and variable) basis.
Federal Tax Status
For a description of the Federal income tax status of annuities, see Pages
23-27. Generally, a distribution from a Contract before the taxpayer attains
age 59 1/2 will result in a penalty tax of 10% of the amount of the
distribution which is includable in gross income.
Condensed Financial Information
Condensed financial information derived from the financial statements of the
Variable Account is contained in Appendix B.
The financial statements of LB are also contained in the Statement of
Additional Information.
Performance Related Information
The Variable Account may advertise certain performance related information
concerning the Subaccounts.
Yields
The Variable Account may also advertise the Money Market Subaccount's
"yield" and "effective yield". Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of
the Subaccount refers to the income generated by an investment in the
Subaccount over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized". That is, the amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Subaccount is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. The
annualized current yield and effective yield for the seven-day base period
ended December 31, 1999, was 4.43% and 4.53%, respectively. For more
information, see the Statement of Additional Information.
The Variable Account may also advertise for the other Subaccounts yield
quotations based on a 30-day (or one month) period, which is computed by
dividing the net investment income per Accumulation Unit earned during the
period (the net investment income earned by the Fund portfolio attributable
to shares owned by the Subaccount less expenses incurred during the period)
by the maximum offering price per Accumulation Unit on the last day of the
period. The current yield for the 30-day base period ended December 31, 1999
for the High Yield Subaccount was 9.92%. The current yield for the same 30-
day base period for the Income Subaccount was 5.81%. For more information,
see the Statement of Additional Information.
Total Returns
From time to time, we may advertise the average annual total return
quotations for the Subaccounts for the 1-, 5- and since inception periods
computed by finding the average annual compounded rates of return over the
1-, 5- and since inception 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 since inception periods. For some
subaccounts, average annual total return figures also are provided for a 10-
year period 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 LB's affiliate,
Lutheran Brotherhood Variable Insurance Products Company ("LBVIP"). LBVIP
is an indirect subsidiary of LB.
The average annual total returns for the Subaccounts for the 1-year, 5-year,
and since inception periods through December 31, 1999, and for the 10-year
period for a hypothetical contract issued by LBVIP are as follows:
Since
1 Year 5 Year Inception 10 Year
----- ------ --------- -------
Opportunity Growth
Subaccount (1/18/96) 19.37% -- 8.62%* --
Mid Cap Growth
Subaccount (1/30/98) 40.07% -- 26.20% --
World Growth Subaccount (1/18/96) 25.52%* -- 13.61%* --
Growth Subaccount (2/3/94) 34.41%* 30.28%* 23.34%* 18.98%*
High Yield Subaccount (2/3/94) 3.42%* 9.05%* 6.13%* 10.59%*
Income Subaccount (2/3/94) -8.32%* 5.97%* 3.98%* 6.74%*
Money Market Subaccount (2/3/94) -1.81%* 3.79%* 3.82%* 3.94%*
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000 and the Accumulated Value is less than
$5,000. Inclusion of the administrative charge would reduce the total
return figures shown above. Assumes applicable surrender charge upon
surrender.
Average annual total return quotations assume a steady rate of growth.
Actual performance fluctuates and will vary from the quoted results for
periods of time with the quoted periods. For more information, see the
Statement of Additional Information.
LUTHERAN BROTHERHOOD, THE VARIABLE ACCOUNT
AND THE FUND
Lutheran Brotherhood
Lutheran Brotherhood issues the Contracts. We are a fraternal benefit
society owned and operated for our members. We were founded in 1917 under
Minnesota law. We are currently licensed to transact life insurance
business in all 50 states and the District of Columbia. At the end of 1999,
we had total assets of approximately $22.94 billion.
We are subject to regulation by the Insurance Division of the State of
Minnesota as well as by the insurance departments of all the other states
and jurisdictions in which we do business. We submit annual reports on our
operations and finances to insurance officials in such states and
jurisdictions. The forms of Contracts described in this Prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold. We are also subject to certain
Federal securities laws and regulations.
The Variable Account
The Variable Account is a separate account of LB, established by our Board
of Directors 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. We have caused the Variable Account to be
registered with the Securities and Exchange Commission (the "SEC") as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
This registration does not involve supervision by the SEC of the management
or investment policies or practices.
The assets of the Variable Account are owned by us, and we are not a trustee
with respect to such assets. However, the Minnesota laws under which the
Variable Account was established provide that the Variable Account shall not
be chargeable with liabilities arising out of any other business we may
conduct. We may transfer to our general account assets of the Variable
Account which exceed the reserves and other liabilities of the Variable
Account.
Income and realized and unrealized gains and losses from each Subaccount of
the Variable Account are credited to or charged against that Subaccount
without regard to any of our other income, gains or losses. We may
accumulate in the Variable Account the charge for expense and mortality
risk, mortality gains and losses and investment results applicable to those
assets that are in excess of net assets supporting the Contracts.
LB Series Fund, Inc.
You may allocate the premiums paid under the Contract to one or more of the
Subaccounts of the Variable Account. We invest the assets of each Subaccount
in a corresponding Portfolio of the Fund. The Subaccounts and corresponding
Portfolios of the Fund are:
Subaccount Corresponding Portfolio
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Opportunity Growth Subaccount Opportunity Growth Portfolio
Mid Cap Growth Subaccount Mid Cap Growth Portfolio
World Growth Subaccount World Growth Portfolio
Growth Subaccount Growth Portfolio
High Yield Subaccount High Yield Portfolio
Income Subaccount Income Portfolio
Money Market Subaccount Money Market Portfolio
The Portfolios of the Fund each have an investment objective:
Opportunity Growth Portfolio. To achieve long-term growth of capital by
investing primarily in a professionally managed diversified portfolio of
smaller capitalization common stocks.
Mid Cap Growth Portfolio. To achieve long-term growth of capital by
investing primarily in a professionally managed diversified portfolio of
common stocks of companies with medium market capitalizations.
World Growth Portfolio. To achieve long-term growth of capital by investing
primarily in a professionally managed diversified portfolio of common stocks
of established, non-U.S. companies.
Growth Portfolio. To achieve long-term growth of capital through investment
primarily in common stocks of established corporations that appear to offer
attractive prospects of a high total return from dividends and capital
appreciation.
High Yield Portfolio. To achieve a higher level of income through a
diversified portfolio of high yield securities ("junk bonds") which involve
greater risks than higher quality investments, while also considering growth
of capital as a secondary objective.
Income Portfolio. To achieve a high level of income over the longer term
while providing reasonable safety of capital through investment primarily in
readily marketable intermediate- and long-term fixed income securities.
Money Market Portfolio. To achieve the maximum current income that is
consistent with stability of capital and maintenance of liquidity through
investment in high-quality, short-term debt obligations.
We cannot assure that the Portfolios of the Fund will achieve their
respective investment objectives.
As custodian for the Variable Account, we will hold shares of the Fund
purchased by each Subaccount of the Variable Account.
The Fund is designed to provide an investment vehicle for variable annuity
and variable life insurance contracts. Shares of the Fund are sold to other
insurance company separate accounts of LB and LBVIP. The Fund may, in the
future, create new portfolios. It is conceivable that in the future it may
be disadvantageous for both variable annuity separate accounts and variable
life insurance separate accounts and for LBVIP and LB to invest
simultaneously in the Fund, although we do not foresee any such
disadvantages to either variable annuity or variable life insurance contract
owners. The management of the Fund intends to monitor events in order to
identify any material conflicts between such contract owners and to
determine what action, if any, should be taken in response. Such action
could include the sale of Fund shares by one or more of the separate
accounts, which could have adverse consequences. Material conflicts could
result from, for example:
* Changes in state insurance laws
* Changes in Federal income tax law
* Changes in the investment management of the Fund
* Differences in voting instructions between those given by the
contract owners from the different separate accounts
In addition, if we believe the Fund's response to any of those events or
conflicts insufficiently protects Contract Owners, we will take appropriate
action on our own.
The Fund is registered with the SEC under the 1940 Act as a diversified,
open-end management investment company (commonly called a "mutual fund").
This registration does not involve supervision by the SEC of the management
or investment practices or policies of the Fund. Shares of the Fund may be
sold to other separate accounts, and the Fund may in the future create new
Portfolios.
The Variable Account will purchase and redeem shares from the Fund at net
asset value. Shares will be redeemed to the extent necessary for us to
collect charges under the Contracts, to make payments upon surrenders, to
provide benefits under the Contracts, or to transfer assets from one
Subaccount to another as requested by Contract Owners. Any dividend or
capital gain distribution received from a Portfolio of the Fund will be
reinvested immediately at net asset value in shares of that Portfolio and
retained as assets of the corresponding Subaccount.
The Fund receives investment advice with respect to each of its Portfolios
from LB, which also acts as investment adviser to the Fund. LB is a
registered investment adviser under the Investment Advisers Act of 1940. LB
charges the Fund a daily investment advisory fee equal to an annual rate of
0.40% of the aggregate average daily net assets of the Money Market, Income,
High Yield, Growth, Mid Cap Growth, and Opportunity Growth Portfolios. LB
also charges the Fund an annual investment advisory fee equal to 0.85% of
the aggregate average daily net assets of the World Growth Portfolio.
LB has engaged Rowe Price-Fleming International, Inc., ("Price-Fleming") as
investment Sub-adviser for the World Growth Portfolio. Price-Fleming was
founded in 1979 as a joint venture between T. Rowe Price Associates, Inc.
and Robert Fleming Holdings Limited. Price-Fleming is one of the world's
largest international mutual fund asset managers with approximately the U.S.
equivalent of $42 billion under management as of December 31, 1999 in its
offices in Baltimore, London, Tokyo, Singapore, Paris, Hong Kong and Buenos
Aires. Price-Fleming has an investment advisory group that has day-to-day
responsibility for managing the World Growth Portfolio and developing and
executing the Portfolio's investment program.
LB pays the Sub-adviser an annual fee for its sub-advisory services to the
World Growth Portfolio. The fee payable is equal to a percentage of each
Portfolio's average daily net assets. The percentage varies with the size
of the Portfolio's net assets, decreasing as the Portfolio's assets
increase. The formula for determining the sub-advisory fee is described
fully in the prospectus for the Fund.
You should periodically evaluate your allocation among the Subaccounts in
light of current market conditions and the investment risks associated with
investing in the Fund's various Portfolios. A full description of the Fund,
its investment objectives, policies and restrictions, its expenses, the
risks associated with investing in the Fund's Portfolios and other aspects
of the Fund's operation is contained in the accompanying LB Series Fund,
Inc. Prospectus, which should be carefully read in conjunction with this
Prospectus.
Addition, Deletion or Substitution of Investments
We reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Variable Account or that the Variable Account may purchase. If Portfolio
shares of the Fund are no longer available for investment or if in our
judgment further investment in any Portfolio should become inappropriate in
view of the purposes of the Variable Account, we may redeem the shares, if
any, of that Portfolio and substitute shares of another registered open-end
management company. We will not substitute any shares attributable to a
Contract interest in a Subaccount of the Variable Account without notice and
prior approval of the SEC and state insurance authorities, to the extent
required by applicable law.
We also reserve the right to establish additional Subaccounts of the
Variable Account, each of which would invest in shares corresponding to a
new Portfolio of the Fund or in shares of another investment company having
a specified investment objective. Subject to applicable law and any required
SEC approval, we may, in our sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by us.
If any of these substitutions or changes are made, we may by appropriate
endorsement change the Contract to reflect the substitution or change. If we
deem it to be in the best interest of Contract Owners and Annuitants, and
subject to any approvals that may be required under applicable law, the
Variable Account may be operated as a management company under the 1940 Act,
it may be deregistered under that Act if registration is no longer required,
or it may be combined with other LBVIP separate accounts.
THE CONTRACTS
Purchasing a Contract
You purchase a Contract by submitting an application to us through one of
our licensed representatives who is also a registered representative of
LBSC. In your application you select the features of your Contract,
including:
* The amount of your initial premium. This premium must be at least $600
on an annualized basis, though we may choose to waive this requirement.
* How you plan to pay premiums after the initial premium. We may require
any such premium to be at least $50.
* How you want your premiums allocated among the Subaccount(s) and/or Fixed
Account.
* Your age at the time you want annuity payments to begin. This will
establish the Maturity Date, which must be a Contract Anniversary at
least three years after the Date of Issue.
* The beneficiary to receive the benefit payable upon the death of the
Annuitant.
Processing your Application
We will process your application after we have received both it and your
initial premium. Your contract's Date of Issue will be the date on which we
receive the initial premium. If we determine that your application is in
good order, we will approve it within two days after the Date of Issue. If
we determine that the application is not in good order, we will attempt to
complete it within five business days. If the application is not complete
at the end of this period, we will tell you the reason for the delay and
inform you that we will return the initial premium to you unless you
specifically consent to our keeping it until the application is complete.
Allocation of Premium
If we approve your application on the Date of Issue, we will allocate the
initial premium among the Subaccount(s) and/or the Fixed Account according
to your application on that date. Otherwise, we will deposit your initial
premium in our general account where it will earn interest at a rate which
we determine. The interest and any cost of crediting interest will be paid
by us, not other Contract Owners. On the date we approve your application,
we will allocate your initial premium (including any interest earned while
in the general account) among the Subaccount(s) and/or the Fixed Account
according to your application.
The allocation percentages which you select must be in whole numbers and
their sum must be 100% We reserve the right to adjust allocation
percentages to eliminate fractional percentages. Premiums which you pay
after the initial premium are allocated at the end of the Valuation Period
in which we receive them using the allocation percentages specified in your
application. You may change the allocation percentages for future premiums
without charge and at any time by giving us Written Notice or, if you have
completed the Telephone Transaction Authorization Form, by telephone. Any
change will apply to all future premiums unless you request another change.
The values in the Subaccounts of the Variable Account will vary with the
investment experience of the corresponding Portfolios. You bear the entire
investment risk of your contract. You should periodically review your
allocations of premiums in light of market conditions and your overall
financial objectives.
Free Look Period
After you receive your contract, you have a "free look" period of 10 days
(20 days in Nevada and North Carolina; 30 days if you are age 60 or over and
reside in California) to decide if you want to keep it. If you decide to
cancel the contract within the free look period, you may do so by returning
it to us or to the representative through whom you bought it. When we
receive the contract at our Home Office, we will cancel it and refund to you
an amount which depends on the state in which your contract was issued.
In Connecticut, Georgia, Idaho, Michigan, Nevada, North Carolina, Oklahoma,
South Carolina, Utah and Washington, we will refund all premiums which you
have paid. In Pennsylvania, we will refund the sum of:
(a) The difference between the premiums paid and the amounts allocated to
the Variable and Fixed Accounts; and
(b) The Accumulated Value on the day the contract is first received by us
or our representative.
In all other states, we will refund the sum of:
(a) The Accumulated Value on the date the returned contract is received by
us or our representative;
(b) Any charges we made for premium taxes; and
(c) The amount attributable to your contract for risk charges and taxes, if
any, deducted from the Variable Account, and for advisory fees charged
against the net asset value in the Fund portfolios.
In addition to the "free look" period described, the Employee Retirement
Income Security Act of 1974 ("ERISA") grants certain revocation rights to
contracts issued as individual retirement annuities ("IRA"s). If your
contract is an IRA and you revoke it under the rights granted by ERISA, we
will refund all premiums which you have paid regardless of the state in
which the contract was issued.
Accumulated Value, Accumulation Units, and Accumulation Unit Value
Accumulated Value. Your Contract's value is expressed as its Accumulated
Value. On or before the Maturity Date, Your Contract's Accumulated Value is
the sum of:
* The amount which your contract has in the Fixed Account; and
* The amounts which your contract has in each of the Subaccounts. Amounts
in the Subaccounts are calculated at the end of each Valuation Period as
follows:
* First, we calculate the Accumulation Unit Value for each Subaccount.
This calculation recognizes those actions and events occurring during
the current Valuation Period which affect the total dollar value of
the Subaccount without affecting the number of Accumulation Units held
by the Subaccount. (See Accumulation Unit Value below.)
* Next, Contract transactions for the current Valuation Period are made.
These transactions in and out of each Subaccount are done in terms of
buying and selling Accumulation Units of the Subaccount at the current
(i.e. newly-calculated) Accumulation Unit Value for the Subaccount.
* Finally, we calculate the amount which your contract has in each
Subaccount by multiplying your number of Accumulation Units in the
Subaccount by the current Accumulation Unit Value for the Subaccount.
The Accumulated Value calculated at the end of a Valuation Period applies to
all days in that period, including days which are not Valuation Days. Your
Contract's Accumulated Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any amount of value in the Fixed
Account, any premiums that you pay, any surrenders you make, and any charges
we assess in connection with the Contract. There is no guaranteed minimum
Accumulated Value, and, because a Contract's Accumulated Value on any future
date depends upon a number of variables, it cannot be predetermined.
Determination of Number of Accumulation Units.
Transactions in and out of a Subaccount are made by buying or selling
Accumulation Units of the Subaccount at the Subaccount Accumulation Unit
Value.
Your contract buys Accumulation Units in a Subaccount when:
* You allocate premiums to that Subaccount; or
* You transfer Accumulated Value into that Subaccount from another
Subaccount or from the Fixed Account.
Accumulation Units in a Subaccount are sold when:
* You transfer Accumulated Value out of that Subaccount into another
Subaccount or the Fixed Account;
* You make a surrender from that Subaccount; or
* We deduct all or part of the Administrative Charge from that Subaccount.
Accumulation Unit Value. A Subaccount's Accumulation Unit Value is the unit
price that is used whenever Accumulation Units of the Subaccount are bought
or sold. Accumulation Unit Values may increase or decrease at the end of
each Valuation Period. We re-determine the Accumulation Unit Value for each
Subaccount at the end of each Valuation Period before making any
transactions for that period that would affect the number of units held in
the Subaccount.Each Subaccount's Accumulation Unit Value is calculated as
the total dollar value of that Subaccount divided by the total number of
Accumulation Units held by that Subaccount for all contracts (including
Accumulation Units held as reserves for variable annuities). The total
dollar value of a Subaccount is:
(a) the net asset value of the corresponding Portfolio of the Subaccount at
the end of the current Valuation Period, plus
(b) the amount of any dividend or capital gain distribution declared by the
Portfolio if the "ex-dividend" date occurs during the current Valuation
Period, plus or minus
(c) a charge or credit for any taxes reserved which we determine to be a
result of the investment operation of the Portfolio, minus
(d) the mortality and expense risk charge. This charge is currently
0.003014% (but guaranteed never to exceed 0.003425%) of the net assets
of the Subaccount for each day during the current Valuation Period
(see pages 20-21).
Minimum Accumulated Value
We require your contract to maintain a minimum Accumulated Value. The
amount which must be maintained depends on your premium paying history as
follows:
(a) At the end of any 24-month period in which you pay no premiums, your
Accumulated Value must be at least $1000 after all contract charges
have been applied.
(b) If you pay at least one premium every 24-months, we require only that
the Accumulated Value always be sufficient to cover the contract's
administrative charge (see pages 19-20).
If we know that your contract will not meet these requirements on an
upcoming Contract Anniversary, we will notify you 60 days before that
anniversary and inform you of the minimum dollar amount which you must pay
to keep the contract in force. If you fail to pay at least that amount, we
will terminate your contract on the Contract Anniversary. If we do so
because your contract failed to meet Requirement (a), we will pay you the
remaining Accumulated Value. If your contract fails to meet Requirement (b)
your contract terminates without value.
Death Benefit Before the Maturity Date
If the Annuitant dies before the Maturity Date, the Beneficiary will be
entitled to receive the contract's death benefit.
The amount of the death benefit will be the greatest of:
* The Accumulated Value on the date we calculate the death benefit
* The sum of all premiums we received for the contract, less the amount of
all partial surrenders (including any applicable charges) which you made;
and
* The Accumulated Value on the preceding Minimum Death Benefit Date plus
the sum of the premiums we received for the contract after that date,
less the amount of any partial surrenders (including any applicable
charges) which you made after that date. The first Minimum Death Benefit
Date is the Date of Issue of this contract. Thereafter, Minimum Death
Benefit Dates occur every six years on the Contract Anniversary.
We calculate the death benefit on the later of:
(a) The date we receive both of the Annuitant's death; and
(b) The date we receive a written request from the Beneficiary for either a
single sum payment or a settlement option.
If the Beneficiary requests a single sum payment, we will pay the death
benefit within seven days after the date we calculate it. If the
beneficiary requests a settlement option, it must be an option that you
could have selected before the Maturity Date, and the option must provide
that either:
a) The principal and interest are completely distributed within five years
after the date of death; or
b) If the beneficiary is a natural person, distribution of the principal
and interest is made by means of a periodic payment which begins within
one year after the date of death and is not guaranteed for a period
which extends beyond the life expectancy of the beneficiary.
If we do not receive a written request from the beneficiary within one year
from the date of the Annuitant's death, we will deem the Beneficiary to have
requested a single sum payment. Any proceeds not subsequently withdrawn will
be paid in a lump sum on the date five years after the date of death. (If
the Beneficiary is your spouse, he or she may, to the extent permitted by
law, elect to continue the contract in force, in which case your spouse will
become and be treated as the Annuitant.)
If your contract was issued in connection with a Qualified Plan, additional
restrictions on the manner of payment of the death benefit may apply. Any
such restrictions will be stated in the contract or the plan documents.
Purchasers acquiring contracts pursuant to Qualified Plans should consult
qualified pension or tax advisers.
Death Benefit After the Maturity Date
If the annuitant dies while we are paying you an annuity income under a
settlement option, any death benefit payable will depend on the terms of the
settlement option. If a death benefit is payable, the beneficiary may elect
to receive the proceeds in the form of a settlement option, but only if the
payments are paid at least as rapidly as payments were being paid under the
settlement option in effect on the date of death. If your contract was
issued in connection with a Qualified Plan, additional restrictions on the
manner of payment of the death benefit may apply.
Surrender (Redemption)
On or before the Maturity Date, you may surrender all or part of your
contract's Accumulated Value by giving us Written Notice. Any surrender
which you request will be made at the end of the Valuation Period during
which the requirements for surrender are completed. We will pay you the
proceeds from a surrender within seven days after the surrender is made.
The proceeds will be the amount surrendered less any surrender charge (see
pages 19-20).
A surrender reduces your Accumulated Value by the amount surrendered. For
amounts surrendered from a Subaccount, this is done by selling Accumulation
Units of the Subaccount. For partial surrenders, we allocate the surrender
among the Subaccounts and the Fixed Account so that all accounts are reduced
in value by the same percentage. With our approval, you may specify a
different allocation for a partial surrender.
A partial surrender must be at least $200. and must not reduce the remaining
Accumulated Value to less than $1,000. When you request a partial
surrender, you specify the amount which you want to receive as a result of
the surrender. If there are no surrender charges or withholding taxes
associated with the surrender, the amount surrendered will be the amount
which you request. Otherwise, the amount surrendered will be the amount
necessary to provide the amount requested after we apply the surrender
charge and any withholding taxes.
After the Maturity Date, your contract does not have an Accumulated Value
which can be surrendered. However, if you are receiving annuity payments
under certain settlement options, surrender may be allowed. Surrender is
not allowed if your settlement option involves a life income or if you
agreed not to revoke or change the option once annuity payments begin. For
other settlement options, the amount available for surrender will be the
commuted value of any unpaid annuity payments computed on the basis of the
assumed interest rate incorporated in the annuity payments.
For all surrenders, you should consider the tax implications of a surrender
before you make a surrender request. See pages 24-25.
Transfers
On or before the Maturity Date, you may request the transfer of all or a
part of your contract's Accumulated Value among the Subaccounts of the
Variable Account and the Fixed Account.
You can request a transfer in two ways:
1) By giving us written notice
2) By telephone after completing a Telephone Transaction Authorization
Form.
We will make the transfer without charge at the end of the Valuation period
during which we receive your request. For transfers from the Fixed account
to a Subaccount of the Variable Account, the amount taken from the Fixed
Account is used to buy Accumulation Units of the chosen Subaccount. For
transfers from a Subaccount, Accumulation Units of the Subaccount are sold
and the resulting dollar amount is, depending on your request, either
transferred to the Fixed Account or used to buy Accumulation Units of
another Subaccount.
Transfers are subject to the following conditions:
* The total amount transferred must be at least $200. However, if the
total value in a Subaccount or the Fixed Account is less than $200, the
entire amount may be transferred.
* We reserve the right to limit the number of transfers in each Contract
Year. However, we will always allow at least two transfers per Contract
Year. (For contracts issued in Texas, we allow twelve transfers per
Contract Year.)
* In any Contract Year, only one of your allowed transfers may be from the
Fixed Account. Any transfer from the Fixed Account must be made on or
within 45 days after a Contract Anniversary.
Transfers will also be subject to any conditions which the Portfolio whose
shares are involved may impose,
After the Maturity Date, you may, by Written Notice and only once each
Contract Year, change the percentage allocation of variable annuity payments
among the available Subaccounts.
Telephone Transfers
Telephone transfers are available when you complete the Telephone
Transaction Authorization Form. If you elect to complete the Telephone
Transaction Authorization Form, you thereby agree that we, our agents and
employees will not be liable for any loss, liability cost or expense when
we, our agents and employees act in accordance with the telephone transfer
instructions that have been properly received and recorded on voice
recording equipment. If a telephone authorization or instruction, processed
after you have completed the Telephone Transaction Authorization Form, is
later determined not to have been made by you or was made without your
authorization, and a loss results from such unauthorized instruction, you
bear the risk of this loss. We will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. In the event we do
not employ such procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of such instructions
and/or tape recording telephone instructions.
Special Transfer Service -- Dollar Cost Averaging
We administer a dollar cost averaging program which enables you to pre-
authorize the periodic transfer of predetermined dollar amounts from the
Money Market Subaccount to as many of the other Subaccounts or to the Fixed
Account as you specify. This program is generally suitable if you are
making a substantial deposit to your Contract and wish to use the other
Subaccounts or the Fixed Account investment option, but desire to control
the risk of investing at the top of a market cycle. This program allows
such investments to be made in equal installments over time in an effort to
reduce such risk. Dollar cost averaging does not guarantee that the Variable
Account will gain in value, nor will it protect against a decline in value
if market prices fall. However, if you can continue to invest regularly
throughout changing market conditions, it can be an effective strategy to
help meet your long-term goals.
If you are interested in the dollar cost averaging program you may obtain an
application and full information concerning the program and its restrictions
from us. If you enter into a dollar cost averaging agreement with us, it
will continue until the amount in the Money Market Subaccount is exhausted
or you terminate the agreement.
Assignments
Assignment is the transfer of contract ownership from one party to another.
If a Contract is used in a Qualified Plan and the Contract Owner is a trust,
custodian or employer, then the Contract Owner may transfer ownership to the
Annuitant. Otherwise, the Contract may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for performance of an
obligation or for any other purpose to any person other than 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.
We are not bound by an assignment unless it is in writing and filed at our
Home Office. We are not responsible for the validity or effect of any
assignment.
You should consider the tax implications of an assignment. See pages 24-25.
Contract Owner, Beneficiaries and Annuitants
Unless another owner is named in the application, the Annuitant is the owner
of the Contract and may exercise all of the owner's rights under the
Contract.
The Contract Owner may name a Beneficiary to receive the death benefit
payable under the Contract. If the Beneficiary is not living on the date
payment is due or if no Beneficiary has been named, the death benefit will
be paid to the estate of the Annuitant.
The owner may change the Beneficiary by giving us Written Notice of the
change. The change will not be effective until we receive your Written
Notice at our Home Office. Once we receive it, the change will be effective
as of the date on which you signed the notice. However, the change will not
affect any payments made or actions taken by us before we received your
notice, and we will not be responsible for the validity of any change.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge)
We do not deduct a charge for sales expenses from premiums at the time
premiums are paid. Instead, we deduct a charge at the time you surrender
all or part of the your Accumulated Value. This surrender charge applies
only during the first six Contract Years. During those years, we calculate
the surrender charge as a percentage of the amount which you surrender,
subject to certain exceptions noted below.
Surrender Charges
Contract Year Percent Applied
------------- ---------------
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
After Contract Year 6 there is no charge for making surrenders. In addition,
during the first six Contract Years we will limit or waive surrender charges
as follows:
* Cumulative Percent-of-Premium Limit. For all surrenders, we will limit
the Surrender Charge so that on any date, the sum of all surrender
charges applied to that date will not exceed 6.5% of the total of
premiums you have paid to that date.
* Surrenders Paid Under Certain Settlement Options. For surrenders which
you make after Contract Year 3, there is no surrender charge applied
to amounts which you elect to have paid under:
1) A settlement option for a fixed amount or a fixed period (including
Option 3V described on page 21)
if the payments will be made for at least five years and you agree at
the time of settlement that after the first payment is made, you may
not revoke or change the settlement option.
2) Options which involve a life income, including Option 4V or 5V
described on Page 21.
* Ten Percent Free Each Contract Year. In each Contract Year, you may
surrender without a Surrender Charge up to 10% of the Accumulated Value
existing at the time of your first surrender made in that Contract Year.
This "Ten Percent Free" is not cumulative. For example, if you make no
surrenders during the first three Contract Years, the percentage of
Accumulated Value which you may surrender without charge in the fourth
Contract Year is 10%, not 40%.
* Total Disability of the Annuitant. There is no surrender charge if the
Annuitant is totally disabled (as defined in your contract) on the date
of a surrender.
Certain surrenders are subject to a 10% Federal tax penalty on the amount of
income withdrawn. See pages 23-27.
If surrender charges are not sufficient to cover our sales expenses, we will
bear the loss; conversely, if the amount of such charges proves more than
enough, we will retain the excess (see "Sufficiency of Charges" below). We
do not currently believe that the surrender charges we impose will cover our
expected costs of distributing the Contracts.
Administrative Charge
Your Contract includes an annual administrative charge of $30 to help us
cover the expenses we incur in administrating your contract, the Variable
Account and the Subaccounts. On each Contract Anniversary prior to and
including the Maturity Date, we will determine if this charge will be
applied to your contract. We apply the charge only on Contract
Anniversaries on which the sum of premiums you have paid less the amount of
any Partial Surrenders you have made is less than $5,000 and the Accumulated
Value is less than $5,000. We deduct the charge from your Accumulated
Value, allocating the deduction among the Subaccounts and the Fixed Account
so that all accounts are reduced in value by the same percentage. Any such
deduction from a Subaccount is made by selling Accumulation Units of the
Subaccount. With our approval, you may specify a different allocation for
the administrative charge.
Mortality and Expense Risk Charge
We assume certain financial risks associated with the contracts. Those
risks are of two basic types:
* Mortality Risk. This includes our risk that (1) Death Benefits paid
before the Maturity Date will be greater than the Accumulated Value
available to pay those benefits, and (2) annuitant payments involving
life incomes will continue longer than we expected due to lower than
expected death rates of the persons receiving them.
* Expense Risk. This is the risk that the expenses we incur to issue and
maintain contracts will exceed the charges that we make to cover those
expenses.
As compensation for assuming these risks, we deduct a daily mortality and
expense risk charge from the average daily net assets in the Variable
Account. The current charge (0.003014% per day) is equal to an annual rate
of 1.10% (approximately 0.80% for mortality risk and 0.30% for expense risk)
of the average daily net assets of each Subaccount in the Variable Account.
We may change this charge in the future, but we guarantee that it will never
exceed an annual rate of 1.25% (0.003425% per day).
If the mortality and expense risk charge is insufficient to cover the actual
cost of the mortality and expense risk assumed by us, we will bear the loss.
We will not reduce annuity payments or increase the administrative charge to
compensate for the insufficiency. If the mortality and expense risk charge
proves more than sufficient, the excess will be profit available to us for
any appropriate corporate purpose including, among other things, payment of
sales expenses. See "Sufficiency of Charges" below.
Investment Advisory Fee of the Fund
Because the Variable Account purchases shares of the Fund, the net assets of
the Variable Account will reflect the investment advisory fee incurred by
the Fund. See pages 10-12, and the accompanying current LB Series Fund, Inc.
Prospectus.
Taxes
Currently, no charge will be made against the Variable Account for Federal
income taxes. We may, however, make such a charge in the future if income or
gains within the Variable Account will result in any Federal income tax
liability to us. Charges for other taxes, if any, attributable to the
Variable Account may also be made. See page 23.
Sufficiency of Charges
If the amount of all charges assessed in connection with the contracts as
described above is not enough to cover all expenses incurred in connection
therewith, we will bear the loss. Any such expenses borne by us will be
paid out of our general account which may include, among other things,
proceeds derived from mortality and expense risk charges deducted from the
Variable Account. Conversely, if the amount of such charges proves more
than enough, we will retain the excess.
ANNUITY PROVISIONS
Maturity Date
The Maturity Date is the date on which we begin paying you your contract's
annuity income. This date is based on the maturity age which you specify in
your application. You may change the Maturity Date by giving us Written
Notice at least 30 days before both the Maturity Date currently in effect
and the new Maturity Date. The new date selected must satisfy our
requirements for a Maturity Date and any requirements that may be imposed by
the state in which your contract was issued.
Maturity Proceeds
The proceeds available on the Maturity Date will be the amount provided by
surrendering your contract's entire Accumulated Value on that date. If the
Maturity Date occurs within the first six Contract Years, surrender charges
will be deducted from the Accumulated Value if they apply.
We will pay you the proceeds at maturity according to the annuity settlement
option which you select. However, we will pay the proceeds in a single sum
if the Accumulated Value on the Maturity Date is less than $2,000 or if you
elect to receive the proceeds in a single sum. If we pay you proceeds in a
single sum, your contract will terminate on the Maturity Date.
If you have not selected either a settlement option or a single sum payment
by the Maturity Date, we will pay proceeds of $2,000 or more using a fixed
annuity, life income with 10-year guarantee period.
Settlement Options
You may elect to have proceeds paid to you under an annuity settlement
option or a combination of options. Under each option, you may choose
whether annuity payments are to be made on a fixed or variable basis. You
may change your choice of settlement option by giving us Written Notice at
least 30 days before the Maturity Date.
The fixed annuity settlement options available to you are described in your
contract but are not summarized here. The variable annuity settlement
options which your contract offers are as follows:
Option 3V--Income for a Fixed Period. Under this option, we pay an annuity
income for a fixed number of years, not to exceed 30.
Option 4V--Life Income with Guaranteed Period. Under this option, we pay an
annuity income for the lifetime of the payee. If the payee dies during the
guaranteed period, payments will be continued to the end of that period and
will be paid to the Beneficiary. You may select a guaranteed period of 10
or 20 years. You may not revoke or change the option once annuity payments
begin.
Option 5V--Joint and Survivor Life Income with Guaranteed Period. Under
this option, we pay an annuity income 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 end of that period and will be paid to the
Beneficiary. You may select a guaranteed period of 10 or 20 years. You may
not revoke or change the option once annuity payments begin.
In addition to these options, proceeds may be paid under any other
settlement option which you suggest and to which we agree.
Frequency of Annuity Payments
Annuity payments under a settlement option will be paid at monthly intervals
unless you and we agree to a different payment schedule. If annuity
payments would be or become less than $25 ($20 for contracts issued in the
state of Texas) if a single settlement option is chosen, or $25 ($20 for
contracts issued in the state of Texas) on each basis if a combination of
variable and fixed options is chosen, we may change the frequency of
payments to intervals that will result in payments of at least $25 ($20 for
contracts issued in the state of Texas) each from each option chosen.
Amount of Variable Annuity Payments
The amount of the first variable annuity payment is determined by applying
the proceeds to be paid under a particular settlement option to the annuity
table in the contract for that option. The table shows the amount of the
initial annuity payment for each $1,000 applied.
Subsequent variable annuity payments vary in amount according to the
investment experience of the selected Subaccount(s). Assuming annuity
payments are based on the unit values of a single Subaccount, the dollar
amount of the first annuity payment (as determined above) is divided by the
Annuity Unit Value as of the Maturity Date to establish the number of
Annuity Units representing each annuity payment. This number of Annuity
Units remains fixed during the annuity payment period. The dollar amount of
the second and subsequent variable annuity payments is not predetermined and
may change from payment to payment. The dollar amount of the second and each
subsequent variable annuity payment is determined by multiplying the fixed
number of Annuity Units by the Annuity Unit Value (see "Subaccount Annuity
Unit Value" below) with respect to such Subaccount at the end of the last
Valuation Date of the period with respect to which the payment is due. If
the payment is based upon the Annuity Unit Values of more than one
Subaccount, the procedure described here is repeated for each applicable
Subaccount and the sum of the payments based on each Subaccount is the
amount of the annuity payment.
The annuity tables in the contracts are based on the mortality table
specified in the contract. Under these tables, the longer the life
expectancy of the Annuitant under any life annuity option or the duration of
any period for which payments are guaranteed under the option, the smaller
will be the amount of the first monthly variable annuity payment. We
guarantee that the dollar amount of each fixed and variable annuity payment
after the first payment will not be affected by variations in expenses or in
mortality experience from the mortality assumptions used to determine the
first payment.
Subaccount Annuity Unit Value
A Subaccount's Annuity Unit Value is used to determine the dollar value of
annuity payments based on Annuity Units of the Subaccount. Annuity Unit
Values may increase or decrease during each Valuation Period. We re-
determine the Annuity Unit Value for each Subaccount at the end of each
Valuation Period before making any transactions for that period that would
affect the number of units held in the Subaccount. Each Subaccount's
Annuity Unit Value is equal to (a) times (b) times (c) where:
(a) Is that Subaccount's Annuity Unit Value at the end of the immediately
preceding Valuation Period.
(b) Is that Subaccount's investment factor for the current Valuation
Period.
(c) Is a discount factor equivalent to an assumed investment earnings rate
of 3 1/2% per year.
The investment factor used in (b) measures the investment performance of the
Subaccount during the Valuation Period. It is equal to the Subaccount's
Accumulation Unit Value at the end of the Valuation Period divided by the
Subaccount's Accumulation Unit Value at the end of the immediately preceding
Valuation Period.
The discount factor used in (c) offsets the effect of the assumed investment
earnings rate of 3.5% per year that is built into the annuity tables in the
contracts. This means that, if the investment factor calculated in (b) were
equivalent to an annual rate of 3.5%, (b) times (c) would be equal to one,
the Annuity Unit Value would remain constant and the corresponding annuity
payments would be level.
GENERAL PROVISIONS
Postponement of Payments
We may defer payment of any surrender, death benefit or annuity payment
amounts that are in the Variable Account if:
(a) The New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC, or
(b) An emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Variable Account's
net assets. Transfers and allocations of Accumulated Value to and from
the Subaccounts of the Variable Account may also be postponed under
these circumstances.
Payment by Check.
If a payment which we make to you depends on the premiums you pay by check,
our payment may be delayed until your check has cleared your bank.
Reports to Contract Owners
At least once each year we will send you a report showing the value of your
contract. The report will include the Accumulated Value and any additional
information required by law. Values shown will be for a date no more than
two months prior to the date we mail the report.
Contract Inquiries
Inquiries regarding a contract may be made by writing to us at our Home
Office, 625 Fourth Avenue South, Minneapolis, Minnesota 55415.
FEDERAL TAX STATUS
Introduction
The ultimate effect of Federal income taxes on a Contract's Accumulated
Value, on annuity payments and on the economic benefit to the Contract
Owner, the Annuitant or the Beneficiary depends upon the tax status of such
person, 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. A Contract held by other than a
natural person, such as a corporation, estate or trust, will not be treated
as an annuity contract for Federal income tax purposes, and the income on
such a Contract will be taxable in the year received or accrued by the
Contract Owner. This rule does not apply, however, if the Contract Owner is
acting as an agent for an individual, if the Contract Owner is an estate
which acquired the Contract as a result of the death of the decedent, if the
Contract is held by certain Qualified Plans, if the Contract is held
pursuant to a qualified funding trust (commonly referred to as structured
settlement plans), if the Contract was purchased by an employer with respect
to a terminated Qualified Plan or if the Contract is an immediate annuity.
Multiple Contracts. Section 72(e)(11) of the Code provides that for the
purposes of determining the amount includable in gross income, all non-
qualified annuity contracts entered into on or after October 22, 1988 by the
same company with the same contract owner during any calendar year shall be
treated as one contract. This section will likely accelerate the recognition
of income by a Contract Owner owning multiple contracts and may have the
further effect of increasing the portion of income that will be subject to
the 10% penalty tax described above.
Qualified Plans
The Contracts are designed for use with several types of Qualified Plans.
When used in Qualified Plans, deferred annuities do not offer additional
tax-defferal benefits, and taxation rules for Qualified Plans take
precedence over annuity taxation rules. However, annuities offer other
product benefits to investors in Qualified Plans. The tax rules applicable
to participants in such Qualified Plans vary according to the type of plan
and the terms and conditions of the plan. Therefore, no attempt is made
herein to provide more than general information about the use of the
Contracts with the various types of Qualified Plans. Participants under such
Qualified Plans as well as Contract Owners, Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under such Qualified
Plans may be subject to the terms and conditions of the plans themselves
regardless of the terms and conditions of the Contracts issued in connection
therewith. Following are brief descriptions of the various types of
Qualified Plans and of the use of the Contracts in connection therewith.
Tax-Sheltered Annuities. Section 403(b) of the Code permits employers of
public school employees and of employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of
the Code to purchase on behalf of their employees annuity contracts and,
subject to certain limitations, have the amount of purchase payments
excluded from the employees' gross income for tax purposes. These annuity
contracts are commonly referred to as "tax-sheltered annuities". Purchasers
of the Contracts for such purposes should seek qualified advice as to
eligibility, limitations on permissible amounts of purchase payments and tax
consequences on distribution.
Distributions from Section 403(b) tax-sheltered annuities that are
attributable to contributions made pursuant to a salary reduction agreement
may be paid only when the employee reaches age 59 1/2, separates from
service, dies or becomes disabled, or in the case of hardship (hardship, for
this purpose, is generally defined as an immediate and heavy financial need,
such as for paying for medical expenses, for the purchase of a principal
residence, or for paying certain tuition expenses).
A participant in a Contract purchased as a tax-sheltered Section 403(b)
annuity contract will not, therefore, be entitled to exercise the surrender
right, described under the heading The Contracts--Surrender (Redemption)",
in order to receive Accumulated Value attributable to elective contributions
credited under the Contract to such participant unless one of the above-
described conditions has been satisfied. The restrictions imposed by Section
403(b)(11) of the Code conflict with certain sections of the 1940 Act that
are applicable to the Contracts. In this regard, 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. Self-employed individuals may establish Qualified Plans
commonly referred to as "H.R. 10" plans for themselves and their employees.
The tax consequences to participants under such plans depend upon the plan
itself. In addition, such plans are limited by law to maximum permissible
contributions, distribution dates, nonforfeitability of interest and tax
rates applicable to distributions. In order to establish such a plan, a plan
document, usually in prototype form pre-approved by the Internal Revenue
Service, is adopted and implemented by the employer. Purchasers of the
Contracts for use with H.R. 10 plans should seek qualified advice as to the
suitability of the proposed plan document and of the Contracts to their
specific needs.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"individual retirement annuity". These individual retirement annuities are
subject to limitations on the amount that may be contributed, on the persons
who may be eligible, and on the time when distributions may commence. In
addition, distributions from certain other types of Qualified Plans may be
placed on a tax-deferred basis into an individual retirement annuity. When
issued in connection with an individual retirement annuity, the Contracts
will be specifically amended to conform to the requirements under such
plans. Sales of the Contracts for use with individual retirement annuities
may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for such purposes will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency.
Roth IRAs. Section 408A of the Code permits eligible individuals to make
nondeductible contributions to an individual retirement program known as a
"Roth IRA." Section 408A includes limits on how much an individual may
contribute to a Roth IRA and when distributions may commence. Qualified
distributions from Roth IRAs are excluded from gross income if (a) made more
than five years after the taxable year of the first contribution to the Roth
IRA, and (b) meet any of the following conditions: (1) the annuity owner
has reached age 59 1/2; (2) the distribution is paid to a beneficiary after
the owner's death; (3) the annuity owner is disabled; or (4) the
distribution (not exceeding $10,000) will be used for a first time home
purchase. Nonqualified distributions are includible in gross income only to
the extent they exceed contributions made to the Roth IRA. The taxable
portion of a nonqualified distribution may be subject to a 10% penalty tax.
Subject to certain limitations, a traditional individual retirement account
or annuity may be converted into a Roth IRA and upon such a conversion, an
individual is required to include the taxable portion of the conversion in
gross income, but is not generally subject to a 10% penalty tax.
Corporate Pension and Profit-Sharing Plans. Sections 401(a) and 403(a) of
the Code permit corporate employers to establish various types of retirement
plans for employees. Such retirement plans may permit the purchase of the
Contracts to provide benefits under the plans. Corporate employers intending
to use the Contracts in connection with such plans should seek qualified
advice in connection therewith.
Section 457 Plans. Section 457 of the Code permits states, local governments
and tax-exempt organizations to establish deferred compensation plans on
behalf of their employees. Such plans may permit the purchase of the
Contracts to provide benefits under the plans. Employers intending to use
the Contracts in connection with such plans should seek qualified advice in
connection therewith.
1035 Exchanges
Section 1035(a) of the Code permits the exchange of certain life insurance,
endowment and annuity contracts for an annuity contract without a taxable
event occurring. Thus, potential purchasers who already own such a contract
issued by another insurer are generally able to exchange that contract for a
Contract issued by 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 assets of the Fund are expected to meet the
diversification requirements. LB 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. 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 John
C. Bjork, Counsel for LB. Certain legal matters relating to the Federal
securities laws have been passed upon by the law firm of Jones & Blouch LLP,
Washington, D.C.
FINANCIAL STATEMENTS AND EXPERTS
Financial statements of 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.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Below is a copy of the Table of Contents included in the Statement of
Additional Information. To obtain a copy of this document, complete and
mail the form below.
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)
<PAGE>
APPENDIX A
DEFINITIONS
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.
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 who controls all the rights under the Contract
while the Annuitant is alive. The Annuitant is the Contract Owner, unless
another owner is named in the Contract application.
Contract Year. The period from one Contract Anniversary to the next. The
first Contract Year will be the period beginning on the Date of Issue and
ending on the first Contract Anniversary.
Date of Issue. The date on which the application and the first premium are
received by 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 C.)
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 LBVIP shall specify in a notice to the
Contract Owner.
LBSC. Lutheran Brotherhood Securities Corp., which is an indirect subsidiary
of Lutheran Brotherhood and which acts as the principal underwriter of the
Contracts.
LB Representative. A person who is licensed by state insurance officials to
sell the Contracts and who is also a registered representative of LBSC.
Lutheran Brotherhood ("LB"). A fraternal benefit society organized under the
laws of the State of Minnesota and owned by and operated for its members,
and which acts as the investment adviser to the Fund.
Portfolio. A Portfolio of the Fund. Each Subaccount invests exclusively in
the shares of a corresponding Portfolio of the Fund.
Qualified Plan. A retirement plan qualified under Section 401, 403 408 or
408A or similar provisions of the Internal Revenue Code.
Subaccount. A subdivision of the Variable Account. Each Subaccount invests
exclusively in the shares of a corresponding Portfolio of the Fund.
Valuation Day. Each day the New York Stock Exchange is open for trading and
any other day on which there is sufficient trading in the securities of a
Portfolio of the Fund such that the current net asset value of its shares
might be materially affected.
Valuation Period. The period commencing at the close of business of a
Valuation Date and ending at the close of business of the next Valuation
Date.
Variable Account. 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.
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION
Condensed Financial Information
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction
with the financial statements, related notes and other financial information
included in the Statement of Additional Information.
Selected data for Accumulation Units outstanding throughout the period
ending December 31:
<TABLE>
<CAPTION>
Opportunity Growth Subaccount
---------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $11.29 $11.77 $11.79** $10.00
End of period 14.25 11.29 11.77 11.79
Number of Accumulation Units
outstanding at end of period 16,400,624 16,883,494 15,755,047 8,925,231
Mid Cap Growth Subaccount
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Accumulation Unit Value:
Beginning of period $11.05 $10.00**
End of period 16.36 11.05
Number of Accumulation Units
outstanding at end of period 9,407,840 4,916,782
World Growth Subaccount
---------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $12.83 $11.11 $10.93** $10.00
End of period 17.02 12.83 11.11 10.93
Number of Accumulation Units
outstanding at end of period 17,359,292 14,890,293 12,470,902 6,809,063
Growth Subaccount
---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $48.27 $38.02 $29.52 $24.38 $17.95 $19.68*
End of period 68.60 48.27 38.02 29.52 24.38 17.95
Number of Accumulation Units
outstanding at end of period 27,300,490 24,210,985 19,279,447 13,809,177 7,742,874 3,142,640
High Yield Subaccount
---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $26.78 $27.50 $24.35 $22.06 $18.64 $20.41
End of period 29.28 26.78 27.50 24.35 22.06 18.64
Number of Accumulation Units
outstanding at end of period 21,383,391 20,236,846 15,720,991 10,632,678 5,557,895 2,514,043
Income Subaccount
---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $22.57 $20.86 $19.39 $18.98 $16.07 $17.21
End of period 21.87 22.57 20.86 19.39 18.98 16.07
Number of Accumulation Units
outstanding at end of period 18,690,873 16,424,298 11,878,420 9,066,360 5,274,785 2,264,894
Money Market Subaccount
---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value:
Beginning of period $1.61 $1.55 $1.48 $1.43 $1.36 $1.33
End of period 1.67 1.61 1.55 1.48 1.43 1.36
Number of Accumulation Units
outstanding at end of period 88,494,861 57,199,273 34,676,637 31,024,219 15,771,786 5,984,694
- ----------
</TABLE>
*Commencing February 1, 1994, the date the Registration Statement for the
Variable Account was declared effective.
**Commencing January 18, 1996.
***Commening January 30, 1998.
The financial statements of LBVIP are also contained in the Statement of
Additional Information.
<PAGE>
APPENDIX C
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 ("1933
Act"), nor is the Fixed Account registered as an investment company under
the Investment Company Act of 1940 ("1940 Act"). Accordingly neither the
Fixed Account nor any interests therein are generally subject to the
provisions of the 1933 or 1940 Acts. Disclosures regarding the Fixed Account
option and the Fixed Account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements in prospectuses. LB has been advised
that the staff of the Securities and Exchange Commission has not reviewed
disclosure relating to the Fixed Account.
Accumulated Values allocated to the Fixed Account are combined with all the
general assets of LB and are invested in those assets chosen by LB and
allowed by applicable law. LB allocates the investment income of the Fixed
Account to the Contracts covered by the Fixed Account in the amounts
guaranteed in such Contracts. Immediately prior to the Maturity Date, the
Accumulated Value of the Contract in the Fixed Account is subject to a
reduction for any surrender charge, if applicable.
Under the Fixed Account option, LB allocates premium payments to the Fixed
Account, guarantees the amounts allocated to the Fixed Account, and pays a
declared interest rate. The guaranteed minimum interest credited to the
Fixed Account will be at the effective rate of 3% per year, compounded
daily. LB may credit interest at a rate in excess of 3% per year; however,
LB is not obligated to credit any interest in excess of 3% per year. There
is no specific formula for the determination of excess interest credits.
Such credits, if any, will be determined by LB based on information as to
expected investment yields. Some of the factors that LB may consider in
determining whether to credit interest above 3% to amounts allocated to the
Fixed Account, and the amount thereof, are general economic trends, rates of
return currently available and anticipated on LB's investments, regulatory
and tax requirements and competitive factors. ANY INTEREST CREDIT TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE DETERMINED
AT THE SOLE DISCRETION OF LB. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 3% FOR ANY GIVEN YEAR.
Nonetheless, for any amount allocated or transferred to the Fixed Account,
LB guarantees that the initial interest rate will be effective for at least
12 months, and subsequent interest rates will not be changed more often than
once every 12 months.
To the extent a fixed annuity payment option is selected by the Contract
Owner, Accumulated Value at the Maturity Date will be transferred to the
Fixed Account, which supports the insurance and annuity obligations of LB.
Contract Owners have no voting rights in the Variable Account with respect
to Fixed Account values.
<PAGE>
APPENDIX D
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 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: 4/30/2000
Prepared by: Lutheran Brotherhood Cash Available at Settlement: $100,000
Sex: Male Date of Birth: 4/30/1935 Funds: Nonqualified
State: MN Initial Monthly Income: $608
Income Option: Life Income with 10 Year Guaranteed Period
The monthly variable annuity income amount shown below assumes a
constant annual investment return. The assumed investment rate of 3.50% is
used to calculate the first monthly payment. Thereafter, monthly payments
will increase or decrease based upon the relationship between 3.50% and the
performance of the Subaccounts selected. The investment returns shown are
hypothetical and not a representation of future results.
Annual Rate of Return
--------------------------------------
0% Gross 5.06% Gross 12.00% Gross
Date Age (-1.56% Net) (3.50% Net) (10.44% Net)
- ----------------------- --- ------------ ------------ ------------
April 30, 2000 65 $608 $608 $ 608
April 30, 2001 66 578 608 649
April 30, 2002 67 550 608 692
April 30, 2003 68 523 608 739
April 30, 2004 69 498 608 788
April 30, 2009 74 387 608 1,090
April 30, 2014 79 301 608 1,508
April 30, 2019 84 235 608 2,087
April 30, 2024 89 183 608 2,886
April 30, 2029 94 142 608 3,993
April 30, 2034 99 111 608 5,524
April 30, 2035 100 105 608 5,894
If 100% of your cash available at settlement was applied to provide a fixed
annuity on the commencement date of this illustration, the fixed annuity
income amount would be $709.
Net rates of return reflect expenses totaling 1.56%, which consist of the
current 1.10% Variable Account mortality and expense risk charge and 0.46%
for the Fund advisory fee (this is an average with the actual varying from
0.40% to 0.85%).
This is an illustration only and not a contract.
<PAGE>
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, 2000(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 1,2000.
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 1999, LB and its subsidiaries had total assets of approximately
$22.94 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 seven 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
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of LB should be considered only as bearing upon the
ability of LB to meet its obligations under the Contracts. The financial
statements of LB should not be considered as bearing on the investment
experience of the assets held in the Variable Account.
DISTRIBUTION OF THE CONTRACTS
Lutheran Brotherhood Securities Corp. ("LBSC"), an indirect subsidiary of
Lutheran Brotherhood, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement to which LB and the Variable Account
are also parties. The Contracts are sold through LB Representatives who are
licensed by state insurance officials to sell the Contracts. These LB
Representatives are also registered representatives of LBSC. The Contracts
are offered in all states where LB is authorized to sell variable annuities.
The offering of the Contracts is continuous.
There are no special purchase plans or exchange privileges not described in
the Prospectus (see "THE CONTRACTS--Transfers" in the Prospectus).
No charge for sales expense is deducted from premiums at the time premiums
are paid. However, a surrender charge, which may be deemed to be a
contingent deferred sales charge, is deducted from the Accumulation Value of
the Contract in the case where the Contract is surrendered, in whole or in
part, before annuity payments begin and, if certain settlement options are
selected, at the time annuity payments begin, under the circumstances
described in, and in amounts calculated as described in, the Prospectus
under the heading "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent
Deferred Sales Charge)".
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, 1999:
Value of hypothetical pre-existing account with exactly
one Accumulation Unit at the beginning of the period $1.670558
Value of same account (excluding capital changes) at end
of the seven-day period $1.671978
Net change in account value $0.001420
Base Period Return:
Net change in account value divided by beginning account value $0.000850
Annualized Current Yield [0.000850 X (365/7)] 4.43%
Effective Yield (0.000850 + 1)365/7-1 4.53%
The annualization of a seven-day average yield is not a representation of
future actual yield.
Other Subaccounts
The Prospectus contains information with respect to yield quotations by
Subaccounts other than the Money Market Subaccount. These yield quotations
are based on a 30-day (or one month) period computed by dividing the net
investment income per accumulation unit earned during the period (the net
investment income earned by the Fund portfolio attributable to shares owned
by the Subaccount less expenses incurred during the period) by the maximum
offering price per Accumulation Unit on the last day of the period, by
setting yield equal to two times the difference between the sixth power of
one plus the designated ratio and one, where the designated ratio is the
difference between the net investment income earned during the period and
the expenses accrued for the period (net of reimbursement) divided by the
product of the average daily number of Accumulation Units outstanding during
the period and the maximum offering price per Accumulation Unit on the last
day of the period.
For fees that vary with the size of the Contract, a Contract size equal to
the mean (or median) contract size has been assumed.
The following example illustrates the annualized current yield calculation
for the High Yield Subaccount for the 30-day base period ended December 31,
1999:
Dividends and interest earned by the High Yield Subaccount
during the base period $5,878,306
Expenses accrued for the base period $ 786,232
------------
$5,092,074(A)
============
Product of the maximum public offering price on
the last day of the base period and the average
daily number of Units outstanding during
the base period that were entitled to receive
dividends ($29.27706 x 21,465,690 Units) = $628,452,294(B)
=============
Quotient of dividends and interest earned minus
expenses accrued divided by product of maximum
public offering price multiplied by average
Units outstanding (A divided by B) = 0.008102(C)
Adding one and raising total to the
6th power (C + 1)6= 1.04959(D)
Annualized current yield [2(D - 1) X 100] = 9.92%
The following example illustrates the annualized current yield calculation
for the Income Subaccount for the 30-day base period ended December 31,
1999:
Dividends and interest earned by the Income Subaccount
during the base period $2,481,808
Expenses accrued for the base period $ 519,997
------------
$1,961,811(A)
============
Product of the maximum public offering price on
the last day of the base period and the average
daily number of Units outstanding during
the base period that were entitled to receive
dividends ($21.870521 x 18,740,219 Units) = $409,858,353(B)
Quotient of dividends and interest earned minus
expenses accrued divided by product of maximum
public offering price multiplied by average
Units outstanding (A divided by B) = 0.00478(C)
Adding one and raising total to the 6th power (C + 1)6 = 1.02902(D)
Annualized current yield [2(D-1) X 100] = 5.81%
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-year, 5-year and since inception periods
computed by finding the average annual compounded rates of return over the
1-year, 5-year and since inception 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 some subaccounts, average annual total
return figures also are provided for a 10-year period 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.
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 LB through December 31, 1999:
Hypothetical $1,000 initial investment on February 3, 1994 $1,000
Ending redeemable value of the investment on
December 31, 1999 (after deferred sales charge) $3,455
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%) 245.46%*
Average annual total return from inception through
December 31, 1999 is the sum of the total return
calculated above plus one; such sum is raised to
the power of 1/n where n is expressed as five years
and 11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 23.34%*
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 LB through December 31, 199:
Hypothetical $1,000 initial investment on February 3, 1994
$1,000
Ending redeemable value of the investment on
December 31, 1999 (after deferred sales charge) $1,422
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms of
a percentage (For example, 2 equals 200%) 42.15%*
Average annual total return from inception through
December 31, 1999 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as five years
and 11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 6.13%*
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 LB through December 31, 1999:
Hypothetical $1,000 initial investment on February 3, 1994
$1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,259
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%) 25.91%*
Average annual total return from inception through
December 31, 1999 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as five years
and 11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 3.98%*
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 LB through December 31, 199
Hypothetical $1,000 initial investment on February 3, 1994 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,248
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%) 24.80%*
Average annual total return from inception through
December 31, 1998 is the sum of the total return
calculated above plus one; such sum is raised to the
power of 1/n where n is expressed as five years and
11 months; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 3.82%*
The following example illustrates the average annual total return for the
Opportunity Growth Subaccount from the date of inception through the period
ended December 31, 1999:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1999 (after deferred sales charge) $1,387
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms of
a percentage (For example, 2 equals 200%) 38.66%*
Average annual total return from inception through December
31, 1999 is the sum of the total return calculated above plus
one; such sum is raised to the power of 1/n where n is
expressed as three years and 347 days; the result is reduced
by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 8.62%*
The following example illustrates the average annual total return for the
World Growth Subaccount from the date of inception through December 31,
1999:
Hypothetical $1,000 initial investment on January 18, 1996 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,656
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms
of a percentage (For example, 2 equals 200%) 65.63%*
Average annual total return from inception through December
31, 1998 is the sum of the total return calculated above
plus one; such sum is raised to the power of 1/n where n
is expressed as three years and 347 days; the result is
reduced by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 13.61%*
The following example illustrates the average annual total return for the
Mid Cap Growth Subaccount from the date of inception through December 31,
1999:
Hypothetical $1,000 initial investment on January 30, 1998 $1,000
Ending redeemable value of the investment on December 31, 1999
(after deferred sales charge) $1,562
Total return for the period is the difference between the
ending redeemable value and the hypothetical $1,000
initial investment divided by the hypothetical $1,000
initial investment; the result is expressed in terms
of a percentage (For example, 2 equals 200%) 56.25%*
Average annual total return from inception through December 31,
1999 is the sum of the total return calculated above plus
one; such sum is raised to the power of 1/n where n is
expressed as one year and 335 days; the result is reduced by
one and is expressed in terms of a percentage (For example,
0.2 equals 20%) 26.20%*
- -----------------------------
*Does not include the annual administrative charge of $30 deducted from any
Contract for which the total of premiums paid under such Contract minus all
prior surrenders is less than $5,000 and 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.
[TO BE FILED BY 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.
[TO BE FILED BY 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. (3)
Financial Statements of LB Variable Annuity Account I. (3)
(b) Exhibits:
1. Resolution of the Board of Directors of Lutheran Brotherhood
("Depositor") authorizing the establishment of LB Variable
Annuity Account I ("Registrant"). (1)
2. Not Applicable.
3.(a) Form of Distribution Agreement between Depositor and
Lutheran Brotherhood Securities Corp ("LBSC"). (1)
(b) Forms of General Agent's Agreement and Selected Registered
Representative Agreement between LBSC and agents with
respect to the sale of Contracts. (1)
4. Form of Contract. (1)
5. Contract Application Form. (1)
6. Articles of Incorporation and Bylaws of Depositor. (1)
7. Not Applicable.
8. Not Applicable.
9. Opinion of counsel as to the legality of the securities being
registered (including written consent). (1)
10. Not Applicable.
11. Not Applicable.
12. Not Applicable.
13. Computations of Performance Data. (1)
14. Consent of Independent Accountant. (3)
15. Powers of Attorney. (2)
16. Consent of Counsel. (3)
________________________________
(1) Included in Post-Effective Amendment No. 8 filed April 30, 1998.
(2) Filed herewith.
(3) To be filed by subsequent amendment.
Item 25. Directors and Officers of the Depositor
DIRECTORS POSITIONS AND OFFICES WITH DEPOSITOR
Robert P. Gandrud Chairman of the Board of
Lutheran Brotherhood Directors, Chief Executive
625 Fourth Avenue South Officer
Minneapolis, Minnesota
Robert O. Blomquist Director
16060 Kelly Cove Drive
Fort Myers, Florida
Dr. Addie J. Butler Director
Assistant Dean
Community College of Philadelphia
1700 Spring Garden Street
Philadelphia, Pennsylvania
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
James M. Hushagen Director
Partner, Eisenhower & Carlson
1201 Pacific Avenue, Suite 1200
Tacoma, Washington
Richard C. Kessler Director
President
The Kessler Enterprise, Inc.
7380 Sand Lake Road, Suite 120
Orlando, Florida
Dr. Luther S. Luedtke Director
California Lutheran University
60 West Olsen Road
Thousand Oaks, California
Richard C. Lundell Director
Lutheran Brotherhood
10000 W. Highway 55, Suite 300
Plymouth, Minnesota
John P. McDaniel Director
President
MedStar Health
5565 Sterett Place
Columbia, Maryland
Bruce J. Nicholson President, Chief Operating
Lutheran Brotherhood Officer and Director
625 Fourth Avenue South
Minneapolis, Minnesota
Dr. Mary Ellen H. Schmider Director
Retired, formerly Dean of Graduate Studies
Coordinator of Grants
Moorhead State University
7701 180th Street
Chippewa Falls, Wisconsin
Dr. Kurt M. Senske Director
President and CEO
Lutheran Social Services
408 West 45th Street
Austin, Texas
Dr. Albert K. Siu Director
Vice President
AT&T
19 SchoolHouse Road, Room A107
Somerset, New Jersey
OFFICERS POSITIONS AND OFFICES WITH DEPOSITOR
Bruce J. Nicholson President and Chief Operating
Officer
Robert P. Gandrud Chairman and Chief Executive Officer
David W. Angstadt Executive Vice President and Chief
Marketing Officer
Rolf F. Bjelland Executive Vice President -
Subsidiary Management
J. Keith Both Senior Vice President - Marketing
Randall L. Boushek Senior 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 - Information
Technology Resources
Jennifer H. Martin Senior Vice President - Human
Resources
James R. Olson Senior Vice President - Member
Services
Jerald E. Sourdiff Senior Vice President and Chief
Financial Officer
Daniel G. Walseth Senior Vice President - Law
Mary M. Abbey Vice President - Client Systems
Galen R. Becklin Vice President - MIS Data Center
Larry A. Borlaug Regional Vice President
Colleen Both Vice President - Chief Compliance
Officer
Michael R. Braun Vice President - Management
Information Services
David J. Christianson Vice President - Member Operations
Pamela H. Desnick Vice President - Communications
Nathan A. Dungan Vice President - Marketing
Mitchell F. Felchle Vice President - Institutional
Relations Group
Craig L. Halverson Vice President - Field Force
Development
Charles E. Heeren Vice President - Mutual Fund
Equities
Wayne A. Hellbusch Regional Vice President
Otis F. Hilbert Vice President - Law
Roger W. Howe Vice President - Tech Competencies
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 Vice President - Marketing
Susan Oberman Smith Vice President - Product Development
Kay J. Owen Vice President - Corporate Planning
Dennis K. Peterson Vice President - Corporate Scorecard
Bruce M. Piltingsrud Vice President - Market Development
Richard B. Ruckdashel Vice President - Product Marketing
Rolf H. Running Vice President - Financial
Management
Mark L. Simenstad Vice President - Mutual Fund Bond
Investments
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
Mark O. Swenson Vice President - General Accounting
Bond Investments
Louise K. Thoresen Vice President - External Programs
and Charitable Contributions
James M. Walline Vice President - Equities/Mutual
Funds Investment
Anita J.T. Young Vice President - Assistant to
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 98,423 Contract Owners as of February 21, 2000.
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 $15,000,000
coverage for officers, employees, and agents of Lutheran Brotherhood, LBVIP
and LBSC.
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 Opportunity
Growth Fund, Lutheran Brotherhood Mid Cap Growth Fund, Lutheran Brotherhood
World Growth Fund, Lutheran Brotherhood Growth Fund, Lutheran Brotherhood
Fund, Lutheran Brotherhood Value Fund, Lutheran Brotherhood High Yield Fund,
Lutheran Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund,
Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood
Money Market Fund. LBSC also acts or will act as the principal underwriter
of the following variable contracts: flexible premium variable life
insurance contracts issued by 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:
Bruce J. Nicholson Chairman and Director
David W. Angstadt President and Director
Rolf F. Bjelland Director
Randall L. Boushek Director
Michael E. Loken Director
Jennifer H. Martin Director
James R. Olson Vice President and Director
Jerald E. Sourdiff Chief Financial Officer and Director
Daniel G. Walseth Director
David K. Stewart Treasurer
Colleen Both Vice President and Chief Compliance
Officer
Otis F. Hilbert Vice President and Secretary
Larry A. Borlaug Vice President
J. Keith Both Vice President
Mitchell F. Felchle Vice President
Wayne A. Hellbusch Vice President
Douglas B. Miller Vice President
Richard B. Ruckdashel Vice President
Vicki R. Brandt Assistant Vice President
David J. Christianson Assistant Vice President
Katie S. Kloster Assistant Vice President
Frederick P. Johnson Assistant Vice President
Brenda J. Pederson Assistant Vice President
Marie A. Sorensen Assistant Vice President
John C. Bjork Assistant Secretary
Marlene J. Nogle Assistant Secretary
The principal business address of each of the foregoing officers is 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of Registrant are located 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 28th day of February, 2000.
LB VARIABLE ANNUITY ACCOUNT I
(Registrant)
By LUTHERAN BROTHERHOOD
(Depositor)
By /s/ Bruce J. Nicholson*
----------------------------
Bruce J. Nicholson, President
and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, the
Depositor has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis and State of Minnesota on the 28th day of February,
2000.
LUTHERAN BROTHERHOOD
(Depositor)
By /s/ Bruce J. Nicholson*
----------------------------
Bruce J. Nicholson, President
and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed on the 28th day of
February, 2000 by the following directors and officers of Depositor in the
capacities indicated:
/s/ Robert P. Gandrud* Chairman and Chief Executive Officer
----------------------- (Chief Executive Officer)
Robert P. Gandrud
/s/ Bruce J. Nicholson* President and Chief Operating Officer
-----------------------
Bruce J. Nicholson
/s/ Jerald E. Sourdiff* Senior Vice President and Chief
----------------------- Financial Officer (Principal
Jerald E. Sourdiff Financial Officer)
/s/ David K. Stewart* Vice President and Treasurer (Principal
----------------------- Accounting Officer)
David K. Stewart
A Majority of the Board of Directors:*
Robert P. Gandrud Luther S. Luedtke
Robert O. Blomquist Richard C. Lundell
Addie J. Butler John P. McDaniel
Richard W. Duesenberg Bruce J. Nicholson
Bobby I. Griffin Mary Ellen H. Schmider
James M. Hushagen Kurt M. Senske
Richard Kessler Albert K. Siu
*By: /s/ John C. Bjork
--------------------------------
John C. Bjork, Attorney-in-Fact,
pursuant to Powers of Attorney
dated February 24, 2000, filed
herewith.
LUTHERAN BROTHERHOOD
LB VARIABLE ANNUITY ACCOUNT I
POWER OF ATTORNEY OF
DIRECTORS AND OFFICERS
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned
directors and/or officers of LUTHERAN BROTHERHOOD, a fraternal benefit
society organized under the laws of the state of Minnesota (the "Society"),
the Depositor of LB VARIABLE ANNUITY ACCOUNT I, does hereby make, constitute
and appoint John C. Bjork, Otis F. Hilbert, and Daniel G. Walseth, and each
or any of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name,
place and stead, to sign and affix the undersigned's name as such director
and/or officer of such Society to an Exemptive Order Application,
Registration Statement or Registration Statements, on Form N-4 or other
applicable form, and all amendments, including post-effective amendments,
thereto, to be filed by such Society with the Securities and Exchange
Commission, Washington, D.C., in connection with the registration under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, of shares of such Society, and to file the same, with all
exhibits thereto and other supporting documents, with such Commission,
granting unto such attorneys-in-fact, and each of them, full power and
authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her
hand this 24th day of February, 2000.
/s/ Robert P. Gandrud /s/ Bruce J. Nicholson
- --------------------------- ----------------------------
Robert P. Gandrud Bruce J. Nicholson
Chief Executive Officer President, Chief Operating
and Chairman Officer and Director
/s/ Robert O. Blomquist /s/ Addie J. Butler
- --------------------------- ----------------------------
Robert O. Blomquist Addie J. Butler
Director Director
/s/ Richard W. Duesenberg /s/ Bobby I. Griffin
- --------------------------- ----------------------------
Richard W. Duesenberg Bobby I. Griffin
Director Director
/s/ James M. Hushagen /s/ Richard C. Kessler
- --------------------------- ----------------------------
James M. Hushagen Richard C. Kessler
Director Director
/s/ Luther S. Luedtke /s/ Richard C. Lundell
- --------------------------- ----------------------------
Luther S. Luedtke Richard C. Lundell
Director Director
/s/ John P. McDaniel /s/ Mary Ellen H. Schmider
- --------------------------- ----------------------------
John P. McDaniel Mary Ellen H. Schmider
Director Director
/s/ Kurt M. Senske /s/ Albert Siu
- --------------------------- ----------------------------
Kurt M. Senske Albert Siu
Director Director
/s/ Jerald E. Sourdiff /s/ David K. Stewart
- --------------------------- ----------------------------
Jerald E. Sourdiff David K. Stewart
Senior Vice President Treasurer
