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Prospectus
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Flexible Premium
Variable Life Insurance Contract
Issued By
Lutheran Brotherhood
625 Fourth Avenue South * Minneapolis, Minnesota 55415 * (612) 340-7210
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This Prospectus describes a flexible premium variable life insurance
contract (the "Contract") being offered by Lutheran Brotherhood ("LB"), a
fraternal benefit society organized under the laws of the state of
Minnesota. LB is offering the Contract only to persons who are eligible for
membership in Lutheran Brotherhood. This Contract is designed to provide
insurance protection until the Insured's Attained Age 96. It is also
designed to provide maximum flexibility in connection with premium payments
and death benefits by giving the Contract owner the opportunity to allocate
net premiums among investment alternatives with different investment
objectives. A Contract owner may, subject to certain restrictions, including
limitations on premium payments, vary the frequency and amount of premium
payments and increase or decrease the level of death benefits payable under
the Contract. This flexibility allows a Contract owner to provide for
changing insurance needs under a single insurance contract.
The Contract provides for a death benefit payable at the Insured's death. As
long as the Contract remains in force, the death benefit will never be less
than the current Face Amount of the Contract (although the amount of any
Contract Debt and any due and unpaid Contract charges will be deducted from
the death benefit proceeds). The Contract's minimum Face Amount at issue is
$50,000 for Insureds with an Attained Age of 20 through 50, and $25,000 for
all other Insureds. After issuance of the Contract, the minimum Face Amount
at issue continues to apply to the Contract, except that if a Contract has a
minimum Face Amount of $50,000 the minimum Face Amount will be reduced to
$25,000 after the Insured reaches Attained Age 51. Subject to certain
limitations, the Face Amount may be increased provided that the increase is
for not less than $10,000. The Contract is available only on Insureds who
have an Attained Age 80 or less at issue. A Contract will be issued only
after payment of the Minimum Contract Issuance Premium described in the
Prospectus (see the section entitled "PAYMENT AND ALLOCATION OF PREMIUMS--
Issuance of a Contract" in the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Prospectus 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, 1996.
Generally, the Contract will remain in force as long as (a) the Cash
Surrender Value (that is, the Accumulated Value of the Contract, less any
Contract Debt, and any charges that would be imposed upon surrender or
lapse), is sufficient to pay certain monthly charges imposed in connection
with the Contract (including the cost of insurance and additional insurance
benefits and various administrative charges) and (b) Contract Debt does not
exceed the Accumulated Value less any charges that would be imposed upon
surrender or lapse. (The "Accumulated Value" is the total amount of value
held under the Contract at any time). The Contract will remain in force,
however, if sufficient premium payments have been made on the Contract to
maintain the Death Benefit Guarantee (see the section entitled "DEATH
BENEFIT GUARANTEE" in the Prospectus). This additional protection against
lapse, which is called the "Death Benefit Guarantee", will apply until the
specified Attained Age of the Insured shown in the Contract, which Attained
Age will be the later of (a) the Insured's Attained Age 71 and (b) the
Attained Age of the Insured at the end of a period ranging from 6 to 31
years (varying with the Insured's Attained Age at issue) from the Date of
Issue. Partial surrenders and the Contract Loan Amount will, subject to
certain exceptions, be deducted from cumulative premium payments for the
purpose of determining whether sufficient premium payments have been made to
maintain this protection. The Death Benefit Guarantee terminates immediately
when these cumulative premium requirements are not satisfied, subject to a
very limited right of reinstatement. Each premium payment under the Contract
is subject to the deduction of a percent-of-premium charge of 5% of each
premium payment (a 5% sales charge), as well as a premium processing charge
currently equal to $1.00 per premium payment ($.50 for automatic payment
plans). The amount of the Contract's death benefit may, and the Contract's
Accumulated Value will, reflect the investment performance of the
Subaccount(s) of the Variable Account selected by the Contract owner, as
well as the frequency and amount of premiums paid, any partial surrenders,
and the charges and deductions assessed in connection with the Contract. The
Contract owner bears the entire investment risk for all amounts allocated to
the Variable Account; no minimum Accumulated Value is guaranteed.
In general, net premiums will be allocated to one or more of the Subaccounts
of the Variable Account according to the Contract owner's instructions.
However, until the Contract Date (see the section entitled "DEFINITIONS" in
the Prospectus), premiums paid under the Contract will be allocated to LB's
General Account (see "PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a
Contract"), and then on the Contract Date the net premiums, plus any
interest credited on premiums held in the General Account, will be
transferred to the Variable Account and allocated among the Subaccount(s)
pursuant to the Contract owner's instructions.
The assets of each Subaccount will be invested solely in a corresponding
Portfolio of LB Series Fund, Inc. (the "Fund"), which is a diversified,
open-end management investment company (commonly known as a "mutual fund").
The accompanying Prospectus for the Fund describes the investment objectives
and attendant risks of the six Portfolios of the Fund, the Growth Portfolio,
the High Yield Portfolio, the Income Portfolio, the Opportunity Growth
Portfolio, the World Growth Portfolio, and the Money Market Portfolio.
Additional Subaccounts (together with the related additional Portfolios of
the Fund) may be added in the future.
A Contract owner will have two options with respect to the death benefit
under the Contract. Under Option A, the death benefit is the greater of (a)
the Face Amount of the Contract plus the Accumulated Value and (b) a
specified percentage of Accumulated Value. Under Option B, the death benefit
is the greater of (a) the Face Amount of the Contract and (b) a specified
percentage of Accumulated Value. Under either option, the amount payable on
death is reduced by any outstanding Contract Debt and any due and unpaid
charges. A Contract owner has the right to change the death benefit option,
subject to certain conditions.
In addition to the charges deducted from the premium payments, certain fees
and charges will be deducted from the Contract's Accumulated Value. A
mortality and expense risk charge currently equal to .60% (guaranteed never
to exceed .75%) of the net asset value on an annual basis will be deducted
to compensate LB for the risk that mortality experience or expenses will
exceed those anticipated. Each month, a charge will be made (the "Monthly
Deduction") including a basic monthly administration charge of $4.00; a
charge for the cost of insurance and any additional benefits added by rider;
and for the first 120 Monthly Deductions, an initial monthly administrative
charge (the "Initial Monthly Administrative Charge"). Also, a deferred
charge (the "Decrease Charge") consisting of a contingent deferred sales
charge (the "Contingent Deferred Sales Charge") and a deferred
administrative charge (the "Deferred Administrative Charge") will be imposed
if the Contract is surrendered or lapses, or if the Contract owner requests
a decrease in Face Amount, in each case at any time before 120 Monthly
Deductions have been made. The amounts of the Initial Monthly Administrative
Charge, the Contingent Deferred Sales Charge, and the Deferred
Administrative Charge will vary depending upon a number of factors
(including, as to one or more of the charges, the amount of premium payments
and the Face Amount of the Contract). See "CHARGES AND DEDUCTIONS--
Accumulated Value Charges--Decrease Charge--Monthly Deduction."
Because the charges imposed upon early surrender or lapse may be
significant, you should purchase a Contract only if you have the financial
capability to keep it in force for a substantial period of time. Also,
charges imposed upon surrender or lapse of the Contract will usually exceed
the Accumulated Value of the Contract during the early Contract years, which
means that payments sufficient to maintain the Death Benefit Guarantee will
usually be required to avoid lapse during this period of time. Moreover,
because additional charges may be imposed upon surrender or lapse after a
requested increase in Face Amount, the Death Benefit Guarantee may be
required to avoid lapse after a requested increase whenever the Accumulated
Value is not sufficient to cover these additional charges. See "PAYMENT AND
ALLOCATION OF PREMIUMS--Amount and Timing of Premiums--Contract Lapse and
Reinstatement", "DEATH BENEFIT GUARANTEE", and "CHARGES AND DEDUCTIONS--
Accumulated Value Charges--Decrease Charge".
Replacing existing insurance with a Contract described in this Prospectus
may not be to your advantage. In addition, it may not be to your advantage
to purchase this Contract to obtain additional insurance protection if you
already own another life insurance contract.
This Prospectus does not constitute an offering or solicitation in any
jurisdiction in which such offering or solicitation may not be lawfully
made. No person is authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus or the accompanying Fund prospectus and, if given or
made, such information or representations must not be relied upon as having
been authorized.
This entire Prospectus should be read to completely understand the Contract
being offered.
The primary purpose of the Contract is to provide insurance protection for
the beneficiary named in the Contract. No claim is made that the Contract is
in any way similar or comparable to a systematic investment plan of a mutual
fund.
TABLE OF CONTENTS
Page
DEFINITIONS 6
SUMMARY 12
The Contract 12
Subaccounts of the Variable Account; Portfolios of the Fund 12
Death Proceeds and Death Benefit Options 13
Additional Insurance Benefits 13
Amount of Accumulated Value and Cash Surrender Value 14
Flexibility to Adjust Amount of Death Benefit 14
Contract Issuance 15
Allocation of Net Premiums 15
Contract Lapse and Reinstatement 15
Death Benefit Guarantee Protection 16
Charges Assessed in Connection with the Contract 16
Free Look Privileges 18
Loan Privileges 19
Exchange Privileges 19
Surrender of the Contract 19
Tax Treatment of Accumulated Value 20
Tax Treatment of Death Benefits Received by the Beneficiary 20
Employment-Related Benefit Plans 20
LUTHERAN BROTHERHOOD AND THE VARIABLE ACCOUNT 21
Lutheran Brotherhood 21
The Variable Account 21
LB Series Fund, Inc. 21
Performance Information 23
Addition, Deletion or Substitution of Investments 23
CONTRACT BENEFITS 24
Death Benefits 24
Accumulated Value and Cash Surrender Value 29
Benefits at Maturity 30
Payment of Contract Benefits 30
PAYMENT AND ALLOCATION OF PREMIUMS 31
Issuance of a Contract 31
Amount and Timing of Premiums 32
Allocation of Premiums and Accumulated Value 34
Contract Lapse and Reinstatement 35
CHARGES AND DEDUCTIONS 37
Premium Expense Charges 37
Accumulated Value Charges 38
Decrease Charge 38
Monthly Deduction 42
Partial Surrender Charge 45
Charges Against the Variable Account 45
DEATH BENEFIT GUARANTEE 46
CONTRACT RIGHTS 48
Loan Privileges 48
Surrender Privileges 50
Free Look Privileges 52
Exchange Privileges 53
GENERAL PROVISIONS 54
Postponement of Payments 54
Date of Receipt 54
The Contract 54
Suicide 54
Incontestability 55
Change of Owner or Beneficiary 55
Assignment as Collateral 55
Misstatement of Age or Sex 55
Due Proof of Death 55
Reports to Contract Owners 55
Additional Insurance Benefits 56
Accelerated Benefits Rider 56
Reservation of Certain Rights 57
FEDERAL TAX MATTERS 58
Contract Proceeds 58
LB's Tax Status 60
EMPLOYMENT-RELATED BENEFIT PLANS 60
VOTING RIGHTS 60
DIRECTORS AND OFFICERS OF LB 61
Directors 61
Executive Officers 62
SALES AND OTHER AGREEMENTS 63
LEGAL PROCEEDINGS 64
LEGAL MATTERS 64
EXPERTS 64
FURTHER INFORMATION 64
FINANCIAL STATEMENTS 64
APPENDIX A - Illustrations of Death Benefits, Accumulated
Values and Cash Surrender Values A-1
APPENDIX B - Deferred Administrative Charges Per
$1,000 of Face Amount B-1
APPENDIX C - Initial Monthly Administrative Charges Per
$1,000 of Face Amount C-1
DEFINITIONS
Accumulated Value. The total amount of value held under a Contract at any
time (which equals the sum of the amounts held in the Loan Account and
Variable Account). A Contract's Accumulated Value will reflect the
investment performance of the chosen Subaccounts of the Variable Account,
any Net Premiums paid, any partial surrenders, any loans, any loan
repayments, any loan interest paid or credited, and any charges assessed in
connection with the Contract (see detailed formula under "CONTRACT BENEFITS-
- -Accumulated Value and Cash Surrender Value"). The Accumulated Value is
relevant to the continuation of the Contract, to Cash Surrender Value (which
determines various other rights under the Contract), to determining the
amount available for Contract loans, and for computation of cost of
insurance charges, and may be relevant to the computation of Death Benefits.
The Accumulated Value should be distinguished from the Cash Surrender Value.
The Accumulated Value, unlike the Cash Surrender Value, is not reduced by
any Decrease Charge or Contract Debt. See definition of "Cash Surrender
Value" below.
Attained Age. On any day during the first Contract Year, the age of the
Insured on the Date of Issue, and then, on any day during each succeeding
Contract Year, the age of the Insured on the Contract Anniversary on or
immediately prior to that day.
Beneficiary. The Beneficiary designated by the applicant in the application.
If changed, the Beneficiary is as shown in the latest change filed with LB.
If no Beneficiary survives and unless otherwise provided, the Insured's
estate will be the Beneficiary.
Cash Surrender Value. The Accumulated Value less any Contract Debt and any
Decrease Charge. The Cash Surrender Value is relevant to continuation of the
Contract and to determining the amount available upon partial or total
surrender. The Cash Surrender Value should be distinguished from the
Accumulated Value. See definition of "Accumulated Value" above.
CDSC Premium. An annual premium amount determined by LB and used solely for
the purpose of calculating the maximum Contingent Deferred Sales Charge. See
definition of "Contingent Deferred Sales Charge" below. The CDSC Premium is
an annual premium amount determined by LB on the same basis as the Death
Benefit Guarantee Premium (see definition of "Death Benefit Guarantee
Premium" below), except that the CDSC Premium, unlike the Death Benefit
Guarantee Premium, will not take into account any additional charge for an
Insured in a substandard premium class, any charge for additional insurance
benefits added by rider, the basic monthly administrative charge of $4.00
per month, or any premium processing charge. The maximum Contingent Deferred
Sales Charge based on the applicable CDSC Premium (which will initially be
25% of the CDSC Premium and will then reduce as described under the
definition of "Contingent Deferred Sales Charge" below) will be shown in the
Contract. A separate CDSC Premium, calculated in a similar manner, will
apply for any increase in Face Amount. Even though the Death Benefit
Guarantee Premium may change after issuance of the Contract, once the CDSC
Premium is determined for purposes of calculating the Contingent Deferred
Sales Charge on the initial Face Amount or on any increase, as the case may
be, the CDSC Premium will not change.
Contingent Deferred Sales Charge. A contingent deferred sales charge to
compensate LB for the cost of selling the Contract, including sales
commissions, the printing of prospectuses and sales literature, and
advertising. The Contingent Deferred Sales Charge will be imposed if the
Contract is surrendered or lapses, or will be imposed in part if the
Contract Owner requests a decrease in Face Amount, in each case at any time
before 120 Monthly Deductions have been made. Subject to an additional
limitation keyed to actual premium payments (described below), the maximum
Contingent Deferred Sales Charge will be determined at Contract issuance and
will equal 25% of the CDSC Premium (see definition of "CDSC Premium" above).
The maximum Contingent Deferred Sales Charge based upon the CDSC Premium
will be shown in the Contract. The maximum Contingent Deferred Sales Charge
determined in this manner will remain level until the fifth Contract
Anniversary and will then be reduced on each Monthly Anniversary commencing
on the fifth Contract Anniversary. After the 60th Monthly Deduction
following the fifth Contract Anniversary the Contingent Deferred Sales
Charge will be zero. The actual Contingent Deferred Sales Charge will,
however, never exceed 25% of premiums paid (before deducting the Premium
Expense charges) during the first Contract Year. A separate Contingent
Deferred Sales Charge will also be calculated, and then reduced over a 10-
year period, in a similar manner upon a requested increase in Face Amount.
The sum of the Contingent Deferred Sales Charge and the Deferred
Administrative Charge equals the Decrease Charge. See "CHARGES AND
DEDUCTIONS--Accumulated Value Charges--Decrease Charge".
Contract. The flexible premium variable life insurance contract offered by
LB and described in this Prospectus.
Contract Anniversary. The same date in each succeeding year as the Date of
Issue.
Contract Date. The latest of (i) the Date of Issue; (ii) the date LB
receives the first premium payment on the Contract at its Home Office; and
(iii) any other date mutually agreed upon by LB and the Contract Owner. The
Contract Date is the date on which the initial Net Premium payment(s) will
be allocated to the Variable Account.
Contract Month. The period from one Monthly Anniversary to the next. The
first Contract Month will be the period beginning on the Date of Issue and
ending on the first Monthly Anniversary.
Contract Owner. The Insured, unless otherwise designated in the application.
If a Contract has been absolutely assigned, the assignee becomes the
Contract Owner. A collateral assignee is not the Contract Owner.
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 shown on page 3 of the Contract that is used to
determine Contract Anniversaries, Monthly Anniversaries, Contract Years and
Contract Months, each of which is measured from the Date of Issue. Contract
Years will be calculated differently for Contracts that lapse and are
reinstated (see "PAYMENT AND ALLOCATION OF PREMIUMS--Contract Lapse and
Reinstatement").
Death Benefit. The amount calculated under the applicable Death Benefit
Option (Option A or Option B). The Death Benefit should be distinguished
from the cash proceeds payable on the Insured's death, which will be the
Death Benefit less Contract Debt and any unpaid Monthly Deductions. See
"CONTRACT BENEFITS--Death Benefits".
Death Benefit Guarantee. A feature of the Contract guaranteeing that the
Contract will not lapse if on each Monthly Anniversary the total cumulative
premiums paid under the Contract, less any partial surrenders and Contract
Loan Amount, equal or exceed the sum of the Death Benefit Guarantee Premiums
in effect for each Monthly Anniversary since the issuance of the Contract.
If the Death Benefit Guarantee requirement is not met on a Monthly
Anniversary but the Cash Surrender Value less any unearned prepaid loan
interest is greater than or equal to the sum of Death Benefit Guarantee
Premiums from the Date of Issue through the Monthly Anniversary, then the
sum of premiums paid as used above will be deemed to increase to the amount
necessary to meet the Death Benefit Guarantee requirement. In addition, a
portion of any partial surrender or Contract Loan Amount may be excluded
when determining if the Death Benefit Guarantee requirement is met. The
Death Benefit Guarantee applies until the specified Attained Age of the
Insured shown in the Contract, which Attained Age will be the later of (a)
the Insured's Attained Age 71 and (b) the Attained Age of the Insured at the
end of a period ranging from 6 to 31 years (varying with the Insured's
Attained Age at issue) from the Date of Issue. The Death Benefit Guarantee
terminates immediately when these cumulative premium requirements are not
satisfied, subject to a very limited right of reinstatement that extends
until 31 days after notice of termination is sent by LB. As long as the
Death Benefit Guarantee applies, the Contract will not lapse. The Death
Benefit Guarantee provides significant protection against lapse due to poor
investment performance or due to insufficient Cash Surrender Value during
the early Contract Years. See "DEATH BENEFIT GUARANTEE" and "PAYMENT AND
ALLOCATION OF PREMIUMS--Contract Lapse and Reinstatement".
Death Benefit Guarantee Premium. A monthly premium amount specified in the
Contract. The Death Benefit Guarantee Premium is determined by LB based upon
a formula taking into account the applicable cost of insurance charge for
the Insured, using the Insured's actual premium class (see "CHARGES AND
DEDUCTIONS--Monthly Deduction--Cost of Insurance"); a percentage of assumed
monthly Death Benefit Guarantee Premium payment together with an assumed
premium processing charge; the applicable Initial Monthly Administrative
Charge (see "CHARGES AND DEDUCTIONS--Monthly Deduction--Initial Monthly
Administrative Charge"); the charge for any additional insurance benefits
added by rider (see "GENERAL PROVISIONS--Additional Insurance Benefits");
and the basic monthly administrative charge of $4.00 per month (see "CHARGES
AND DEDUCTIONS--Monthly Deduction--Basic Monthly Administrative Charge").
The Death Benefit Guarantee Premium determines the payments required to
maintain the Death Benefit Guarantee. The Death Benefit Guarantee Premium
may change as the result of Contract changes. See "DEATH BENEFIT GUARANTEE".
Death Benefit Option. Either of two death benefit options available under
the Contract (Option A and Option B). See "CONTRACT BENEFITS--Death
Benefits".
Death Benefit Option A, or Option A. One of two Death Benefit Options
available under the Contract. Under this option, the Death Benefit is the
greater of (a) the Face Amount plus the Accumulated Value and (b) the
applicable percentage of Accumulated Value (with the Accumulated Value in
each case being determined on the Valuation Date on or next following the
date of the Insured's death). See "CONTRACT BENEFITS--Death Benefits".
Death Benefit Option B, or Option B. One of two Death Benefit Options
available under the Contract. Under this option, the Death Benefit is the
greater of (a) the Face Amount and (b) the applicable percentage of
Accumulated Value on the Valuation Date on or next following the date of the
Insured's death. See "CONTRACT BENEFITS--Death Benefits".
Debt. The sum of all unpaid Contract loans (including any unpaid loan
interest added to the loan balance) outstanding on a relevant date, less any
unearned prepaid loan interest. Contract Debt should be distinguished from
the Loan Amount (see definition of "Loan Amount" below), in that the Loan
Amount includes any unearned prepaid loan interest. See "CONTRACT RIGHTS--
Loan Privileges".
Decrease Charge. A deferred Contract charge consisting of the Contingent
Deferred Sales Charge and the Deferred Administrative Charge. The Decrease
Charge is deducted from the Subaccounts of the Variable Account and paid to
LB upon full lapse or surrender of the Contract, or in part upon a requested
decrease in Face Amount. The term "Decrease Charge" is used to describe this
charge because, during the applicable 10-year period, the charge is imposed
in connection with a decrease in the Face Amount, either as the result of a
requested decrease in Face Amount or as the result of lapse or full
surrender of the Contract (which can be viewed as a decrease in the Face
Amount to zero). A separate amount of Decrease Charge is determined for the
initial Face Amount and for each requested increase in Face Amount. The
Decrease Charge applies until 120 Monthly Deductions have been made (that
is, approximately ten years) following Contract issuance or a requested
increase in Face Amount. See "CHARGES AND DEDUCTIONS--Accumulated Value
Charges--Decrease Charge". Even though the Decrease Charge is deducted from
the Subaccounts of the Variable Account and paid to LB only upon full lapse
or surrender of the Contract, or in part upon a requested decrease in Face
Amount, the Decrease Charge will be taken into account in determining the
Cash Surrender Value (that is, the Accumulated Value less any Contract Debt
and any Decrease Charge), which determines various other rights under the
Contract. See definition of "Cash Surrender Value" above.
Deferred Administrative Charge. A deferred administrative charge to
reimburse LB for administrative expenses incurred in issuing the Contract.
The Deferred Administrative Charge will be imposed if the Contract is
surrendered or lapses, or will be imposed in part if the Contract Owner
requests a decrease in the Face Amount, in each case at any time before 120
Monthly Deductions have been made. The maximum amount of the Deferred
Administrative Charge is determined at Contract issuance. This maximum
charge is then reduced on the Date of Issue and on each subsequent Monthly
Anniversary so that it reaches zero when 120 Monthly Deductions have been
made. In general, the maximum Deferred Administrative Charge will equal an
amount per $1,000 of Face Amount (determined from Appendix B) based upon the
initial Face Amount, the Insured's Attained Age at Contract issuance, and,
except for Insureds with an Attained Age at Contract issuance under 20, upon
whether the Insured is a smoker or nonsmoker. As shown in Appendix B, the
Deferred Administrative Charge will be lower for Contracts having a Face
Amount at issuance that equals or exceeds $250,000. The Deferred
Administrative Charge is, in effect, an acceleration of the Initial Monthly
Administrative Charge. A separate Deferred Administrative Charge will also
be calculated, and then reduced over a 10-year period, in a similar manner
upon a requested increase in Face Amount. The sum of the Deferred
Administrative Charge and the Contingent Deferred Sales Charge equals the
Decrease Charge. See "CHARGES AND DEDUCTIONS--Accumulated Value Charges--
Decrease Charge".
Face Amount. The minimum Death Benefit under the Contract as long as the
Contract remains in force. The Face Amount will be specified in the
Contract. See "CONTRACT BENEFITS--Death Benefits".
Free Look Period. A period which follows the application for the Contract
and its issuance to the Contract Owner (the "initial Free Look Period") and
which also follows any application for and approval of an increase in Face
Amount. The period runs to the latest of (a) 45 days after Part I of the
application for the Contract is signed, (b) 10 days after the Contract Owner
receives the Contract, or a Contract supplement showing an increase in Face
Amount, as the case may be, and (c) 10 days after LB mails or personally
delivers a notice of withdrawal right to the Contract Owner. During the
initial Free Look Period, the Contract Owner may cancel the Contract and
receive a refund. During a Free Look Period that applies following a
requested increase in Face Amount, the Contract Owner has a right to cancel
the increase in Face Amount and, in effect, receive a credit or refund of
charges and deductions attributable to such increase. See "CONTRACT RIGHTS--
Free Look Privileges".
Fund. LB Series Fund, Inc., which is described in the accompanying
Prospectus.
General Account. The assets of LB other than those allocated to the Variable
Account or any other separate account.
Home Office. LB's office at 625 Fourth Avenue South, Minneapolis, Minnesota
55415 or such other office as LB shall specify in a notice to the Contract
Owner.
Initial Monthly Administrative Charge. An initial monthly administrative
charge to reimburse LB for administrative expenses incurred in issuing the
Contract. The Initial Monthly Administrative Charge will be deducted as part
of the first 120 Monthly Deductions. The amount of the Initial Monthly
Administrative Charge is determined at Contract issuance. In general, the
Initial Monthly Administrative Charge will equal an amount per $1,000 of
Face Amount (determined from Appendix C) based upon the initial Face Amount,
the Insured's Attained Age at Contract issuance, and, except for Insureds
with an Attained Age at Contract issuance under 20, upon whether the Insured
is a smoker or nonsmoker. As shown in Appendix C, the Initial Monthly
Administrative Charge will be lower for Contracts having a Face Amount at
issuance that equals or exceeds $250,000. A separate Initial Monthly
Administrative Charge will also be calculated in a similar manner upon a
requested increase in Face Amount or the issuance of a rider providing
additional insurance benefits on the Insured's spouse. In general, the
Deferred Administrative Charge included in the Decrease Charge, which is
imposed upon a surrender or lapse of the Contract or in part upon a
requested decrease in Face Amount, is, in effect, an acceleration of the
Initial Monthly Administrative Charge. See "CHARGES AND DEDUCTIONS--
Accumulated Value Charges--Monthly Deduction--Initial Monthly Administrative
Charge".
Insured. The person upon whose life the Contract is issued.
LB Representative. A person who is licensed by state insurance officials to
sell the Contracts and who is also a registered representative of Lutheran
Brotherhood Securities Corp.
LBVIP. Lutheran Brotherhood Variable Insurance Products Company, which is an
indirect subsidiary of Lutheran Brotherhood.
Loan Account. The funds transferred from the Subaccount(s) of the Variable
Account to LB's General Account as security for Contract loans. See
"CONTRACT RIGHTS--Loan Privileges".
Loan Amount. The sum of all unpaid Contract loans (including any unpaid loan
interest added to the loan balance) outstanding on a relevant date. Interest
on Contract loans is payable in advance (for the rest of the Contract Year)
and at the beginning of each Contract Year thereafter (for that entire
Contract Year). If interest is not paid when due, it will be added to the
then outstanding Loan Amount. The Loan Amount should be distinguished from
Contract Debt (see definition of "Debt" above), in that Contract Debt
excludes any unearned prepaid loan interest. See "CONTRACT RIGHTS--Loan
Privileges".
Lutheran Brotherhood ("LB"). Lutheran Brotherhood, a fraternal benefit
society organized under the laws of the State of Minnesota and owned by and
operated for its members.
Maturity Date. The Contract Anniversary on or next following the Insured's
96th birthday.
Minimum Conditional Insurance Premium. The premium required to put temporary
insurance coverage into effect on a conditional basis. The Minimum
Conditional Insurance Premium will equal three initial Death Benefit
Guarantee Premiums, or, in the case of automatic monthly payment plans, two
initial Death Benefit Guarantee Premiums. See "PAYMENT AND ALLOCATION OF
PREMIUMS--Issuance of a Contract".
Minimum Contract Issuance Premium. The minimum premium required for issuance
of the Contract. The Minimum Contract Issuance Premium will generally equal
the initial Scheduled Premium selected by the Contract Owner (e.g., the
quarterly, semi-annual or annual premium payment selected by the Contract
Owner) or, in the case of automatic monthly payment plans, the greater of
the Minimum Conditional Insurance Premium or the initial Scheduled Premium.
If the Date of Issue precedes the Contract Date and the Minimum Contract
Issuance Premium otherwise required would not provide a premium payment
sufficient to cover the next Contract Month, additional Scheduled Premium
payment(s) sufficient to cover through the next Contract Month will be
required. See "PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Contract".
Minimum Face Amount. The minimum Face Amount for a Contract at issuance and
after any requested decrease in Face Amount. The Minimum Face Amount at
issue is currently $50,000 for Insureds with an Attained Age of 20 through
50, and $25,000 for all other Insureds. After issuance of the Contract, the
Minimum Face Amount at issue continues to apply to the Contract, except that
if a Contract has a Minimum Face Amount of $50,000 the Minimum Face Amount
will be reduced to $25,000 after the Insured reaches Attained Age 51. LB
reserves the right to specify a different Minimum Face Amount for Contracts
issued in the future.
Monthly Anniversary. The same date in each succeeding month as the Date of
Issue.
Monthly Deduction. Monthly charges deducted from the Accumulated Value of
the Contract. These charges include the cost of insurance charge; a basic
monthly administrative charge ($4.00 per month); the Initial Monthly
Administrative Charge; and charges for additional insurance benefits. See
"CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction".
"Monthly Deduction" also includes any Decrease Charge being deducted for a
requested decrease in Face Amount during the preceding Contract Month.
Net Premium. The premium paid less the Premium Expense Charges. See "CHARGES
AND DEDUCTIONS--Premium Expense Charges".
Planned Annual Premium. The initial Scheduled Premium under the Contract on
an annualized basis as selected by the Contract Owner at the time of issue.
The Planned Annual Premium will be shown in the Contract. See "PAYMENT AND
ALLOCATION OF PREMIUMS--Amount and Timing of Premiums".
Portfolio. A Portfolio of the Fund. Each Subaccount invests exclusively in
the shares of a corresponding Portfolio of the Fund.
Premium Expense Charges. An amount deducted from each premium payment, which
consists of a percent-of-premium charge of 5% of each premium payment (a 5%
sales charge ) and a premium processing charge of $1.00 per premium payment
($.50 for automatic payment plans). LB reserves the right to increase the
premium processing charge in the future to an amount not exceeding $2.00 per
premium payment ($1.00 for automatic payment plans). See "CHARGES AND
DEDUCTIONS--Premium Expense Charges".
Scheduled Premium(s). The scheduled periodic premium payments selected by
the Contract Owner. This premium payment can be changed by the Contract
Owner at any time. Scheduled Premiums are relevant only in determining how
much a Contract Owner will be billed periodically and determining the
Minimum Contract Issuance Premium. See "PAYMENT AND ALLOCATION OF PREMIUMS--
Amount and Timing of Premiums".
Subaccount. A subdivision of the Variable Account. Each Subaccount invests
exclusively in the shares of a corresponding Portfolio of the Fund.
Currently, there are six Subaccounts: the Growth Subaccount (which invests
exclusively in the Growth Portfolio); the High Yield Subaccount (which
invests exclusively in the High Yield Portfolio); the Income Subaccount
(which invests exclusively in the Income Portfolio); the Opportunity Growth
Subaccount (which invests exclusively in the Opportunity Growth Portfolio);
the World Growth Subaccount (which invests exclusively in the World Growth
Portfolio); and the Money Market Subaccount (which invests exclusively in
the Money Market Portfolio).
Unit. The measure by which the value of the Contract's interest in each
Subaccount is determined. See "CONTRACT BENEFITS--Accumulated Value and Cash
Surrender Value".
Unit Value. The value of each Unit representing the Contract's interest in
each Subaccount, determined as described in "CONTRACT BENEFITS--Accumulated
Value and Cash Surrender Value".
Valuation Date. Each day the New York Stock Exchange is open for trading and
any other day on which there is sufficient trading in the securities of a
Portfolio of the Fund to affect materially the Unit Value in the
corresponding Subaccount of the Variable Account, in each case excluding
July 5, the day after Thanksgiving, and the day before Christmas.
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 Insurance Account I, which is a separate
account of LB. The Subaccounts are subdivisions of the Variable Account.
Written Notice. A written request signed by the Contract Owner and received
by LB at its Home Office.
SUMMARY
The Contract
This flexible premium variable life insurance contract (the "Contract")
issued by Lutheran Brotherhood ("LB") allows the Contract Owner, subject to
certain limitations, to make premium payments in any amount and at any
frequency. As long as the Contract remains in force, it will provide for (1)
life insurance coverage on the named Insured up to the Insured's Attained
Age 96; (2) Accumulated Value; (3) surrender rights and Contract loan
privileges; and (4) a variety of additional insurance benefits. The Contract
described in this Prospectus is being offered by LB to provide protection
against economic loss when the Insured dies, and not primarily as an
investment.
The Contract is called "flexible premium" because, unlike many other
insurance contracts, there is no fixed schedule for premium payments, even
though each Contract Owner may establish a schedule of periodic premium
payments ("Scheduled Premiums") which may be changed by the Contract Owner
at any time. See "PAYMENT AND ALLOCATION OF PREMIUMS--Amount and Timing of
Premiums". The Contract is called "variable" because, unlike a conventional
fixed-benefit whole life insurance contract, the Death Benefit under the
Contract may, and the Accumulated Value and the Cash Surrender Value will,
vary to reflect the investment performance of the selected Subaccounts of
the Variable Account, as well as other factors. See "CONTRACT BENEFITS".
The failure to pay Scheduled Premiums will not itself cause the Contract to
lapse. Conversely, the payment of premiums in any amount or frequency
(including Scheduled Premiums) will not necessarily guarantee that the
Contract will remain in force, except to the extent these premium payments
are sufficient to maintain the Death Benefit Guarantee. See "DEATH BENEFIT
GUARANTEE". In general, subject to the Death Benefit Guarantee, the Contract
will lapse when (a) Cash Surrender Value is insufficient to pay the Monthly
Deduction (for insurance and administration charges) or (b) Contract Debt
exceeds Accumulated Value less any Decrease Charge, and in either case if a
grace period expires without sufficient additional payments. See "PAYMENT
AND ALLOCATION OF PREMIUMS--Contract Lapse and Reinstatement".
LB will require satisfactory evidence of insurability before issuing any
Contract.
LB is offering the Contract only to Insureds who are eligible for membership
in Lutheran Brotherhood.
Subaccounts of the Variable Account; Portfolios of the Fund
Each Contract Owner allocates the Net Premium payments made under such
owner's Contract to one or more of the six Subaccounts of the Variable
Account--the Growth Subaccount, the High Yield Subaccount, the Income
Subaccount, the Opportunity Growth Subaccount, the World Growth Subaccount,
and the Money Market Subaccount. The assets of each such Subaccount will be
invested in the corresponding Portfolio (the Growth Portfolio, the High
Yield Portfolio, the Income Portfolio, the Opportunity Growth Portfolio, the
World Growth Portfolio, or the Money Market Portfolio) of the Fund. Subject
to certain restrictions, the Contract Owner may transfer amounts among the
Subaccounts of the Variable Account (see "PAYMENT AND ALLOCATION OF
PREMIUMS--Allocation of Premiums and Accumulated Value").
The investment objectives of the Portfolios of the Fund (individually a
"Portfolio" and collectively the "Portfolios") are:
Growth Portfolio. To achieve long-term growth of capital through investment
primarily in common stocks of established corporations that appear to offer
attractive prospects of a high total return from dividends and capital
appreciation.
High Yield Portfolio. To achieve a higher level of income through a
diversified portfolio of high yield securities ("junk bonds") which involve
greater risks than higher quality investments, while also considering growth
of capital as a secondary objective.
Income Portfolio. To achieve a high level of income over the longer term
while providing reasonable safety of capital through investment primarily in
readily marketable intermediate and long-term fixed income securities.
Opportunity Growth Portfolio. To achieve long term growth of capital by
investing primarily in a professionally managed diversified portfolio of
smaller capitalization common stocks.
World Growth Portfolio. To achieve long-term growth of capital by investing
primarily in a professionally managed diversified portfolio of common stocks
of established, non-U.S. companies.
Money Market Portfolio. To achieve the maximum current income that is
consistent with stability of capital and maintenance of liquidity through
investment in high-quality, short-term debt obligations.
No assurance can be given that the Portfolios of the Fund will achieve their
respective investment objectives.
Shares of the Fund purchased by each Subaccount of the Variable Account will
be held by LB as custodian for the Variable Account.
The Fund is a diversified, open-end management investment company (commonly
called a "mutual fund"), for which LB acts as investment adviser. LB is paid
a daily fee by the Fund for its investment management services equal to an
annual rate of .40% of the aggregate average daily net assets of the Money
Market, Income, High Yield, Growth, and Opportunity Growth Portfolios. LB
also receives a daily investment advisory fee from the Fund equal to .85% of
the aggregate average daily net assets of the World Growth Portfolio, as
described in the accompanying current prospectus for the Fund. See "LUTHERAN
BROTHERHOOD AND THE VARIABLE ACCOUNT--LB Series Fund, Inc."
State Street Bank and Trust Company, Boston, Massachusetts, acts as
custodian for the securities and cash of the Fund and as transfer agent for
the Fund.
The accompanying prospectus of the Fund contains detailed information about
the Fund, its Portfolios, the investment advisory arrangement, and other
matters relating to the Fund and its investment objectives and policies.
Death Proceeds and Death Benefit Options
As long as the Contract remains in force, LB will pay the proceeds from the
Contract to the Beneficiary upon receipt of due proof of death of the
Insured. The proceeds from the Contract will consist of the Contract's Death
Benefit, plus any insurance proceeds provided by additional insurance
benefits on the Insured's life, less any outstanding Debt and any unpaid
Monthly Deductions. See "CONTRACT BENEFITS--Death Benefits" and "GENERAL
PROVISIONS--Additional Insurance Benefits".
There are two Death Benefit Options. Death Benefit Option A provides for the
greater of (a) the Face Amount plus the Accumulated Value and (b) the
applicable percentage of Accumulated Value (with Accumulated Value in each
case being determined on the day Written Notice is received by LB, or if
this is not a Valuation Date, the next following Valuation Date). Death
Benefit Option B provides for the greater of (a) the Face Amount and (b) the
applicable percentage of Accumulated Value on the Valuation Date on or next
following the date of the Insured's death. As long as the Contract remains
in force, the Death Benefit will not be less that the Contract's Face Amount
in force.
Under certain circumstances, an Accelerated Benefits Rider allows a Contract
Owner to receive benefits from the Contract that would be otherwise payable
upon the death of the Insured. An LB representative should be consulted as
to whether and to what extent the rider is available in a particular state
and on any particular Contract. See "GENERAL PROVISIONS--Accelerated
Benefits Rider". The tax treatment of benefits paid under the Accelerated
Benefits Rider is currently uncertain. See "FEDERAL TAX MATTERS--Contract
Proceeds--Benefits Paid under the Accelerated Benefits Rider".
Additional Insurance Benefits
Additional insurance benefits offered under the Contract include: waiver of
selected amount in the event of total disability; additional insurance
coverage for accidental death; term insurance on the Insured's spouse; term
insurance on the Insured's children; a right to increase the Face Amount of
the Contract on certain specified dates or life events without proof of
insurability; and a cost of living insurance adjustment without proof of
insurability. See "GENERAL PROVISIONS--Additional Insurance Benefits". The
cost of these additional insurance benefits will be deducted from the
Accumulated Value as part of the Monthly Deduction. See "CHARGES AND
DEDUCTIONS--Accumulated Value Charges--Monthly Deduction".
Under certain circumstances, an Accelerated Benefits Rider allows a Contract
Owner residing in a state that has approved such rider to receive benefits
from the Contract that would be otherwise payable upon the death of the
Insured. Generally, the benefits paid under the Accelerated Benefits Rider
are available if the Insured has a life expectancy of 12 months or less, or
has been confined in a nursing home for at least 6 months and confinement is
expected to continue for the lifetime of the Insured. If a benefit is paid
under the Accelerated Benefit Rider, the amount of insurance and Accumulated
Value of the Contract will be reduced or eliminated. An LB representative
should be consulted as to whether and to what extent the rider is available
in a particular state and on any particular Contract. See "GENERAL
PROVISIONS--Accelerated Benefits Rider". The tax treatment of benefits paid
under the Accelerated Benefits Rider is currently uncertain. See "FEDERAL
TAX MATTERS--Contract Proceeds--Benefits Paid under the Accelerated Benefits
Rider".
Amount of Accumulated Value and Cash Surrender Value
The Accumulated Value of the Contract is the total amount of the value held
under the Contract at any time (which equals the sum of the amounts held in
the Loan Account and the Variable Account). The Contract's Accumulated Value
in the Variable Account will reflect the investment performance of the
chosen Subaccounts of the Variable Account, any Net Premiums paid, any
partial surrenders, any loans, any loan repayments, any loan interest paid
or credited, and any charges assessed in connection with the Contract
(including any Decrease Charge previously imposed upon a requested decrease
in Face Amount). The Contract Owner bears the entire investment risk for
amounts allocated to the Variable Account. LB does not guarantee a minimum
Accumulated Value. See "CONTRACT BENEFITS--Accumulated Value and Cash
Surrender Value". The Accumulated Value is relevant to continuation of the
Contract, to Cash Surrender Value (which determines various other rights
under the Contract), to determining the amount available for Contract loans,
and to computation of cost of insurance charges, and may be relevant to the
computation of Death Benefits.
The Contract's Cash Surrender Value will be the Accumulated Value less any
Contract Debt and any Decrease Charge. The Cash Surrender Value is relevant
to continuation of the Contract and to determining the amount available upon
partial or total surrender of the Contract.
Flexibility to Adjust Amount of Death Benefit
The Contract Owner has significant flexibility to adjust the Death Benefit
by increasing or decreasing the Face Amount of the Contract. Any change in
the Face Amount may affect the charges under the Contract. Any increase in
the Face Amount will result in an increase in the Monthly Deduction, and any
requested increase in Face Amount will also increase the Decrease Charge,
which is imposed upon lapse or surrender of the Contract or in part upon a
requested decrease in Face Amount. For any requested decrease in Face
Amount, that part of the Decrease Charge reflecting the decrease will reduce
the Accumulated Value attributable to the Contract, and the Decrease Charge
will be reduced by this amount. See "CONTRACT BENEFITS--Death Benefits--
Changes in Face Amount".
The minimum requested increase in Face Amount is $10,000 and any requested
increase may require additional evidence of insurability. See "CONTRACT
BENEFITS--Death Benefits--Changes in Face Amount". Any requested increase in
Face Amount is subject to a limited "free look" privilege (see "CONTRACT
RIGHTS--Free Look Privileges"), and, during the first 24 months following
the increase, to an exchange privilege (see "CONTRACT RIGHTS--Exchange
Privileges").
Any requested decrease in Face Amount cannot result in a Face Amount less
than the Minimum Face Amount. The minimum Face Amount ("Minimum Face
Amount") at issue for a Contract is $50,000 for Insureds with an Attained
Age of 20 through 50, and $25,000 for all other Insureds. After issuance of
the Contract, the Minimum Face Amount at issue continues to apply to the
Contract, except that if a Contract has a Minimum Face Amount of $50,000 the
Minimum Face Amount will be reduced to $25,000 after an Insured reaches
Attained Age 51. LB reserves the right to establish a different Minimum Face
Amount for Contracts issued in the future.
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable
under the Internal Revenue Code for life insurance, LB will not effect the
decrease. See "PAYMENT AND ALLOCATION OF PREMIUMS--Amount and Timing of
Premiums--Premium Limitations".
Contract Issuance
If the applicant desires to have temporary insurance pending Contract
issuance, LB will require a premium payment (the "Minimum Conditional
Insurance Premium") equal to three initial Death Benefit Guarantee Premiums,
or, in the case of automatic monthly payment plans, two initial Death
Benefit Guarantee Premiums. If LB subsequently determines that the proposed
Insured is not an acceptable risk under LB's underwriting standards and
rules, even if the Minimum Conditional Insurance Premium has been paid, no
temporary insurance coverage will have been provided and any premium paid
will be refunded (without interest). Upon delivery of the Contract, the
balance (if any) of the premium required before issuance of the Contract
(the "Minimum Contract Issuance Premium") must be paid. The Minimum Contract
Issuance Premium will equal the initial Scheduled Premium selected by the
Contract Owner (e.g., the quarterly, semi-annual or annual premium payment
selected by the Contract Owner), or, in the case of automatic monthly
payment plans, the greater of the Minimum Conditional Insurance Premium or
the initial Scheduled Premium. If the Date of Issue precedes the Contract
Date and the Minimum Contract Issuance Premium otherwise required would not
provide a premium payment sufficient to cover the next Contract Month,
additional Scheduled Premium payment(s) sufficient to cover through the next
Contract Month will be required. See "PAYMENT AND ALLOCATION OF PREMIUMS--
Amount and Timing of Premiums".
Until the Contract Date, premium payments will be held in LB's General
Account. If a Contract is issued, interest will be credited on premium
payments held in the General Account at a rate of interest determined by LB;
no interest will be credited on these premium payments if no Contract is
issued (but the full amount of any premiums paid, without deduction of any
Contract charges, will be refunded). On the Contract Date, the Premium
Expense Charges attributable to the premiums paid will be deducted and the
balance of the amount of such premiums held in the General Account, together
with any interest credited on premiums held in the General Account (on which
no Premium Expense Charges will be imposed), will be transferred from the
General Account and allocated to the Variable Account among the
Subaccount(s) pursuant to the Contract Owner's instructions. See "PAYMENT
AND ALLOCATION OF PREMIUMS--Issuance of a Contract".
Allocation of Net Premiums
Net Premiums are the premiums paid less the Premium Expense Charges. See
"CHARGES AND DEDUCTIONS--Premium Expense Charges". Net Premiums will
generally be allocated to the Subaccount(s) of the Variable Account in
accordance with the Contract Owner's instructions (as specified in the
Application for the Contract or as subsequently changed). Each Subaccount
invests in a corresponding Portfolio of the Fund. The Contract Owner will
bear the investment risk of Net Premiums allocated to the Subaccount(s).
Subject to certain restrictions, a Contract Owner may transfer amounts among
the Subaccounts of the Variable Account. See "PAYMENT AND ALLOCATION OF
PREMIUMS--Allocation of Premiums and Accumulated Value".
The Contract Owner must notify LB if payment is a loan repayment; otherwise,
it will be considered a premium payment.
Contract Lapse and Reinstatement
The failure to make a Scheduled Premium payment will not itself cause a
Contract to lapse. Subject to the Death Benefit Guarantee (see "DEATH
BENEFIT GUARANTEE"), lapse will only occur when (a) the Cash Surrender Value
(that is, the Accumulated Value less any Contract Debt and any Decrease
Charge) is insufficient to cover the Monthly Deduction or (b) Contract Debt
exceeds the Accumulated Value less any Decrease Charge, and in either case
if a 61-day grace period expires without a sufficient payment. See "PAYMENT
AND ALLOCATION OF PREMIUMS--Contract Lapse and Reinstatement".
Subject to certain conditions (including evidence of insurability
satisfactory to LB and the payment of a sufficient premium), a Contract may
be reinstated at any time within 5 years after the expiration of the grace
period and before the Maturity Date. See "PAYMENT AND ALLOCATION OF
PREMIUMS--Contract Lapse and Reinstatement".
Death Benefit Guarantee Protection
The Contract will not lapse if sufficient premium payments have been made to
maintain the Death Benefit Guarantee. In general, in order to maintain the
Death Benefit Guarantee, as of each Monthly Anniversary the total cumulative
premiums paid under the Contract, less any partial surrenders and Contract
Loan Amount must equal or exceed the sum of the Death Benefit Guarantee
Premiums in effect for each Monthly Anniversary since the issuance of the
Contract. If the Death Benefit Guarantee requirement is not met on a Monthly
Anniversary but the Cash Surrender Value less any unearned prepaid loan
interest is greater than or equal to the sum of Death Benefit Guarantee
Premiums from the Date of Issue through that Monthly Anniversary, then the
sum of premiums paid as used above will be deemed to increase through that
date to the amount necessary to meet the Death Benefit Guarantee
requirement. In addition, a portion of any partial surrender or Contract
Loan Amount may be excluded when determining if the Death Benefit Guarantee
requirement is met. The Death Benefit Guarantee applies until the specified
Attained Age of the Insured shown in the Contract, which Attained Age will
be the later of (a) the Insured's Attained Age 71 and (b) the Attained Age
of the Insured at the end of a period ranging from 6 to 31 years (varying
with the Insured's Attained Age at issue) from the Date of Issue. The Death
Benefit Guarantee terminates immediately as of any Monthly Anniversary when
these cumulative premium requirements are not satisfied. LB will send
written notice to the Contract Owner indicating that the Death Benefit
Guarantee has terminated, and the Contract Owner will have 31 days from the
date such notice is sent by LB to reinstate the Death Benefit Guarantee,
after which the Death Benefit Guarantee can never be reinstated. During this
31 day reinstatement period, the Contract Owner will not have the protection
of the Death Benefit Guarantee. The written notice of termination from LB to
the Contract Owner will indicate the premium payment required to reinstate
the Death Benefit Guarantee. See "DEATH BENEFIT GUARANTEE".
Whenever the Cash Surrender Value is less than the Monthly Deduction then
due, any excess of Accumulated Value over Contract Debt will be used to pay
the Monthly Deduction. If available Accumulated Value is less than the
Monthly Deduction then due and the Death Benefit Guarantee is in effect, LB
will pay the deficiency.
The Death Benefit Guarantee provides significant protection against lapse of
the Contract. First, the Death Benefit Guarantee can prevent lapse of the
Contract due to a decrease in Cash Surrender Value resulting from poor
investment performance. Also, the Death Benefit Guarantee will probably be
necessary to avoid lapse of the Contract during the early Contract Years
because the Cash Surrender Value will probably not be sufficient to cover
the Monthly Deduction. Finally, because the Decrease Charge will increase
after a requested increase in Face Amount, thereby reducing the Cash
Surrender Value, the Death Benefit Guarantee may also be necessary to avoid
lapse after a requested increase in Face Amount. See "DEATH BENEFIT
GUARANTEE".
Charges Assessed in Connection with the Contract
Premium Expense Charges. Certain charges (the "Premium Expense Charges")
will be deducted from each premium payment. The Premium Expense Charges will
consist of a percent-of-premium charge of 5% of each premium payment (a 5%
sales charge) and a premium processing charge of $1.00 per premium payment
($.50 for automatic payment plans). LB reserves the right to increase the
premium processing charge in the future to an amount not exceeding $2.00 per
premium payment ($1.00 for automatic payment plans).
Monthly Deduction. On the Contract Date and on each Monthly Anniversary
thereafter, the Accumulated Value will be reduced by a Monthly Deduction
equal to the sum of the monthly cost of insurance charge, monthly
administration charges, and a charge for any additional insurance benefits
added by rider. The monthly cost of insurance charge will be determined by
multiplying the net amount at risk (that is, in general, the Death Benefit
less Accumulated Value) by the applicable cost of insurance rate(s), which
will depend upon the sex, Attained Age and premium class of the Insured and
upon LB's expectation as to future mortality experience, but which will not
exceed the guaranteed cost of insurance rates set forth in the Contract
based on the Insured's Attained Age and the 1980 Commissioners Standard
Ordinary Mortality Table. See "CHARGES AND DEDUCTIONS--Accumulated Value
Charges--Monthly Deduction". Montana has enacted legislation that requires
that cost of insurance rates applicable to Contracts purchased in Montana
cannot vary on the basis of the Insured's sex, and so, in Montana, this
charge will not be based on the sex of the Insured. The monthly
administration charges will include (1) a basic monthly administrative
charge equal to $4.00 per month and (2) the Initial Monthly Administrative
Charge, which applies until 120 Monthly Deductions have been made following
Contract issuance or a requested increase in Face Amount and which will be
computed as a charge per $1,000 of Face Amount (with the amount of this
charge depending upon the initial Face Amount and the Insured's Attained Age
at issue and, except for Insureds with an Attained Age at Contract issuance
under 20, upon whether the Insured is a smoker or nonsmoker). If the Face
Amount is increased, a separate Initial Monthly Administrative Charge will
be deducted from Accumulated Value as part of the first 120 Monthly
Deductions after the increase. See "CHARGES AND DEDUCTIONS--Accumulated
Value Charges--Monthly Deduction--Monthly Administration Charge". The charge
for additional insurance benefits added by rider will be specified in the
Contract or in a supplement to the Contract. See "GENERAL PROVISIONS--
Additional Insurance Benefits". The cost of insurance rate and the Initial
Monthly Administrative Charge per $1,000 of Face Amount will be lower for
Contracts having a Face Amount at issuance or after requested increases that
equals or exceeds $250,000.
Decrease Charge. A deferred charge (the "Decrease Charge") will be deducted
upon Contract lapse or surrender, or in part upon a requested decrease in
Face Amount, if these events occur before 120 Monthly Deductions have been
made (that is, approximately ten years) following Contract issuance or a
requested increase in Face Amount. The Decrease Charge consists of a
contingent deferred sales charge (the "Contingent Deferred Sales Charge")
and a deferred administrative charge (the "Deferred Administrative Charge").
The term "Decrease Charge" is used to describe this charge because, during
the applicable 10-year period, the charge is imposed in connection with a
decrease in the Face Amount, either as the result of a requested decrease in
Face Amount or as the result of lapse or full surrender of the Contract
(which can be viewed as a decrease in the Face Amount to zero).
The Decrease Charge will be deducted from Accumulated Value in determining
the Contract's Cash Surrender Value (which is the Accumulated Value less any
Contract Debt and any Decrease Charge). The Cash Surrender Value determines
various rights under the Contract (including how long the Contract remains
in effect). See "CONTRACT BENEFITS--Accumulated Value and Cash Surrender
Value".
Subject to an additional limitation keyed to actual premium payments
(described below), the maximum Contingent Deferred Sales Charge will be
determined at issuance of the Contract and will equal 25% of an annual
premium amount used solely for the purpose of calculating the Contingent
Deferred Sales Charge (the "CDSC Premium"). The maximum Contingent Deferred
Sales Charge based upon the CDSC Premium will be shown in the Contract. (For
further information concerning the determination of the CDSC Premium and the
calculation of the Contingent Deferred Sales Charge, see "CHARGES AND
DEDUCTIONS--Accumulated Value Charges--Decrease Charge".) The maximum
Contingent Deferred Sales Charge calculated in this manner will remain level
until the fifth Contract Anniversary and will then be reduced on each
Monthly Anniversary commencing on the fifth Contract Anniversary. After the
60th Monthly Deduction following the fifth Contract Anniversary, the
Contingent Deferred Sales Charge will be zero. The actual Contingent
Deferred Sales Charge will, however, never exceed 25% of premiums paid
(before deducting the Premium Expense Charges) during the first Contract
Year.
The maximum Deferred Administrative Charge will be determined at issuance of
the Contract and will equal an amount per $1,000 of Face Amount based upon
the initial Face Amount, the Insured's Attained Age at Contract issuance,
and, except for Insureds with an Attained Age at Contract issuance under 20,
whether the Insured is a smoker or nonsmoker. (For further information
concerning the calculation of the Deferred Administrative Charge, see
"CHARGES AND DEDUCTIONS--Accumulated Value Charges--Decrease Charge.") The
Deferred Administrative Charge is reduced on the Date of Issue and on each
subsequent Monthly Anniversary so that it reaches zero when 120 Monthly
Deductions have been made. See "CHARGES AND DEDUCTIONS--Accumulated Value
Charges--Decrease Charge".
A separate Decrease Charge will also be calculated, and then reduced over a
10-year period, in a similar manner upon a requested increase in Face
Amount. See "CHARGES AND DEDUCTIONS--Accumulated Value Charges--Decrease
Charge".
Partial Surrender Charge. A charge equal to $25 or 2% of the amount
withdrawn, whichever is less, will be deducted by LB from the amount
withdrawn to compensate it for costs upon partial surrenders--that is,
partial Accumulated Value withdrawals--by the Contract Owner. See "CHARGES
AND DEDUCTIONS--Accumulated Value Charges--Partial Surrender Charge".
Daily Charges Against the Variable Account. A daily charge for LB's
assumption of certain mortality and expense risks incurred in connection
with the Contract will be imposed. LB has determined that a Mortality and
Expense Risk Charge (see "CHARGES AND DEDUCTIONS--Charges Against the
Variable Account") at an annual rate of .75% of the average daily net assets
of each Subaccount of the Variable Account is reasonable in relation to the
mortality and expense risks assumed by LB under the Contract. LB will,
however, initially impose the Mortality and Expense Risk Charge at an annual
rate of .60% of the average daily net assets of each Subaccount of the
Variable Account. See "CHARGES AND DEDUCTIONS--Charges Against the Variable
Account".
No charges are currently made against the Variable Account for Federal or
state income taxes. Should LB determine that such taxes may be imposed,
deductions from the Variable Account to pay these taxes may be made. See
"FEDERAL TAX MATTERS".
In addition, because the Variable Account purchases shares of the Fund, the
value of Units in the Subaccount(s) of the Variable Account will reflect the
net asset value of the shares of the Fund held therein, and therefore the
investment advisory fee incurred by the Fund. See "LUTHERAN BROTHERHOOD AND
THE VARIABLE ACCOUNT--LB Series Fund, Inc." and "CONTRACT BENEFITS--
Accumulated Value and Cash Surrender Value".
Free Look Privileges
The Contract provides for an initial Free Look Period. The Contract Owner
may cancel the Contract until the latest of (a) 45 days after Part I of the
application for the Contract is signed, (b) 10 days after the Contract Owner
receives the Contract, and (c) 10 days after LB mails or personally delivers
a notice of withdrawal right to the Contract Owner. Upon returning the
Contract, the Contract Owner will receive a refund equal to the sum of (i)
the Accumulated Value (as of the date the returned Contract is received by
LB at its Home Office or by the LB Representative from whom the Contract was
purchased), without any deduction of the Decrease Charge, plus (ii) the
amount of any Premium Expense Charges, plus (iii) any Monthly Deductions
charged against the Contract's Accumulated Value, plus (iv) any Mortality
and Expense Risk Charges deducted from the value of the net assets or the
Variable Account attributable to the Contract, plus (v) the advisory fees
charged by the Fund against net asset value in the Fund Portfolios
attributable to the Contract's value in the corresponding Subaccount(s) of
the Variable Account. See "CONTRACT RIGHTS--Free Look Privileges". When
state law requires a minimum refund equal to gross premiums paid, the refund
will instead equal the gross premiums paid on the Contract and will not
reflect the investment experience of the Variable Account.
Similar free look privileges apply after a requested increase in Face
Amount. See "CONTRACT RIGHTS--Free Look Privileges".
Loan Privileges
The Contract Owner may at any time after the Contract Date obtain Contract
loans in a minimum amount of $100 but not exceeding in the aggregate 90% of
the excess of Accumulated Value over any Decrease Charge on the date of any
loan. See "CONTRACT RIGHTS--Loan Privileges".
Contract loans will bear interest at a fixed rate of 8.0% per year, which is
7.4% per year when paid in advance. Loan interest is calculated on a prepaid
basis, and is payable in advance at the time any Contract loan is made (for
the rest of the Contract Year) and at the beginning of each Contract Year
thereafter (for that entire Contract Year). If interest is not paid when
due, it will be added to the loan balance. Contract loans may be repaid at
any time prior to the Maturity Date. Each repayment must be at least $25.
When Contract loans are repaid, any prepaid interest attributable to the
repaid amount will be credited to the Subaccount(s) in the same manner as
the repayment.
Contract loans are allocated against the Subaccounts of the Variable Account
in proportion to the Accumulated Value in the respective Subaccounts or,
with LB's approval, in accordance with the Contract Owner's instructions.
The loan amount is, in effect, treated as part of the Contract's Accumulated
Value, but then proceeds payable under the Contract will be reduced by the
Debt. Accumulated Value equal to the Contract loan will be transferred from
the appropriate Subaccount(s) to LB's General Account (such amounts being
herein called the "Loan Account"). This amount in the Loan Account will earn
interest for the Contract Owner at an effective annual rate of 6%. This
interest will be credited monthly to the Contract's Accumulated Value held
in the Subaccount(s).
The Contract Owner must notify LB if a payment is a loan repayment;
otherwise, it will be considered a premium payment.
Any partial or full repayment of Debt by the Contract Owner, as well as any
interest credited from the Loan Account, will be allocated to the
Subaccount(s) in proportion to the Accumulated Value in the respective
Subaccounts. Subject to LB's approval, a Contract Owner may choose a
different allocation. A loan taken from a Contract may have Federal income
tax consequences. See "CONTRACT RIGHTS--Loan Privileges".
Exchange Privileges
During the first 24 Contract Months after the Date of Issue, subject to
certain restrictions, the Contract Owner may exchange the Contract for a
fixed benefit permanent life insurance contract issued by LB. The new
contract will have the same Date of Issue and issue age as the Contract. The
new contract will also have, at the option of the Contract Owner, either a
death benefit equal to the Death Benefit under the Contract on the effective
date of the exchange or a net amount at risk equaling the net amount at risk
under the Contract on the effective date of the exchange. An additional
premium payment may be required. See "CONTRACT RIGHTS--Exchange Privileges".
An exchange may have tax consequences. See "FEDERAL TAX MATTERS--Contract
Proceeds".
Surrender of the Contract
The Contract Owner may at any time fully surrender the Contract and receive
in cash the Cash Surrender Value, if any. The Cash Surrender Value will
equal the Accumulated Value of the Contract, less any Contract Debt and any
Decrease Charge. The Cash Surrender Value will include any unearned prepaid
loan interest. As unearned prepaid loan interest is earned, the Cash
Surrender Value will decrease. See "CONTRACT RIGHTS--Surrender Privileges".
Subject to certain restrictions (including a minimum surrender amount of
$500 and a remaining Cash Surrender Value of at least $500 and a limit of
one partial surrender per Contract Month), and a partial surrender charge of
$25 or 2% of the amount withdrawn, whichever is less, the Contract Owner may
also partially surrender the Contract and withdraw part of the Contract's
Accumulated Value at any time prior to the Maturity Date. If Death Benefit
Option B is in effect, a partial surrender may result in a reduction in the
Face Amount in force. Under either Death Benefit Option, a partial surrender
will reduce the Death Benefit. A surrender taken from a Contract may have
federal income tax consequences. See "CONTRACT RIGHTS--Surrender
Privileges".
Tax Treatment of Accumulated Value
Under current tax law, Accumulated Value under a Contract should be subject
to the same Federal income tax treatment as cash value in a conventional
fixed-premium, fixed-benefit whole life insurance contract. A change of
Contract Owners or a partial or total surrender may have tax consequences
depending on the circumstances. See "FEDERAL TAX MATTERS--Contract
Proceeds".
Tax Treatment of Death Benefits Received by the Beneficiary
Under current tax law, like death benefits payable under conventional life
insurance contracts, Death Benefit proceeds payable under the Contract
should ordinarily be completely excludable from the gross income of the
Beneficiary. As a result, the Beneficiary will generally not be taxed on the
proceeds. See "FEDERAL TAX MATTERS--Contract Proceeds".
Employment-Related Benefit Plans
The cost of insurance rates applicable to Contracts purchased under
employment-related insurance or benefit programs may in some cases not vary
depending on the Insured's sex, as is the case generally (except for
Contracts issued in the state of Montana) under the Contracts. In addition,
different limitations with respect to the minimum Face Amount, increases in
Face Amount, additional insurance benefits, and issue ages may apply to
Contracts issued in connection with employment-related insurance or benefit
programs. SEE "EMPLOYMENT-RELATED BENEFIT PLANS".
------------------------
For further information, please read the following detailed description.
Illustrations of how investment performance of the Variable Account may
cause Death Benefits, Accumulated Values and Cash Surrender Values to vary
are included in Appendix A commencing on page A-1.
Each Contract Owner should retain a copy of the Contract. The document,
together with the application attached to the Contract, any supplemental
applications and any Contract supplements, and the Articles of Incorporation
and Bylaws of LB which are in force on the Date of Issue, constitutes the
entire agreement between the Contract Owner and LB.
LUTHERAN BROTHERHOOD AND THE VARIABLE ACCOUNT
Lutheran Brotherhood
The Contracts are issued by LB. LB, a fraternal benefit society owned by 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 1995, LB had total
assets of approximately $10.9 billion.
LB is subject to regulation by the Insurance Division of the State of
Minnesota as well as by the insurance departments of all the other states
and jurisdictions in which it does business. LB submits annual reports on
its operations and finances to insurance officials in such states and
jurisdictions. The forms of Contracts described in the Prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold. LB is also subject to certain
Federal securities laws and regulations.
Financial Statements of LB are included elsewhere in this Prospectus.
The Variable Account
The Variable Account is a separate account of LB, established by the Board
of Directors of LB in 1993 pursuant to the laws of the State of Minnesota.
The Variable Account meets the definition of a "separate account" under the
federal securities laws. LB has caused the Variable Account to be registered
with the Securities and Exchange Commission (the "SEC") as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"). Such
registration does not involve supervision by the SEC of the management or
investment policies or practices of the Variable Account.
The assets of the Variable Account are owned by LB, and LB is not a trustee
with respect to such assets. However, the Minnesota laws under which the
Variable Account was established provide that the Variable Account shall not
be chargeable with liabilities arising out of any other business LB may
conduct. LB may transfer to its General Account assets of the Variable
Account which exceed the reserves and other liabilities of the Variable
Account.
Income and realized and unrealized gains and losses from each Subaccount of
the Variable Account are credited to or charged against that Subaccount
without regard to any of LB's other income, gains or losses. LB may
accumulate in the Variable Account the charge for expense and mortality
risks, mortality gains and losses and investment results applicable to those
assets that are in excess of net assets supporting the Contracts.
LB Series Fund, Inc.
Each Subaccount of the Variable Account will invest only in the shares of a
corresponding Portfolio of the Fund. The Fund is registered with the SEC
under the 1940 Act as a diversified, open-end management investment company.
This registration does not involve supervision by the SEC of the management
or investment practices or policies of the Fund. 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 separate accounts of its wholly owned indirect
subsidiary, Lutheran Brotherhood Variable Insurance Products Company
("LBVIP"), and the Fund may in the future create new portfolios. It is
conceivable that in the future it may be disadvantageous for both variable
annuity separate accounts and variable life insurance separate accounts to
invest simultaneously in the Fund, although LB does not foresee any such
disadvantages to either variable annuity or variable life insurance contract
owners. The management of the Fund intends to monitor events in order to
identify any material conflicts between such contract owners and to
determine what action, if any, should be taken in response. Such action
could include the sale of Fund shares by one or more of the separate
accounts, which could have adverse consequences. Material conflicts could
result from, for example, (1) changes in state insurance laws, (2) changes
in Federal income tax law, (3) changes in the investment management of the
Fund, or (4) differences in voting instructions between those given by the
contract owners from the different separate accounts. In addition, if LB
believes the Fund's response to any of those events or conflicts
insufficiently protects Contract Owners, it will take appropriate action on
its own.
The Variable Account will purchase and redeem shares from the Fund at net
asset value. Shares will be redeemed to the extent necessary for LB to
collect charges under the Contracts, to pay Cash Surrender Value upon full
surrenders of the Contracts, to pay partial surrenders, to make Contract
loans, to provide benefits under the Contracts, or to transfer assets from
one Subaccount to another as requested by Contract Owners. Any dividend or
capital gain distribution received from a Portfolio of the Fund will be
reinvested immediately at net asset value in shares of that Portfolio and
retained as assets of the corresponding Subaccount.
The Fund receives investment advice with respect to each of its Portfolios
from LB, which acts as investment adviser to the Fund. LB is a registered
investment adviser under the Investment Advisers Act of 1940. Lutheran
Brotherhood Research Corp. ("LBRC"), an indirect subsidiary of Lutheran
Brotherhood, acted as investment adviser to the Fund until January 1994,
when it was replaced by LB. LBRC provided investment advisory services to
the Fund using personnel and services provided by LB. As investment adviser
to the Fund, LB charges the Fund a daily investment advisory fee equal to an
annual rate of .40% of the aggregate average daily net assets of the Money
Market, Income, High Yield, Growth, and Opportunity Growth Portfolios. LB
also charges the Fund an annual investment advisory fee equal to .85% of the
aggregate average daily net assets of the World Growth Portfolio, as
described in the accompanying current prospectus for the Fund.
The Fund has entered into an Investment Advisory Agreement with LB under
which LB will, subject to the direction of the Board of Directors of the
Fund, carry on the day-to-day management of the Fund, and provide advice and
recommendations with respect to investments and the purchase and sale of
securities in accordance with the Fund's investment objectives, policies and
restrictions. LB also furnishes at its own expenses all necessary
administrative services, office space, equipment and clerical personnel for
servicing the investments of the Fund and maintaining its organization, and
investment advisory facilities and executive and supervisory personnel for
managing the investments and effecting the portfolio transactions of the
Fund. The Investment Advisory Agreement provides that the Fund will pay, or
provide for the payment of, all of its own expenses, including, without
limitation, the compensation of the directors who are not affiliated with LB
or its affiliates, governmental fees, interest charges, taxes, membership
dues in the Investment Company Institute allocable to the Fund, fees and
expenses of the independent auditors, of legal counsel and of any transfer
agent, registrar and dividend disbursing agent of the Fund, expenses of
preparing, printing and mailing prospectuses, shareholders' reports,
notices, proxy statements and reports to governmental officers and
commissions, expenses connected with the execution, recording and settlement
of portfolio security transactions, insurance premiums, fees and expenses of
the Fund's custodian for all services to the Fund, including safekeeping of
funds and securities and keeping of books and calculating the net asset
value of the shares of the Portfolios of the Fund, expenses of shareholders'
meetings and expenses relating to the issuance, registration and
qualification of shares of the Fund. LB and LBVIP have agreed with the Fund
to pay, or to reimburse the Fund for the payment of, all of the foregoing
expenses and all other expense associated with operating the Fund pursuant
to a separate written agreement (the "Expense Reimbursement Agreement"). The
Expense Reimbursement Agreement could be terminated at any time by the
mutual agreement of the Fund, LB and LBVIP, but the Fund and LB and LBVIP
currently contemplate that the Expense Reimbursement Agreement will continue
so long as the Fund remains in existence. If the Expense Reimbursement
Agreement were terminated, the Fund would be required to pay those operating
expenses, which would reduce the net investment return on the shares of the
Fund held by the Subaccounts of the Variable Account.
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 $20
billion under management as of December 31, 1995 in its offices in
Baltimore, London, Tokyo and Hong Kong. Price-Fleming has an investment
advisory group that has day-to-day responsibility for managing the World
Growth Portfolio and developing and executing the Portfolio's investment
program.
LB pays the Sub-adviser for the World Growth Portfolio an annual sub-
advisory fee for the performance of sub-advisory services. The fee payable
is equal to a percentage of that Portfolio's average daily net assets. The
percentage varies with the size of the Portfolio's net assets, decreasing as
the Portfolio's assets increase. The formula for determining the sub-
advisory fee is described fully in the prospectus for the Fund.
The investment objectives of the current Portfolios available to Contract
Owners through corresponding Subaccounts of the Variable Account are set
forth in the accompanying prospectus for the Fund. There is no assurance
that these objectives will be met.
Each Contract Owner should periodically consider the allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investing in the Fund's various Portfolios. A full description
of the Fund, its investment objectives, policies and restrictions, its
expenses, the risks attendant to investing in the Fund's Portfolios and
other aspects of its operation is contained in the accompanying Prospectus
for the Fund, which should be carefully read together with this Prospectus.
Performance Information
Performance information for the Variable Account and/or the Fund may appear
in advertisements, sales literature, or reports to Contract Owners.
Performance information for the Fund will appear only when accompanied by
performance information for the Variable Account. Performance information
for the Variable Account will reflect the deduction of applicable charges to
the Contract. Quotations of performance information for the Fund will not
take into account charges or deductions against the Variable Account to
which Fund shares are sold or deductions against the Contract. Performance
information reflects only the performance of a hypothetical investment
during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolios of
the Fund in which the Variable Account invests, and the market conditions
during the given period of time, and should not be considered as a
representation of what may be achieved in the future.
Performance for the Variable Account and/or the Fund as reported from time
to time in advertisements and sale literature may be compared with that of
other company separate accounts or mutual funds included in the generally
accepted indices, analyses or rankings prepared by Lipper Analytical
Service, Inc., Standard & Poor's Corporation, Morningstar, Inc., VARDS, Dow
Jones or similar independent rating or statistical investment services that
monitor the performance of insurance company separate accounts or mutual
funds. Performance of the Variable Account may be quoted or compared to
rankings, yields or returns as published or prepared by independent rating
or statistical services or publishers or publications such as THE BANK RATE
MONITOR NATIONAL INDEX, BARRON'S, BUSINESS WEEK, DONOGHUE'S MONEY MARKET
FUND REPORT, FINANCIAL SERVICES WEEK, FINANCIAL TIMES, FINANCIAL WORLD,
FORBES, FORTUNE, GLOBAL INVESTOR, INSTITUTIONAL INVESTOR, INVESTOR'S DAILY,
KIPLINGER'S PERSONAL FINANCE, LIPPER ANALYTICAL SERVICES, MONEY, MUTUAL FUND
FORCASTER, NEWSWEEK, THE NEW YORK TIMES, PERSONAL INVESTOR, STANGER REPORT,
SYLVIA PORTER'S PERSONAL FINANCE, USA TODAY, U.S. NEWS AND WORLD REPORT, THE
WALL STREET JOURNAL and WIESENBERGER INVESTMENT COMPANIES SERVICE.
Addition, Deletion or Substitution of Investments
LB reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Variable Account or that the Variable Account may purchase. If the shares of
a Portfolio of the Fund are no longer available for investment or if in LB's
judgment further investment in any Portfolio should become inappropriate in
view of the purposes of the Variable Account, LB may redeem the shares, if
any, of that Portfolio and substitute shares of another registered open-end
management company. LB will not substitute any shares attributable to a
Contract interest in a Subaccount of the Variable Account without notice and
prior approval of the SEC and state insurance authorities, to the extent
required by applicable law. The Variable Account may to the extent permitted
by law purchase other securities for other contracts or permit a conversion
between contracts upon request by the Contract Owners.
LB also reserves the right to establish additional Subaccounts of the
Variable Account, each of which would invest in shares corresponding to a
new Portfolio of the Fund or in shares of another investment company having
a specified investment objective. Subject to applicable law and any required
SEC approval, LB may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by LB.
If any of these substitutions or changes are made, LB may by appropriate
endorsement change the Contract to reflect the substitution or change. If LB
deems it to be in the best interest of Contract Owners, and subject to any
approvals that may be required under applicable law, the Variable Account
may be operated as a management company under the 1940 Act, it may be
deregistered under that Act if registration is no longer required, or it may
be combined with other LB separate accounts.
CONTRACT BENEFITS
Death Benefits
General. As long as the Contract remains in force (see "PAYMENT AND
ALLOCATION OF PREMIUMS--Contract Lapse and Reinstatement"), the death
proceeds of the Contract will, upon due proof of the Insured's death, be
paid to the named Beneficiary in accordance with the designated Death
Benefit Option. The proceeds may be paid in cash or under one of the
settlement options set forth in the Contract. See "CONTRACT BENEFITS--
Payment of Contract Benefits". The amount payable under the designated Death
Benefit Option will be reduced by any outstanding Contract Debt and any due
and unpaid Monthly Deduction(s), and will be increased by any additional
insurance benefits on the Insured's life provided for in the Contract.
Death Benefit Options. The Contract provides two Death Benefit Options:
Option A and Option B. The Contract Owner designates the Death Benefit
Option in the application.
Option A. The Death Benefit is equal to the greater of (a) the Face Amount
of the Contract plus the Accumulated Value of the Contract and (b) the
Accumulated Value multiplied by the specified percentage shown in the
following table (with the Accumulated Value in each case being determined on
the Valuation Date on or next following the Insured's date of death):
Specified Specified
Attained Age Percentage Attained Age Percentage
40 or less 250% 61 128%
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 to 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 101
59 134 95 100
60 130
Illustration of Option A. For purposes of this illustration, assume that the
Insured is under the age of 40 and that there is no Contract Debt. (The
specified percentage is 250% for an Insured aged 40 or below on the Contract
Anniversary prior to the date of death.)
Under Option A, a Contract with a Face Amount of $50,000 will generally pay
a Death Benefit of $50,000 plus Accumulated Value. Thus, for example, a
Contract with an Accumulated Value of $5,000 will have a Death Benefit of
$55,000 ($50,000 + $5,000); an Accumulated Value of $10,000 will yield a
Death Benefit of $60,000 ($50,000 + $10,000); and an Accumulated Value of
$25,000 will yield a Death Benefit of $75,000 ($50,000 + $25,000). The Death
Benefit, however, will be at least 2.50 times the Accumulated Value. As a
result, if the Accumulated Value of the Contract exceeds $33,333, the Death
Benefit will be greater than the Face Amount plus Accumulated Value. Each
additional dollar added to Accumulated Value above $33,333 will increase the
Death Benefit by $2.50. An Insured with an Accumulated Value of $35,000 will
therefore have a Death Benefit of $87,500 (2.50 X $35,000); an Accumulated
Value of $40,000 will yield a Death Benefit of $100,000 (2.50 X $40,000);
and an Accumulated Value of $50,000 will yield a Death Benefit of $125,000
(2.50 X $50,000).
Similarly, any time Accumulated Value exceeds $33,333 each dollar taken out
of Accumulated Value will reduce the Death Benefit by $2.50. If at any time,
however, Accumulated Value multiplied by the specified percentage is less
than the Face Amount plus the Accumulated Value of the Contract, the Death
Benefit will be the Face Amount plus the Accumulated Value.
Option B. The Death Benefit is the greater of (a) the Face Amount of the
Contract and (b) the Accumulated Value on the Valuation Date on or next
following the Insured's date of death multiplied by the specific percentage
shown in the table above.
Illustration of Option B. For purposes of this illustration, assume that the
Insured is under the age of 40 and that there is no Contract Debt.
Under Option B, a Contract with a Face Amount of $50,000 will generally pay
a Death Benefit of $50,000. However, because the Death Benefit must be equal
to or be greater than 2.50 times the Accumulated Value, any time the
Accumulated Value of the Contract exceeds $20,000, the Death Benefit will
exceed the Face Amount. Each additional dollar added to Accumulated Value
above $20,000 will increase the Death Benefit by $2.50. Thus, a 40-year-old
Insured with an Accumulated Value of $25,000 will have a Death Benefit of
$62,500 (2.50 X $25,000); an Accumulated Value of $30,000 will yield a Death
Benefit of $75,000 (2.50 X $30,000); and an Accumulated Value of $40,000
will yield a Death Benefit of $100,000 (2.50 X $40,000).
Similarly, any time Accumulated Value exceeds $20,000 each dollar taken out
of Accumulated Value will reduce the Death Benefit by $2.50. If at any time,
however, the Accumulated Value multiplied by the specified percentage is
less than the Face Amount, the Death Benefit will be the Face Amount of the
Contract.
Which Death Benefit Option to Choose. If a Contract Owner prefers to have
premium payments and favorable investment performance reflected partly in
the form of an increasing Death Benefit, the Contract Owner should choose
Option A. If the Contract Owner is satisfied with the amount of the
Insured's existing insurance coverage and prefers to have premium payments
and favorable investment performances reflected to the maximum extent in the
Accumulated Value, the Contract Owner should select Option B.
Change in Death Benefit Option. At any time when the Death Benefit would be
the Face Amount plus the Accumulated Value (if Option A is in effect) or the
Face Amount (if Option B is in effect), the Death Benefit Option in effect
may be changed by sending LB a Written Notice of change. No charges will be
imposed to make a change in Death Benefit Option. The effective date of any
such change will be the Monthly Anniversary on or next following the date LB
receives the Written Notice.
If the Death Benefit Option is changed from Option A to Option B, the Face
Amount will not change and the Death Benefit will be decreased by the
Accumulated Value of the Contract on the effective date of the change. These
changes will generally have the effect of decreasing the net amount at risk
under the Contract. In addition, if a Contract Owner changed from Option A
to Option B, and then back to Option A from Option B, the resulting Face
Amount and net amount at risk under Option A would generally be lower as a
result of the intervening change to Option B.
If the Death Benefit Option is changed from Option B to Option A, the Death
Benefit will not change and the Face Amount will be decreased by the
Accumulated Value of the Contract on the effective date of the change;
however, this change may not be made if it would reduce the Face Amount to
less than $5,000.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and net amount at risk (that is, the difference between the Death
Benefit and Accumulated Value) can be illustrated as follows. Assume that a
Contract under Option A has a Face Amount of $100,000 and an Accumulated
Value of $10,000, and therefore a Death Benefit of $110,000 ($110,000 +
$10,000) and a net amount at risk of $100,000 ($110,000 - $10,000). If the
Death Benefit Option is changed from Option A to Option B, the Face Amount
would remain the same, the Death Benefit (which equals the Face Amount under
Option B) would be reduced from $110,000 to $100,000, and the net amount at
risk would be reduced from $100,000 to $90,000 ($100,000 - $10,000). If the
Death Benefit Option were then changed back to Option A, the Death Benefit
would remain the same, the Face Amount would be reduced from $100,000 to
$90,000 (that is, reduced by the amount of the Accumulated Value), and the
net amount at risk would remain the same ($100,000 - $10,000 = $90,000). The
overall effect of changing from Option A to Option B and then back to Option
A would be to have reduced the Face Amount from $100,000 to $90,000, to have
reduced the Death Benefit from $110,000 to $100,000, and to have reduced the
net amount at risk from $100,000 to $90,000.
If a change in Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code
for life insurance, LB will not effect the change in Death Benefit Option.
See "PAYMENT AND ALLOCATION OF PREMIUMS--Amount and Timing of Premiums--
Premium Limitations".
A change in Death Benefit Option may affect the monthly cost of insurance
charge because this charge varies with the net amount at risk--that is, in
general, the Death Benefit less the Accumulated Value. See "CHARGES AND
DEDUCTIONS--Accumulated Value Charges--Monthly Deduction". Changing from
Option A to Option B will generally decrease the net amount at risk, thereby
reducing the cost of insurance charges. Changing from Option B to Option A
will generally result in a net amount at risk that remains level. Such a
change from Option B to Option A, however, will result in an increase in the
cost of insurance charges over time because the net amount at risk will
(unless the Death Benefit is based on the applicable percentage of
Accumulated Value) remain level rather than decreasing as the Accumulated
Value increases.
How Death Benefits May Vary in Amount. The Death Benefit may vary with the
Contract's Accumulated Value. The Death Benefit under Option A will always
vary with the Accumulated Value because the Death Benefit equals the greater
of (a) the Face Amount plus the Accumulated Value and (b) the Accumulated
Value multiplied by the specified percentage shown in the foregoing table.
Under Option B, the Death Benefit will only vary with the Contract's
Accumulated Value whenever the specified percentage of Accumulated Value
exceeds the Face Amount of the Contract.
Ability to Change Face Amount. Subject to certain limitations (see
"Decreases" and "Increases" below), generally a Contract Owner may, at any
time, increase or decrease the Contract's Face Amount in force by submitting
a written application to LB. The effective date of the increase or decrease
will be the Monthly Anniversary on or next following approval of the
request. An increase in Face Amount may have tax consequences. See "TAX
MATTERS--Contract Proceeds". The effect of changes in Face Amount on
Contract charges, as well as certain additional considerations, are
described below:
Decreases. A decrease in the Face Amount may affect the total net amount at
risk and the portion of the net amount at risk covered by various premium
classes, both of which may affect a Contract Owner's monthly insurance
charges. See "CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly
Deduction".
A decrease in the Face Amount will result in the partial imposition of the
Decrease Charge as of the Monthly Anniversary on which the decrease becomes
effective. See "CHARGES AND DEDUCTIONS--Accumulated Value Charges--Decrease
Charge". Whenever the Decrease Charge is imposed in part in connection with
a requested decrease in Face Amount, the Initial Monthly Administrative
Charge included in the first 120 Monthly Deductions will be reduced
proportionately to take into account the amount of the Deferred
Administrative Charge included in the Decrease Charge then imposed. See
"CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction--
Initial Monthly Administrative Charge".
If the Death Benefit Guarantee is in force, then on the effective date of
any requested decrease in Face Amount the Accumulated Value less any
Contract Debt must be sufficient to cover the Decrease Charge imposed in
connection with the requested decrease and the Monthly Deduction due on that
date. If the Death Benefit Guarantee is not in force, then the Cash
Surrender Value must be sufficient to cover the Monthly Deduction due on
that date. If these requirements are not satisfied, then the requested
decrease in Face Amount will not be effected.
The Face Amount in force after any requested decrease may not be less than
the Minimum Face Amount. Also, to the extent a decrease in Face Amount would
result in cumulative premiums exceeding the maximum premium limitations
applicable under the Internal Revenue Code for life insurance, LB will not
effect the decrease (see "PAYMENT AND ALLOCATION OF PREMIUMS--Amount and
Timing of Premiums--Premium Limitations"). As discussed previously (see
"CONTRACT BENEFITS--Death Benefit--Change in Death Benefit Option"), if the
Death Benefit Option is changed from Option B to Option A, the Death Benefit
will not change and the Face Amount will be decreased by the Accumulated
Value of the Contract on the effective date of the change; however, this
change may not be made if it would reduce the Face Amount to less than
$5,000.
A request for partial surrender will not be implemented if or to the extent
the requested partial surrender would reduce the Face Amount below $5,000.
Also, if a partial surrender would decrease the Face Amount, to the extent
that the partial surrender would result in cumulative premiums exceeding the
maximum premium limitations applicable under the Internal Revenue Code for
life insurance, LB will not effect such partial withdrawal. See "PAYMENT AND
ALLOCATION OF PREMIUMS--Amount and Timing of Premiums--Premium Limitations".
For purposes of determining the cost of insurance charge, any decrease in
the Face Amount will reduce the Face Amount in force in the following order:
(a) the Face Amount provided by the most recent increase; (b) the next most
recent increases successively; and (c) the initial Face Amount. See "CHARGES
AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction". If the
Contract Owner requests a decrease in Face Amount, that part of any Decrease
Charge applicable to the decrease will reduce the Accumulated Value
attributable to the Contract and the Decrease Charge will be reduced by this
amount. See "CHARGES AND DEDUCTIONS--Accumulated Value Charges--Decrease
Charge".
Increases. An increase in the Face Amount will generally affect the total
net amount at risk and may affect the portion of the net amount at risk
covered by various premium classes (if multiple premium classes apply), both
of which may affect a Contract Owner's monthly insurance charges. See
"CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction".
An increase in the Face Amount will also increase the Decrease Charge and
will result in the imposition of a new Initial Monthly Administrative Charge
(which is included in the monthly Deduction) as of the Monthly Anniversary
when the increase becomes effective. See "CHARGES AND DEDUCTIONS--
Accumulated Value Charges--Decrease Charge--Monthly Deduction".
A request for an increase in Face Amount may not be for less than $10,000.
The Contract Owner may not increase the Face Amount after the Insured's
Attained Age 80. To obtain the increase, the Contract Owner must submit an
application for the increase. LB may require that additional evidence of
insurability be submitted with any request for an increase. An increase need
not be accompanied by an additional premium, but LB will continue to deduct
the Premium Expense Charges from any premiums paid and will deduct other
charges associated with the increase from Accumulated Value. After
increasing the Face Amount, the Contract Owner will have the right (i)
during a Free Look Period, to have the increase cancelled and receive a
credit or refund (see "CONTRACT RIGHTS--Free Look Privileges"), and (ii)
during the first 24 months following the increase to exchange the increase
in Face Amount for a fixed benefit permanent life insurance contract issued
by Lutheran Brotherhood, subject to the same conditions and principles as
apply to an exchange of the entire Contract for such a new contract (see
"CONTRACT RIGHTS--Exchange Privileges").
Unless the Death Benefit Guarantee is in effect, on the effective date of an
increase the Accumulated Value must be sufficient to cover any Contract Debt
and any Decrease Charge (including the additional Decrease Charge arising
from the requested increase) and the Monthly Deduction due on that date--in
other words, on that date, and taking the increase into account, the Cash
Surrender Value must be equal to or greater than the Monthly Deduction then
due. If the existing Accumulated Value at the time of a requested increase
does not result in a sufficient Cash Surrender Value after the increase, a
Contract Owner may have to make additional premium payments to increase the
Accumulated Value and thereby increase the Cash Surrender Value
sufficiently. If the Death Benefit Guarantee is in effect, the Cash
Surrender Value after the increase may be less than the Monthly Deduction
then due, even though the Death Benefit Guarantee Premium will be increased
as a result of any requested increase in Face Amount (see "DEATH BENEFIT
GUARANTEE--Death Benefit Guarantee Premium").
Insurance Protection. A Contract Owner may increase or decrease the pure
insurance protection provided by the Contract (that is, the net amount at
risk, which is, in general, the difference between the Death Benefit and the
Accumulated Value) in one of several ways as insurance needs change. These
ways include increasing or decreasing the Face Amount, changing the level of
premium payments, and, to a lesser extent, making a partial surrender under
the Contract. Although the consequences of each of these methods will depend
upon the individual circumstances, they may be generally summarized as
follows:
(a) A decrease in the Face Amount will, subject to the applicable
percentage limitations (see "CONTRACT BENEFITS--Death Benefits--Death
Benefit Options"), decrease the pure insurance protection without reducing
the Accumulated Value (except for the deduction of any Decrease Charge
applicable to the decrease). If the Face Amount is decreased, the Monthly
Deduction generally will decrease as well, but any Decrease Charge then
applicable will be imposed in part upon a requested decrease in Face Amount
(see "Charges and Deductions--Decrease Charge--Monthly Deduction").
(b) An increase in the Face Amount (which may require satisfactory
evidence of insurability--see "Increases--Additional Considerations" above)
will likely increase the amount of pure insurance protection, depending on
the amount of Accumulated Value and the resultant applicable percentage
limitation. If the insurance protection is increased, the Monthly Deduction
will increase as well.
(c) Under Death Benefit Option A, until the applicable percentage of
Accumulated Value exceeds the Face Amount plus the Accumulated Value, the
level of premium payments will not affect the amount of pure insurance
protection.
(d) Under Death Benefit Option B, until the applicable percentage of
Accumulated Value exceeds the Face Amount, an increased level of premium
payments will generally reduce the amount of pure insurance protection.
(e) Under either Death Benefit Option, if the Death Benefit is the
applicable percentage of Accumulated Value, then an increased level of
premium payments will increase the amount of pure insurance protection.
(f) A partial surrender will reduce the Death Benefit. See "CONTRACT
RIGHTS--Surrender Privileges". However, it has a limited effect on the pure
insurance protection and charges under the Contract, because the partial
surrender will affect the net amount at risk only when the Death Benefit is
based on the applicable percentage of Accumulated Values (see "CONTRACT
RIGHTS--Surrender Privileges--Partial Surrender"). The primary use of a
partial surrender is to withdraw Accumulated Value. Furthermore, it results
in a reduced amount of Accumulated Value and increases the possibility that
the Contract will lapse.
The techniques described in this section for changing the amount of pure
insurance protection under the contract (for example, changing the face
amount, making a partial surrender, and changing the amount of premium
payments) must be considered together with the other restrictions and
considerations described elsewhere in this prospectus.
How the Duration of the Contract May Vary. Subject to the Death Benefit
Guarantee (which depends upon the level of premium payments, partial
surrenders and the Contract Loan Amount--see "DEATH BENEFIT GUARANTEE"), the
duration of the Contract depends upon the Cash Surrender Value (that is, the
Accumulated Value less any Contract Debt and any Decrease Charge). The
Contract will remain in force as long as (a) the Cash Surrender Value of the
Contract is sufficient to pay the Monthly Deduction and (b) Contract Debt
does not exceed Accumulated Value less any Decrease Charge. In general,
however, when Cash Surrender Value is insufficient to pay the Monthly
Deduction or when Contract Debt exceeds Accumulated Value less any Decrease
Charge, and a grace period expires without an adequate payment by the
Contract Owner, the Contract will lapse and terminate without value. The
Contract Owner has certain rights to reinstate the Contract. See "PAYMENT
AND ALLOCATION OF PREMIUMS--Contract Lapse and Reinstatement".
Accumulated Value and Cash Surrender Value
The Accumulated Value of the Contract is the total amount of value held
under the Contract at any time. The Accumulated Value is used in determining
the Cash Surrender Value (the Accumulated Value less any Contract Debt and
any Decrease Charge). See "CONTRACT RIGHTS--Surrender Privileges". 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.
A Contract's Accumulated Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts of the Variable Account,
any Net Premiums paid, any partial surrenders, any loans, any loan
repayments, any loan interest paid or credited, and any charges assessed in
connection with the Contract (including any Decrease Charge previously
imposed on a requested decrease in Face Amount).
Calculation of Accumulated Value. The Accumulated Value of the Contract is
determined first on the Contract Date and thereafter on each Valuation Date.
On the Contract Date, the Accumulated Value will be the New Premiums
received, plus any interest earned during the period when premiums are held
in LB's General Account (before being transferred to the Variable Account)
(see "PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Contract"), less any
Monthly Deductions due on the Contract Date. On each Valuation Date after
the Contract Date, the Contract's Accumulated Value will be:
(1) the aggregate of the values attributable to the Contract in each of
the Subaccounts on the Valuation Date, determined for each Subaccount by
multiplying the Subaccount's Unit Value on the date by the number of
Subaccount Units allocated to the Contract; plus
(2) the value attributable to the Contract in the Loan Account (see
"CONTRACT RIGHTS--Loan Privileges") on the Valuation Date.
Determination of Number of Units. Any amounts allocated to the Subaccounts
will be converted into Units of the Subaccount. The number of Units to be
credited to the Contract is determined by dividing the dollar amount being
allocated by the Unit Value as of the end of the Valuation Period during
which the amount was allocated. The number of Subaccount Units in any
Subaccount will be increased by: (i) any Net Premiums allocated to the
Subaccount during the current Valuation Period; (ii) any Accumulated Value
transferred to the Subaccount from the General Account or another Subaccount
during the current Valuation Period; (iii) any repayments of the Contract
Debt during the current Valuation Period; and (iv) any interest earned on
the amount in the Loan Account and transferred to the Variable Account
during the current Valuation Period. The number of Subaccount Units in any
Subaccount will be decreased by: (i) any Monthly Deduction allocated to the
Subaccount during the current Valuation Period to cover the Contract Month
following a Monthly Anniversary; (ii) any Accumulated Value transferred from
the Subaccount to another Subaccount or the General Account; (iii) the
amount of any partial surrender (including the partial surrender charge)
during the current Valuation Period; and (iv) any Contract loans allocated
to the Subaccount and transferred to the Loan Account during the current
Valuation Period.
The Subaccount Unit Value is determined before any Contract transactions on
the Valuation Date that would affect the number of Subaccount Units (see
immediately preceding paragraph). If the Contract's Accumulated Value in the
Variable Account is to be calculated for a day that is not a Valuation Date,
the next following Valuation Date will be used.
Determination of Unit Value. The Unit Value for a Subaccount is calculated
on each Valuation Date by dividing (1) by (2):
Where:
(1) is the net result of:
(a) the net asset value of the corresponding Portfolio of the Subaccount at
the end of the current Valuation Period, plus
(b) the amount of any dividend or capital gain distribution by the
Portfolio if the "ex-dividend" date occurs during the Valuation Period, plus
or minus
(c) a charge or credit or any taxes reserved which LB determines a result
of the investment operation of the Portfolio, minus
(d) the Mortality and Expense Risk Charge (see "CHARGES and DEDUCTIONS--
Charges Against the Variable Account--Mortality and Expense Risk Charge")
for each day during the current Valuation Period (a current charge of
.001644%, but never to exceed .002055%, of the net assets for each day
during the current Valuation Period), and
(2) is the number of Units for the Subaccount attributable to all
Contracts.
Benefits at Maturity
If the Insured is living on the Maturity Date of the Contract, LB will pay
the Accumulated Value for the Contract on the Maturity Date, reduced by any
Contract Debt and any unpaid Monthly Deductions. The Maturity Date will be
shown in the Contract and will be the Contract Anniversary on or next
following the Insured's 96th birthday.
Payment of Contract Benefits
Death proceeds under a Contract will ordinarily be paid within seven days
after LB receives due proof of death. Maturity proceeds will ordinarily be
paid within seven days of the Maturity Date. The Cash Surrender Value
(Accumulated Value less any Contract Debt and any Decrease Charge), partial
surrenders and Contract loans will ordinarily be paid within seven days of
receipt of a Written Notice. Payments may be postponed in certain
circumstances. See "GENERAL PROVISIONS--Postponement of Payments". The
Contract Owner may decide the form in which the proceeds will be paid.
During the Insured's lifetime, the Contract Owner may arrange for the death
proceeds to be paid in a lump sum or under one of the settlement options
described below. These choices are also available if the Contract is
surrendered or matures. If no election is made, the proceeds will be paid
pursuant to Option 1 described below.
For an option to be used, the proceeds to be applied must be at least
$2,000. Election of an option is also subject to the conditions that (a)
payments must not be less than $25 each and (b) payments must be made only
at annual, semi-annual, quarterly or monthly intervals.
Settlement options currently offered under a Contract are as follows:
Option 1--Interest Income. The proceeds may be left on deposit. Interest
will be paid at a rate of not less than 3% per year. These proceeds may be
withdrawn upon request.
Option 2--Income of a Fixed Amount. Income of a fixed amount will be paid at
agreed upon intervals. This income is subject to the conditions that (a)
income per year must not be less than 6% of the proceeds, and (b) income is
paid until the proceeds, with interest credited at the rate of 3 1/2% per
year on the unpaid balance, are paid in full (this income may be increased
by the crediting of additional interest).
Option 3--Income for a Fixed Period. Income for a fixed number of years will
be paid, not to exceed 30 (the income will not be less than the amounts set
forth in a table in the Contract relating to this option).
Option 4--Life Income with Guaranteed Period. Income for the lifetime of the
payee will be paid. If the payee dies during the guaranteed period, payments
will be continued to the payee's beneficiary to the end of that period. A
period of 10 or 20 years may be elected (the income will not be less than
the amounts set forth in tables in the Contract relating to this option).
After the first payment is made, this option may not be revoked or changed.
Option 5--Other Options. The proceeds may be paid under any other settlement
option agreeable to LB.
A Contract Owner may elect an option by Written Notice to LB during the
Insured's lifetime. The option must be elected before proceeds become
payable. Assignees and third-party owners may elect an option only with LB's
consent. Election of Option 4 may be made only if the payee is a natural
person who is the Insured or a Beneficiary.
If it is the death proceeds under a Contract that are payable, the
Beneficiary may elect a settlement option provided that (a) the manner of
settlement has not been restricted before the Insured's death, and (b) the
death proceeds have not been paid.
Under certain circumstances, an Accelerated Benefits Rider allows a Contract
Owner to receive benefits from the Contract that would be otherwise payable
upon the death of the Insured. An LB representative should be consulted as
to whether and to what extent the rider is available in a particular state
and on any particular Contract. See "GENERAL PROVISIONS--Accelerated
Benefits Rider". The tax treatment of benefits paid under the Accelerated
Benefits Rider is currently uncertain. See "FEDERAL TAX MATTERS--Contract
Proceeds--Benefits Paid under the Accelerated Benefits Rider".
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Contract
In order to purchase a Contract, an individual must make application to LB
through a licensed LB Representative, who is also a registered
representative of Lutheran Brotherhood Securities Corp. LB is offering
Contracts only to Insureds who are eligible for membership in Lutheran
Brotherhood. At issue the Minimum Face Amount of a Contract under LB's rules
is currently $50,000 for Insureds with an Attained Age of 20 through 50, and
$25,000 for all other Insureds. LB reserves the right to revise its rules
from time to time to specify a different Minimum Face Amount at issue for
subsequently issued Contracts. A Contract will be issued only on Insureds
who have an Attained Age of 80 or less and who provide satisfactory evidence
of insurability to LB. Acceptance is subject to LB's underwriting rules. LB
reserves the right to reject an application for any reason permitted by law.
At the time an application for a Contract is accepted, subject to LB's
underwriting rules, an applicant can obtain temporary insurance protection
pending issuance of the Contract by submitting payment of the Minimum
Conditional Insurance Premium. The Minimum Conditional Insurance Premium
will equal three initial Death Benefit Guarantee Premiums, or, in the case
of automatic monthly payment plans, two initial Death Benefit Guarantee
Premiums. If LB subsequently determines that the proposed Insured is not an
acceptable risk under LB's underwriting standards and rules, even if the
Minimum Conditional Insurance Premium has been paid, no temporary insurance
coverage will have been provided and any premium paid will be refunded
(without interest).
Upon delivery of the Contract, the balance (if any) of the Minimum Contract
Issuance Premium must be paid. The Minimum Contract Issuance Premium will
equal the initial Scheduled Premium selected by the Contract Owner (see
"Amount and Timing of Premiums" below), or, in the case of automatic monthly
payment plans, the greater of the Minimum Conditional Insurance Premium or
the initial Scheduled Premium. If the Date of Issue precedes the Contract
Date and the Minimum Contract Issuance Premium otherwise required would not
provide a premium payment sufficient to cover the next Contract Month,
additional Scheduled Premium payment(s) sufficient to cover through the next
Contract Month will be required.
The Date of Issue is the date used to determine Contract Months, Contract
Years, Monthly Anniversaries and Contract Anniversaries and will be shown on
page 3 of the Contract. The Contract Date is the date on which the initial
Net Premium(s) will be allocated to the Variable Account. The Contract Date
will be the latest of (i) the Date of Issue; (ii) the date LB receives the
first premium payment on the Contract at its Home Office; and (iii) any
other date mutually agreed upon by LB and the Contract Owner.
Until the Contract Date, premium payments will be held in LB's General
Account. If a Contract is issued, interest will be credited on premium
payments held in LB's General Account at a rate of interest determined by
LB; no interest will be credited on these premium payments if no Contract is
issued (but the full amount of any premiums paid, without deduction of any
Contract charges, will be refunded). Any interest on these premium payments
will be credited to the Contract on the Contract Date in the same manner as
a premium payment, except without deduction of any Premium Expense Charge.
On the Contract Date, the Premium Expense Charges attributable to the
premiums paid will be deducted and the balance of the amount held in the
General Account (on which no Premium Expense Charges will be imposed) will
be transferred from the General Account and allocated to the Variable
Account and allocated among the Subaccount(s) pursuant to the Contract
Owner's instructions.
Amount and Timing of Premiums
A Contract Owner has considerable flexibility in determining the frequency
and amount of premiums.
Scheduled Premiums. Each Contract Owner will select a periodic premium
payment schedule (based on a periodic billing mode of annual, semi-annual,
or quarterly payment) which provides for the billing of a level premium at
the specified interval. Also, under several automatic payment plans, the
Contract Owner can select a monthly payment schedule pursuant to which
premium payments will be automatically deducted from a bank account or other
payment source rather than being billed. The periodic payment selected by
the Contract Owner is called the "Scheduled Premium". The initial Scheduled
Premium on an annualized basis will be shown in the Contract as the "Planned
Annual Premium". The Contract Owner is not, however, required to pay
Scheduled Premiums in accordance with the specified schedule. The Contract
Owner has the flexibility to alter the amount, frequency and time period
over which the premiums are paid. Payment of Scheduled Premiums will not,
however, guarantee that the Contract will remain in force. Instead, the
duration of the Contract depends upon the Contract's Accumulated Value and
Cash Surrender Value and upon whether the Death Benefit Guarantee is in
effect. See "CONTRACT BENEFITS--Death Benefits" and "DEATH BENEFIT
GUARANTEE". Thus, even if Scheduled Premiums are paid by the Contract Owner,
unless the Death Benefit Guarantee is in effect, the Contract will lapse
whenever (a) Cash Surrender Value is insufficient to pay the Monthly
Deduction or (b) Contract Debt exceeds Accumulated Value less any Decrease
Charge, and in either case if a grace period expires without an adequate
payment by the Contract Owner. See "Contract Lapse and Reinstatement" below.
Minimum Conditional Insurance Premium. The Minimum Conditional Insurance
Premium is the minimum premium required to provide temporary insurance
protection pending issuance of the Contract. See "Issuance of a Contract"
above.
Minimum Contract Issuance Premium. The Minimum Contract Issuance Premium is
the minimum premium required upon delivery of the Contract. See "Issuance of
a Contract" above.
Death Benefit Guarantee Premium. The Death Benefit Guarantee Premium is a
monthly premium amount specified in the Contract and determined by LB. The
Death Benefit Guarantee Premium may change as the result of Contract
changes. The Death Benefit Guarantee Premium determines the payments
required to maintain the Death Benefit Guarantee. See "DEATH BENEFIT
GUARANTEE".
Premium Flexibility. Unlike some insurance contracts, the Contract frees the
owner from the requirement that premiums be paid in accordance with a fixed
premium schedule. Although each Contract Owner determines a Scheduled
Premium (initially, on an annualized basis, this premium will be called the
Planned Annual Premium), a Contract Owner need not make premium payments in
accordance with this schedule and the failure to make such payments will not
in itself cause the Contract to lapse. See "Contract Lapse and
Reinstatement" below. Moreover, subject to the requirements described above
regarding the Minimum Conditional Insurance Premium and the Minimum Contract
Issuance Premium (see "Issuance of a Contract" above), and to the minimum
and maximum premium limitations described below, a Contract Owner may make
premium payments at any time before the Maturity Date in any amount. The
Contract, therefore, provides the owner with the flexibility to vary the
frequency and amount of premium payments.
Premium Limitations. The Internal Revenue Code provides for exclusion of the
Death Benefit from gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under
a Contract exceed such limits. If at any time a premium is paid which would
result in total premiums exceeding such limits, LB will only accept that
portion of the premium which will make total premiums equal that amount. Any
part of the premium in excess of that amount will be refunded, and no
further premiums will be accepted until allowed by the current maximum
premium limitations set forth in the Internal Revenue Code.
The maximum premium limitations set forth in the Internal Revenue Code
depend in part upon the amount of the Death Benefit at any time. As a
result, Contract changes that affect the amount of the Death Benefit may
affect whether cumulative premiums paid under the Contract exceed these
maximum premium limitations. For example, a decrease in Face Amount made at
the Contract Owner's request (see "CONTRACT BENEFITS--Death Benefits--
Ability to Change Face Amount") or made as a result of a partial surrender
(see "CONTRACT RIGHTS--Surrender Privileges--Partial Surrender"), or a
change in the Death Benefit Option (see "CONTRACT RIGHTS--Death Benefits--
Change in Death Benefit Option"), could result in cumulative premiums paid
exceeding these maximum premium limitations. To the extent that any such
Contract change would result in cumulative premiums exceeding these maximum
premium limitations, LB will not effect such change.
Allocation of Premiums and Accumulated Value
Net Premiums. The Net Premium equals the premium paid less the Premium
Expense Charges. See "CHARGES AND DEDUCTIONS--Premium Expense Charges".
Allocation of Net Premiums. The Contract Owner will, in the application for
the Contract, indicate how Net Premiums should be allocated to the
Subaccount(s) of the Variable Account. Until the Contract Date, premium
payments will be allocated to LB's General Account. If a Contract is issued,
interest will be credited on premium payments held in the General Account at
a rate of interest determined by LB; no interest will be credited on these
premium payments if no Contract is issued (but the full amount of any
premiums paid will be refunded). On the Contract Date, Net Premiums,
together with any interest credited on premiums held in the General Account,
will be transferred from LB's General Account and allocated to the Variable
Account among the Subaccount(s) of the Variable Account chosen by the
Contract Owner. Any Net Premiums received after the Contract Date will be
allocated to the Subaccount(s) chosen by the Contract Owner.
The percentages of each Net Premium that may be allocated to any Subaccount
of the Variable Account must be in whole numbers and the sum of the
allocation percentages must be 100%. LB reserves the right to adjust
allocation percentages to eliminate fractional percentages. The allocation
for future Net Premiums may be changed without charge at any time by
providing LB with Written Notice or by telephone (if the Contract Owner has
completed the Telephone Transaction Authorization Form).
The values of the Subaccount(s) of the Variable Account will vary with the
investment experience of the Subaccount(s) and the Contract Owner bears the
entire investment risk. Contract Owners should periodically review their
allocations of premiums in light of market conditions and the Contract
Owner's overall financial objectives.
The Contract Owner must notify LB if a payment is a loan repayment;
otherwise, it will be considered a premium payment.
Transfers. Accumulated Value may be transferred among the Subaccounts of the
Variable Account upon receipt of Written Notice or by telephone (if the
Contract Owner has completed the Telephone Transaction Authorization Form).
The total amount transferred each time must be at least $500 (unless the
total cash value in a Subaccount is less than $500, in which case the entire
amount may be transferred). No fees are currently charged for transfers.
Transfers may be postponed in certain circumstances. See "GENERAL
PROVISIONS--Postponement of Payments". Under present law, transfers are not
taxable transactions.
The provisions described above can be illustrated as follows. If a Contract
Owner wishes to transfer a total of $500 or more, any amount can be
transferred from the various Subaccounts (for example, $300 from the Money
Market Subaccount and $200 from the Income Subaccount, or any other
combination that totals $500 or more). A Contract Owner may transfer a total
of less than $500 only if the amount transferred from each Subaccount equals
the total Accumulated Value in that Subaccount (for example, a $300 total
transfer taken totally from the Money Market Subaccount when $300 represents
the total Accumulated Value in that Subaccount, or a $300 total transfer
taken $200 from the Money Market Subaccount and $100 from the Income
Subaccount when these amounts represent the total Accumulated Value in these
Subaccounts).
Telephone Transfers. Telephone transfers are available when the Contract
Owner completes the Telephone Transaction Authorization Form. If the
Contract Owner elects to complete the Telephone Transaction Authorization
Form, the Contract Owner thereby agrees that LB, its agents and employees
will not be liable for any loss, liability cost or expense when LB, its
agents and employees act in accordance with the telephone transfer
instructions that have been properly received and recorded on voice
recording equipment. If a telephone authorization or instruction, processed
after the Contract Owner has completed the Telephone Transaction
Authorization Form, is later determined not to have been made by the
Contract Owner or was made without the Contract Owner's authorization, and a
loss results from such unauthorized instruction, the Contract Owner bears
the risk of this loss. LB will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. In the event, LB does
not employ such procedures, LB may be liable for any losses due to
unauthorized or fraudulent instructions. Such procedures may include among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of such instructions
and/or tape recording telephone instructions.
Contract Owners should periodically review their allocations of Accumulated
Value in light of market conditions and the Contract Owner's overall
financial objectives.
Special Transfer Service--Dollar Cost Averaging. LB administers a dollar
cost averaging program which enables a Contract Owner to pre-authorize a
periodic exercise of the transfer rights described above. A Contract Owner
entering into a dollar cost averaging agreement will instruct LB to
periodically transfer predetermined dollar amounts from the Money Market
Subaccount to as many of three other Subaccounts as specified by the
Contract Owner until the amount in the Money Market Subaccount is exhausted
or the agreement is terminated by the Contract Owner. The dollar cost
averaging program is generally suitable for Contract Owners making a
substantial deposit to the Contract and who wish to use the other
Subaccounts investment option, but desire to control the risk of investing
at the top of a market cycle. The dollar cost averaging program allows such
investments to be made in equal installments over time in an effort to
reduce such risk. Dollar cost averaging does not guarantee that the Variable
Account will gain in value, nor will it protect against a decline in value
if market prices fall. However, if a Contract Owner can continue to invest
regularly throughout changing market conditions, it can be an effective
strategy to help meet long-term goals. Contract Owners interested in the
dollar cost averaging program may obtain an application and full information
concerning the program and its restrictions from LB.
Contract Lapse and Reinstatement
Lapse. The failure to make a Scheduled Premium payment will not itself cause
a Contract to lapse. Subject to the Death Benefit Guarantee (see "DEATH
BENEFIT GUARANTEE"), lapse will only occur when (a) the Cash Surrender Value
is insufficient to cover the Monthly Deduction or (b) Contract Debt exceeds
the Accumulated Value less any Decrease Charge, and in either case if a
grace period expires without a sufficient payment. Even if the Cash
Surrender Value is insufficient to cover the Monthly Deduction, the Contract
will not lapse if the Death Benefit Guarantee is in effect.
Because unearned prepaid loan interest will not be included in Contract Debt
(see definition of "Contract Debt" in section entitled "DEFINITIONS"), the
Cash Surrender Value (which is Accumulated Value less any Contract Debt and
any Decrease Charge) will always include any unearned prepaid loan interest.
This means that, in effect, unearned prepaid loan interest will be applied
to keep the Contract in force because this amount will be available to pay
the Monthly Deduction and because the grace period for the Contract does not
commence until the Cash Surrender Value is insufficient to cover the Monthly
Deduction. Any payment made by the Contract Owner after unearned prepaid
loan interest has been applied in this manner will first be used to replace
unearned prepaid loan interest so applied.
The Contract provides for a 61-day grace period that is measured from the
date on which notice is sent by LB. Thus, the Contract does not lapse, and
the insurance coverage continues, until the expiration of this grace period.
This notice will be sent by LB on or after the Monthly Anniversary on which
(a) Cash Surrender Value is insufficient to pay the Monthly Deduction
chargeable on the Monthly Anniversary or (b) Contract Debt exceeds the
Accumulated Value less any Decrease Charge.
In order to prevent lapse, the Contract Owner must during the grace period
make a premium payment or make a loan repayment sufficient to (a) increase
the Cash Surrender Value (that is, Accumulated Value less any Contract Debt
and any Decrease Charge) to an amount sufficient to cover any unpaid Monthly
Deductions or (b) reduce Contract Debt to an amount equal to or less than
the Accumulated Value less any Decrease Charge.
When the Contract enters the grace period, LB will notify the Contract
Owner. The Contract Owner will then have 61 days, measured from the date
notice is mailed to the Contract Owner, to make sufficient payments. The
notice will specify the payment required to keep the Contract in force and
the length of the grace period. Failure to make a sufficient payment within
the grace period will result in lapse of the Contract without value.
At the commencement of the grace period, LB will transfer the Contract's
Accumulated Value attributable to the Variable Account (that is, Accumulated
Value in excess of the amount held in the Loan Account) into LB's General
Account. If sufficient payments are made during the grace period to avoid
lapse of the Contract, then any Accumulated Value in excess of the amount to
be held in the Loan Account will be reallocated to the Variable Account upon
receipt of such payments. The amount reallocated to the Variable Account
will be reduced by the amount of any Monthly Deductions not paid during the
grace period. The amount allocated to the Variable Account will be allocated
among the Subaccount(s) in the same proportion as the Accumulated Value was
transferred to the General Account from the Subaccount(s) at the
commencement of the grace period.
If a sufficient payment is made during the grace period, Net Premiums will
be allocated among the Subaccount(s) according to the current Net Premium
allocation and then any amount required to pay unpaid Contract charges will
be deducted. See "Allocations of Premiums and Accumulated Value" above.
If the Insured dies during the grace period, the proceeds under the Contract
will equal the amount of the Death Benefit and any additional life insurance
benefits on the Insured provided by rider as of the Monthly Anniversary on
or immediately preceding the commencement of the grace period, reduced by
any Contract Debt and any unpaid Monthly Deductions.
If a sufficient payment is not made during the grace period, the Contract
will lapse without value and insurance coverage will end as of the
expiration of the grace period. The Contract will have no Accumulated Value
or Cash Surrender Value upon termination of the Contract.
On any Monthly Anniversary when the Death Benefit Guarantee is in effect,
the Contract will not lapse. See "DEATH BENEFIT GUARANTEE".
Reinstatement. A Contract that lapses without value may be reinstated at
any time within 5 years after the expiration of the grace period and before
the Maturity Date by submitting the following items to LB:
(1) Written application for reinstatement;
(2) Evidence of insurability satisfactory to LB;
(3) Payment or reinstatement of any Contract Debt (including interest earned
during the grace period) that existed on the date the grace period expired;
(4) A payment that is sufficient to cover: (a) payment of any unpaid
Monthly Deductions for the grace period; and (b) a premium repayment
sufficient to increase Cash Surrender Value (that is, Accumulated Value less
any Contract Debt and any Decrease Charge) to an amount at least equal to
the Monthly Deductions and interest on Contract loans for the next two
Contract Months, based on Unit Values on the date of reinvestment.
The amount of Cash Surrender Value on the date of reinstatement will equal
the Accumulated Value on that date less any reinstated Contract Debt and any
reinstated Decrease Charge (discussed below). The amount of Accumulated
Value on the date of reinstatement will equal: (a) the Accumulated Value as
of the expiration of the grace period before termination of the Contract;
plus (b) any premiums received at the time of reinstatement, reduced by the
Premium Expense Charges; less (c) any Monthly Deductions and any loan
interest due for the grace period; less (d) the Monthly Deduction for the
next Contract Month.
Contract charges will, in effect, be calculated and reinstated on a
reinstated Contract as if the Contract had been reinstated effective as of
the expiration of the grace period. Any Decrease Charge and any Initial
Monthly Administrative Charge that applied to the Contract at the expiration
of the grace period will be reinstated. The period of time from Contract
lapse until Contract reinstatement will not be taken into account in
determining when the 10-year-time periods for the Decrease Charge and the
Initial Monthly Administrative Charge expire or in determining when the
first Contract Year expires for the purpose of calculating the Contingent
Deferred Sales Charge (see "CHARGES AND DEDUCTIONS--Accumulated Value
Charges--Decrease Charge--Amount of Contingent Deferred Sales Charge").
Moreover, the Monthly Deductions and any loan interest that would have
otherwise been payable during the grace period must be paid before
reinstatement, which is also consistent with treating a reinstated Contract
as if the Contract has been reinstated effective as of the expiration of the
grace period.
The effective date of reinstatement will be the date on which the
reinstatement application was approved.
The Death Benefit Guarantee cannot be reinstated after lapse of the
Contract. See "DEATH BENEFIT GUARANTEE".
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Contract to compensate LB
for: (a) providing the insurance benefits set forth in the Contract and any
additional insurance benefits added by rider; (b) administering the
Contract; (c) assuming certain risks in connection with the Contract; and
(d) incurring expenses in distributing the Contract. The nature and amount
of these charges are described more fully below.
Premium Expense Charges
Prior to allocation of Net Premiums among the Subaccounts of the Variable
Account, premiums paid are reduced by Premium Expense Charges, which consist
of a percent-of-premium charge of 5% of each premium payment (a 5% sales
charge) and a premium processing charge currently equal to $1.00 per premium
payment ($.50 for automatic payment plans). LB reserves the right to
increase the premium processing charge to an amount not exceeding $2.00 per
premium payment ($1.00 for automatic payment plans).
Sales Charges. Sales charges, generally called "sales load", will be
deducted to compensate LB for the costs of selling the Contract. These costs
include sales commissions, the printing of prospectuses and sales
literature, and advertising. There are two types of sales load under the
Contract. The first, a front-end sales load, will be 5% of each premium
payment, and will be deducted from each premium payment upon receipt prior
to allocation of the Net Premium to the Variable Account. The second, the
Contingent Deferred Sales Charge which is part of the Decrease Charge, will
reduce the Accumulated Value in the Variable Account attributable to the
Contract in the event of full surrender or lapse of the Contract, or in part
upon a requested decrease in the Face Amount. See "Charges Against
Accumulated Value--Decrease Charge" below.
The sales charges in any Contract year are not necessarily related to actual
distribution expenses incurred during that Contract Year. Instead, LB
expects to incur the majority of distribution expenses in the early Contract
Years and to recover any deficiency over the life of the Contract. To the
extent that sales and distribution expenses exceed sales loads (both front-
end and deferred) in any year, LB will pay them from its other assets or
surplus in its General Account, which includes amounts derived from the
Mortality and Expense Risk Charge deducted from the net assets held in the
Variable Account (see "Accumulated Value Charges--Mortality and Expense Risk
Charge" below).
Premium Processing Charge. LB will deduct an amount equal to $1.00 per
premium payment ($.50 for automatic payment plans) to compensate it for the
cost of collecting and processing premiums. This amount will be deducted
from each premium payment prior to allocation of the net proceeds to the
Variable Account. LB reserves the right to increase this charge to an amount
not exceeding $2.00 per premium payment ($1.00 for automatic payment plans).
LB does not expect to make a profit on this charge.
Accumulated Value Charges
Decrease Charge
The Contract provides for the Decrease Charge, which is a deferred charge
that will be imposed if the Contract is surrendered or lapses, or in part if
the Contract Owner requests a decrease in the Face Amount, in each case at
any time before 120 Monthly Deductions have been made after issuance of a
Contract or after a requested increase in Face Amount. The term "Decrease
Charge" is used to describe this charge because, during the applicable 10-
year period, the charge is imposed in connection with a decrease in the Face
Amount, either as a result of a requested decrease in Face Amount or as the
result of lapse or full surrender of the Contract (which can be viewed as a
decrease in the Face Amount to zero). The Decrease Charge consists of the
Contingent Deferred Sales Charge (described below) and the Deferred
Administrative Charge (described below). The Contingent Deferred Sales
Charge compensates LB for the cost of selling the Contracts, including sales
commissions, the printing of prospectuses and sales literature, and
advertising. The Deferred Administrative Charge reimburses LB for
administrative expenses in connection with the issuance of the Contract,
including medical exams, review of applications for insurance underwriting
decisions, and processing of the applications and establishing Contract
records. (Similar administrative and sales expenses are expected in
connection with future changes in the Contract initiated by the Contract
Owner which involve "insurability" decisions, such as applications for
increases in Face Amount.)
The following sections describe how the amount of the Contingent Deferred
Sales Charge and the Deferred Administrative Charge will be determined and
how these charges will be deducted from Accumulated Value.
Amount of Contingent Deferred Sales Charge--Initial Face Amount. At Contract
issuance, LB will compute a maximum Contingent Deferred Sales Charge equal
to 25% of the CDSC Premium, which is a premium amount used solely for the
purpose of calculating the Contingent Deferred Sales Charge. As described
below, the Contingent Deferred Sales Charge calculated in this manner will
be reduced beginning on the fifth Contract Anniversary and will be subject
to an additional limitation keyed to actual premiums paid during the first
Contract Year. The Contingent Deferred Sales Charge actually imposed will
equal this maximum Contingent Deferred Sales Charge calculated as 25% of the
CDSC Premium (subject to the scheduled reductions) unless the limitation
keyed to 25% of actual premiums paid applies to the Contract. In other
words, the Contingent Deferred Sales Charge for the initial Face Amount, if
imposed, would never exceed the lesser of (a) 25% of the CDSC Premium and
(b) 25% of actual premiums paid during the first Contract Year.
The maximum Contingent Deferred Sales Charge calculated as described above
(and subject to the additional limitation keyed to 25% of actual premiums
paid), will remain at that level until the fifth Contract Anniversary.
Commencing on the fifth Contract Anniversary, and then on each subsequent
Monthly Anniversary until 60 Monthly Deductions have been made on and after
the fifth Contract Anniversary, this maximum Contingent Deferred Sales
Charge determined during the first Contract Year will be reduced as of each
Monthly Anniversary in level amounts equal to approximately 1.67% (20% on an
annual basis) of the maximum Contingent Deferred Sales Charge, which means
that the actual Contingent Deferred Sales Charge would be reduced to 80% of
the maximum Contingent Deferred Sales Charge after approximately 6 Contract
Years, 60% of the maximum after approximately 7 Contract Years, 40% of the
maximum after approximately 8 Contract Years, 20% of the maximum after
approximately 9 Contract Years, and zero after approximately 10 Contract
Years.
The CDSC Premium is an annual premium amount determined by LB on the same
basis as the Death Benefit Guarantee Premium (see "DEATH BENEFIT
GUARANTEE"), except that the CDSC Premium, unlike the Death Benefit
Guarantee Premium, will not take into account any additional charge for an
Insured in a substandard premium class, any charge for additional insurance
benefits added by rider, or the basic monthly administrative charge of $4.00
per month, or any premium processing charge. The maximum Contingent Deferred
Sales Charge based on the applicable CDSC Premium will be shown in the
Contract. Even though the Death Benefit Guarantee Premium may change after
issuance of the Contract, once the CDSC Premium is determined for purposes
of calculating the Contingent Deferred Sales Charge on the initial Face
Amount or on any increase, as the case may be, the CDSC Premium will not
change. The CDSC Premium will never exceed the "guideline annual premium",
as that term is defined under SEC Rule 6e-3(T), for the Contract.
The Contingent Deferred Sales Charge calculated as described above will be
subject to an additional limitation keyed to actual premiums paid. The
actual Contingent Deferred Sales Charge will never exceed 25% of premiums
paid (before deducting Premium Expense Charges) during the first Contract
Year. This additional limitation is imposed to avoid the possibility that
the total sales charge under the Contract might result in "excess sales
load" that would have to be refunded under SEC Rule 6e-3(T).
Amount of Contingent Deferred Sales Charge--Increases in Face Amount. If the
Face Amount is increased, LB will compute a maximum Contingent Deferred
Sales Charge for the increase equal to 25% of the CDSC Premium for the
increase. The Contingent Deferred Sales Charge actually imposed will equal
this maximum Contingent Deferred Sales Charge calculated as 25% of the CDSC
Premium for the increase (subject to the scheduled reductions) unless the
limitation keyed to 25% of the amount of premiums attributable to the
increase applies. Like the similar limitation for the initial Face Amount,
the CDSC Premium for the increase will never exceed the "guideline annual
premium", as that term is defined under SEC Rule 6e-3(T), for the increase.
In other words, the Contingent Deferred Sales Charge for an increase, if
imposed, would never exceed the lesser of (a) 25% of the CDSC Premium for
the increase and (b) 25% of the amount of premiums attributable to the
increase.
The maximum Contingent Deferred Sales Charge for an increase calculated as
described above will be subject to an additional limitation keyed to 25% of
"the amount of premiums attributable to the increase". The Contingent
Deferred Sales Charge actually imposed for an increase will never exceed 25%
of the "amount of premiums attributable to the increase". Like the similar
limitation for the initial Face Amount, this limitation avoids the
possibility that the total sales charge for the increase might result in
"excess sales load" that would have to be refunded under SEC Rule 6e-3(T).
A special rule applies to determine "the amount of premiums attributable to
the increase" because additional premium payments are not required to fund a
requested increase in Face Amount. The premiums attributable to the increase
will equal the sum of a proportionate share of the Cash Surrender Value on
the effective date of the increase plus a proportionate share of premium
payments made on the effective date of the increase or during the 12
Contract Months after the effective date of the increase. This means that,
in effect, a portion of the existing Cash Surrender Value will be deemed to
be a premium payment for the increase, and subsequent premium payments will
be prorated. The proportion of existing Cash Surrender Value and subsequent
premium payments attributable to the increase will equal the ratio of the
increase in Face Amount to the resulting total Face Amount after the
increase. For example, if the Face Amount is increased from $100,000 to
$200,000, the ratio of the increase to the resulting total Face Amount is
1/2 ($100,000/$200,000). If the Cash Surrender Value on the effective date
of the increase is $5,000 and premium payments totaling $3,000 are made
during the 12 Contract Months after the effective date of the increase, the
premiums attributable to the increase would be 1/2 ($5,000) + 1/2 ($3,000),
or a total of $4,000.
The part of the Contingent Deferred Sales Charge attributable to the
increase will be charged and reduced in accordance with the same principles
as applicable to the basic Contingent Deferred Sales Charge. It will remain
at the maximum level through approximately five years from the effective
date of the increase in Face Amount. It will then be reduced in level
monthly amounts equal to approximately 1.67% (20% on an annual basis) of the
maximum Contingent Deferred Sales Charge for the increase on the fifth
anniversary of the increase and on each subsequent monthly anniversary of
the increase until 60 Monthly Deductions have been taken on and after the
fifth anniversary of the increase. Thus, after the 60th Monthly Deduction
following the fifth anniversary of the increase, the Contingent Deferred
Sales Charge on the increase will be reduced to zero.
Amount of Deferred Administrative Charge. At Contract issuance, LB will
compute a Deferred Administrative Charge. In general, this charge will equal
an amount per $1,000 of Face Amount based upon the initial Face Amount, the
Insured's Attained Age at Contract issuance, and whether the Insured is a
smoker or nonsmoker. For Insureds with an Attained Age under 20, the
Deferred Administrative Charge will equal an amount per $1,000 of Face
Amount based upon the initial Face Amount and the Insured's Age at Contract
issuance. The maximum Deferred Administrative Charge per $1,000 of Face
Amount will be determined from Appendix B. As shown in Appendix B, the
Deferred Administrative Charge per $1,000 of Face Amount will be less for
Contracts having a Face Amount at issuance that equals or exceeds $250,000.
LB does not expect to make a profit on the Deferred Administrative Charge.
The maximum Deferred Administrative Charge, as determined at Contract
issuance, will be reduced as Monthly Deductions are made. Beginning on the
Date of Issue, and continuing on each Monthly Anniversary until 120 Monthly
Deductions have been made, this Deferred Administrative Charge determined at
Contract issuance will be reduced in level amounts equal to approximately
.83% of the maximum Deferred Administrative Charge (or a 10% reduction of
the maximum Deferred Administrative Charge on an annual basis). In this way,
the Deferred Administrative Charge will be reduced to zero as of the Monthly
Anniversary when the 120th Monthly Deduction is made.
If the Face Amount is increased, a separate Deferred Administrative Charge
will be calculated for the increase in an amount determined in the same
manner as for the initial Face Amount, (except that the Insured's Attained
Age on the effective date of the increase will be used and the charge per
$1,000 of Face Amount to be applied to the increase will be based on the
amount of the entire new Face Amount after giving effect to the increase).
The part of the Deferred Administrative Charge attributable to the increase
will be charged and reduced in accordance with the same principles as
applicable to the basic Deferred Administrative Charge. The maximum Deferred
Administrative Charge for an increase will be determined on the effective
date of the increase and will then be reduced in level amounts equal to .83%
of the maximum Deferred Administrative Charge (or a 10% reduction of the
maximum Deferred Administrative Charge on an annual basis) as Monthly
Deductions are taken on the effective date of the increase and as of each
succeeding Monthly Anniversary until 120 Monthly Deductions have been made
after the effective date of the increase, when the Deferred Administrative
Charge on the increase will be reduced to zero.
The administrative expenses covered by the Deferred Administrative Charge
are the same expenses covered by the Initial Monthly Administrative Charge
included in the Monthly Deduction. See "Accumulated Value Charges--Monthly
Deduction" below. Even though the same administrative expenses are covered
by both charges, LB will not be reimbursed twice for these issuance
expenses. Except as described below for spouse riders, these two charges
have been calculated so that these administrative expenses related to
issuance will generally be collected either through the Monthly Deduction
(which covers these charges through the Initial Monthly Administrative
Charge) or through the Decrease Charge (which covers these charges through
the Deferred Administrative Charge). Each of these charges applies until 120
Monthly Deductions have been made, and the scheduled reductions in the
Deferred Administrative Charge described above over this period have been
calculated to take into account the amount of issuance expenses that would
have already been collected through the Initial Monthly Administrative
Charge. In effect, the collection of the Deferred Administrative Charge
included in the Decrease Charge, which would be collected only upon lapse or
surrender of the Contract or in part upon a requested decrease in Face
Amount, would be an "acceleration" of the amounts that otherwise would have
been paid during this 10-year period through the Initial Monthly
Administrative Charge included in the Monthly Deduction. If the Deferred
Administrative Charge is imposed in part due to a requested decrease in Face
Amount, the amount of the Initial Monthly Administrative Charge will be
reduced accordingly (see "CHARGES AND DEDUCTIONS--Monthly Deduction--Initial
Monthly Administrative Charge").
The discussion in the immediately preceding paragraph does not apply to
spouse riders. The Deferred Administrative Charge is not an "acceleration"
of the Initial Monthly Administrative Charge applicable to any spouse rider
providing insurance benefits on the Insured's spouse. An Initial Monthly
Administrative Charge will arise upon issuance of a spouse rider, but no
Deferred Administrative Charge will be calculated. If the Contract lapses or
is surrendered when the Initial Monthly Administrative Charge applies for a
spouse rider, this charge will not be collected through the Deferred
Administrative Charge or otherwise, unless the Contract is reinstated (see
"PAYMENT AND ALLOCATION OF PREMIUMS--Contract Lapse and Reinstatement").
Method of Deduction and Effect of Decrease Charge. The Decrease Charge will
be treated as a deduction against the Contract Owner's Accumulated Value,
and will compensate LB for sales and issuance expenses described above upon
surrender or lapse of the Contract or in part upon a requested decrease in
Face Amount. Otherwise, the Decrease Charge will not be taken out of the
Accumulated Value held for investment under the Contract, and the
Accumulated Value will continue to reflect the investment experience of the
selected Subaccount(s), though the Decrease Charge will be treated as a
deduction for purposes of determining the Contract's Cash Surrender Value,
which will affect various Contract rights. Deducting the Decrease Charge in
determining the Cash Surrender Value will affect (a) the amount available
for Contract loans (see "CONTRACT RIGHTS--Loan Privileges"), (b) the Cash
Surrender Value available in connection with full or partial surrenders (see
"CONTRACT RIGHTS--Surrender Privileges"), and (c) the Cash Surrender Value
available to pay Monthly Deductions, which will, subject to the Death
Benefit Guarantee (see "DEATH BENEFIT GUARANTEE"), determine the Contract's
duration and possible lapse (see "PAYMENT AND ALLOCATION OF PREMIUMS--
Contract Lapse and Reinstatement").
If the Face Amount is decreased at the Contract Owner's request, that part
of any existing Decrease Charge amount attributable to the decrease will
reduce the Accumulated Value attributable to the Contract, and the Decrease
Charge will be reduced by this amount. The amount by which the Decrease
Charge is reduced will be allocated against the Subaccount(s) of the
Variable Account in the same manner that Monthly Deductions are allocated
against the Subaccount(s). See "Charges Against Accumulated Value--Monthly
Deductions" below. If the Cash Surrender Value is not sufficient to cover
the Decrease Charge imposed in connection with the requested decrease, the
requested decrease will not be made.
The Decrease Charge imposed for a requested decrease in Face Amount will be
determined by using the Decrease Charge then applicable to various parts of
the current Face Amount in the following order: (a) the Decrease Charge for
the most recent increase; (b) the Decrease Charge for the next most recent
increases successively; and (c) the Decrease Charge for the initial Face
Amount.
The calculation of the Decrease Charge for requested decreases can be
illustrated as follows. Assume that a Contract has an initial Face Amount of
$100,000, and the Face Amount is first increased by $20,000, and then
increased by $30,000, and then the Face Amount is decreased by $40,000. The
Decrease Charge imposed for the $40,000 decrease would be determined by
using the Decrease Charge for the most recent increase in Face Amount
($30,000) and then adding a proportionate part of the Decrease Charge for
the next most recent increase ($10,000/$20,000, or one-half of the Decrease
Charge for that increase). If, instead, the requested decrease was $60,000,
the Decrease Charge imposed for the $60,000 decrease would be determined by
using the Decrease Charge for the two increases (which were $30,000 and
$20,000, respectively) and then adding a proportionate part of the Decrease
Charge for the initial Face Amount ($10,000/$100,000, or one-tenth of the
Decrease Charge for the initial Face Amount).
If, alternatively, it is assumed that a Contract has an initial Face Amount
of $100,000, and the Face Amount is first decreased by $20,000, then
increased by $50,000, and then decreased by $30,000, the Decrease Charge on
the requested decreases would be as follows. The Decrease Charge imposed for
the first decrease ($20,000) would be determined by using a proportionate
part of the Decrease Charge for the initial Face Amount ($20,000/$100,000,
or one-fifth of the Decrease Charge for the initial Face Amount). The
Decrease Charge imposed for the second decrease ($30,000), would be
determined by using a proportionate part of the Decrease Charge for the most
recent increase ($30,000/$50,000, or six-tenths of the Decrease Charge for
that increase.
Reinstatement of Decrease Charge. If a Contract lapses and is then
reinstated, any Decrease Charge applicable at the time of lapse will also be
reinstated. See "PAYMENT AND ALLOCATION OF PREMIUMS--Contract Lapse and
Reinstatement".
Monthly Deduction
Charges will be deducted on the Contract Date and each Monthly Anniversary
from the Accumulated Value of the Contract (the "Monthly Deduction") to
compensate LB for administrative expenses and the insurance provided by the
Contract. The Monthly Deduction consists of three components--(a) the cost
of insurance, (b) insurance underwriting and expenses in connection with
issuing the Contract or any increase in Face Amount, and the costs of
ordinary administration of the Contract, and (c) the cost of any additional
benefits added by rider. Because portions of the Monthly Deduction, such as
the cost of insurance, can vary from month to month, the Monthly Deduction
itself will vary in amount from month to month.
The Monthly Deduction will be deducted on the Contract Date and on each
subsequent Monthly Anniversary. (On the Contract Date, a Monthly Deduction
covering the period of time from the Date of Issue until the first Monthly
Anniversary will be deducted and, if any Monthly Anniversary occurs prior to
the Contract Date, the Monthly Deduction(s) for such Monthly Anniversaries
will also be made on the Contract Date.) The Monthly Deduction will be
deducted from the Accumulated Value of the Contract by redeeming units from
the Subaccounts of the Variable Account and will be allocated against each
Subaccount of the Variable Account in the same proportion that the
Contract's Accumulated Value in each Subaccount bears to the total
Accumulated Value of the Contract, less Accumulated Value in the Loan
Account, at the Monthly Anniversary. Subject to LB's approval, the Contract
Owner may specify a different allocation for the Monthly Deduction.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Contract Month can vary from month to month. LB
will determine the monthly cost of insurance charge by multiplying the
applicable cost of insurance rate or rates by the net amount at risk for
each Contract Month. The net amount at risk on any Monthly Anniversary is
the amount by which the Death Benefit which would have been payable on that
Monthly Anniversary exceeds the Accumulated Value on that Monthly
Anniversary. For the purposes of this calculation, the Death Benefit will be
divided by 1.0040741, which reduces the net amount at risk by taking into
account assumed monthly earnings at an annual rate of 5%. In general, the
actual cost of insurance rate will be lower for Contracts having a Face
Amount at issuance or after a requested increase that equals or exceeds
$250,000.
The monthly cost of insurance will be determined separately for each
component of the net amount at risk, using the cost of insurance rate
applicable to the component, in the following order: (1) the initial Face
Amount; (2) successively, each increase in Face Amount up to the Face Amount
in force, in the order in which the increase took effect; and (3) any Death
Benefit that would be payable by reason of Accumulated Value calculations
(that is, whenever the Death Benefit is based on the applicable percentage
of Accumulated Value) over the Face Amount in force. For example, when a
Contract Owner has elected to make an increase in the Face Amount, the
monthly cost of insurance would be computed separately on the initial Face
Amount using the cost of insurance rate for the premium class determined
upon Contract issuance, and to each increase in Face Amount using the cost
of insurance rate for the premium class determined for such increase as
specified in the supplement to the Contract evidencing that increase.
Because the monthly cost of insurance must be determined separately for each
component of the net amount at risk described above, the Accumulated Value
must be allocated to each component. For purposes of determining the net
amounts at risk for each component if Option B is in effect, Accumulated
Value will first be considered a part of the initial Face Amount, and then
each successive increase in the Face Amount. If the Accumulated Value is
greater than the initial Face Amount, it will be considered a part of each
increase in order, starting with the first increase. When Option A is in
effect, the Accumulated Value is not included within the Face Amount.
Accordingly, the cost of insurance rates applicable will be the rate(s)
applicable to the Face Amount (and any increases in Face Amount). The cost
of insurance rate applicable to the remaining Death Benefit, if any, that
would be payable by reason of Accumulated Value calculations (which is the
remainder of the net amount at risk) will be that applicable to the initial
Face Amount.
Any change in the net amount at risk will affect the total cost of insurance
paid by the Contract Owner. For example, because generally the net amount at
risk equals the excess of the Death Benefit over the Accumulated Value, the
net amount at risk may be affected by changes in the Accumulated Value, in
the Face Amount, or in the Death Benefit Option in effect. See "CONTRACT
BENEFITS--Death Benefits--Accumulated Value and Cash Surrender Value".
Cost of Insurance Rate. Cost of insurance rates will be based on the initial
Face Amount and the sex, Attained Age and premium class of the Insured. The
actual monthly cost of insurance rates will be based on LB's expectations as
to future mortality experience. They will not, however, be greater than the
guaranteed cost of insurance rates set forth in the Contract. These
guaranteed rates are based on the Insured's Attained Age and the 1980
Commissioners Standard Ordinary Mortality Table. Any change in the cost of
insurance rates will generally apply to all persons of the same Attained
Age, sex and premium class. In general, the actual cost of insurance rate
will be lower for Contracts having a Face Amount at issuance or after a
requested increase that equals or exceeds $250,000. Montana has enacted
legislation that requires that cost of insurance rates applicable to
Contracts purchased in Montana cannot vary on the basis of the Insured's
sex, and so, for Contracts issued in the state of Montana, the cost of
insurance rate will not be based on the basis of sex. In connection with
certain employment-related plans, cost of insurance rates may in some
circumstances not distinguish between men and women. See "EMPLOYMENT-RELATED
BENEFIT PLANS".
Premium Class. The premium class of an Insured will affect the cost of
insurance rates. LB currently places Insureds into standard premium classes
and into substandard premium classes, which involve a higher mortality risk.
In an otherwise identical Contract, an Insured in the standard premium class
will have a lower cost of insurance than an Insured in a premium class with
higher mortality risks. The premium classes are also divided into two
categories: smokers and nonsmokers. Nonsmoking Insureds will generally incur
lower cost of insurance rates than Insureds who are classified as smokers.
Any Insured with an Attained Age at issuance under 20 will not be classified
initially as a smoker or nonsmoker and then will be classified as a smoker
at Attained Age 20 unless the Insured provides satisfactory evidence that
the Insured is a nonsmoker. (LB will provide notice to the Contract Owner of
the opportunity for the Insured to be classified as a nonsmoker when the
Insured reaches Attained Age 20.)
Monthly Administration Charge. LB has primary responsibility for the
administration of the Contract and the Variable Account. As a result, LB
expects to incur certain ordinary administrative expenses and certain
issuance expenses. A monthly administration charge included in the Monthly
Deduction will be used to reimburse LB for these expenses, except to the
extent that these expenses are reimbursed through the collection of the
Deferred Administrative Charge included in the Decrease Charge, which is, in
effect, an "acceleration" of the initial administrative charge described
below.
There are two administrative charges included in the monthly administration
charge--a basic monthly administrative charge that is collected every
Contract Month and an initial monthly administrative charge that is deducted
as part of the first 120 Monthly Deductions (the "Initial Monthly
Administrative Charge") following Contract issuance and following any
requested increase in Face Amount. LB does not expect to make a profit on
either of these charges.
Basic Monthly Administrative Charge. A basic monthly administrative charge
of $4.00 will be deducted from Accumulated Value on the Contract Date and
each Monthly Anniversary as part of the Monthly Deduction. This charge is
intended to reimburse LB for ordinary administrative expenses expected to be
incurred, including record keeping, processing Death Benefit claims, certain
Contract changes, preparing and mailing reports, and overhead costs.
Initial Monthly Administrative Charge. The Initial Monthly Administrative
Charge will be deducted from Accumulated Value as part of the first 120
Monthly Deductions following Contract issuance, commencing with the Monthly
Deduction(s) collected on the Contract Date. This monthly charge will equal
an amount per $1,000 of Face Amount based upon the Insured's Attained Age at
Contract issuance and, except for Insureds with an Attained Age at Contract
issuance under 20, upon whether the Insured is a smoker or a nonsmoker. The
Initial Monthly Administrative Charge per $1,000 of Face Amount will be
determined from Appendix C. As shown in Appendix C, the Initial Monthly
Administrative Charge will be less for Contracts having a Face Amount at
issuance that equals or exceeds $250,000.
If the Face Amount is increased, a separate Initial Monthly Administrative
Charge will be deducted from Accumulated Value as part of the first 120
Monthly Deductions after the increase beginning with the Monthly Anniversary
on which the increase becomes effective. This separate Initial Monthly
Administrative Charge will be determined in the same manner as for the
initial Face Amount, except that the Insured's Attained Age on the effective
date of the increase will be used and the charge per $1,000 of Face Amount
to be applied to the increase will be based on the amount of the entire new
Face Amount after giving effect to the increase.
If a spouse rider providing additional insurance benefits on the Insured's
spouse is added, a separate Initial Monthly Administrative Charge will be
deducted from Accumulated Value as part of the first 120 Monthly Deductions
after the issuance of the spouse rider, beginning with the Monthly
Anniversary on which the spouse rider becomes effective. This additional
Initial Monthly Administrative Charge will be determined in the same manner
as for the initial Face Amount, except that the spouse's Attained Age and
smoker or nonsmoker status on the effective date of the rider will be used.
The Initial Monthly Administrative Charge is intended to reimburse LB for
administrative expenses in connection with the issuance of the Contract,
including medical exams, review of applications for insurance underwriting
decisions, and processing of the applications and establishing Contract
records. Similar expenses are expected in connection with future changes in
the Contract initiated by the Contract Owner which involve "insurability"
decisions, such as applications for increases in Face Amount and the
issuance of spouse riders.
The issuance expenses covered by the Initial Monthly Administrative Charge
are the same expenses covered by the Deferred Administrative Charge included
in the Decrease Charge. See "CHARGES AND DEDUCTIONS--Accumulated Value
Charges--Decrease Charge" above. LB will not, however, be reimbursed twice
for these expenses. As described above (see "CHARGES AND DEDUCTIONS--
Accumulated Value Charge--Decrease Charge"), and except in the case of
charges attributable to spouse riders (see discussion below), if a Contract
lapses or is totally surrendered during the 10-year period when the Initial
Monthly Administrative Charge applies, or if a requested decrease in Face
Amount occurs during the 10-year period when the Initial Monthly
Administrative Charge generally applies, the Initial Monthly Administrative
Charge will, in effect, generally be "accelerated" and collected in the form
of the Deferred Administrative Charge included in the Decrease Charge.
Because the Deferred Administrative Charge included in the Decrease Charge
is in effect an "acceleration" of the Initial Monthly Administrative Charge,
the imposition of the Deferred Administrative Charge will generally
eliminate or reduce the Initial Monthly Administrative Charge. If the
Contract lapses or is totally surrendered during the 10-year period when the
Initial Monthly Administrative Charge applies so that the Decrease Charge is
imposed, the Initial Monthly Administrative Charge will not be collected. If
the Face Amount is decreased at the Contract Owner's request during this 10-
year period so that the Decrease Charge (including the Deferred
Administrative Charge) is imposed in part, the Initial Monthly
Administrative Charge will be reduced because of the Deferred Administrative
Charge imposed (being applied to reduce proportionately or eliminate the
Initial Monthly Administrative Charge attributable to that portion of the
Face Amount covered by the Decrease Charge).
If a Contract lapses and is then reinstated, the Initial Monthly
Administrative Charge will be reinstated until a total of 120 Monthly
Deductions have been taken. See "PAYMENT AND ALLOCATION OF PREMIUMS--
Contract Lapse and Reinstatement".
No Deferred Administrative Charge will be calculated for the issuance of a
spouse rider, even though a separate Initial Monthly Administrative Charge
will be calculated for spouse riders. As a result, the Initial Monthly
Administrative Charge attributable to a spouse rider will not be
"accelerated" and collected in the form of the Deferred Administrative
Charge included in the Decrease Charge upon surrender or lapse or upon a
requested decrease in Face Amount. If a lapse or total surrender of the
Contract or a cancellation of the spouse rider occurs during the 10-year
period when an Initial Monthly Administrative Charge applies for a spouse
rider, the charge will not be collected. If a requested decrease on a spouse
rider occurs during this 10-year period, the Initial Monthly Administrative
Charge attributable to the spouse rider will be reduced proportionately.
Additional Insurance Benefits Charges. The Monthly Deduction will include
charges for any additional insurance benefits added to the Contract by
rider. These charges are for insurance protection, and the monthly amounts
will be specified in the Contract. See "GENERAL PROVISIONS--Additional
Insurance Benefits".
Partial Surrender Charge
A partial surrender charge of $25 or 2% of the amount withdrawn, whichever
is less, will be deducted from the amount withdrawn for each partial
surrender to compensate LB for the administrative costs in effecting the
requested payment and in making necessary calculations for any reductions in
Face Amount which may be required by reason of the partial surrender. This
charge is guaranteed not to increase. LB does not expect to make a profit
from this charge. Only one partial surrender can be made in any Contract
Month.
Charges Against the Variable Account
Mortality and Expense Risk Charge. A daily charge (the "Mortality and
Expense Risk Charge") will be deducted from the value of the net assets of
the Variable Account to compensate LB for mortality and expense risks
assumed in connection with the Contract. LB has determined that a Mortality
and Expense Risk Charge at an annual rate of .75% of the average daily net
assets of each Subaccount of the Variable Account would be reasonable in
relation to the mortality and expense risks assumed by LB under the
Contract. LB will, however, initially impose a Mortality and Expense Risk
Charge at an annual rate of .60% (or a daily rate of .001644%) of the
average daily net assets of each Subaccount of the Variable Account. The
Mortality and Expense Risk Charge is guaranteed not to increase above an
annual rate exceeding .75%. The daily charge will be deducted from the net
asset value of the Variable Account, and therefore the Subaccounts, on each
Valuation Date. When the previous day or days was not a Valuation Date, the
deduction on the Valuation Date will be .001644% multiplied by the number of
days since the last Valuation Date.
The mortality risk assumed by LB is that Insureds may live for a shorter
time than projected because of inaccuracies in the projections, and that an
aggregate amount of Death Benefits greater than that projected accordingly
will be payable. The expense risk assumed is that expenses incurred in
issuing and administering the Contracts will exceed the administrative
charges provided in the Contracts.
Taxes. Currently, no charge will be made against the Variable Account for
Federal income taxes. LB may, however, make such a charge in the future if
income or gains within the Variable Account will incur any Federal income
tax liability. Charges for other taxes, if any, attributable to the Variable
Account may also be made. See "FEDERAL TAX MATTERS".
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 "LUTHERAN BROTHERHOOD AND
THE VARIABLE ACCOUNT--LB Series Fund, Inc.", and the accompanying current
prospectus for the Fund.
DEATH BENEFIT GUARANTEE
General. If a Contract Owner meets the requirement described below for the
Death Benefit Guarantee, LB guarantees that the Contract will not lapse.
Whenever the Cash Surrender Value is less than the Monthly Deduction then
due, any excess of Accumulated Value over Contract Debt will be used to pay
the Monthly Deduction. If available Accumulated Value is less than the
Monthly Deduction then due and the Death Benefit Guarantee is in effect, LB
will pay the deficiency.
If the Death Benefit Guarantee terminates, the Contract will not necessarily
lapse. For a discussion of the circumstances under which the Contract may
lapse, see "PAYMENT AND ALLOCATION OF PREMIUMS--Contract Lapse and
Reinstatement". The Death Benefit Guarantee does, however, provide
additional protection against the possibility of lapse.
The Death Benefit Guarantee provides significant protection against lapse of
the Contract. First, to the extent Cash Surrender Value declines due to poor
investment performance, the Death Benefit Guarantee may be necessary to
avoid lapse of the Contract. Second, during the early Contract Years, the
Cash Surrender Value will generally not be sufficient to cover the Monthly
Deduction, so that the Death Benefit Guarantee will be necessary to avoid
lapse of the Contract. This occurs because the Decrease Charge usually
exceeds the Accumulated Value in these years. In this regard, a Contract
Owner should consider that if an increase in Face Amount is requested, an
additional Decrease Charge would apply for the ten years following the
increase, which could create a similar possibility of lapse as exists during
the early Contract Years. THUS, EVEN THOUGH THE CONTRACT PERMITS PREMIUM
PAYMENTS LESS THAN THE PAYMENTS REQUIRED TO MAINTAIN THE DEATH BENEFIT
GUARANTEE, THE CONTRACT OWNER WILL LOSE THE SIGNIFICANT PROTECTION PROVIDED
BY THE DEATH BENEFIT GUARANTEE BY PAYING LESS THAN THE PREMIUMS REQUIRED TO
MAINTAIN THE GUARANTEE.
WHEN CONSIDERING CONTRACT LOANS (see "CONTRACT RIGHTS--Loan Privileges") OR
PARTIAL SURRENDERS (see "CONTRACT RIGHTS--Surrender Privileges"), A CONTRACT
OWNER SHOULD KEEP IN MIND THAT A CONTRACT LOAN OR PARTIAL SURRENDER COULD
CAUSE TERMINATION OF THE DEATH BENEFIT GUARANTEE BECAUSE THE AMOUNT OF ANY
PARTIAL SURRENDER OR CONTRACT LOAN AMOUNT WILL, SUBJECT TO CERTAIN
EXCEPTIONS, BE DEDUCTED FROM CUMULATIVE PREMIUM PAYMENTS IN DETERMINING
WHETHER THE REQUIREMENTS FOR THE DEATH BENEFIT GUARANTEE HAVE BEEN MET.
Death Benefit Guarantee Requirement. The Death Benefit Guarantee applies if
the total cumulative premiums paid (before deduction of the Premium Expense
Charges) under the Contract, less any partial surrenders and the Loan
Amount, equals or exceeds the sum of the Death Benefit Guarantee Premiums
(described below) on each Monthly Anniversary since the issuance of the
Contract. However, if the Death Benefit Guarantee requirement is not met on
a Monthly Anniversary but the Cash Surrender Value less any unearned
interest is greater than or equal to the sum of Death Benefit Guarantee
Premiums from the Date of Issue through that Monthly Anniversary, then the
sum of premiums paid as used above will be deemed to increase through that
date to the amount necessary to meet the Death Benefit Guarantee
requirement.
In addition, a portion of any partial surrender or Contract Loan Amount may
be excluded when determining if the Death Benefit Guarantee requirement is
met. The amount excluded is calculated on the date of the partial surrender
or Contract loan and is equal to the lesser of:
1) The amount of the partial surrender or unpaid Contract loan; and
2) The excess, if any, of the Cash Surrender Value less unearned prepaid
loan interest over the greater of (a) and (b) where:
a) Is the sum of premiums paid less the amount of any partial surrenders and
Contract loans not previously excluded when determining if the Death Benefit
Guarantee requirement was met; and
b) Is the sum of Death Benefit Guarantee Premiums from the Date of Issue
through the Monthly Anniversary on or next after the date of the partial
surrender or Contract loan.
These calculations for Death Benefit Guarantee compliance are intended to
provide the Contract Owner with the flexibility to take advantage of certain
increases in Cash Surrender Value without losing the benefit of the Death
Benefit Guarantee. First, by "deeming" the sum of premiums paid to be
increased under the circumstances described above for purposes of the Death
Benefit Guarantee, the Contract Owner can take advantage of increases in
Cash Surrender Value by reducing or suspending actual premium payments so
long as Cash Surrender Value, less any unearned prepaid loan interest,
remains at a sufficient level to maintain the Death Benefit Guarantee under
the formula described above. Second, by excluding part of a partial
surrender or a Contract loan under the circumstances described above for
purposes of the Death Benefit Guarantee, the Contract Owner can take
advantage of increases in Cash Surrender Value by withdrawing a part of such
increases by means of a partial surrender or Contract loan, provided that on
the date of such surrender or loan the Cash Surrender Value, less any
unearned prepaid loan interest, is at a sufficient level under the formula
described above. Of course, any such actions by a Contract Owner will have
the effect (directly or indirectly) of reducing Cash Surrender Value, which
may mean that less Cash Surrender Value will be available for future
Contract charges and for determining future compliance with the requirements
for the Death Benefit Guarantee. A Contract Owner should also consider the
other effects of varying the amount and frequency of premium payments (see
"PAYMENT AND ALLOCATION OF PREMIUMS") and of partial surrenders and Contract
loans (see "CONTRACT RIGHTS--Loan Privileges" and "CONTRACT RIGHTS--
Surrender Privileges").
If sufficient premium payments have been made, the Death Benefit Guarantee
will apply until the specified Attained Age of the Insured shown in the
Contract, which Attained Age will be the later of (a) the Insured's Attained
Age 71 and (b) the Attained Age of the Insured at the end of a period
ranging from 6 to 31 years (varying with the Insured's Attained Age at
issue) from the Date of Issue.
LB will determine on each Monthly Anniversary whether the requirements for
the Death Benefit Guarantee have been satisfied, but premiums need not be
paid on a monthly basis. If, as of any Monthly Anniversary, the Contract
Owner has not made sufficient premium payments to maintain the Death Benefit
Guarantee, the Death Benefit Guarantee will terminate immediately, subject
to only a limited right of reinstatement, as described below under
"Reinstatement".
Reinstatement. After termination of the Death Benefit Guarantee, LB will
send written notice to the Contract Owner that the Death Benefit Guarantee
has terminated and the Contract Owner will have 31 days from the date such
notice is sent by LB to reinstate the Death Benefit Guarantee. The written
notice of termination from LB to the Contract Owner will indicate the
premium payment required to reinstate the Death Benefit Guarantee. If LB
does not receive this required premium payment within 31 days after this
written notice is sent to the Contract Owner by LB, the Death Benefit
Guarantee will remain terminated and can never be reinstated. During this 31
day reinstatement period, the Contract Owner will not have the protection of
the Death Benefit Guarantee.
WHEN DETERMINING THE AMOUNT AND FREQUENCY OF PREMIUM PAYMENTS, A CONTRACT
OWNER SHOULD CAREFULLY CONSIDER THAT THE DEATH BENEFIT GUARANTEE TERMINATES
IMMEDIATELY WHEN THE REQUIREMENTS DESCRIBED ABOVE ARE NOT SATISFIED, AND THE
ABILITY TO REINSTATE THE DEATH BENEFIT GUARANTEE PERMANENTLY EXPIRES ON THE
FOLLOWING MONTHLY ANNIVERSARY OF THE CONTRACT 31 DAYS AFTER LB SENDS WRITTEN
NOTICE OF TERMINATION.
Death Benefit Guarantee Premium. A monthly premium amount required to
maintain the Death Benefit Guarantee (the "Death Benefit Guarantee Premium")
will be set forth in the Contract. The Death Benefit Guarantee Premium is
determined by LB based upon a formula taking into account the applicable
cost of insurance charge for the Insured, using the Insured's actual premium
class (see "CHARGES AND DEDUCTIONS--Monthly Deduction--Cost of Insurance");
a percentage of assumed monthly Death Benefit Guarantee Premium payment
together with an assumed premium processing charge; the applicable Initial
Monthly Administrative Charge (see "CHARGES AND DEDUCTIONS--Monthly
Deduction--Initial Monthly Administrative Charge"); the charge for any
additional insurance benefits added by rider (see "GENERAL PROVISIONS--
Additional Insurance Benefits"); and the basic monthly administrative charge
of $4.00 per month (see "CHARGES AND DEDUCTIONS--Monthly Deduction--Basic
Monthly Administrative Charge"). Due to the factors considered in
calculating these charges, the Death Benefit Guarantee Premium will vary
depending upon, among other things, the Insured's sex, the Insured's
Attained Age, the Insured's premium class, the Face Amount, the Death
Benefit Option, and which additional insurance benefits, if any, are added
by rider. The Death Benefit Guarantee Premium will change as the result of
certain Contract changes, including an increase or decrease in Face Amount;
a change in Death Benefit Option; a change in premium class; and an
increase, decrease, addition or deletion of additional insurance benefits.
Whenever the Death Benefit Guarantee Premium changes, the Contract Owner
will be notified promptly of the new Death Benefit
Guarantee Premium.
CONTRACT RIGHTS
Loan Privileges
General. The Contract Owner may at any time after the Contract Date borrow
money from LB using the Contract as the only security for the loan. The
Contract Owner may at any time after the Contract Date obtain Contract loans
in a minimum amount of $100 but not exceeding in the aggregate 90% of the
excess of Accumulated Value over any Decrease Charge on the date of any
loan. Loans have priority over the claims of any assignee or other person.
The loan may be repaid in full or in part at any time while the Insured is
living.
As used in this Prospectus, the term "Loan Amount" means the sum of all
unpaid Contract loans (including any prepaid loan interest added to the then
outstanding Loan Amount), and the term "Debt" means the sum of all unpaid
Contract loans less any unearned prepaid loan interest). The Loan Amount is
used in calculating whether the requirement for the Death Benefit Guarantee
has been satisfied (see "DEATH BENEFIT GUARANTEE"). Contract Debt is used in
calculating the Contract's Cash Surrender Value (see "CONTRACT BENEFITS--
Accumulated Value and Cash Surrender Value") the amount of Death Benefit
proceeds payable to the beneficiary (see "CONTRACT BENEFITS--Death
Benefits"), the amount of benefit proceeds at Maturity Date (see "CONTRACT
BENEFITS--Benefits at Maturity") and (in some cases) in determining whether
the Contract will lapse (see "PAYMENT AND ALLOCATION OF PREMIUMS--Contract
Lapse and Reinstatement).
Allocation of Contract Loan. LB will allocate a Contract loan among the
Subaccounts of the Variable Account in the same proportion that the
Contract's Accumulated Value in each Subaccount bears to the Contract's
total Accumulated Value in the Variable Account, as of the day on which the
request is received or, if that is not a Valuation Date, on the next
following Valuation Date. With LB's approval, the Contract Owner can select
a different allocation.
Loans will normally be paid within seven days after receipt of Written
Notice. Postponement of loans may take place under certain circumstances.
See "GENERAL PROVISIONS--Postponement of Payments".
Interest. The interest rate charged on Contract loans accrues daily at an
annual rate of 7.4%, payable in advance, which is equivalent to a fixed rate
of 8% per year. Loan interest is calculated on a prepaid basis, and is
payable in advance at the time any Contract loan is made (for the rest of
the Contract Year) and at the beginning of each Contract Year thereafter
(for that entire Contract Year). If interest is not paid when due, it will
be added to the loan balance and will bear interest at the same rate. If
death or full surrender occurs before the next Contract Anniversary,
unearned interest will be added to the proceeds payable.
Effect of Contract Loans. Accumulated Value equal to the portion of the
Contract loan allocated to each Subaccount will be transferred from the
Subaccount to the Loan Account, thereby reducing the Contract's Accumulated
Value in that Subaccount.
As long as the Contract is in force, Accumulated Value in the Loan Account
will be credited with interest at an effective annual rate of 6%. NO
ADDITIONAL INTEREST WILL BE CREDITED TO THESE ASSETS. The interest earned
during a Contract Month will be credited at the end of the Contract Month.
Any interest credited will be allocated to the Subaccount(s) in proportion
to the Accumulated Value in the respective Subaccounts. See "PAYMENT AND
ALLOCATION OF PREMIUMS--Allocation of Premiums and Accumulated Value".
Although Contract loans may be repaid at any time before the Maturity Date,
Contract loans will permanently affect the Contract's potential Accumulated
Value and Cash Surrender Value and may permanently affect the Death Benefit
under the Contract. The effect on Accumulated Value and Death Benefit could
be favorable or unfavorable depending on whether the investment performance
of the Accumulated Value in the Subaccount(s) is less than or greater than
the interest being credited on the assets in the Loan Account while the loan
is outstanding. Compared to a Contract under which no loan is made, values
under the Contract will be lower when such interest credited is less than
the investment performances of assets held in the Subaccount(s). In
addition, the Death Benefit proceeds will be reduced by the amount of any
outstanding Contract Debt.
THE AMOUNT OF ANY CONTRACT LOAN WILL, SUBJECT TO CERTAIN EXCEPTIONS, BE
DEDUCTED FROM CUMULATIVE PREMIUM PAYMENTS IN DETERMINING WHETHER THE
REQUIREMENTS FOR THE DEATH BENEFIT GUARANTEE HAVE BEEN SATISFIED. AS A
RESULT, A CONTRACT LOAN COULD RESULT IN TERMINATION OF THE DEATH BENEFIT
GUARANTEE. See "DEATH BENEFIT GUARANTEE".
Repayment of Contract Debt. Debt may be repaid any time before the Maturity
Date while the Insured is living. Each repayment must be at least $25. If
not repaid, LB will deduct Debt from any proceeds payable under the
Contract. As Debt is repaid, the Contract's Accumulated Value held in the
Subaccount(s) of the Variable Account will be restored and any prepaid
interest attributable to the repaid amount will likewise be allocated to the
Subaccount(s) in the same proportion as Debt repayments will be allocated.
LB will allocate the amount of such repayment (as well as any prepaid loan
interest that was unearned by LB at the time of repayment) to the
Subaccount(s) of the Variable Account in the same proportion that the
Contract's Accumulated Value in a Subaccount bears to the Contract's total
Accumulated Value in the Variable Account (the Contract Owner may select a
different allocation basis with LB's approval). See "PAYMENT AND ALLOCATION
OF PREMIUMS--Allocation of Premiums and Accumulated Value". When the entire
Debt is repaid, interest that would be credited upon the assets held in the
Loan Account during the period from the last Monthly Anniversary to the date
of repayment will also be allocated to the Subaccount(s) in the same
proportion as Debt repayments will be allocated. LB will allocate the
repayment of Debt as of the date on which the repayment is received or, if
that is not a Valuation Date, on the next following Valuation Date.
The Contract Owner must notify LB if a payment is a loan repayment;
otherwise, it will be considered a premium payment.
Tax Considerations. Under the Technical and Miscellaneous Revenue Act of
1988, any loans taken from a "modified endowment contract" will be treated
as a taxable distribution. In addition, with certain exceptions, a ten
percent (10%) additional income tax penalty would be imposed on the portion
of any loan that is included in income. See "FEDERAL TAX MATTERS--Contract
Proceeds".
Surrender Privileges
At any time before the earlier of the death of the Insured and the Maturity
Date, the Contract Owner may partially or totally surrender the Contract by
sending Written Notice to LB. The Cash Surrender Value will equal the
Accumulated Value less any Contract Debt and any Decrease Charge. A Contract
Owner may elect to have the amount paid in cash or under a settlement
option. See "CONTRACT BENEFITS--Payment of Contract Benefits".
Full Surrender. If the Contract is fully surrendered, the Contract Owner
will be paid the Cash Surrender Value of the Contract determined as of the
date a Written Notice requesting surrender is received by LB (or as of such
later date as the Contract Owner shall specify in the Written Notice), or,
if this date is not a Valuation Date, the next following Valuation Date. To
surrender the Contract fully, the Contract must be delivered to LB along
with the Written Notice requesting surrender.
Partial Surrender. The Contract may be surrendered in part for any amount,
as long as the amount of the partial surrender is at least $500 and as long
as the remaining Cash Surrender Value is not less than $500 (in each case
with the Cash Surrender Value being determined on the day Written Notice is
received by LB, or if this is not a Valuation Date, the next following
Valuation Date). The amount surrendered will be deducted from the
Subaccount(s) of the Variable Account in the same proportion that the
Contract Owner's Accumulated Value in the respective Subaccount(s) bears to
the Contract's total Accumulated Value in the Subaccount(s) at that time
(the Contract Owner may select a different allocation basis with LB's
approval). Only one partial surrender can be made in any Contract Month. A
surrender charge of $25 or 2% of the amount withdrawn, whichever is less,
will be deducted by LB from the amount withdrawn. For a discussion of
certain limitations and considerations applicable to partial surrenders, see
"Partial Surrenders--Certain Other Considerations" below.
Effect of Partial Surrenders on Face Amount and Death Benefit. A partial
surrender will always decrease the Death Benefit and may also decrease the
Face Amount. As described below, the effect of a partial surrender on the
Death Benefit and the Face Amount may vary depending upon the Death Benefit
Option in effect and whether the Death Benefit is based on the applicable
percentage of Accumulated Value.
Option A--Effect of Partial Surrenders. The effect of a partial surrender on
the Face Amount and Death Benefit under Option A can be described as
follows. The Face Amount will never be decreased by a partial surrender. A
partial surrender will, however, always decrease the Death Benefit under
Option A by one of the following amounts:
(bullet)If the Death Benefit equals the Face Amount plus the Accumulated
Value, a partial surrender will reduce the Accumulated Value by the amount
of the partial surrender and thus the Death Benefit will also be reduced by
the amount of the partial surrender.
Illustration. For the purpose of this illustration (and any following
illustrations of partial surrenders), assume that the Attained Age of the
Insured is under 40, and there is no Contract Debt. (The applicable
percentage is 250% for an Insured with an Attained Age of 40 or below. See
"CONTRACT BENEFITS--Death Benefits".)
Under Option A, a Contract with a Face Amount of $100,000 and an Accumulated
Value of $60,000 will have a Death Benefit of $160,000 ($100,000 + $60,000).
Assume that the Contract Owner wishes to take a partial surrender of
$20,000. Because the Death Benefit equals the Face Amount plus the
Accumulated Value, the partial surrender will reduce the Accumulated Value
to $40,000 ($60,000 - $20,000 = $40,000) and the Death Benefit to $140,000
($100,000 + $40,000). The Face Amount is not changed.
(bullet)If the Death Benefit immediately prior to the partial surrender is
based on the applicable percentage of Accumulated Value, the Death Benefit
will be reduced to equal, the greater of (a) the Face Amount plus
Accumulated Value after deducting the partial surrender and (b) the Death
Benefit based on the applicable percentage of Accumulated Value after
deducting the partial surrender.
Illustration. Under Option A, a Contract with a Face Amount of $100,000 and
an Accumulated Value of $80,000 will have a Death Benefit of $200,000
($80,000 X 2.5). Assume that the Contract Owner wishes to take a partial
surrender of $20,000. Because the Death Benefit is based on the applicable
percentage of Accumulated Value, the partial surrender will reduce the
Accumulated Value to $60,000 ($80,000 - $20,000) and the Death Benefit to
the greater of (a) the Face Amount plus the Accumulated Value ($100,000 +
$60,000 = $160,000), and (b) the Death Benefit based on the applicable
percentage of Accumulated Value ($60,000 X 2.5 = $150,000). Therefore, the
Death Benefit will be $160,000. The Face Amount is not changed.
Option B--Effect of Partial Surrenders. The effect of a partial surrender
on the Face Amount and Death Benefit under Option B can be described as
follows:
(bullet)If the Death Benefit equals the Face Amount, a partial surrender
will reduce the Face Amount and the Death Benefit by the amount of the
partial surrender.
Illustration. Under Option B, a Contract with a Face Amount of $100,000 and
an Accumulated Value of $30,000 will have a Death Benefit of $100,000 (that
is, the Face Amount). Assume that the Contract Owner wishes to take a
partial surrender of $10,000. The partial surrender will reduce the
Accumulated Value to $20,000 ($30,000 - $10,000) and the Death Benefit and
Face Amount to $90,000 ($100,000 - $10,000).
(bullet)If the Death Benefit is based on the applicable percentage of
Accumulated Value and the amount of the partial surrender multiplied by the
applicable percentage is less than the Death Benefit immediately prior to
the partial surrender minus the Face Amount at that time, the Face Amount
will not be reduced and the Death Benefit will be reduced by the amount of
the partial surrender multiplied by the applicable percentage.
Illustration. Under Option B, a Contract with a Face Amount of $100,000 and
an Accumulated Value of $60,000 will have a Death Benefit of $150,000
($60,000 X 2.5). Assume that the Contract Owner wishes to take a partial
surrender of $10,000. The amount of the partial surrender multiplied by the
applicable percentage ($10,000 X 2.5 = $25,000) is less than the Death
Benefit minus the Face Amount prior to the partial surrender ($150,000 -
$100,000 = $50,000). Because the Death Benefit is based on the applicable
percentage of Accumulated Value and the amount of the partial surrender
multiplied by the applicable percentage is less than the Death Benefit minus
the Face Amount, the Face Amount will not be reduced and the Death Benefit
will be reduced by the amount of the partial surrender multiplied by the
applicable percentage ($150,000 - ($10,000 X 2.5) = $125,000). This is also
the Death Benefit based on the applicable percentage of Accumulated Value
after the partial surrender (($60,000 - $10,000) X 2.5 = $125,000).
(bullet)If the Death Benefit immediately prior to the partial surrender is
based on the applicable percentage of Accumulated Value and the amount of
the partial surrender multiplied by the applicable percentage exceeds the
Death Benefit immediately prior to the partial surrender minus the Face
Amount at that time, the Face Amount will be reduced by an amount equal to
(a) the amount of the partial surrender, less (b) the result obtained by
dividing (i) the difference between the Death Benefit and the Face Amount
immediately prior to the partial surrender by (ii) the applicable
percentage. The Death Benefit will be reduced to equal the Face Amount after
the partial surrender.
Illustration. Under Option B, a Contract with a Face Amount of $100,000 and
an Accumulated Value of $60,000 will have a Death Benefit of $150,000
($60,000 X 2.5). Assume that the Contract Owner wishes to take a partial
surrender of $30,000. The amount of the partial surrender multiplied by the
applicable percentage ($30,000 X 2.5 = $75,000) exceeds the Death Benefit
minus the Face Amount prior to the partial surrender ($150,000 - $100,000 =
$50,000). Because the Death Benefit is based on the applicable percentage of
Accumulated Value and the amount of the partial surrender multiplied by the
applicable percentage exceeds the Death Benefit minus the Face Amount, the
Face Amount will be reduced by an amount equal to (1) the amount of the
partial surrender, less (2) the result obtained by dividing (A) the
difference between the Death Benefit and the Face Amount prior to the
partial surrender by (B) the specified percentage ($30,000 - (($150,000 -
$100,000) (divided by) 2.5)) = $10,000). The Face Amount after the partial
surrender will be $90,000 ($100,000 - $10,000) and the Death Benefit will be
$90,000.
Partial Surrenders--Certain Other Considerations. THE AMOUNT OF ANY PARTIAL
SURRENDER WILL, SUBJECT TO CERTAIN EXCEPTIONS, BE DEDUCTED FROM CUMULATIVE
PREMIUM PAYMENTS IN DETERMINING WHETHER THE REQUIREMENTS FOR THE DEATH
BENEFIT GUARANTEE HAVE BEEN SATISFIED. AS A RESULT, A PARTIAL SURRENDER
COULD RESULT IN TERMINATION OF THE DEATH BENEFIT GUARANTEE. See "DEATH
BENEFIT GUARANTEE".
Because a partial surrender can affect the Face Amount and the Death Benefit
(as described above), a partial surrender may also affect the net amount at
risk under a Contract. The net amount at risk is, in general, the difference
between the Death Benefit and the Accumulated Value and will be used in
calculating the cost of insurance protection provided under the Contract.
See "CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction--
Cost of Insurance".
A request for partial surrender will not be implemented if or to the extent
the requested partial surrender would reduce the Face Amount below $5,000.
Also, if a partial surrender would decrease the Face Amount, to the extent
that the partial surrender would result in cumulative premiums exceeding the
maximum premium limitations applicable under the Internal Revenue Code for
life insurance, LB will not effect such partial withdrawal. See "PAYMENT AND
ALLOCATION OF PREMIUMS--Amount and Timing of Premiums--Premium Limitations".
Tax Considerations. Under the Technical and Miscellaneous Revenue Act of
1988, any surrender of a "modified endowment contract" will be treated as a
taxable distribution. In addition, with certain exceptions, a ten percent
(10%) additional income tax penalty would be imposed on the portion of any
loan that is included in income. See "FEDERAL TAX MATTERS--Contract
Proceeds".
Free Look Privileges
The Contract provides for two types of "free look" privileges, one after the
application and issuance of the Contract and the other after any increase in
Face Amount.
Free Look for Contract. The Contract provides for an initial Free Look
Period. The Contract Owner may cancel the Contract until the latest of (a)
45 days after Part I of the application for the Contract is signed, (b) 10
days after the Contract Owner receives the Contract, and (c) 10 days after
LB mails or personally delivers a notice of withdrawal right to the Contract
Owner. Upon giving notice of cancellation and returning the Contract (if it
has been delivered), the Contract Owner will receive a refund equal to the
sum of (i) the Accumulated Value (as of the date the returned Contract is
received by LB at its Home Office or by the LB representative from whom the
Contract was purchased), without any deduction of the Decrease Charge, plus
(ii) the amount of any Premium Expense Charges, plus (iii) any Monthly
Deductions charged against the Contract's Accumulated Value, plus (iv) any
Mortality and Expense Risk Charges deducted from the value of the net assets
of the Variable Account attributable to the Contract, plus (v) the advisory
fees charged by the Fund against net asset value in the Fund Portfolios
attributable to the Contract's value in the corresponding Subaccount(s) of
the Variable Account. When state law requires a minimum refund equal to
gross premiums paid, the refund will instead equal the gross premiums paid
on the Contract and will not reflect the investment experience of the
Variable Account. The notice of withdrawal right for the Contract will
include a statement of the Decrease Charge and of the Initial Monthly
Administrative Charge (included in the Monthly Deduction--see "CHARGES AND
DEDUCTIONS--Accumulated Value Charges--Monthly Deduction") attributable to
the Contract, as well as a form for requesting cancellation of the Contract
during the Free Look Period.
Free Look for Increase in Face Amount. Any requested increase in Face Amount
is also subject to a "free look" privilege. The Contract Owner may cancel a
requested increase in Face Amount until the latest of (a) 45 days after Part
I of the application for increase is signed, (b) 10 days after the Contract
Owner receives a Contract supplement for the increase in Face Amount, and
(c) 10 days after LB mails or personally delivers a notice of withdrawal
right to the Contract Owner. Upon requesting cancellation of the increase,
the Contract Owner will receive a refund, if he or she so requests, or
otherwise a restoration of the Contract's Accumulated Value allocated among
the Subaccount(s) of the Variable Account as if it were a Net Premium, equal
to all Monthly Deductions attributable to the increase in Face Amount
(including rider costs arising from the increase). This refund or credit
will be made within seven days after LB receives the request for
cancellation on the appropriate form. In addition, the Decrease Charge will
be adjusted, if necessary, so that it will be as though no increase in Face
Amount had occurred. The notice of withdrawal right upon an increase in Face
Amount will include a statement of the increase in the Decrease Charge and
of the Initial Monthly Administrative Charge (included in the Monthly
Deduction--see "CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly
Deduction") attributable to the increase in Face Amount, as well as a form
for requesting cancellation of the increase during the Free Look Period.
Net Premiums paid after an increase in Face Amount will be allocated to the
Subaccount(s) of the Variable Account and will not be refunded following
cancellation of the increase. Contract Owners who request an increase in
Face Amount should consider this in deciding whether to make any premium
payments during the Free Look Period for the increase.
Exchange Privileges
Exchange of the Contract. During the first 24 months following the Date of
Issue, the Contract Owner may on one occasion, without evidence of
insurability, exchange any Contract still in force for a fixed benefit
permanent life insurance contract issued by LB. This new contract will not
be dependent upon future investment results of the Variable Account or any
other separate account of LB. In order to make this exchange for such a
contract, the Contract Owner must surrender the Contract to LB at its Home
Office, the Insured must be living on the exchange date, and any assignee
must agree in writing to the exchange. In addition, any Debt under the
Contract must be repaid and any amount required to pay the first premium on
the new contract must be paid.
The new contract will have the same issue age, and premium class as the
Contract. The exchange will become effective on the date (the "exchange
date") that LB receives the exchange request and the Contract at its Home
Office. The Contract will end at the end of the day before the exchange
date, and the new contract will become effective on the exchange date. On
the exchange date, the new contract will have, at the option of the Contract
Owner, either a death benefit equaling the Death Benefit under the Contract
on the effective date of the exchange or a net amount at risk equaling the
net amount at risk under the Contract on the effective date of the exchange.
(An additional premium payment may be required.) The Accumulated Value of
the new contract on the exchange date will vary depending upon the type of
contract for which the Contract is being exchanged. The conversion will be
subject to an equitable adjustment in payments and Contract values to
reflect variances, if any, in the payments and Contract values under the
existing Contract and the new contract. The new contract's provisions and
charges will be those that would have been applicable under LB's standard
practices if the fixed benefit permanent life insurance contract had been
issued on the Date of Issue. See "FEDERAL TAX MATTERS" for a discussion of
the Federal income tax consequences of an exchange.
Exchange of Increase in Face Amount. During the first 24 months following an
increase in Face Amount, the Contract Owner may on one occasion, without
evidence of insurability, exchange the amount of the increase in Face Amount
for a fixed benefit permanent life insurance contract. Premiums under this
new contract will be based on the same issue age and premium class of the
Insured as were applied on the effective date of the increase in the Face
Amount of the Contract. The conditions and principles applicable to an
exchange of the entire Contract for such a contract which are described
immediately above will be equally applicable to this exchange of an increase
in Face Amount for such a new contract. See "FEDERAL TAX MATTERS" for a
discussion of the Federal income tax consequences of an exchange.
GENERAL PROVISIONS
Postponement of Payments
General. LB may defer payment of maturity proceeds, any loan or surrender
and any portion of the death proceeds in excess of the Face Amount if (a)
the New York Stock Exchange is closed other than customary week-end and
holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the SEC, or (b) an emergency exists, as determined by the SEC,
as a result of which disposal of securities is not reasonably practicable or
it is not reasonably practicable to determine the value of the Variable
Account's net assets. Transfers and allocations of Accumulated Value to and
against the Subaccounts of the Variable Account may also be postponed under
these circumstances.
Payment by Check. Payments under the Contract of any amounts derived from
premiums paid by check may be delayed until such time as the check has
cleared the Contract Owner's bank.
Date of Receipt
Except as otherwise stated herein, the date of receipt by LB of any Written
Notice, premium payment, telephonic instructions or other communication is
the actual date it is received at LB's Home Office in proper form unless
received (1) after the close of the New York Stock Exchange, or (2) on a
date which is not a Valuation Date. In either of these two cases, the date
of receipt will be deemed to be the next Valuation Date.
The Contract
The entire Contract consists of the Contract including any attached riders
or amendments, an attached copy of the Application and any supplemental
Applications, and the Articles of Incorporation and Bylaws of LB which are
in force on the Date of Issue. Only statements in the Application and any
supplemental Applications can be used to void the Contract or defend a
claim. The statements are considered representations and not warranties. Any
change to the Contract must be in writing and signed by the President and
the Secretary of LB. Pursuant to various applicable state laws, certain of
the provisions of the Contract may vary from state to state.
The benefits provided pursuant to the Contract through LB's General Account
will not change. If the solvency of LB becomes impaired, a Contract Owner
may be required to make an extra payment. LB's Board of Directors will
determine the amount of any extra payment. It will be based on each LB
member's fair share of the deficiency. The amount will be charged as a loan
against the Contract with interest compounded at the rate of 5% per year.
Suicide
If the Insured dies by suicide within two years (or such shorter period
provided by applicable state law) from the Date of Issue, LB will pay an
amount equal to premiums paid, less any partial surrenders (and partial
surrender charges) and Contract Debt. If the Insured commits suicide within
two years after the effective date of any increase in Face Amount requiring
evidence of insurability (or such shorter period required by applicable
state law), the amount LB will pay with respect to the increase will be only
an amount equal to the Monthly Deductions previously made for the increase.
Incontestability
LB cannot contest the validity of a Contract after it has been in force
during the Insured's lifetime for two years from its Date of Issue, except
for any provisions granting benefits in the event of total disability.
Similar incontestability will apply to an increase in Face Amount or any
reinstatement after it has been in force during the Insured's lifetime for
two years from its effective date.
Change of Owner or Beneficiary
As long as the Contract is in force, the Contract Owner or Beneficiary may
be changed by Written Notice to LB. The Contract need not be returned unless
requested by LB. The change will take effect as of the date the request is
signed, whether or not the Insured is living when the request is received by
LB. LB will not, however, be liable for any payment made or action taken
before receipt of the Written Notice.
Assignment as Collateral
The Contract may be assigned as collateral. LB will not be bound by the
assignment until a copy has been received at its Home Office, and LB assumes
no responsibility for determining whether an assignment is valid or the
extent of the assignees interest. All assignments will be subject to any
Contract Debt. The interest of any Beneficiary or other person will be
subordinate to any assignment.
Misstatement of Age or Sex
If the age or sex of the Insured has been misstated, the Accumulated Value
and/or Death Benefit will be adjusted, using the most recent cost of
insurance rates, to the amounts that would have been provided based on the
correct age and sex.
Due Proof of Death
LB will accept as due proof of death of the Insured a completed claimant's
statement, which will be furnished by LB, together with either a certified
death certificate or an attending physician's statement. In some
circumstances, LB may require an attending physician's statement even though
a death certificate is furnished.
Reports to Contract Owners
LB will mail to Contract Owners, at their last known address of record,
within 30 days after each Contract Anniversary, annual reports confirming
the status of each Contract's values and benefits. These reports will show
the following as of the beginning and end of the Contract Year: the Face
Amount; the Death Benefit; the Accumulated Value; any outstanding Decrease
Charge; any Contract Debt; and Cash Surrender Value. The annual reports will
show how future Net Premiums will be allocated among the Subaccount(s)
pursuant to the Contract Owner's current allocation instructions. In
addition, LB will mail to Contract Owners quarterly reports that will show
all Contract transactions since the last Contract Anniversary, including,
but not limited to, the amount and dates of premium payments (including
those paid under an automatic payment plan offered by LB or those paid prior
to the initial transfer to the Subaccount(s) on the Contract Date), monthly
charges deducted, loans (as well as the loan interest that became due,
interest credited from the General Account and loan repayments), partial
surrenders, transfers, exchanges or an exercise of a free look privilege.
Within seven days of the following transactions, LB will mail a confirmation
statement or letter to the Contract Owner confirming such transactions, in
addition to showing them in the quarterly and annual reports: any premium
payment (other than those paid under an automatic payment plan offered by LB
or those paid prior to the initial transfer to the Subaccount(s) on the
Contract Date, which will be confirmed by LB in the annual report), any
Contract loan, interest payment or loan repayment, any change in
instructions for allocation of Net Premiums or other Contract transactions,
any transfer of amounts among Subaccount(s) (including the initial transfer
on the Contract Date), any partial surrender, any decrease in Face Amount
that results in a reduction of the Decrease Charge and thus the assets
attributable to the Contract in the Subaccount(s), any restoration to
Accumulated Value following an exercise of a free-look privilege for an
increase in the Face Amount and the manner in which such amount is allocated
among the Subaccount(s), any exercise of the free-look privilege for an
increase in the Face Amount when a refund is made, any exercise of the free
look privilege for the Contract, any exchange of the Contract, any full
surrender of the Contract, payment of a Death Benefit and payment at
Maturity Date. Upon request, any Contract Owner will be sent a receipt for
any premium payment.
LB will maintain all records relating to the Variable Account. LB will mail
to Contract Owners, at their last known address of record, any reports
required by any applicable law or regulation. Each Contract Owner will also
be sent an annual and a semi-annual report for the Fund as required by the
Investment Company Act of 1940.
Additional Insurance Benefits
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to the Contract at the option of the
Contract Owner by rider at the time the Contract is applied for or at a
later date. At present, these options include: additional insurance coverage
for accidental death, waiver of selected amount in the event of total
disability, term insurance on the Insured's spouse, term insurance on the
Insured's children, a right to increase the Face Amount of the Contract on
certain specified dates or life events without proof of insurability, and a
cost of living insurance adjustment without proof of insurability. LB may
offer additional optional benefits in the future. The cost of any additional
insurance benefits will be deducted as part of the Monthly Deduction. See
"CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction". The
amounts of these benefits do not vary with the investment experience of the
Variable Account. Certain restrictions apply and are clearly described in
the applicable rider. Any LB Representative authorized to sell the Contract
can explain these extra benefits further. Samples of the provisions are
available from LB upon written request. Any additional insurance benefits
purchased will be described in a rider attached to the Contract. The charge
for additional insurance benefits added by rider will be specified in the
Contract or in a supplement to the Contract. An additional charge will apply
for any insurance benefits added by rider at any time after issuance of the
Contract. Cost of insurance rates for additional term insurance benefits
added by spouse rider for Contracts issued in the state of Montana will be
based on rates applicable to females in other states.
The issuance of a rider providing insurance coverage on the Insured's spouse
will result in an additional Initial Monthly Administrative Charge. See
"CHARGES AND DEDUCTIONS--Accumulated Value Charges--Monthly Deduction--
Initial Monthly Administrative Charge".
Adding insurance benefits may have Federal income tax consequences. See
"FEDERAL TAX MATTERS--Contract Proceeds."
Accelerated Benefits Rider
Under certain circumstances, the Accelerated Benefits Rider allows a
Contract Owner residing in a state that has approved such rider to receive
benefits from the Contract that would be otherwise payable upon the death of
the Insured. The benefit may vary state-by-state.
The Accelerated Benefits Rider allows the Contract Owner to elect an
accelerated payment of all or part of the Contract's Death Benefit, adjusted
to reflect current value, at a time when certain special needs exist. The
benefits paid under the Accelerated Benefits Rider are available when LB has
received Written Notice request and proof satisfactory (a certification by a
doctor) that the Insured has a life expectancy of 12 months or less (or such
shorter period provided by applicable state law), or has been confined in a
nursing home for at least 6 months and confinement is expected to continue
for the lifetime of the Insured. The amount of the benefit will always be
less than the Death Benefit, but will generally be greater than the
Contracts' Accumulated Value.
LB will determine the amount available as an accelerated benefit. All or
part of the eligible amount may be accelerated under the Accelerated
Benefits Rider. The benefit payable for any person must be $10,000, or if
smaller, that person's entire eligible amount. If the entire amount is paid,
the Contract will terminate. If only a portion of the eligible amount is
paid, the Contract will remain in force. The amount of insurance, the Loan
Amount and Accumulated Value of the Contract will be reduced by the same
percentage as the percentage of the eligible amount received under the
Accelerated Benefits Rider. The benefit will be paid in a lump sum, unless
otherwise agreed to by LB. With LB's approval, the Contract Owner may
instead elect to have the benefit paid in equal periodic payments over a
fixed period, and the minimum periodic payment must be at least $500. If the
Insured dies before all periodic payments have been made, LB will pay the
beneficiary the present value of the remaining payments, based on the same
interest rate as that used to determine the periodic payments.
There is no charge for adding the benefit to the Contract. However, an
administrative fee (not to exceed $150) will be charged at the time the
benefit is paid. LB agrees that unless otherwise required by law, no benefit
will be paid if the Contract Owner is required to elect it in order to meet
the claims of creditors or to obtain a government benefit. In addition,
receipt of payment of the Accelerated Benefits rider may affect eligibility
for government sponsored benefits programs, including Medicaid. LB can
furnish details about the amount of the Accelerated Benefits Rider available
to an eligible Contract Owner under a particular Contract, and the adjusted
premium payments that would be in effect if less than the entire amount
eligible for payment is paid. See "GENERAL PROVISIONS--Accelerated Benefits
Rider". The tax treatment of benefits paid under the Accelerated Benefits
Rider is currently uncertain. See "FEDERAL TAX MATTERS--Contract Proceeds--
Benefits Paid under the Accelerated Benefits Rider".
Reservation of Certain Rights
LB reserves the right, to the extent permitted or required by law (including
SEC rules under the 1940 Act), to eliminate or modify certain rights
provided under the Contract:
(1) the withdrawal rights during the initial Free Look Period (see "CONTRACT
RIGHTS--Free Look Privileges--Free Look for Contract");
(2) the withdrawal rights during any Free Look Period after an increase in
Face Amount (see "CONTRACT RIGHTS--Free Look Privileges--Free Look for
Increase in Face Amount");
(3) the exchange rights during the first 24 months following the Date of
Issue (see "CONTRACT RIGHTS--Exchange Privileges--Exchange of the
Contract"); and
(4) the exchange rights during the first 24 months following an increase in
Face Amount (see "CONTRACT RIGHTS--Exchange Privileges--Exchange of Increase
in Face Amount").
LB will provide Contract Owners with written notice if it exercises its
right to eliminate or modify any of these rights.
FEDERAL TAX MATTERS
The following discussion is general and is not intended as tax advice. Any
person concerned about these tax implications should consult a competent tax
adviser. This discussion is based on LB's understanding of the present
Federal income tax laws as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the likelihood of
continuation of these current laws and interpretations. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable
state or other tax laws. LB does not make any guarantee regarding the tax
status of any Contract.
Contract Proceeds
General. The Contract will qualify as a life insurance contract under
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code").
Section 7702 of the Code provides that the Contract will so qualify if it
satisfies a cash value accumulation test or a guideline premium requirement
and falls within a cash value corridor. The qualification of the Contract
under Section 7702 depends in part upon the Death Benefit payable under the
Contract at any time. To the extent a change in the Contract, such as a
decrease in Face Amount or a change in Death Benefit Option, would cause the
Contract not to qualify, LB will not make the change. See "PAYMENT AND
ALLOCATION OF PREMIUMS--Amount and Timing of Premiums--Premium Limitations".
Although the Secretary of the Treasury is authorized to prescribe
regulations interpreting the manner in which these tests are to be applied,
such regulations have not been issued. In addition, the Technical and
Miscellaneous Revenue Act of 1988 (the "Act") provides additional
requirements under Section 7702 for mortality and other expense charges of
life insurance contracts. Nonetheless, LB believes that the Contract should
meet the statutory definition in Section 7702 of a life insurance contract.
Death Benefits. The Death Benefit proceeds payable under either Option A or
Option B will be excludable from the gross income of the Beneficiary under
Section 101(a) of the Code.
Distributions. The Contract Owner will not be taxed upon the increase in
Accumulated Value of the Contract unless and until there is a taxable
distribution from the Contract. The Act was enacted on November 11, 1988 and
makes certain changes to the income tax treatment of distributions from
Contracts classified as "modified endowment contracts" under the Code. A
modified endowment contract is any Contract that fails a special premium
limitation test set forth in the Code. This test requires that the
cumulative amount paid during the first seven years since the Date of Issue
(or date of certain increases in coverage) not exceed the cumulative amount
of the level annual premium which, in theory, would provide a paid-up
Contract after seven years. If this test is ever violated, LB will notify
the Contract Owner, who may then take certain timely steps to return the
Contract to non-modified endowment contract status. This premium limitation
test does not supercede the premium limitations previously established by
the Code as discussed under "Premium Limitations" at page 33 of the
Prospectus.
The Act involves complex considerations and unresolved interpretive issues.
It should be understood, however, that if there is material change in the
Contract, the Contract is treated as a new Contract as of the date of the
material change for purposes of determining whether it will be treated as a
modified endowment contract. Such a change will create a modified endowment
contract only if cumulative amounts paid in the seven years following the
change violate the new cumulative premium limitation test. Certain increases
in Contract benefits (including increases in Face Amount and in additional
insured benefits) will trigger the start of a new seven year period from the
date of this change, along with a new level annual premium to be used in the
test. In addition, a reduction in Contract benefits at any time while the
test is applicable could in itself create a modified endowment contract,
depending on certain factors. In this case, the premium limitation test will
be applied as though the Contract were originally issued at the lower
benefit unless the benefits are reinstated in a timely manner.
Tax Treatment of Modified Endowment Contracts. Under the Act, distributions
from a Contract treated as a modified endowment contract are taxable up to
the amount equal to the excess (if any) of the Accumulated Value immediately
before the distribution over the investment in the Contract at such time.
Investment in the Contract is generally defined as the premiums paid for the
Contract (plus or minus any loss or gain, respectively, transferred into the
Contract as a result of a tax-free exchange), minus any non-taxable
distributions (where taxable gain calculations are based on surrender values
net of loans). Loans taken from such a Contract, as well as surrenders and
benefits paid at maturity (other than the Death Benefit), will be treated as
taxable distributions. (The assignment or pledge of a Contract with a
maximum death benefit of $25,000 or less made to secure only burial or
prearranged funeral expenses is not treated as a distribution). A ten
percent (10%) additional income tax will be imposed on the portion of any
distribution from such a Contract that is included in income except where
the distribution is made on or after the date on which the Contract Owner
attains age 59 1/2, or is attributable to the Contract Owner becoming
disabled, or is a part of a series of substantially equal periodic payments
for the life or life expectancy of the Contract Owner or the joint lives or
joint life expectancies of the Contract Owner and Beneficiary.
Any withdrawal or loan proceeds that were paid 24 months prior to such a
Contract becoming a modified endowment contract will also potentially be a
taxable distribution.
Generally, interest on such Contract loans, even if paid, will not be tax
deductible.
Under the Act, all modified endowment contracts, issued by LB (or its
affiliates) to the same Contract Owner during any calendar year are treated
as one modified endowment contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.
Tax Treatment of Contracts that are NOT Modified Endowment Contracts. The
Act does not apply to life insurance contracts entered into prior to June
21, 1988, provided that the contract owner does not request an increase in
contract benefits (although certain increases in Face Amount are exempted)
on or after that date. These pre-June 21, 1988, contracts (as well as
Contracts entered into after June 20, 1988, that are not modified endowment
contracts) remain subject to the taxation provisions described below.
A full surrender distribution of the Contract will, under Section 72(e)(5)
of the Code, be included in the Contract Owner's gross income to the extent
it exceeds the Contract Owner's investment in the Contract.
A partial surrender distribution from the Contract will be taxed under the
"cost recovery" rule in that, the distribution will be included in the
Contract Owner's gross income to the extent it exceeds the investment in the
Contract. However, certain cash distributions received as a result of
certain Contract benefit changes will be taxed under the "interest-first"
rule if the distribution occurs during the first fifteen years after issue.
The amount of the cash distribution to be included in gross income will be
limited to the minimum of the taxable gain and the applicable recapture
ceiling as defined in Section 7702. No ten percent (10%) additional penalty
will apply.
In addition, under Section 72(e)(5) of the Code, loans received under the
Contract will not be included in gross income. (However, loans may or may
not be taxable at the time of a full or partial surrender.) Interest paid to
LB with respect to the loan may or may not be deductible. Due to the
complexity of these factors, a Contract Owner should consult a competent tax
adviser as to the deductibility of interest paid on any Contract loans.
Benefits Paid under the Accelerated Benefits Rider. Adding the Accelerated
Benefits Rider to a newly issued Contract has no adverse consequences;
however, electing to use it could. The tax treatment of benefits paid under
the Accelerated Benefits Rider is currently uncertain. Future legislation or
interpretations may treat all or part of such payments as taxable
distributions from the Contract. Unlike a death benefit received by a
beneficiary after the death of an insured, receiving a benefit paid under
the Accelerated Benefits Rider may give rise to a federal or state income
tax. A competent tax adviser should be consulted for further information.
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.
Changes in Contract Owners. The right to change Contract Owners may have tax
consequences, depending on a number of factors. Due to the complexity of
these factors, a Contract Owner should consult a competent tax adviser as to
the tax consequences of such a change.
Exchanges. The right to exchange the Contract for a fixed benefit permanent
life insurance contract (see "CONTRACT RIGHTS--Exchange Privileges") will be
treated as a tax-free exchange under Section 1035. A life insurance contract
received in exchange for a modified endowment contract will also be treated
as a modified endowment contract. Also, if a Contract Owner exchanges any
life insurance contract entered into before June 21, 1988, for a Contract
described in this prospectus, then the new provisions regarding modified
endowment contracts described above may apply. Accordingly, a Contract Owner
should consult a tax adviser before effecting an exchange of any life
insurance contract, including the Contract.
Other Taxes. Federal estate taxes and the state and local estate,
inheritance and other taxes may become due depending on applicable law and
the circumstances of each Contract Owner or Beneficiary, if the Contract
Owner or Insured dies. Any person concerned about the estate implications of
the Contract should consult a competent tax adviser.
Diversification Requirements. Flexible premium variable life insurance
policies such as the Contracts will be treated as life insurance contracts
under the Code, among other things, so long as the separate accounts funding
them are "adequately diversified". Section 817(h) of the Code also requires
that investments of the Variable Account meet certain diversification
requirements stated in section 817(h)(2) or as may be prescribed by the
Treasury Department in regulations. The assets of the Fund will meet the
diversification requirements. LB will monitor the Contracts and the
regulations of the Treasury Department to insure that the Contract will
continue to qualify as a life insurance contract under sections 7702 and
817.
Pension and Profit-Sharing Plans. If a Contract is purchased by a trust
which forms part of a pension or profit-sharing plan qualified under Section
401(a) of the Code for the benefit of participants covered under the plan,
the Federal income tax treatment of such Contracts will be somewhat
different from that described above. A competent tax adviser should be
consulted on these matters.
LB's Tax Status
LB does not initially expect to incur any income tax burden upon the
earnings or the realized capital gains attributable to the Variable Account.
Based on this expectation, no charge is being made currently to the Variable
Account for Federal income taxes which may be attributable to the Account.
If, however, LB determines that it may incur such tax burden, it may assess
a charge for such burden from the Variable Account. In addition, 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.
EMPLOYMENT-RELATED BENEFIT PLANS
The Contracts described in this Prospectus (except for Contracts issued in
the state of Montana) contain guaranteed and current cost of insurance rates
that distinguish between men and women. 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 cost of insurance rates
applicable to Contracts purchased under an employment-related insurance or
benefit program may in some cases not vary on the basis of the Insured's
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. Contracts issued in connection with employment-related insurance
benefit plans may also be subject to different limitations with respect to
the Minimum Face Amount, increases in Face Amount, additional insurance
benefits, and issues ages.
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
General. As stated above, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of the corresponding Portfolios
of the Fund. LB is the legal owner of those shares and as such has the right
to vote to elect the Board of Directors of the Fund, to vote upon certain
matters that are required by the 1940 Act to be approved or ratified by the
shareholders of a mutual fund and to vote upon at a shareholders' meeting.
However, LB will, as required by law, vote the shares of the Fund at regular
and special meetings of the shareholders of the Fund in accordance with
instructions received from Contract Owners. 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. The Fund's
Bylaws provided that regular meetings of the shareholders of the Fund may be
held on an annual or less frequent basis as determined by the Board of
Directors of the Fund. For a more complete discussion, see the accompanying
prospectus for the Fund.
The number of votes which a Contract Owner has the right to instruct will be
calculated separately for each Subaccount. The number of votes which each
Contract Owner has 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.
Fractional shares will be counted. The number of votes of the Portfolio
which the Contract Owner has right to instruct will be determined as of the
date coincident with the date established by that 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 voting interest
in that Portfolio, and will be voted in the same manner as are 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.
Disregard of Voting Instructions. LB may, when required by state insurance
regulatory authorities, disregard voting instructions if the instructions
require that the shares be voted so as to cause a change in the
subclassification or investment objective of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory contract for a
Portfolio of the Fund. In addition, LB itself may disregard voting
instructions in favor of changes initiated by a Contract Owner in the
investment policy or the investment adviser of a Portfolio of the Fund if LB
reasonably disapproves of such changes. A change would be disapproved only
if the proposed change is contrary to state law or prohibited by state
regulatory authorities or LB determined that the change would have an
adverse effect on its General Account in that the proposed investment policy
for a Portfolio may result in overly speculative or unsound investments. In
the event LB does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next annual report
of the Fund to Contract Owners.
DIRECTORS AND OFFICERS OF LB
Directors
The Directors of Lutheran Brotherhood, their principal occupations and their
addresses are: Robert O. Blomquist, Chairman of the Board of Directors,
Lutheran Brotherhood, 625 Fourth Avenue South, Minneapolis, Minnesota;
Richard W. Duesenberg, Director, Retired, formerly Senior Vice President,
General Counsel and Secretary, Monsanto Company, One Indian Creek Lane, St.
Louis, Missouri; Robert P. Gandrud, President, Chief Executive Officer and
Director, Lutheran Brotherhood, 625 Fourth Avenue South, Minneapolis,
Minnesota; Bobby I Griffin, Director, Executive Vice President, Medtronic,
Inc., 7000 Central Avenue NE, Minneapolis, Minnesota; William R. Halling,
Director, President, The Economic Club of Detroit, 333 W Fort Street, Suite
100, Detroit, Michigan; James M. Hushagen, Director, Partner, Eisenhower &
Carlson, 1200 First Interstate Plaza, Tacoma, Washington; Herbert D. Ihle,
Director, President, Diversified Financial Services, 10453 Shelter Grove,
Eden Prairie, Minnesota; Richard C. Kessler, Director, President, The
Kessler Enterprise, Inc., 12205 Apopka Vineland Road, Orlando, Florida;
Judith K. Larsen, Director, Vice President, Dataquest, 251 River Oaks
Parkway, San Jose, California; Luther S. Luedtke, Director, Professor,
California Lutheran University, 60 West Olsen Road, Thousand Oaks,
California, John P. McDaniel, Director, President, Medlantic Health Group,
Inc., 100 Irving Street, N.W., Washington, D.C.; Mary Ellen H. Schmider,
Director, Retired, formerly Dean of Graduate Studies - Coordinator of
Grants, Moorhead State University, 7701 Island Lane, 180th Street, Chippewa
Falls, Wisconsin; Russel M. Smith, Director, Retired, 906 Dunes, Rockport,
Texas.
<TABLE>
<CAPTION>
Executive Officers
<S> <C>
Name Principal Occupation
Robert P. Gandrud President and Chief Executive Officer
Rolf F. Bjelland Executive Vice President - Investments
David J. Larson Senior Vice President, Secretary and General Counsel
Dr. Edward A. Lindell Senior Vice President - External Affairs
Michael E. Loken Senior Vice President - Management Information Services
Bruce J. Nicholson Executive Vice President and Chief Financial Officer
Paul R. Ramseth Executive Vice President - Strategic Development
William H. Reichwald Executive Vice President - Marketing
Jennifer H. Smith Senior Vice President - Human Resources
Jerald E. Sourdiff Senior Vice President - Controller's
Mary M. Abbey Vice President - Client Systems
Galen R. Becklin Vice President - Management Information Services
Larry A. Borlaug Regional Vice President - Marketing
Colleen Both Vice President - Chief Compliance Officer
J. Keith Both Senior Vice President - Marketing
Randall L. Boushek Vice President - Portfolio Manager
David J. Christianson Vice President - Insurance Services
Craig R. Darrington Vice President - Marketing
Pamela H. Desnick Vice President - Communications
Mitchell F. Felchle Vice President - New Ventures Group
Charles E. Heeren Vice President - Bond Investments
Wayne A. Hellbusch Vice President - Agency Services
Otis F. Hilbert Vice President - Law
Gary J. Kallsen Vice President - Mortgages and Real Estate
Fred O. Konrath Vice President - Staffing and Employment Relations
Douglas B. Miller Regional Vice President - Marketing
C. Theodore Molen Regional Vice President - Marketing
James R. Olson Vice President - Investor Services/Administration
Kevin B. Pedersen Vice President - Lutheran Trust
Dennis K. Peterson Vice President - New Ventures Group
Bruce M. Piltingsrud Vice President - Research/Marketing Strategies
Rolf H. Running Vice President - New Ventures Group
Lynette J.C. Stertz Vice President - Controller's
John O. Swanson, M.D. Vice President and Medical Director
Louise K. Thoreson Vice President - Fraternal
James M. Walline Vice President - Equities/Mutual Funds Investment
Anita J.T. Young Vice President and Treasurer
</TABLE>
The principal business address of each of the foregoing officers is 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
SALES AND OTHER AGREEMENTS
Lutheran Brotherhood Securities Corp., 625 Fourth Avenue South, Minneapolis,
Minnesota 55415, an indirect subsidiary of LB, acts as the principal
underwriter of the Contracts pursuant to a Distribution Agreement to which
LB and the Variable Account are also parties.
Lutheran Brotherhood Securities Corp. is registered with the SEC as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. Lutheran Brotherhood
Securities Corp. is also named as distributor of the stock of Lutheran
Brotherhood Money Market Fund, Lutheran Brotherhood Opportunity Growth Fund,
Lutheran Brotherhood Fund, Lutheran Brotherhood Income Fund, Lutheran
Brotherhood High Yield Fund, and Lutheran Brotherhood Municipal Bond Fund.
Each fund is a diversified series of The Lutheran Brotherhood Family of
Funds, an open-end investment company.
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 Lutheran Brotherhood Securities Corp. The
Contracts are offered in all states where LB is authorized to sell variable
life insurance. Under the Distribution Agreement, Lutheran Brotherhood
Securities Corp. will perform suitability review.
Under the Distribution Agreement, LB Representatives receive commissions and
service fees from Lutheran Brotherhood Securities Corp. for selling and
servicing the Contracts. LB reimburses Lutheran Brotherhood Securities Corp.
for such compensation. LB also reimburses Lutheran Brotherhood Securities
Corp. for other expenses incurred in marketing and selling the Contracts.
These include general agent compensation, LB Representatives' training
allowances and agency expense allowances.
Compensation of LB Representatives. LB Representatives selling the Contracts
will receive a 3% service fee of all premiums paid on the Contract. In
addition to the service fee, commissions will be paid to the LB
Representatives based on a commission schedule summarized below. Further, LB
Representatives may be eligible to receive certain benefits based on the
account of earned commissions.
During the first Contract Year, commissions will be not more than 47% of the
Death Benefit Guarantee Premium for the Contract. In the second and third
Contract Years, commissions will equal, in general, 7% of the Death Benefit
Guarantee Premium for the Contract. The Death Benefit Guarantee Premium at
issue will include premiums attributable to riders and supplemental benefits
included in the Contract.
For the first year following an increase in Face Amount, commissions will be
not more than 47% of the Death Benefit Guarantee Premium for the increase.
In the second and third year following an increase, commissions will equal,
in general, 7% of the Death Benefit Guarantee Premium for the increase.
For Contracts with an initial Face Amount greater than or equal to $250,000,
during the first Contract Year after issue or following an increase in Face
Amount, the commissions will be not more than 40% of the applicable Death
Benefit Guarantee Premium. In the second and third year after issue or
following an increase, the commissions will equal, in general, 6% of the
applicable Death Benefit Guarantee Premium.
For the first year following the addition of a spouse or child rider, the
commission will be not more than 47% of the Death Benefit Guarantee Premium
for the rider. In the second and third year following the addition of a
rider, commissions will equal, in general, 7% of the Death Benefit Guarantee
Premium for the rider.
For the first year following an increase in Face Amount of a spouse rider,
the commission will be not more than 47% of the Death Benefit Guarantee
Premium for the increase in Face Amount of the spouse rider. In the second
and third year following the increase, commissions will equal, in general,
7% of the Death Benefit Guarantee Premium for the increase in the spouse
rider.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Variable Account are subject. Neither LB nor
LBSC are involved in any litigation that is of material importance in
relation to their total assets or that relates to the Variable Account.
LEGAL MATTERS
All matters of applicable state law pertaining to the Contracts, including
LB's right to issue the Contracts thereunder, have been passed upon by James
M. Odland, Counsel to LB.
EXPERTS
The financial statements of LB and the Variable Account included in this
Prospectus 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.
Actuarial matters included in this Prospectus have been examined by Gregory
A. Rogers, FSA, MAAA, Assistant Vice President and Actuary of LB, whose
opinion is filed as an exhibit to the Registration Statement.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC, with respect to the Contracts described herein. This
Prospectus does not contain all of the information set forth in the
Registration Statement and exhibits thereto, to which reference is hereby
made for further information concerning the Account, LB and the Contracts.
The information so omitted may be obtained from the SEC's principal office
in Washington, D.C., upon payment of the fee prescribed by the SEC, or
examined there without charge. Statements contained in this Prospectus as to
the provisions of the Contracts and other legal documents are summaries, and
reference is made to the documents as filed with the SEC for a complete
statement of the provisions thereof.
FINANCIAL STATEMENTS
The financial statements of LB which are included in this Prospectus should
be distinguished from the financial statements of the Variable Account and
should be considered only as bearing upon the ability of LB to meet its
obligations under the Contracts. They should not be considered as bearing on
the investment performance of the assets held in the Variable Account.
<PAGE>
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse LLP
Report of Independent Accountants
To Lutheran Brotherhood and Contract Owners of
LB Variable Insurance Account I
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets
present fairly, in all material respects, the financial position of LB
Variable Insurance Account I and the Growth, High Yield, Income and
Money Market subaccounts thereof at December 31, 1995, the results of
each of their operations for the year then ended and the changes in each
of their net assets for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of Lutheran Brotherhood's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
[GRAPHIC OMITTED: PRICE WATERHOUSE SIGNATURE LOGO]
February 5, 1996
<PAGE>
<TABLE>
<CAPTION>
LB Variable Insurance Account I
Statement of Assets and Liabilities
December 31, 1995
Subaccounts
----------------------------------------------------------
High Money
Growth Yield Income Market
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in LB Series Fund, Inc. --
Growth Portfolio, 437,501 shares at net asset value
of $18.27 per share (cost $6,788,951) $7,994,865
High Yield Portfolio, 412,625 shares at net asset value
of $9.94 per share (cost $3,999,938) $4,100,721
Income Portfolio, 179,418 shares at net asset value
of $10.08 per share (cost $1,707,581) $1,808,217
Money Market Portfolio, 571,419 shares at net asset value
of $1.00 per share (cost $571,419) $571,419
------------ ------------ ------------ ------------
7,994,865 4,100,721 1,808,217 571,419
Receivable from LB for units issued 84,510 89,968 40,627 17,692
Dividends receivable from LB Series Fund, Inc. -- 1,794 604 169
------------ ------------- ------------ ------------
Total assets 8,079,375 4,192,483 1,849,448 589,280
------------ ------------- ------------ ------------
LIABILITIES:
Payable to LB for mortality and expense risk charge 3,869 1,999 878 221
------------ -------------- ----------- ------------
NET ASSETS $8,075,506 $4,190,484 $1,848,570 $589,059
============ ============== =========== ============
Number of units outstanding 312,505 167,426 89,495 371,052
============ ============== =========== ============
Unit value (net assets divided by units outstanding) $25.84 $25.03 $20.66 $1.59
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1995
Subaccounts
------------------------------------------------------------
High Money
Growth Yield Income Market
------------ ---------- ---------- ----------
<S> <C> > <C> <C> <C>
INVESTMENT INCOME:
Dividend income $75,689 $252,452 $76,635 $16,639
Mortality and expense risk charge (27,308) (15,420) (6,827) (1,803)
---------- ---------- ---------- ----------
Net investment income 48,381 237,032 69,808 14,836
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 7,313 (3,817) 1,856 --
Net change in unrealized appreciation or depreciation
of investments 1,229,120 186,134 118,716 --
---------- ---------- ---------- ----------
Net gain on investments 1,236,433 182,317 120,572 --
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations $1,284,814 $419,349 $190,380 $14,836
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB Variable Insurance Account I
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994
Growth High Yield
Subaccount Subaccount
------------ ------------ ------------ ------------
1995 1994 (a) 1995 1994 (a)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $48,381 $11,307 $237,032 $50,751
Net realized gain (loss) on investments 7,313 9 (3,817) (975)
Net change in unrealized appreciation
or depreciation of investments 1,229,120 (23,206) 186,134 (85,351)
------------ ------------ ------------ ------------
Net change in net assets resulting from operations 1,284,814 (11,890) 419,349 (35,575)
------------ ------------ ------------ ------------
UNIT TRANSACTIONS --
Proceeds from units issued 5,428,622 2,216,718 2,732,537 1,474,510
Net asset value of units redeemed (743,368) (154,650) (382,437) (100,148)
Transfers from other subaccounts 239,667 60,225 136,886 80,118
Transfers to other subaccounts (193,078) (51,554) (114,919) (19,837)
------------ ------------ ------------ ------------
Net increase in net assets from unit transactions 4,731,843 2,070,739 2,372,067 1,434,643
------------ ------------ ------------ ------------
Net increase in net assets 6,016,657 2,058,849 2,791,416 1,399,068
NET ASSETS:
Beginning of period 2,058,849 -- 1,399,068 --
------------ ------------ ------------ ------------
End of period $8,075,506 $2,058,849 $4,190,484 $1,399,068
============ ============ ============ ============
Income MoneyMarket
Subaccount Subaccount
------------ ------------ ------------ ------------
1995 1994 (a) 1995 1994 (a)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $69,808 $15,608 $14,836 $3,930
Net realized gain (loss) on investments 1,856 (726.00) -- --
Net change in unrealized appreciation
or depreciation of investments 118,716 (18,080) -- --
------------ ------------ ------------ ------------
Net change in net assets resulting from operations 190,380 (3,198) 14,836 3,930
------------ ------------ ------------ ------------
UNIT TRANSACTIONS --
Proceeds from units issued 1,190,429 637,182 544,249 328,384
Net asset value of units redeemed (134,632) (41,215) (140,152) (15,056)
Transfers from other subaccounts 55,835 20,101 118,063 18,834
Transfers to other subaccounts (56,632) (9,680) (185,822) (98,207)
------------ ------------ ------------ ------------
Net increase in net assets from unit transactions 1,055,000 606,388 336,338 233,955
------------ ------------ ------------ ------------
Net increase in net assets 1,245,380 603,190 351,174 237,885
NET ASSETS:
Beginning of period 603,190 -- 237,885 --
------------ ------------ ------------ ------------
End of period $1,848,570 $603,190 $589,059 $237,885
============ ============ ============ ============
(a) For the period from February 3, 1994 (inception) through December 31, 1994.
LB Variable Insurance Account I
Notes to Financial Statements
December 31, 1995
(1) ORGANIZATION
The LB Variable Insurance Account I (the Variable Account), a unit
investment trust registered under the Investment Company Act of 1940,
was established as a separate account of Lutheran Brotherhood (LB) in
1993, pursuant to the laws of the State of Minnesota. LB offers
financial services to Lutherans and is a fraternal benefit society owned
by and operated for its members. The Variable Account contains four
subaccounts -- Growth, High Yield, Income and Money Market -- each of
which invests only in a corresponding portfolio of the LB Series Fund,
Inc. (the Fund). The Fund is registered under the Investment Company Act
of 1940 as a diversified open-end investment company.
The Variable Account is used to support only flexible premium variable
life ("Variable Universal Life") insurance contracts issued by LB. Under
applicable insurance law, the assets and liabilities of the Variable
Account are clearly identified and distinguished from the other assets
and liabilities of LB. The assets of the Variable Account will not be
charged with any liabilities arising out of any other business conducted
by LB.
(2) SIGNIFICANT ACCOUNTING POLICIES
Investments
The investments in shares of the Fund are stated at the net asset value
of the Fund. The cost of shares sold and redeemed is determined on the
average cost method. Dividend distributions received from the Fund are
reinvested in additional shares of the Fund and recorded as income by
the Variable Account on the ex-dividend date.
Federal Income Taxes
LB qualifies as a tax-exempt organization under the Internal Revenue
Code. Currently, no tax liability is charged to the operations of the
Variable Account by LB. Accordingly, no provision for income taxes has
been made against the Variable Account.
(3) RELATED PARTY TRANSACTIONS
Proceeds received by the Variable Account from units issued represent
gross contract premiums received by LB less deductions for sales
distribution expenses of 5% of the gross contract premium. Total
deductions from gross contract premiums received were $533,942 in 1995
and $248,635 for the period from February 3, 1994 through December 31,
1994.
A monthly charge is deducted from the cash value of the contract by LB
for the cost of insurance, insurance administration of the contract and
the cost of any optional benefits added by riders. This charge is
deducted by redeeming units of the subaccounts of the Variable Account.
Total monthly charges were $1,125,601 in 1995 and $286,169 for the
period from February 3, 1994 through December 31, 1994.
A daily charge is deducted from the value of the net assets of the
Variable Account to compensate LB for mortality and expense risks
assumed in connection with the contract and is equivalent to an annual
rate of 0.6% of the average daily net assets of the Variable Account.
Mortality and expense risk charges were $51,358 in 1995 and $9,703 for
the period from February 3, 1994 through December 31, 1994.
A deferred charge is deducted from the cash value of the contract to
compensate LB for certain selling and administrative expenses if: (1)
within the first ten years a contract is in force, it is surrendered or
lapses, or (2) a contract owner requests a decrease in the face amount
either within the first ten years a contract is in force, or within ten
years after a requested increase in face amount. The deferred charge
remains at a level amount during the first five years of the applicable
ten year period, and then is reduced on a monthly basis by equal amounts
until the deferred charge is zero after ten years. This charge is
deducted by redeeming units of the subaccounts of the Variable Account.
Deferred charges were $42,255 in 1995 and $1,836 for the period from
February 3, 1994 through December 31, 1994.
(4) UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) were as
follows:
Subaccounts
----------------------------------------------------
High Money
Growth Yield Income Market
--------- ---------- ---------- ----------
Units outstanding at
February 3, 1994
(inception) -- -- -- --
Units issued 126,320 76,037 41,033 234,842
Units redeemed (17,592) (9,570) (6,379) (77,378)
-------- -------- -------- --------
Units outstanding at
December 31, 1994 108,728 66,467 34,654 157,464
Units issued 261,626 131,571 67,801 418,907
Units redeemed (57,849) (30,612) (12,960) (205,319)
-------- -------- -------- --------
Units outstanding at
December 31, 1995 312,505 167,426 89,495 371,052
======== ======== ======== ========
(5) PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the LB Series Fund, Inc. were as follows:
Subaccounts
------------------------------------------------
High Money
Growth Yield Income Market
---------- ---------- ---------- ----------
For the period from
February 3, 1994 through
December 31, 1994
Purchases $2,098,790 $1,503,247 $ 653,501 $354,905
Sales 28,556 28,466 39,501 123,379
For the year ended
December 31, 1995
Purchases 4,874,246 2,649,530 1,152,085 593,510
Sales 162,190 119,152 59,115 253,617
COMMENT ON FINANCIAL STATEMENTS OF LB
The financial statements of LB included in this Prospectus should be
considered as bearing only upon the ability of LB to meet its obligations
under the Contracts. The value of the interests of owners and beneficiaries
under the Contracts are affected primarily by the investment results of the
Subaccounts of the Variable Account.
<PAGE>
Report of Independent Accountants
February 23, 1996
To The Board of Directors and Members
of Lutheran Brotherhood
In our opinion, the accompanying statement of financial position and the
related statements of operations and unassigned surplus and of cash
flows present fairly, in all material respects, the financial position
of Lutheran Brotherhood (the Society) at December 31, 1995 and 1994, and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles
(practices prescribed or permitted by insurance regulatory authorities -
see Note 1). These financial statements are the responsibility of the
Society's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
Price Waterhouse Logo goes here
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
STATEMENT OF FINANCIAL POSITION
(in thousands)
December 31,
------------------------------
1995 1994
------------------------------
<S> <C> <C>
ASSETS
Bonds:
U.S. government $ 464,547 $ 453,998
Mortgage-backed securities 2,469,895 2,105,847
Corporate and other 2,849,891 2,580,808
------------------------------
5,784,333 5,140,653
Stocks:
Common 312,481 128,444
Preferred 77,878 85,104
------------------------------
390,359 213,548
Mortgage loans:
Residential and commercial 2,138,958 1,896,455
Loans to Lutheran churches 272,041 261,867
------------------------------
2,410,999 2,158,322
Real estate:
Home office 28,403 29,819
Other property 74,921 67,643
------------------------------
103,324 97,462
Loans on insurance contracts 630,176 599,793
Cash and short-term investments 755,934 677,602
Investment in subsidiary 94,076 71,270
Other investments 156,374 128,758
------------------------------
Total invested assets 10,325,575 9,087,408
Investment income due and accrued 111,453 111,460
Premiums deferred and uncollected 60,484 55,372
Assets held in separate accounts 446,250 151,315
Other assets 10,565 8,637
------------------------------
Total assets $10,954,327 $9,414,192
==============================
LIABILITIES, ASSET RESERVE AND SURPLUS
Contract reserves $ 8,619,658 $8,076,952
Benefits in process of payment 28,856 27,812
Dividends payable 161,380 150,456
Dividends on deposit at interest 32,538 32,045
Liabilities related to separate accounts 426,578 143,762
Amounts due to brokers 623,223 132,715
Other liabilities 124,072 117,818
Interest maintenance reserve 99,177 81,285
Asset Valuation Reserve 177,823 118,983
------------------------------
Total liabilities and asset reserve 10,293,305 8,881,828
Unassigned surplus 661,022 532,364
------------------------------
Total liabilities, asset reserve
and surplus $10,954,327 $9,414,192
==============================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
STATEMENT OF OPERATIONS AND UNASSIGNED SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(in thousands)
1995 1994
------------------------------
Income:
<S> <C> <C>
Insurance premiums $ 549,645 $ 531,438
Annuity considerations 640,419 417,564
Net investment income 705,835 655,076
Income from charges
to separate accounts 12,219 7,671
Other income 81,495 52,837
------------------------------
Total income 1,989,613 1,664,586
------------------------------
Deductions:
Net additions to contract reserves 542,520 515,873
Net transfer to separate accounts 228,153 145,926
Death benefits 100,185 88,310
Annuity benefits 421,497 297,559
Surrender benefits 129,173 115,113
Fraternal benefits 50,266 49,178
Other benefits 86,784 75,435
Commissions 66,740 58,766
Operating expenses 99,971 92,908
------------------------------
Total deductions 1,725,289 1,439,068
------------------------------
Savings from operations before dividends
and net realized capital gains 264,324 225,518
Dividends to members 160,066 149,359
------------------------------
Savings from operations before net
realized capital gains 104,258 76,159
Net realized capital gains 25,619 3,461
------------------------------
Net savings from operations 129,877 79,620
------------------------------
Other transactions affecting unassigned surplus:
Net unrealized capital gains (losses) 59,530 (34,296)
Decrease (increase)
in asset valuation reserve (58,840) 431
Other changes (1,909) 6,987
------------------------------
Total other transactions (1,219) (26,878)
------------------------------
Net increase in unassigned surplus 128,658 52,742
Unassigned surplus, beginning of year 532,364 479,622
------------------------------
Unassigned surplus, end of year $ 661,022 $ 532,364
==============================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(in thousands)
1995 1994
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums, annuities and other considerations $1,268,292 $ 998,237
Net investment income 682,726 633,657
Income from charges to separate accounts 12,192 7,666
Benefits paid to members and beneficiaries (719,597) (555,066)
Commissions, operating expenses and fraternal benefits paid (235,200) (215,045)
Net transfers to separate accounts (240,662) (153,479)
Dividends to members (149,274) (145,667)
Net loans on insurance contracts (30,376) (31,514)
Other operating items, net (11,657) 2,982
------------------------------
Net cash provided by operating activities 576,444 541,771
------------------------------
Cash flows from investing activities:
Proceeds from investments sold, matured or repaid:
Bonds 4,689,971 2,365,279
Stocks 954,804 791,788
Mortgage loans 169,297 134,288
Real estate 1,441 10,758
Other invested assets 16,342 27,386
------------------------------
5,831,855 3,329,499
------------------------------
Costs of investments acquired:
Bonds 4,796,826 2,142,312
Stocks 1,066,837 711,562
Mortgage loans 426,293 460,478
Real estate 11,722 787
Other invested assets 28,289 46,441
------------------------------
6,329,967 3,361,580
------------------------------
Net cash used in investing activities (498,112) (32,081)
------------------------------
Net change in cash and short-term investments 78,332 509,690
Cash and short-term investments beginning of year 667,602 167,912
------------------------------
Cash and short-term investments end of year $ 755,934 $ 677,602
==============================
The accompanying notes are an integral part of the financial statements.
</TABLE>
LUTHERAN BROTHERHOOD
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Lutheran
Brotherhood (the Society), a fraternal benefit organization offering
financial services and other fraternal benefits for Lutherans.
The financial statements have been prepared in conformity with statutory
accounting practices prescribed or permitted by the Department of
Commerce of the State of Minnesota. These statutory practices are
considered to be generally accepted accounting principles for fraternal
benefit societies. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. In April 1993,
the Financial Accounting Standards Board issued Interpretation No. 40,
"Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises", which establishes a different
definition of generally accepted accounting principles for mutual and
fraternal life insurance companies. Under the Interpretation, financial
statements of mutual and fraternal life insurance companies for periods
beginning after December 15, 1995, which are prepared on the basis of
statutory accounting, will no longer be characterized as in conformity
with generally accepted accounting principles.
In order to continue to present financial statements in accordance with
generally accepted accounting principles for general purpose
distribution in 1996, the Society expects to present its financial
statements in accordance with the requirements of the Interpretation.
Management believes that financial statements prepared on this basis
would result in an increase to unassigned surplus. The effects of this
change in accounting basis would be reported retroactively through
restatement beginning with the earliest year presented.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Invested Assets and Investment Reserves
Invested assets are valued according to the methods established by the
National Association of Insurance Commissioners (NAIC). Generally, bonds
not backed by other loans are valued at amortized cost, using the
interest method. Loan-backed bonds and structured securities are valued
at amortized cost using the interest method including anticipated
prepayments at the date of purchase; significant changes in estimated
cash flows from the original purchase assumptions are accounted for
using the retrospective method. Common stocks are valued at market
value, preferred stocks are valued at cost, loans on insurance contracts
are valued at the aggregate unpaid balances, and mortgage loans are
valued at amortized cost. Real estate is valued at the lower of cost
less accumulated depreciation or current market value. Real estate is
depreciated on the straight line basis. Other invested assets (primarily
limited partnership and joint venture interests) are valued on an equity
basis. Net realized capital gains and losses are included in net savings
from operations except as indicated in the following paragraphs.
Statutory accounting regulations require the Society to maintain two
reserves. The asset valuation reserve (AVR) establishes a reserve for
virtually all invested assets held by the Society. The interest
maintenance reserve (IMR) establishes a reserve for realized gains and
losses resulting from changes in interest rates on short and long-term
fixed income investments. Net realized gains and losses charged to the
IMR are amortized into investment income over the approximate remaining
life of the investment sold using the grouped method.
Cash and Short-term Investments
Cash and short-term investments include cash, U.S. Treasury bills,
repurchase agreements collateralized by U.S. government-backed
obligations maturing within one year, and commercial paper with
maturities of less than 90 days.
Subsidiaries and Affiliates
The Society owns all of the common stock of Lutheran Brotherhood
Financial Corporation (LBFC), a downstream holding company which in turn
owns a stock insurance company (LBVIP), an investment advisor, a
broker/dealer, and a real estate development company. The Society's
investment is valued at equity in the subsidiary's net assets. The net
income or loss from subsidiary operations is included in net unrealized
capital gains and losses. The Society has agreed to provide LBFC and its
subsidiaries with necessary capital requirements.
Contract Reserves
Contract reserves are based on statutory mortality and interest
requirements and are designed to be sufficient to provide for all
contractual benefits. Life insurance reserves are determined primarily
in accordance with modified preliminary term or net level premium
methods employing various mortality tables and interest rates ranging
predominantly from 2-1/2% to 4%. For contracts issued since 1980
interest rates range mainly from 4% to 4-1/2% with mortality based on
1958 and 1980 Commissioners Standard Ordinary tables. Health insurance
reserves are calculated on the basis of various morbidity tables and
interest rates.
Annuity reserves consist primarily of reserves for deferred annuities.
Interest rates used in reserve determination range predominantly from 3%
to 4%. Reserves, determined in accordance with the Commissioners'
Annuity Reserve Valuation Method, exceed statutory requirements, and
reflect all contractual provisions and guarantees. For the majority of
annuities, these reserves equal or exceed full account value.
Annuity reserves and deposit liabilities total $3.7 billion at December
31, 1995. The majority of these annuity contracts are either not subject
to withdrawal or withdrawal would be net of a surrender charge. The
Society does not write guaranteed investment contracts or group
annuities. Claim liabilities are established in amounts estimated to
cover incurred claims. These liabilities are based on individual case
estimates for reported claims and estimates of unreported claims, based
on past experience.
Use of these actuarial tables and methods involves estimation of future
mortality and morbidity based on past experience. Actual future
experience could differ from these estimates.
Premium Income and Operating Expenses
Premiums are recorded as income over the premium paying period of the
contracts. Operating expenses, including costs of acquiring new
business, are charged to current operations as incurred.
Dividends
The dividend scale, approved annually by the Board of Directors, seeks
to achieve equity among contract members. Dividends charged to current
operations represent those amounts established to be paid or credited to
contract members in the following year.
Income Taxes
The Society qualifies as a tax-exempt organization under the Internal
Revenue Code under Section 501(c)(8). Accordingly, no provision for
income taxes has been made.
Non-admitted Assets
Certain assets (principally furniture and equipment, amounts due from
field representatives, and accounts receivable) have been designated by
the NAIC as non-admitted assets and are not included in the Statement of
Financial Position. Investment income due and accrued is a non-admitted
asset and excluded from investment income for the following assets: 1)
bonds with interest one month past due, 2) mortgage loans in
foreclosure, 3) mortgage loans with payment three months past due.
Changes in these non-admitted assets are reflected directly in the
unassigned surplus. Non-admitted assets approximated $33.0 million and
$30.4 million at December 31, 1995 and 1994, respectively.
NOTE 3 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the bases used by the Society in estimating its
fair value disclosures for financial instruments:
Bonds and preferred stocks -- Fair values are determined by discounting
future cash flows using interest rates based on a risk-adjusted spread
to the current U.S. Treasury curve.
Mortgage loans -- Fair values are determined by discounting future cash
flows using interest rates based on a risk-adjusted spread to the
current U.S. Treasury curve.
Loans on insurance contracts -- The carrying amount reported in the
Statement of Financial Position approximates fair value since loans on
insurance contracts reduce the amount payable at death or at surrender
of the contract.
Cash and short-term investments and due and accrued investment income --
The carrying amounts reported in the Statement of Financial Position
approximate fair value.
Annuity reserves and supplemental contracts (without mortality/morbidity
features) -- Fair values are derived by discounting the future estimated
cash flows using current interest rates for similar maturities or by
using cash surrender value. For 1995 the respective carrying amounts of
$55.1 million and $148.6 million approximate fair value.
Other deposit liabilities -- The carrying amounts for dividend
accumulations and premium deposit funds of $32.4 million and $3.4
million, respectively, reported in the Statement of Financial Position
approximate fair value.
NOTE 4 -- INVESTMENTS
Bonds
Investments in bonds and preferred stock are primarily intended to back
long- term liabilities; therefore, care should be exercised in drawing
any conclusions from market value information.
Investments in bonds and preferred stock at December 31, 1995 and 1994
follow (in thousands):
<TABLE>
<CAPTION>
December 31, 1995
----------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Bonds Value Gains Losses Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government $ 464,547 $ 21,028 $ -- $ 485,575
Mortgage-backed securities 2,469,895 79,757 3,834 2,545,818
Non-investment grade bonds 242,980 11,249 1,141 253,088
All other corporate bonds 2,606,911 197,529 6,688 2,797,752
------------- ------------- ------------- -------------
5,784,333 309,563 11,663 6,082,233
------------- ------------- ------------- -------------
Preferred Stock 77,878 5,524 1,427 81,975
------------- ------------- ------------- -------------
$5,862,211 $ 315,087 $ 13,090 $6,164,208
============= ============= ============= =============
December 31, 1994
----------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Bonds Value Gains Losses Value
------------------------------------------------------------
U.S. government $ 453,998 $ -- $ 23,789 $ 430,209
Mortgage-backed securities 2,105,847 21,230 107,119 2,019,958
Non-investment grade bonds 219,364 2,514 12,236 209,642
All other corporate bonds 2,361,444 26,180 114,030 2,273,594
------------- ------------- ------------- -------------
5,140,653 49,924 257,174 4,933,403
------------- ------------- ------------- -------------
Preferred Stock 85,104 37 5,632 79,509
------------- ------------- ------------- -------------
$5,225,757 $ 49,961 $ 262,806 $5,012,912
============= ============= ============= =============
The carrying value and estimated market value of bonds at December 31,
1995, by contractual maturity, are as follows (in thousands):
<CAPTION>
Estimated
Carrying Market
Value Value
------------ ------------
<S> <C> <C>
One year or less $ 58,797 $ 59,250
Over 1 year through 5 years 928,296 959,902
Over 5 years through 10 years 1,567,991 1,660,698
Over 10 years 3,229,249 3,402,383
-------------- --------------
$5,784,333 $6,082,233
============== ==============
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Common Stocks
Investments in equity securities at December 31, 1995 and 1994 are as
follows (in thousands):
<S> <C> <C>
1995 1994
------------ ------------
Cost $ 272,536 $ 123,399
Gross unrealized gains 44,905 13,356
Gross unrealized losses (4,960) (8,311)
------------ ------------
Carrying value $ 312,481 $ 128,444
============= =============
Mortgage Loans
The mortgage loan portfolio diversification by property type as of
December 31, 1995 and 1994 is as follows (in thousands):
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Retail $ 703,446 $ 629,263
Apartment 645,192 563,162
Office buildings 300,740 276,752
Industrial and other 489,580 427,278
Church 272,041 261,867
------------ ------------
$2,410,999 $2,158,322
============= =============
The estimated fair value of the mortgage loan portfolio at December 31,
1995 is $2.6 billion as compared to the carrying value of $2.4 billion.
The mortgage loan portfolio's five largest geographic concentrations by
state as of December 31, 1995 and 1994 were as follows
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Minnesota 12.0% 13.6%
Texas 10.1% 8.1%
Florida 8.6% 8.7%
Missouri 6.7% 7.5%
Washington 6.0% 7.0%
The Society monitors creditworthiness of the borrowers by using controls
that include credit approvals, limits, and other monitoring procedures.
Collateral for mortgage loans often includes pledges of assets,
guarantees, and letters of credit. Statutory standards for new mortgage
loans require loan to value ratios of 80% or less at the time of the
mortgage origination.
The Society has restructured mortgage loans with a carrying value of
approximately $13.3 million and $32.4 million at December 31, 1995 and
1994, respectively. The new terms generally defer a portion of contract
interest payments to future periods. The Society had outstanding
commitments to fund up to $139.6 million and $95.3 million in new
commercial and church mortgage loans at December 31, 1995 and 1994,
respectively. These commitment amounts approximate market value.
Real Estate
The real estate portfolio diversification by property type as of
December 31, 1995 and 1994 is as follows (in thousands):
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Home Office $ 28,403 $ 29,819
------------ ------------
Other properties:
Office buildings 21,732 23,268
Retail 16,260 16,455
Industrial and other 36,929 27,920
------------ ------------
74,921 67,643
------------ ------------
Total $ 103,324 $ 97,462
============= =============
Real estate is shown net of accumulated depreciation of $25.6 million
and $22.2 million at December 31, 1995 and 1994, respectively.
At December 31, 1995, approximately 68% of the Society's total real
estate is located in Minnesota.
Securities Loaned
To generate additional income, the Society participates in a securities
lending program administered by the Society's custodian bank. Securities
are periodically loaned to brokers, banks and other institutional
borrowers of securities, for which collateral in the form of cash or
U.S. Government securities is received by the custodian in an amount at
least equal to 102% of the market value of the securities loaned.
Collateral received in the form of cash is invested in short-term
investments by the custodian from which earnings are shared between the
borrower, custodian and the Society at negotiated rates. The Society may
experience delays in recovery of the collateral should the borrower of
securities fail financially. As of December 31, 1995, the market value
of securities loaned and the cash collateral held were $285.6 million
and $292.7 million, respectively.
Investment Income and Realized Capital Gains and Losses
Investment income and the related gross realized gains and losses for
1995 and 1994 are as follows (in thousands):
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------
Gross Gross
Investment Realized Realized
Income Gains Losses
------------- ------------- -----------
<S> <C> <C> <C>
Bonds $384,858 $ 50,757 $ 22,937
Common stock 4,151 44,196 13,536
Preferred stock 4,606 539 2,909
Mortgage loans 201,680 1,024 450
Real estate 25,143 46 4,312
Other 121,690 2,467 1,267
------------- ------------- -----------
742,128 $ 99,029 $ 45,411
============= ============= ===========
Investment expenses (36,293)
-------------
Net investment income $705,835
=============
Year Ended December 31, 1994
---------------------------------------------
Gross Gross
Investment Realized Realized
Income Gains Losses
---------------------------------------------
Bonds $379,663 $ 20,821 $ 46,128
Common Stock 2,594 27,723 16,056
Preferred Stock 5,397 5,558 3,742
Mortgage loans 179,850 1,909 1,200
Real estate 24,771 1,662 1,276
Other 90,455 1,210 2,863
------------------------------ --------------
$682,730 $ 58,883 $ 71,265
============================== ==============
Investment expenses (27,654)
---------------
Net investment income $655,076
===============
Derivative Financial Instruments
The Society's current utilization of derivative financial instruments is
limited. Most of the Society's derivative transactions are used to
reduce or modify interest rate risk and to replicate assets in certain
markets. These strategies use option contracts, interest rate swaps and
structured securities. The Society does not use derivative instruments
for speculative purposes. Changes in the market value of these contracts
are deferred and realized upon disposal of the hedged assets. The effect
of derivative transactions is not significant to the Society's results
from operations or financial position.
NOTE 5 -- SEPARATE ACCOUNT BUSINESS
Effective February of 1994, the Society began issuing variable life and
variable annuity contracts in states which have approved the model
fraternal code allowing fraternal benefit societies to own separate
accounts and wherein the Society has obtained authority to do so. Prior
to February 1994, variable products were sold only by Lutheran
Brotherhood Variable Insurance Products Company, an indirect subsidiary
of the Society.
Separate account assets include segregated funds invested by LB for the
benefit of variable life insurance and variable annuity contract owners.
A portion of the contract owner's premium payments is invested by LB
into the LB Variable Insurance Account I or the LB Variable Annuity
Account I (the Variable Accounts). LB records these payments as assets
in the separate accounts. Separate account liabilities represent
reserves held related to the separate account business.
The excess of separate account assets over separate account liabilities
at December 31, 1995 and 1994 represents the difference between the full
account value of annuity contracts and reserves required to be held for
these contracts.
The Variable Accounts are unit investment trusts registered under the
Investment Company Act of 1940. Each Variable Account has four
subaccounts, each of which invests only in a corresponding portfolio of
the LB Series Fund, Inc. (the Fund). The Fund is a diversified, open-end
management investment company. The investments in shares of the Fund are
carried in the Variable Accounts' financial statements at the net asset
value of the Fund.
A fixed account is also included as an investment option for variable
annuity contract owners. Net premiums allocated to the fixed account are
invested in the assets of LB.
The assets and liabilities of the Variable Accounts are clearly
identified and distinguished from the other assets and liabilities of
LB. The assets of the Variable Accounts will not be applied to the
liabilities arising out of any other business conducted by LB.
Considerations received on variable life insurance and variable annuity
contracts are included in the income of LB and correspondingly offset by
transfers to the Variable Accounts.
NOTE 6 -- BENEFIT PLANS
Lutheran Brotherhood has noncontributory defined benefit and defined
contribution retirement plans which cover substantially all employees
and field representatives. The Society's policy is to fund all accrued
defined benefit pension costs using the aggregate level valuation
method. In comparison to other acceptable methods, the annual
contributions under the aggregate level method are generally higher in
the earlier years and decrease over time. As of January 1, 1995 the most
recent actuarial valuation date available, the defined benefit plans
were fully funded. The actuarial present value of vested and nonvested
accumulated plan benefits for these retirement plans, based on an
interest rate assumption of 8%, were $239.4 million and $3.2 million,
respectively. As of that date, approximately $186.7 million of the
plans' assets were held by the Society and the remaining $55.5 million
were held in a separate trust. The accrued pension liability at December
31, 1995 of $198.4 million is included in contract reserves.
The Society also has a noncontributory non-qualified defined
contribution retirement plan which covers substantially all of its
general agents. Agents accrue benefits based on a percentage of eligible
participant earnings. Accumulated vested and non-vested plan benefits at
December 31, 1995 total $42.5 million and $.5 million respectively, and
are included in other liabilities.
Expense for all retirement plans was $12.2 million and $9.6 million for
1995 and 1994, respectively, which represents funding for both defined
benefit and defined contribution plans. In addition, the Society has
deferred compensation plans which cover field representatives and
eligible employees.
The Society has no obligation for post-retirement medical benefits for
retirees. The Society does provide a minor subsidy of certain medical
benefits for eligible early retirees until age 65. Prior to 1993, the
Society accounted for these benefits on a pay as you go method.
Effective January 1, 1993, the Society changed its method of accounting
for these costs to an accrual method. As permitted by statutory
provisions, the Society has elected to amortize the expense associated
with recognizing the initial benefit obligation over a twenty year
period. The unamortized transition obligation was $1.9 million and $2.0
million at December 31, 1995 and December 31, 1994, respectively. During
1995, the Society recognized $0.2 million of expense related to such
benefits which includes amortization of the initial benefit obligation
of $0.1 million. At December 31, 1995, and December 31, 1994, the
unfunded benefit obligation for the fully eligible or vested
participants was $1.7 million and $2.0 million, respectively. The
estimated post retirement benefit obligation for active non- vested
employees was $2.7 million. The discount rate used to determine the
obligation was 8% and the health care cost trend was 12.0%, graded to 6%
over 12 years. If the health care cost trend rates were increased by 1%,
the benefit obligation as of December 31, 1995 would be increased by
$0.1 million. The valuation of retirement and post-retirement medical
benefits based on the actuarial present value of future plan benefits
involves estimation of future mortality and morbidity based on past
experience. Actual future experience could differ from those estimates.
NOTE 7 -- REINSURANCE
In the normal course of business, the Society seeks to limit its
exposure to loss on any single insured and to recover a portion of
benefits paid by ceding business to other insurance enterprises or
reinsurers under excess coverage and co-insurance contracts. As of
December 31, 1995, total life insurance inforce approximated $40
billion, of which approximately $708 million had been ceded to various
reinsurers. The Society retains a maximum of $2 million of coverage per
individual life. Premiums ceded to other companies of $4.7 million are
reported as a reduction in premium income and benefits were reduced by
$1.6 million for reinsurance recoverable for the year ended December 31,
1995.
Reinsurance contracts do not relieve the Society from its obligations to
contractholders. Failure of reinsurers to honor their obligations could
result in losses to the Society; consequently, allowances are
established for amounts deemed uncollectible. The Society evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk to minimize its exposure to significant losses from
reinsurer insolvencies.
</TABLE>
<PAGE>
APPENDIX A
Illustration of Death Benefits,
Accumulated Values and Cash Surrender Values
The following tables illustrate how the Death Benefits, Accumulated Values and
Cash Surrender Values of a Contract may change with the investment experience
of the Variable Account. The tables show how the Death Benefits, Accumulated
Values and Cash Surrender Values of a Contract issued to an Insured of a given
age (who pays a Scheduled Premium of $750 if Age 30 or $1,500 if Age 45) 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, 6
percent and 12 percent. The tables on pages A-3 through A-14 illustrate a
Contract issued to either a male age 30 or a male age 45 (as indicated in each
table), in the nonsmoker premium class. The Death Benefits, Accumulated Values
and Cash Surrender Values would be lower if the Insured were in a special
premium class or if the Insured were a smoker because the cost of insurance
would be increased. Also, the Death Benefits, Accumulated Values and Cash
Surrender Values would be different from those shown if the gross annual
investment returns averaged 0 percent, 6 percent and 12 percent over a period
of years, but fluctuated above and below those averages for individual
Contract Years.
The second column of the tables shows the Accumulated Value of the premiums
paid at a 5% interest rate. The third and sixth columns illustrate the Death
Benefit of a Contract over the designated period. The fourth and seventh
columns illustrate the Accumulated Value of the Contract over the designated
period. (The Accumulated Value is the total amount held under a Contract at
any time.) The fifth and eighth columns illustrate the Cash Surrender Value of
a Contract over the designated period. (The Cash Surrender Value is equal to
the Accumulated Value less any Decrease Charge, Contract Debt (assumed to be 0
in these illustrations) and unpaid Monthly Deductions (also assumed to be 0 in
these illustrations).) The sixth through the eighth columns assume that
throughout the life of the Contract, the monthly charge for the cost of
insurance is based on the current cost of insurance rates and the current
Mortality and Expense Risk Charge. The third through the fifth columns assume
that the Mortality and Expense Risk Charge and also that the monthly charge
for the cost of insurance are based on the maximum level permitted under the
Contract. These maximum allowable cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Mortality Table.
Because the Death Benefit values vary depending on the Death Benefit Option in
effect, Option A and Option B are illustrated separately. (Option A provides
for a Death Benefit equal to the greater of (a) the Face Amount plus the
Accumulated Value and (b) the applicable percentage of Accumulated Value and
Option B provides for a Death Benefit equal to the greater of (a) the Face
Amount and (b) the applicable percentage of Accumulated Value.)
Any amounts held in the Loan Account would not participate in the investment
experience illustrated in these tables. Instead, such amounts will be credited
with interest as described in the Prospectus in the section entitled,
"CONTRACT RIGHTS--Loan Privileges".
The amounts shown for Death Benefits, Accumulated Values and Cash Surrender
Values 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 values shown take into account the following
fees and charges: the daily investment advisory fee paid by the Fund, which is
assumed to be equivalent to an annual rate of .48% of the aggregate average
daily net assets of the Fund, based on the following fees: Growth (0.40%);
High Yield (0.40%); Income (0.40%); Money Market (0.40%); Opportunity 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 .60% of the average assets of the Subaccounts and which
is guaranteed never to exceed an annual rate of .75%. After deduction of these
amounts, the illustrated gross annual investment rates of return 0%, 6% and
12% correspond to (a) net annual rates of -1.23%, 4.77% and 10.77%,
respectively, assuming an advisory fee of .40% and a Mortality and Expense
Risk Charge of .75% and (b) net annual rates of -1.08%, 4.92% and 10.92%,
respectively, assuming an advisory fee of .48% and a Mortality and Expense
Risk Charge of .60%.
The amounts shown for Death Benefits, Accumulated Values and Cash Surrender
Values do not reflect a deduction for operating expenses of the Fund, other
than the investment advisory fee, because LB and LBVIP have agreed to
reimburse the Fund for these operating expenses pursuant to a separate written
agreement (the "Expense Reimbursement Agreement"). The Expense Reimbursement
Agreement could be terminated at any time by the mutual agreement of the Fund,
LB and LBVIP, but the Fund, 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.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes attributable to the Variable Account because LB does not
currently make any such charges. However, such charges may be made in the
future and, in that event, the gross annual investment return would have to
exceed 0%, 6% or 12% by an amount sufficient to cover the tax charges in order
to produce the Death Benefits and values illustrated. (See section entitled
"FEDERAL TAX MATTERS" in the Prospectus.)
The tables illustrate the Contract values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated, if
all Net Premiums are allocated to the Variable Account and if no Contract
loans have been made. The tables are also based on the assumptions that the
Contract Owner has not requested an increase or decrease in the Face Amount,
that no partial surrenders have been made and that no transfers above two have
been made in any Contract Year.
Upon request, LB will provide a comparable illustration based upon the
proposed Insured's age, sex (except for Contracts issued in the state of
Montana) and premium class, the Death Benefit Option, Face Amount, Scheduled
Premium and any available riders requested. Montana has enacted legislation
that requires that cost of insurance rates applicable to Contracts purchased
in Montana cannot vary on the basis of the insured's sex.
The illustrations shown in the Prospectus are applicable for all insureds in
Montana, regardless of sex. (They are based on rates charged to males in other
states.)
Illustrations for additional term insurance benefits added by spouse rider in
the state of Montana will be based on rates applicable to females in other
states.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 30; Nonsmoker, $750.00 Annual Premium, $100,000 Face Amount
Option A--Varying Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 0%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- --------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 787 100,465 465 0 * 100,489 489 0 *
2 1,614 100,924 924 393 100,974 974 443
3 2,482 101,378 1,378 895 101,453 1,453 970
4 3,394 101,814 1,814 1,379 101,915 1,915 1,480
5 4,351 102,245 2,245 1,858 102,372 2,372 1,985
6 5,356 102,659 2,659 2,349 102,824 2,824 2,514
7 6,411 103,056 3,056 2,824 103,260 3,260 3,028
8 7,519 103,436 3,436 3,281 103,679 3,679 3,524
9 8,683 103,800 3,800 3,723 104,081 4,081 4,004
10 9,905 104,148 4,148 4,148 104,467 4,467 4,467
11 11,187 104,527 4,527 4,527 104,885 4,885 4,885
12 12,534 104,878 4,878 4,878 105,287 5,287 5,287
13 13,948 105,213 5,213 5,213 105,672 5,672 5,672
14 15,433 105,519 5,519 5,519 106,041 6,041 6,041
15 16,993 105,799 5,799 5,799 106,395 6,395 6,395
16 18,630 106,051 6,051 6,051 106,721 6,721 6,721
17 20,349 106,265 6,265 6,265 107,019 7,019 7,019
18 22,154 106,452 6,452 6,452 107,291 7,291 7,291
19 24,049 106,601 6,601 6,601 107,535 7,535 7,535
20 26,039 106,713 6,713 6,713 107,742 7,742 7,742
Age
60 52,320 104,507 4,507 4,507 106,930 6,930 6,930
65 71,127 100,000 0 0 * 103,579 3,579 3,579
70 95,129 100,000 0 0 * 100,000 0 0 *
75 125,763 ******* ***** ***** ******* ***** *****
</TABLE>
(1) Assumes a $750.00 premium is paid at the beginning of each Contract Year.
Values will be different if premiums are paid with a different frequency or in
different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 71. Therefore, the Contract remains in force even though the
Cash Surrender Value is zero. The $750.00 premium illustrated is greater than
the Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 0% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by
us or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE AT AGE 96
Male Issue Age: 45; Nonsmoker, $1,500.00 Annual Premium, $100,000 Face Amount
Option A--Varying Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 0%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,966 966 111 101,040 1,040 185
2 3,228 101,886 1,886 1,091 102,045 2,045 1,250
3 4,965 102,771 2,771 2,036 103,015 3,015 2,280
4 6,788 103,609 3,609 2,934 103,951 3,951 3,276
5 8,702 104,402 4,402 3,787 104,842 4,842 4,227
6 10,713 105,149 5,149 4,657 105,687 5,687 5,195
7 12,823 105,840 5,840 5,471 106,487 6,487 6,118
8 15,039 106,463 6,463 6,217 107,243 7,243 6,997
9 17,366 107,019 7,019 6,896 107,932 7,932 7,809
10 19,810 107,497 7,497 7,497 108,554 8,554 8,554
11 22,375 107,958 7,958 7,958 109,158 9,158 9,158
12 25,069 108,330 8,330 8,330 109,683 9,683 9,683
13 27,897 108,614 8,614 8,614 110,132 10,132 10,132
14 30,867 108,789 8,789 8,789 110,493 10,493 10,493
15 33,986 108,854 8,854 8,854 110,767 10,767 10,767
16 37,260 108,800 8,800 8,800 110,955 10,955 10,955
17 40,698 108,604 8,604 8,604 111,046 11,046 11,046
18 44,308 108,256 8,256 8,256 111,029 11,029 11,029
19 48,098 107,734 7,734 7,734 110,905 10,905 10,905
20 52,078 107,017 7,017 7,017 110,664 10,664 10,664
Age
60 33,986 108,854 8,854 8,854 110,767 10,767 10,767
65 52,078 107,017 7,017 7,017 110,664 10,664 10,664
70 75,170 100,006 6 6 107,187 7,187 7,187
75 104,641 ******* ***** ***** ******* ****** ******
</TABLE>
(1) Assumes a $1,500.00 premium is paid at the beginning of each Contract
Year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 74. Therefore, the Contract remains in force even though the
Cash Surrender Value is zero. The $1,500.00 premium illustrated is greater
than the Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 0% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by
us or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 30; Nonsmoker, $750.00 Annual Premium, $100,000 Face Amount
Option B--Level Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 0%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 787 100,000 465 0 * 100,000 490 0 *
2 1,614 100,000 926 395 100,000 976 445
3 2,482 100,000 1,382 899 100,000 1,457 974
4 3,394 100,000 1,821 1,386 100,000 1,921 1,486
5 4,351 100,000 2,256 1,869 100,000 2,382 1,995
6 5,356 100,000 2,675 2,365 100,000 2,838 2,528
7 6,411 100,000 3,077 2,845 100,000 3,278 3,046
8 7,519 100,000 3,464 3,309 100,000 3,702 3,547
9 8,683 100,000 3,836 3,759 100,000 4,112 4,035
10 9,905 100,000 4,192 4,192 100,000 4,506 4,506
11 11,187 100,000 4,582 4,582 100,000 4,933 4,933
12 12,534 100,000 4,945 4,945 100,000 5,345 5,345
13 13,948 100,000 5,293 5,293 100,000 5,743 5,743
14 15,433 100,000 5,616 5,616 100,000 6,125 6,125
15 16,993 100,000 5,913 5,913 100,000 6,494 6,494
16 18,630 100,000 6,185 6,185 100,000 6,837 6,837
17 20,349 100,000 6,422 6,422 100,000 7,155 7,155
18 22,154 100,000 6,634 6,634 100,000 7,449 7,449
19 24,049 100,000 6,811 6,811 100,000 7,719 7,719
20 26,039 100,000 6,954 6,954 100,000 7,953 7,953
Age
60 52,320 100,000 5,249 5,249 100,000 7,662 7,662
65 71,127 100,000 460 460 100,000 4,686 4,686
70 95,129 100,000 0 0 * 100,000 0 0 *
75 125,763 ******* ***** ***** ******* ***** *****
</TABLE>
(1) Assumes a $750.00 premium is paid at the beginning of each Contract Year.
Values will be different if premiums are paid with a different frequency or in
different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 71. Therefore, the Contract remains in force even though the
Cash Surrender Value is zero. The $750.00 premium illustrated is greater than
the Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 0% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by
us or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 45; Nonsmoker, $1,500.00 Annual Premium, $100,000 Face Amount
Option B--Level Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 0%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,000 971 116 100,000 1,043 188
2 3,228 100,000 1,898 1,103 100,000 2,054 1,259
3 4,965 100,000 2,795 2,060 100,000 3,035 2,300
4 6,788 100,000 3,650 2,975 100,000 3,985 3,310
5 8,702 100,000 4,464 3,849 100,000 4,894 4,279
6 10,713 100,000 5,238 4,746 100,000 5,763 5,271
7 12,823 100,000 5,962 5,593 100,000 6,593 6,224
8 15,039 100,000 6,626 6,380 100,000 7,385 7,139
9 17,366 100,000 7,232 7,109 100,000 8,117 7,994
10 19,810 100,000 7,768 7,768 100,000 8,792 8,792
11 22,375 100,000 8,296 8,296 100,000 9,458 9,458
12 25,069 100,000 8,747 8,747 100,000 10,058 10,058
13 27,897 100,000 9,120 9,120 100,000 10,592 10,592
14 30,867 100,000 9,397 9,397 100,000 11,051 11,051
15 33,986 100,000 9,576 9,576 100,000 11,436 11,436
16 37,260 100,000 9,649 9,649 100,000 11,747 11,747
17 40,698 100,000 9,593 9,593 100,000 11,975 11,975
18 44,308 100,000 9,398 9,398 100,000 12,109 12,109
19 48,098 100,000 9,041 9,041 100,000 12,150 12,150
20 52,078 100,000 8,497 8,497 100,000 12,087 12,087
Age
60 33,986 100,000 9,576 9,576 100,000 11,436 11,436
65 52,078 100,000 8,497 8,497 100,000 12,087 12,087
70 75,170 100,000 2,253 2,253 100,000 9,675 9,675
75 104,641 ******* ***** ***** 100,000 1,677 1,677
</TABLE>
(1) Assumes a $1,500.00 premium is paid at the beginning of each Contract
Year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 74. Therefore, the Contract remains in force even though the
Cash Surrender Value is zero. The $1,500.00 premium illustrated is greater
than the Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 0% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by
us or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 30; Nonsmoker, $750.00 Annual Premium, $100,000 Face Amount
Option A--Varying Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 6%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 787 100,499 499 0 * 100,525 525 0 *
2 1,614 101,023 1,023 492 101,076 1,076 545
3 2,482 101,572 1,572 1,089 101,654 1,654 1,171
4 3,394 102,134 2,134 1,699 102,249 2,249 1,814
5 4,351 102,724 2,724 2,337 102,872 2,872 2,485
6 5,356 103,329 3,329 3,019 103,527 3,527 3,217
7 6,411 103,951 3,951 3,719 104,201 4,201 3,969
8 7,519 104,591 4,591 4,436 104,896 4,896 4,741
9 8,683 105,248 5,248 5,171 105,614 5,614 5,537
10 9,905 105,925 5,925 5,925 106,354 6,354 6,354
11 11,187 106,671 6,671 6,671 107,167 7,167 7,167
12 12,534 107,428 7,428 7,428 108,009 8,009 8,009
13 13,948 108,209 8,209 8,209 108,879 8,879 8,879
14 15,433 109,003 9,003 9,003 109,780 9,780 9,780
15 16,993 109,810 9,810 9,810 110,714 10,714 10,714
16 18,630 110,631 10,631 10,631 111,668 11,668 11,668
17 20,349 111,455 11,455 11,455 112,645 12,645 12,645
18 22,154 112,293 12,293 12,293 113,646 13,646 13,646
19 24,049 113,135 13,135 13,135 114,671 14,671 14,671
20 26,039 113,979 13,979 13,979 115,710 15,710 15,710
Age
60 52,320 121,054 21,054 21,054 126,028 26,028 26,028
65 71,127 121,281 21,281 21,281 129,805 29,805 29,805
70 95,129 115,486 15,486 15,486 130,726 30,726 30,726
75 125,763 ******* ****** ****** 125,455 25,455 25,455
</TABLE>
(1) Assumes a $750.00 premium is paid at the beginning of each Contract Year.
Values will be different if premiums are paid with a different frequency or in
different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 71. Therefore, the Contract remains in force even though the
Cash Surrender Value is zero. The $750.00 premium illustrated is greater than
the Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 6% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by
us or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 45; Nonsmoker, $1,500.00 Annual Premium, $100,000 Face Amount
Option A--Varying Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 6%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 101,037 1,037 182 101,113 1,113 258
2 3,228 102,088 2,088 1,293 102,256 2,256 1,461
3 4,965 103,165 3,165 2,430 103,432 3,432 2,697
4 6,788 104,255 4,255 3,580 104,640 4,640 3,965
5 8,702 105,362 5,362 4,747 105,872 5,872 5,257
6 10,713 106,484 6,484 5,992 107,127 7,127 6,635
7 12,823 107,611 7,611 7,242 108,407 8,407 8,038
8 15,039 108,730 8,730 8,484 109,713 9,713 9,467
9 17,366 109,841 9,841 9,718 111,023 11,023 10,900
10 19,810 110,932 10,932 10,932 112,335 12,335 12,335
11 22,375 112,063 12,063 12,063 113,700 13,700 13,700
12 25,069 113,163 13,163 13,163 115,059 15,059 15,059
13 27,897 114,229 14,229 14,229 116,411 16,411 16,411
14 30,867 115,235 15,235 15,235 117,744 17,744 17,744
15 33,986 116,180 16,180 16,180 119,057 19,057 19,057
16 37,260 117,047 17,047 17,047 120,348 20,348 20,348
17 40,698 117,808 17,808 17,808 121,605 21,605 21,605
18 44,308 118,447 18,447 18,447 122,814 22,814 22,814
19 48,098 118,933 18,933 18,933 123,972 23,972 23,972
20 52,078 119,233 19,233 19,233 125,064 25,064 25,064
Age
60 33,986 116,180 16,180 16,180 119,057 19,057 19,057
65 52,078 119,233 19,233 19,233 125,064 25,064 25,064
70 75,170 117,007 17,007 17,007 128,821 28,821 28,821
75 104,641 104,130 4,130 4,130 127,157 27,157 27,157
</TABLE>
(1) Assumes a $1,500.00 premium is paid at the beginning of each Contract
Year. Values will be different if premiums are paid with a different frequency
or in different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 74. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $1,500.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 6% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by us
or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 30; Nonsmoker, $750.00 Annual Premium, $100,000 Face Amount
Option B--Level Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 6%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 787 100,000 500 0 * 100,000 526 0 *
2 1,614 100,000 1,026 495 100,000 1,078 547
3 2,482 100,000 1,577 1,094 100,000 1,659 1,176
4 3,394 100,000 2,143 1,708 100,000 2,256 1,821
5 4,351 100,000 2,738 2,351 100,000 2,884 2,497
6 5,356 100,000 3,350 3,040 100,000 3,544 3,234
7 6,411 100,000 3,980 3,748 100,000 4,226 3,994
8 7,519 100,000 4,630 4,475 100,000 4,930 4,775
9 8,683 100,000 5,300 5,223 100,000 5,659 5,582
10 9,905 100,000 5,993 5,993 100,000 6,413 6,413
11 11,187 100,000 6,758 6,758 100,000 7,243 7,243
12 12,534 100,000 7,538 7,538 100,000 8,105 8,105
13 13,948 100,000 8,347 8,347 100,000 9,000 9,000
14 15,433 100,000 9,174 9,174 100,000 9,930 9,930
15 16,993 100,000 10,021 10,021 100,000 10,897 10,897
16 18,630 100,000 10,889 10,889 100,000 11,892 11,892
17 20,349 100,000 11,769 11,769 100,000 12,918 12,918
18 22,154 100,000 12,673 12,673 100,000 13,976 13,976
19 24,049 100,000 13,593 13,593 100,000 15,069 15,069
20 26,039 100,000 14,528 14,528 100,000 16,188 16,188
Age
60 52,320 100,000 23,911 23,911 100,000 28,678 28,678
65 71,127 100,000 27,281 27,281 100,000 35,496 35,496
70 95,129 100,000 27,340 27,340 100,000 42,307 42,307
75 125,763 100,000 19,309 19,309 100,000 48,200 48,200
</TABLE>
(1) Assumes a $750.00 premium is paid at the beginning of each Contract Year.
Values will be different if premiums are paid with a different frequency or in
different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 71. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $750.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 6% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by us
or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 45; Nonsmoker, $1,500.00 Annual Premium, $100,000 Face Amount
Option B--Level Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 6%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,000 1,042 187 100,000 1,116 261
2 3,228 100,000 2,101 1,306 100,000 2,267 1,472
3 4,965 100,000 3,192 2,457 100,000 3,454 2,719
4 6,788 100,000 4,304 3,629 100,000 4,681 4,006
5 8,702 100,000 5,439 4,824 100,000 5,937 5,322
6 10,713 100,000 6,600 6,108 100,000 7,226 6,734
7 12,823 100,000 7,777 7,408 100,000 8,550 8,181
8 15,039 100,000 8,960 8,714 100,000 9,912 9,666
9 17,366 100,000 10,153 10,030 100,000 11,293 11,170
10 19,810 100,000 11,346 11,346 100,000 12,697 12,697
11 22,375 100,000 12,603 12,603 100,000 14,177 14,177
12 25,069 100,000 13,856 13,856 100,000 15,678 15,678
13 27,897 100,000 15,108 15,108 100,000 17,204 17,204
14 30,867 100,000 16,340 16,340 100,000 18,748 18,748
15 33,986 100,000 17,554 17,554 100,000 20,313 20,313
16 37,260 100,000 18,741 18,741 100,000 21,905 21,905
17 40,698 100,000 19,883 19,883 100,000 23,517 23,517
18 44,308 100,000 20,971 20,971 100,000 25,145 25,145
19 48,098 100,000 21,985 21,985 100,000 26,794 26,794
20 52,078 100,000 22,906 22,906 100,000 28,460 28,460
Age
60 33,986 100,000 17,554 17,554 100,000 20,313 20,313
65 52,078 100,000 22,906 22,906 100,000 28,460 28,460
70 75,170 100,000 25,503 25,503 100,000 36,835 36,835
75 104,641 100,000 21,177 21,177 100,000 44,639 44,639
</TABLE>
(1) Assumes a $1,500.00 premium is paid at the beginning of each Contract
Year. Values will be different if premiums are paid with a different frequency
or in different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 74. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $1,500.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 6% over a period of years, but also fluctuated above or below
the average for individual Contract Years. No representation can be made by us
or by the Fund that these hypothetical returns can be achieved for any one
year, or sustained over any one year, or sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 30; Nonsmoker, $750.00 Annual Premium, $100,000 Face Amount
Option A--Varying Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 12%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 787 100,534 534 0 * 100,561 561 0 *
2 1,614 101,127 1,127 596 101,183 1,183 652
3 2,482 101,783 1,783 1,300 101,873 1,873 1,390
4 3,394 102,498 2,498 2,063 102,627 2,627 2,192
5 4,351 103,289 3,289 2,902 103,462 3,462 3,075
6 5,356 104,153 4,153 3,843 104,389 4,389 4,079
7 6,411 105,098 5,098 4,866 105,404 5,404 5,172
8 7,519 106,131 6,131 5,976 106,517 6,517 6,362
9 8,683 107,263 7,263 7,186 107,740 7,740 7,663
10 9,905 108,505 8,505 8,505 109,083 9,083 9,083
11 11,187 109,918 9,918 9,918 110,611 10,611 10,611
12 12,534 111,459 11,459 11,459 112,293 12,293 12,293
13 13,948 113,152 13,152 13,152 114,147 14,147 14,147
14 15,433 115,003 15,003 15,003 116,190 16,190 16,190
15 16,993 117,028 17,028 17,028 118,443 18,443 18,443
16 18,630 119,246 19,246 19,246 120,918 20,918 20,918
17 20,349 121,664 21,664 21,664 123,637 23,637 23,637
18 22,154 124,318 24,318 24,318 126,628 26,628 26,628
19 24,049 127,220 27,220 27,220 129,921 29,921 29,921
20 26,039 130,397 30,397 30,397 133,535 33,535 33,535
Age
60 52,320 183,787 83,787 83,787 196,243 96,243 96,243
65 71,127 233,855 133,855 133,855 258,003 158,003 158,003
70 95,129 310,424 210,424 210,424 357,295 257,295 257,295
75 125,763 426,765 326,765 326,765 516,760 416,760 416,760
</TABLE>
(1) Assumes a $750.00 premium is paid at the beginning of each Contract Year.
Values will be different if premiums are paid with a different frequency or in
different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 71. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $750.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 12% over a period of years, but also fluctuated above or
below the average for individual Contract Years. No representation can be made
by us or by the Fund that these hypothetical returns can be achieved for any
one year, or sustained over any one year, or sustained over any period of
time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 45; Nonsmoker, $1,500.00 Annual Premium, $100,000 Face Amount
Option A--Varying Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 12%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 101,109 1,109 254 101,186 1,186 331
2 3,228 102,300 2,300 1,505 102,478 2,478 1,683
3 4,965 103,594 3,594 2,859 103,885 3,885 3,150
4 6,788 104,989 4,989 4,314 105,420 5,420 4,745
5 8,702 106,497 6,497 5,882 107,086 7,086 6,471
6 10,713 108,129 8,129 7,637 108,895 8,895 8,403
7 12,823 109,887 9,887 9,518 110,864 10,864 10,495
8 15,039 111,770 11,770 11,524 113,010 13,010 12,764
9 17,366 113,794 13,794 13,671 115,327 15,327 15,204
10 19,810 115,960 15,960 15,960 117,834 17,834 17,834
11 22,375 118,347 18,347 18,347 120,602 20,602 20,602
12 25,069 120,902 20,902 20,902 123,597 23,597 23,597
13 27,897 123,645 23,645 23,645 126,844 26,844 26,844
14 30,867 126,569 26,569 26,569 130,357 30,357 30,357
15 33,986 129,695 29,695 29,695 134,165 34,165 34,165
16 37,260 133,031 33,031 33,031 138,300 38,300 38,300
17 40,698 136,576 36,576 36,576 142,787 42,787 42,787
18 44,308 140,339 40,339 40,339 147,650 47,650 47,650
19 48,098 144,317 44,317 44,317 152,930 52,930 52,930
20 52,078 148,511 48,511 48,511 158,662 58,662 58,662
Age
60 33,986 129,695 29,695 29,695 134,165 34,165 34,165
65 52,078 148,511 48,511 48,511 158,662 58,662 58,662
70 75,170 172,914 72,914 72,914 195,349 95,349 95,349
75 104,641 202,127 102,127 102,127 249,599 149,599 149,599
</TABLE>
(1) Assumes a $1,500.00 premium is paid at the beginning of each Contract
Year. Values will be different if premiums are paid with a different frequency
or in different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 74. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $1,500.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 12% over a period of years, but also fluctuated above or
below the average for individual Contract Years. No representation can be made
by us or by the Fund that these hypothetical returns can be achieved for any
one year, or sustained over any one year, or sustained over any period of
time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 30; Nonsmoker, $750.00 Annual Premium, $100,000 Face Amount
Option B--Level Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 12%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 787 100,000 535 0 * 100,000 561 0 *
2 1,614 100,000 1,130 599 100,000 1,185 654
3 2,482 100,000 1,789 1,306 100,000 1,879 1,396
4 3,394 100,000 2,509 2,074 100,000 2,636 2,201
5 4,351 100,000 3,307 2,920 100,000 3,477 3,090
6 5,356 100,000 4,180 3,870 100,000 4,411 4,101
7 6,411 100,000 5,136 4,904 100,000 5,437 5,205
8 7,519 100,000 6,186 6,031 100,000 6,564 6,409
9 8,683 100,000 7,340 7,263 100,000 7,805 7,728
10 9,905 100,000 8,608 8,608 100,000 9,172 9,172
11 11,187 100,000 10,056 10,056 100,000 10,731 10,731
12 12,534 100,000 11,641 11,641 100,000 12,451 12,451
13 13,948 100,000 13,390 13,390 100,000 14,353 14,353
14 15,433 100,000 15,310 15,310 100,000 16,457 16,457
15 16,993 100,000 17,423 17,423 100,000 18,785 18,785
16 18,630 100,000 19,750 19,750 100,000 21,353 21,353
17 20,349 100,000 22,306 22,306 100,000 24,190 24,190
18 22,154 100,000 25,129 25,129 100,000 27,326 27,326
19 24,049 100,000 28,241 28,241 100,000 30,799 30,799
20 26,039 100,000 31,676 31,676 100,000 34,638 34,638
Age
60 52,320 126,454 94,369 94,369 141,117 105,311 105,311
65 71,127 193,510 158,614 158,614 217,753 178,486 178,486
70 95,129 304,679 262,654 262,654 346,833 298,994 298,994
75 125,763 462,371 432,122 432,122 533,163 498,283 498,283
</TABLE>
(1) Assumes a $750.00 premium is paid at the beginning of each Contract Year.
Values will be different if premiums are paid with a different frequency or in
different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 71. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $750.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 12% over a period of years, but also fluctuated above or
below the average for individual Contract Years. No representation can be made
by us or by the Fund that these hypothetical returns can be achieved for any
one year, or sustained over any one year, or sustained over any period of
time.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 96
Male Issue Age: 45; Nonsmoker, $1,500.00 Annual Premium, $100,000 Face Amount
Option B--Level Death Benefit Option
Assumed Hypothetical Gross Annual Investment Rate of Return: 12%
[1] [2] [3] [4] [5] [6] [7] [8]
Premiums Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
Accumul. -------------------------------- ---------------------------------
End of at 5% Cash Cash
Cont. Interest Death Accumulated Surrender Death Accumulated Surrender
Year Per Year Benefit Value Value Benefit Value Value
------ -------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 100,000 1,113 258 100,000 1,190 335
2 3,228 100,000 2,314 1,519 100,000 2,490 1,695
3 4,965 100,000 3,625 2,890 100,000 3,911 3,176
4 6,788 100,000 5,047 4,372 100,000 5,468 4,793
5 8,702 100,000 6,593 5,978 100,000 7,166 6,551
6 10,713 100,000 8,279 7,787 100,000 9,022 8,530
7 12,823 100,000 10,110 9,741 100,000 11,055 10,686
8 15,039 100,000 12,094 11,848 100,000 13,286 13,040
9 17,366 100,000 14,250 14,127 100,000 15,720 15,597
10 19,810 100,000 16,591 16,591 100,000 18,382 18,382
11 22,375 100,000 19,205 19,205 100,000 21,355 21,355
12 25,069 100,000 22,054 22,054 100,000 24,618 24,618
13 27,897 100,000 25,172 25,172 100,000 28,208 28,208
14 30,867 100,000 28,577 28,577 100,000 32,161 32,161
15 33,986 100,000 32,311 32,311 100,000 36,528 36,528
16 37,260 100,000 36,414 36,414 100,000 41,366 41,366
17 40,698 100,000 40,928 40,928 100,000 46,733 46,733
18 44,308 100,000 45,909 45,909 100,000 52,700 52,700
19 48,098 100,000 51,419 51,419 100,000 59,353 59,353
20 52,078 100,000 57,536 57,536 100,000 66,789 66,789
Age
60 33,986 100,000 32,311 32,311 100,000 36,528 36,528
65 52,078 100,000 57,536 57,536 100,000 66,789 66,789
70 75,170 117,255 101,082 101,082 138,164 119,107 119,107
75 104,641 186,066 173,893 173,893 220,521 206,094 206,094
</TABLE>
(1) Assumes a $1,500.00 premium is paid at the beginning of each Contract
Year. Values will be different if premiums are paid with a different frequency
or in different amounts.
(2) Assumes that no Contract loans or partial surrenders have been made.
Excessive loans or withdrawals may cause the Contract to lapse because of
insufficient Cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect to
Attained Age 74. Therefore, the Contract remains in force even though the Cash
Surrender Value is zero. The $1,500.00 premium illustrated is greater than the
Death Benefit Guarantee Premium for this Contract.
The hypothetical investment results are illustrative only, and should not be
deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown, and will depend on a
number of factors, including the investment allocations by a Contract Owner,
and the different investment returns for the Fund. The Death Benefit,
Accumulated Value and Cash Surrender Value for a Contract would be different
from those shown above if the actual investment results applicable to the
Contract average 12% over a period of years, but also fluctuated above or
below the average for individual Contract Years. No representation can be made
by us or by the Fund that these hypothetical returns can be achieved for any
one year, or sustained over any one year, or sustained over any period of
time.
APPENDIX B
DEFERRED ADMINISTRATIVE CHARGES
PER $1,000 OF FACE AMOUNT
The following tables include the maximum Deferred Administrative Charge Per
$1,000 of Face Amount that will apply under a Contract. The specific maximum
charge applicable to a Contract at issuance can be determined from the
attached tables based upon the initial Face Amount, the Insured's Attained Age
at Contract issuance, and, except for Insured's with an Attained Age under 20,
whether the Insured is a smoker or nonsmoker. For an Insured with an Attained
Age under 20, reference should be made to the column entitled "Standard" in
each table, rather than to the columns entitled "Smoker" or "Nonsmoker".
In general, the maximum Deferred Administrative Charge applicable to a
Contract will be determined from Table 1. The lower maximum charges shown in
Table 2 apply to Contracts with a Face Amount that equals or exceeds $250,000
at issuance. Subsequent requested increases in Face Amount result in a total
Face Amount that equals or exceeds $250,000 will qualify for the lower maximum
charges shown in Table 2.
If the Face Amount is increased, an additional Deferred Administrative Charge
will be calculated for the increase in an amount determined in the same manner
as for the initial Face Amount, except that the Insured's Attained Age on the
effective date of the increase and the resulting total Face Amount will be
used.
The Deferred Administrative Charge does not apply to spouse riders.
As described in the Prospectus in the section entitled "CHARGES AND
DEDUCTIONS--Accumulated Value Charges--Decrease Charge", the sum of the
Deferred Administrative Charge and the Contingent Deferred Sales Charge will
equal the Decrease Charge.
TABLE 1
FACE AMOUNTS OF LESS THAN $250,000
Maximum Deferred
Administrative Charges Per $1,000 of Face Amount
Attained Age at Date of Issuance Standard
or Effective Date of Requested (Attained Age
Increase, As Appropriate under 20) Smoker Nonsmoker
-------------------------------- ------------ ------ ---------
0-4 $3.60
5-9 $3.60
10-14 $4.80
15-19 $4.80
20-24 $6.00 $4.80
25-29 $6.00 $4.80
30-34 $7.20 $4.80
35-39 $7.20 $4.80
40-44 $7.20 $6.00
45-49 $8.40 $6.00
50-54 $8.40 $7.20
55-59 $8.40 $7.20
60-64 $8.40 $8.40
65-69 $8.40 $8.40
70-74 $8.40 $8.40
75-80 $8.40 $8.40
TABLE 2
FACE AMOUNTS OF $250,000 OR MORE
Maximum Deferred
Administrative Charges Per $1,000 of Face Amount
Attained Age at Date of Issuance Standard
or Effective Date of Requested (Attained Age
Increase, As Appropriate under 20) Smoker Nonsmoker
-------------------------------- ------------ ------ ---------
0-4 $2.40
5-9 $2.40
10-14 $3.60
15-19 $3.60
20-24 $4.80 $3.60
25-29 $4.80 $3.60
30-34 $6.00 $3.60
35-39 $6.00 $3.60
40-44 $6.00 $4.80
45-49 $6.00 $4.80
50-54 $6.00 $6.00
55-59 $6.00 $6.00
60-64 $6.00 $6.00
65-69 $6.00 $6.00
70-74 $6.00 $6.00
75-80 $6.00 $6.00
APPENDIX C
Initial Monthly Administrative Charges
Per $1,000 of Face Amount
The following tables include the Initial Monthly Administrative Charge for
$1,000 of Face Amount that will apply under a Contract. The specific charge
applicable to a Contract at issuance can be determined from the attached
tables based upon the initial Face Amount, the Insured's Attained Age at
Contract issuance, and, except for Insureds with an Attained Age under 20,
reference should be made to the column entitled "Standard" in each table,
rather than to the columns entitled "Smoker" or "Nonsmoker".
In general, the Initial Monthly Administrative Charge applicable to a Contract
will be determined from Table 1. The lower charges shown in Table 2 apply to
Contracts with a Face Amount that equals or exceeds $250,000 at issuance.
Subsequent increases in Face Amount that result in a total Free Amount that
equals or exceeds $250,000, will qualify for the lower charges shown in Table
2.
If the Face Amount is increased, an additional Initial Monthly Administrative
Charge will be calculated for the increase in an amount determined in the same
manner as for the initial Face Amount, except that the Insured's Attained Age
on the effective date of the increase and the resulting total Face Amount will
be used.
If a spouse rider providing life insurance benefits on the Insured's spouse is
included in the original Contract or added subsequently, an additional Initial
Monthly Administrative Charge will be calculated for the spouse rider in an
amount determined in the same manner as for the initial Face Amount, except
that the spouse's Attained Age and smoker or nonsmoker status on the effective
date of the rider will be used. For a spouse with an Attained Age under 20,
reference should be made to the column entitled "Standard", rather than to the
columns entitled "Smoker" or "Nonsmoker". Spouse riders do not qualify for the
lower rates in Table 2.
TABLE 1
FACE AMOUNTS OF LESS THAN $250,000
Initial Monthly Administrative Charges
Per $1,000 of Face Amount
Attained Age at Date of Issuance Standard
or Effective Date of Requested (Attained Age
Increase, As Appropriate under 20) Smoker Nonsmoker
-------------------------------- ------------ ------ ---------
0-4 $0.03
5-9 $0.03
10-14 $0.04
15-19 $0.04
20-24 $0.05 $0.04
25-29 $0.05 $0.04
30-34 $0.06 $0.05
35-39 $0.06 $0.04
40-44 $0.06 $0.05
45-49 $0.07 $0.05
50-54 $0.07 $0.06
55-59 $0.07 $0.06
60-64 $0.07 $0.07
65-69 $0.07 $0.07
70-74 $0.07 $0.07
75-80 $0.07 $0.07
TABLE 2
FACE AMOUNTS OF $250,000 OR MORE
Initial Monthly Administrative Charges
Per $1,000 of Face Amount
Attained Age at Date of Issuance Standard
or Effective Date of Requested (Attained Age
Increase, As Appropriate under 20) Smoker Nonsmoker
-------------------------------- ------------ ------ ---------
0-4 $0.02
5-9 $0.02
10-14 $0.03
15-19 $0.03
20-24 $0.04 $0.03
25-29 $0.04 $0.03
30-34 $0.05 $0.03
35-39 $0.05 $0.03
40-44 $0.05 $0.04
45-49 $0.05 $0.04
50-54 $0.05 $0.05
55-59 $0.05 $0.05
60-64 $0.05 $0.05
65-69 $0.05 $0.05
70-74 $0.05 $0.05
75-80 $0.05 $0.05
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