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VARIABLE UNIVERSAL LIFE
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and LB SERIES FUND, INC.
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Logo Art Goes Here
Prospectuses
April 28, 1995
LUTHERAN BROTHERHOOD LOGO GOES HERE
Variable Universal Life Insurance:
Insurance with investment choice
Lutheran Brotherhood's Variable Universal Life insurance, also known as
Flexible Premium Variable Life, represents a unique blend of insurance
and investment options. Advantages include:
* Permanent and adjustable life insurance protection. The death benefit
provided by the plan may be increased (subject to insurability) or
decreased to meet your changing insurance needs.
* Access to accumulated value. As you accumulate money, you can withdraw
or borrow from the plan to meet other financial needs. Your money is
available for paying off your mortgage early or education funding. You
can also use your contract's accumulated value to fund early retirement
or purchase a second home. Such withdrawals will reduce your death
benefit and accumulated values.*
* Tax advantages. Under current law, your contract's cash value
accumulates tax deferred. Upon death, proceeds are paid to the
beneficiary income tax free.
* Investment choice. Variable Universal Life is different from
traditional life insurance in that you decide the investment mix of your
contract's accumulated value. You select from a variety of investment
choices based on your objectives, and if your objectives change, you
have the flexibility and control to redirect your investments.
Lutheran Brotherhood's Variable Universal Life offers life insurance
protection, tax advantages and investment options in a single insurance
product.
*Withdrawals and loans are subject to certain limitations. Withdrawals
are subject to a $25 surrender charge, or 2% of the amount withdrawn, if
less. Income tax and possible penalty tax may apply to withdrawals and
loans, depending on how you structure the plan.
Four investment options to help you meet your financial needs
Lutheran Brotherhood's Variable Universal Life offers four subaccounts
that invest in corresponding portfolios of LB Series Fund, Inc.:
Growth Subaccount. This subaccount invests in the Growth Portfolio. Its
objective is to seek long- term growth of capital by investing primarily
in common stocks of established corporations.
High Yield Subaccount. This subaccount invests in the High Yield
Portfolio. Its objective is to seek high current income and growth of
capital by investing primarily in high- yielding (junk) corporate bonds.
Income Subaccount. This subaccount invests in the Income Portfolio. Its
objective is to seek a high level of income while preserving principal
by investing primarily in intermediate- to long-term bonds.
Money Market Subaccount. This subaccount invests in the Money Market
Portfolio.** Its objective is to seek current income with stability of
principal by investing in high- quality, short-term debt securities.
**Investments in this portfolio are not insured or guaranteed by the
U.S. government. There are no assurances the portfolio will maintain a
stable net asset value of $1.
The Importance of the Prospectus
The purpose of the prospectus is to provide meaningful information about
Lutheran Brotherhood's Variable Universal Life. A prospectus must be
given before you can invest, and updated prospectuses are sent to all
existing contract owners on an annual basis.
Please refer to the Table of Contents for more information about this
booklet. You're encouraged to review this prospectus and file it for
future reference.
This page does not constitute part of the prospectuses.
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Prospectus
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Flexible Premium
Variable Life Insurance Contract
Issued By
Lutheran Brotherhood
625 Fourth Avenue South * Minneapolis, Minnesota 55415 * (612) 339-8091
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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 April 28, 1995.
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 four Portfolios of the
Fund, the Growth Portfolio, the High Yield Portfolio, the Income
Portfolio, and the Money Market Portfolio. Additional Subaccounts
(together with the related additional Portfolios of the Fund) may be
added in the future.
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>
<CAPTION>
TABLE OF CONTENTS
Page
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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 55
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
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS 61
VOTING RIGHTS 61
DIRECTORS AND OFFICERS OF LB 62
Directors 62
Executive Officers 62
SALES AND OTHER AGREEMENTS 63
LEGAL PROCEEDINGS 64
LEGAL MATTERS 64
EXPERTS 64
FURTHER INFORMATION 65
FINANCIAL STATEMENTS 65
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
</TABLE>
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" at page 38.
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" at page 24.
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" at
page 46 and "PAYMENT AND ALLOCATION OF PREMIUMS--Contract Lapse and
Reinstatement" at page 35.
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" at page 46.
Death Benefit Option. Either of two death benefit options available
under the Contract (Option A and Option B). See "CONTRACT BENEFITS--
Death Benefits" at page 24.
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" at page 24.
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" at page 24.
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" at page 48.
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"
at page 38. 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" at page 38.
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" at page 24.
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" at page 52.
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" at
page 44.
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" at page 48.
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" at page 48.
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" at page 31.
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" at page 31.
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" at page 42. "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" at page 37.
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" at
page 32.
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" at
page 37.
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" at page 32.
Subaccount. A subdivision of the Variable Account. Each Subaccount
invests exclusively in the shares of a corresponding Portfolio of the
Fund. Currently, there are four Subaccounts: the Growth Subaccount
(which invests exclusively in the Growth Portfolio); the High Yield
Subaccount (which invests exclusively in the High Yield Portfolio); the
Income Subaccount (which invests exclusively in the Income Portfolio);
and the Money Market Subaccount (which invests exclusively in the Money
Market Portfolio).
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" at page 29.
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" at page 29.
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 3 and the day after Thanksgiving.
Valuation Period. The period commencing at the close of business of a
Valuation Date and ending at the close of business of the next Valuation
Date.
Variable Account. LB Variable 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 four Subaccounts of the Variable
Account--the Growth Subaccount, the High Yield Subaccount, the Income
Subaccount and the Money Market Subaccount. The assets of each such
Subaccount will be invested in the corresponding Portfolio (the Growth
Portfolio, the High Yield Portfolio, the Income Portfolio or the Money
Market Portfolio) of the Fund. 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.
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 charge by the Fund for its investment
management services equal to an annual rate of .40% of the aggregate
average daily net assets of the Fund, as described in the accompanying
current prospectus for the Fund. 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 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
1994, LB had total assets of approximately $9.4 billion.
LB is subject to regulation by the Insurance Division of the State of
Minnesota as well as by the insurance departments of all the other
states and jurisdictions in which it does business. LB submits annual
reports on its operations and finances to insurance officials in such
states and jurisdictions. The forms of Contracts described in 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. The identical personnel that performed the investment
advisory services for LBRC are performing the same investment advisory
services for LB. As investment adviser to the Fund, LB charges the Fund
a daily investment advisory fee equal to an annual rate of .40% of the
aggregate average daily net assets of the Fund, as described in the
accompanying current prospectus for the Fund.
The Fund has entered into an Investment Advisory Agreement with LB under
which LB will, subject to the direction of the Board of Directors of the
Fund, carry on the day-to- day management of the Fund, and provide
advice and recommendations with respect to investments and the purchase
and sale of securities in accordance with the Fund's investment
objectives, policies and restrictions. LB also furnishes at its own
expenses all necessary administrative services, office space, equipment
and clerical personnel for servicing the investments of the Fund and
maintaining its organization, and investment advisory facilities and
executive and supervisory personnel for managing the investments and
effecting the portfolio transactions of the Fund. The Investment
Advisory Agreement provides that the Fund will pay, or provide for the
payment of, all of its own expenses, including, without limitation, the
compensation of the directors who are not affiliated with LB or its
affiliates, governmental fees, interest charges, taxes, membership dues
in the Investment Company Institute allocable to the Fund, fees and
expenses of the independent auditors, of legal counsel and of any
transfer agent, registrar and dividend disbursing agent of the Fund,
expenses of preparing, printing and mailing prospectuses, shareholders'
reports, notices, proxy statements and reports to governmental officers
and commissions, expenses connected with the execution, recording and
settlement of portfolio security transactions, insurance premiums, fees
and expenses of the Fund's custodian for all services to the Fund,
including safekeeping of funds and securities and keeping of books and
calculating the net asset value of the shares of the Portfolios of the
Fund, expenses of shareholders' meetings and expenses relating to the
issuance, registration and qualification of shares of the Fund. LB and
LBVIP have agreed with the Fund to pay, or to reimburse the Fund for the
payment of, all of the foregoing expenses and all other expense
associated with operating the Fund pursuant to a separate written
agreement (the "Expense Reimbursement Agreement"). The Expense
Reimbursement Agreement could be terminated at any time by the mutual
agreement of the Fund, LB and LBVIP, but the Fund and LB and LBVIP
currently contemplate that the Expense Reimbursement Agreement will
continue so long as the Fund remains in existence. If the Expense
Reimbursement Agreement were terminated, the Fund would be required to
pay those operating expenses, which would reduce the net investment
return on the shares of the Fund held by the Subaccounts of the Variable
Account.
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.
In computing the Contract's Accumulated Value the number of Subaccount
Units allocated to the Contract is determined after 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.
For a limited time beginning May 1995 through December 1995, persons who
have purchased a life insurance contract or disability insurance
contract from LB or LBVIP between January 1, 1990 and December 31, 1994,
will be able to purchase the Contract without being subject to Home
Office normal age and amount of insurance underwriting requirements.
Those proposed insureds will also be offered a premium credit of $1 for
each $1,000 Face Amount of the Contract purchased. This premium credit
will be added to the first premium payment for the Contract.
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 doallar
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 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
Variable Account and a list of the securities held in each Portfolio of
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.
Safekeeping of the Variable Account's Assets
LB holds the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from the General
Account of LB. LB maintains records of all purchases and redemptions of
Fund shares by each of the Subaccounts. Additional protection for the
assets of the Variable Account is afforded by a blanket fidelity bond
providing $10,000,000 coverage for officers and employees and $750,000
coverage for general agents and LB Representatives, both subject to a
$100,000 deductible.
Voting Rights
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; Robert P. Gandrud, President, Chief Executive Officer and
Director, Lutheran Brotherhood, 625 Fourth Avenue South, Minneapolis,
Minnesota; Richard C. Kessler, Director, President, The Kessler
Enterprise, Inc., One Buckhead Plaza, 3060 Peachtree Road NE, Ste. 750,
Atlanta, Georgia; William R. Halling, Chairman, New Detroit, Inc., 150
West Jefferson, Detroit, Michigan; Mary Ellen H. Schmider, Director,
Dean of Graduate Studies - Coordinator of Grants, Moorhead State
University, Moorhead, Minnesota; Herbert D. Ihle, Director, President,
Diversified Financial Services, 10527 Parker Drive, Eden Prairie,
Minnesota; John P. McDaniel, Director, President, Medlantic Health
Group, Inc., 100 Irving Street, N.W., Washington, D.C.; Judith K.
Larsen, Director, Vice President, Dataquest, 1290 Ridder Park Drive, San
Jose, California; Sigurd D. Medhus, Director, formerly Senior Vice
President and Senior Financial Officer, Olin Corporation, 3893 Hunters
Lake Circle E., Jacksonville, Florida; Lloyd A. Svendsbye, Director,
formerly President, Augustana College, 2500 Quentin Court, St. Louis
Park, Minnesota; Richard W. Duesenberg, Director, Senior Vice President,
General Counsel and Secretary, Monsanto Company, 800 Lindbergh Blvd.,
St. Louis, Missouri; Russel M. Smith, Director, President, Rockport
Consultants, P.O. Box 2264, 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
Richard K. Lund Senior Vice President - Corporate Administration
Bruce J. Nicholson Executive Vice President and Chief Chief Financial Officer
Paul R. Ramseth Executive Vice President - Member Services
William H. Reichwald Executive Vice President - Marketing
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 - Internal Audit
J. Keith Both Regional 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
Charles E. Heeren Vice President - Bond Investments
Wayne A. Hellbusch Vice President - Marketing
Otis F. Hilbert Vice President - Law
Richard J. Johnson Vice President - Product Management
Gary J. Kallsen Vice President - Mortgages and Real Estate
Fred O. Konrath Vice President - Staffing and Employment Relations
C. Theodore Molen Regional Vice President - Marketing
Victoria A.E. Obenshain Vice President - Marketing Services/Segmentation
James R. Olson Vice President - Investor Services/Administration
Kevin B. Pedersen Vice President - Field Administrative Services
Dennis K. Peterson Vice President
Bruce M. Piltingsrud Vice President - Research/Marketing Strategies
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.
Bonding Arrangement. An insurance company blanket bond is maintained
providing $10,000,000 coverage for officers and employees of LB and
Lutheran Brotherhood Securities Corp., and $750,000 coverage for their
general agents and LB Representatives, both subject to a $100,000
deductible.
Legal Proceedings
LB is not involved in any legal proceedings.
Legal Matters
All matters of applicable state law pertaining to the Contracts,
including LB's right to issue the Contracts thereunder, have been passed
upon by James M. Odland, Counsel to LB. Certain legal matters relating
to the Federal securities laws have been passed upon by the law firm of
Jones & Blouch, Washington, D.C.
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.
(This page intentionally left blank.)
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
- -----------------------------------------------------------------------------
Price Waterhouse llp Logo goes here
REPORT OF INDEPENDENT ACCOUNTANTS
February 3, 1995
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, 1994, the results of
each of their operations and the changes in each of their net assets for
the period February 3, 1994 (inception) through December 31, 1994, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of Lutheran Brotherhood's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/Price Waterhouse LLP
<TABLE>
<CAPTION>
LB Variable Insurance Account I
Statement of Assets and Liabilities
December 31, 1994
Subaccounts
---------------------------------------------------------
High Money
Growth Yield Income Market
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in LB Series Fund, Inc. --
Growth Portfolio, 151,490 shares at
net asset value of $13.51
per share (cost $2,069,583) $2,046,377
High Yield Portfolio, 151,203 shares at net
asset value of $9.18 per share (cost $1,473,377) $1,388,026
Income Portfolio, 65,785 shares at net asset value
of $9.04 per share (cost $612,755) $594,675
Money Market Portfolio, 231,526 shares at net
asset value of $1.00 per share (cost $231,526) $231,526
---------- ---------- -------- --------
2,046,377 1,388,026 594,675 231,526
Receivable from LB for units issued 13,410 11,329 8,685 6,433
Dividends receivable from LB Series Fund, Inc. -- 355 112 35
---------- ---------- -------- --------
Total assets 2,059,787 1,399,710 603,472 237,994
---------- ---------- -------- --------
LIABILITIES:
Payable to LB for mortality and expense risk charge 938 642 282 109
---------- ---------- -------- --------
NET ASSETS $2,058,849 $1,399,068 $603,190 $237,885
========== ========== ======== ========
Number of units outstanding 108,728 66,467 34,654 157,464
========== ========== ======== ========
Unit value (net assets divided by units outstanding) $18.94 $21.05 $17.41 $1.51
========== ========== ======== ========
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Period from February 3, 1994 (Inception) through December 31, 1994
Subaccounts
---------------------------------------------------------
High Money
Growth Yield Income Market
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income $ 15,741 $ 53,959 $17,065 $4,534
Mortality and expense risk charge (4,434) (3,208) (1,457) (604)
--------- --------- -------- ------
Net investment income 11,307 50,751 15,608 3,930
--------- --------- -------- ------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 9 (975) (726) --
Net change in unrealized depreciation of investments (23,206) (85,351) (18,080) --
--------- --------- -------- ------
Net loss on investments (23,197) (86,326) (18,806) --
--------- --------- -------- ------
Net change in net assets resulting from operations $(11,890) $(35,575) $(3,198) $3,930
========== ========== ======== ========
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
For the Period from February 3, 1994 (Inception) through December 31, 1994
Subaccounts
---------------------------------------------------------
Money
Growth High Yield Income Market
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 11,307 $ 50,751 $ 15,608 $ 3,930
Net realized gain (loss) on investments 9 (975) (726) --
Net change in unrealized depreciation of investments (23,206) (85,351) (18,080) --
--------- --------- -------- --------
Net change in net assets resulting from operations (11,890) (35,575) (3,198) 3,930
--------- --------- -------- --------
UNIT TRANSACTIONS --
Proceeds from units issued 2,216,718 1,474,510 637,182 328,384
Net asset value of units redeemed (154,650) (100,148) (41,215) (15,056)
Transfers from other subaccounts 60,225 80,118 20,101 18,834
Transfers to other subaccounts (51,554) (19,837) (9,680) (98,207)
--------- --------- -------- --------
Net increase in net assets from unit transactions 2,070,739 1,434,643 606,388 233,955
--------- --------- -------- --------
Net increase in net assets 2,058,849 1,399,068 603,190 237,885
NET ASSETS:
Beginning of period -- -- -- --
--------- --------- -------- --------
End of period $2,058,849 $1,399,068 $603,190 $237,885
========== ========== ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB Variable Insurance Account I
Notes to Financial Statements
December 31, 1994
(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. Accordingly, no provision for income taxes has been charged
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 $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 $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 of $9,703 were deducted 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 of $1,836 were deducted for the period from February 3,
1994 through December 31, 1994.
All units owned by LB in the Growth, High Yield, Income and Money Market
subaccounts were redeemed during the year ended December 31, 1994. The
value of these units when redeemed was $22,045, $22,813, $23,387, and
$25,712, respectively.
(4) UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) were as
follows:
<TABLE>
<CAPTION>
Subaccounts
----------------------------------------------------------
High Money
Growth Yield Income Market
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Units outstanding,
beginning of period --- -- -- --
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
======== ======== ======== ========
(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:
</TABLE>
<TABLE>
<CAPTION>
Subaccounts
----------------------------------------------------------
High Money
Growth Yield Income Market
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
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.
(This page intentionally left blank.)
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
- ---------------------------------------------------------------------------
Price Waterhouse llp Logo goes here
Report of Independent Accountants
February 24, 1995
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, 1994 and 1993, and
the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of the Society's management; our responsibility
is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
STATEMENT OF FINANCIAL POSITION
(in thousands)
December 31,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Bonds
U.S. Government $ 453,998 $ 466,646
Mortgage-backed securities 2,105,847 2,096,271
Corporate and other 2,580,808 2,736,201
-------------- --------------
5,140,653 5,299,118
Stocks
Common 128,444 204,677
Preferred 85,104 100,083
-------------- --------------
213,548 304,760
Mortgage loans
Residential and commercial 1,896,455 1,578,306
Loans to Lutheran churches 261,867 258,342
-------------- --------------
2,158,322 1,836,648
Real estate
Home office 29,819 31,236
Other properties 67,643 75,925
-------------- --------------
97,462 107,161
Loans on insurance contracts 599,793 568,291
Cash and short-term investments 677,602 167,912
Investment in subsidiary 71,270 84,158
Other investments 128,758 78,098
-------------- --------------
Total invested assets 9,087,408 8,446,146
Investment income due and accrued 111,460 105,945
Premiums deferred and uncollected 55,372 50,394
Assets held in separate accounts 151,315
Other assets 8,637 12,177
-------------- --------------
Total assets $9,414,192 $8,614,662
============== ==============
LIABILITIES, ASSET RESERVES AND SURPLUS
Contract reserves $8,076,952 $7,559,057
Benefits in process of payment 27,812 20,592
Dividends payable 150,456 146,512
Dividends on deposit at interest 32,045 31,449
Liabilities related to separate accounts 143,762
Amounts due to brokers 132,715 19,770
Other liabilities 115,499 119,268
Interest maintenance reserve 81,285 105,109
Asset valuation reserve 118,983 119,414
Additional investment loss reserve 2,319 13,869
-------------- --------------
Total liabilities and asset reserves 8,881,828 8,135,040
Unassigned surplus 532,364 479,622
-------------- --------------
Total liabilities, asset reserves and surplus $9,414,192 $8,614,662
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
STATEMENT OF OPERATIONS AND UNASSIGNED SURPLUS
(in thousands)
For the years ended December 31,
--------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Insurance premiums $ 531,438 $ 529,154 $ 511,974
Annuity considerations 417,564 171,106 309,448
Net investment income 655,076 644,313 631,139
Income from charges to separate
accounts 7,671 -- --
Other income 52,837 53,933 50,479
------------ ------------ ------------
Total income 1,664,586 1,398,506 1,503,040
------------ ------------ ------------
Deductions:
Net additions to contract reserves 515,873 510,452 710,661
Net transfer to separate accounts 145,926 -- --
Death benefits 88,310 75,282 62,703
Annuity benefits 297,559 234,840 158,389
Surrender benefits 115,113 107,333 102,287
Fraternal benefits 49,178 47,868 46,604
Other benefits 75,435 68,675 63,550
Commissions 58,766 50,561 59,002
Operating expenses 92,908 86,006 87,727
------------ ------------ ------------
Total deductions 1,439,068 1,181,017 1,290,923
------------ ------------ ------------
Savings from operations before dividends
and net realized capital gains (losses) 225,518 217,489 212,117
Dividends to members 149,359 145,344 150,213
------------ ------------ ------------
Savings from operations before net
realized capital gains (losses) 76,159 72,145 61,904
Net realized capital gains (losses) 3,461 (852) (40,419)
------------ ------------ ------------
Net savings from operations 79,620 71,293 21,485
------------ ------------ ------------
Other transactions affecting
unassigned surplus:
Net unrealized capital gains (losses) (34,296) 13,566 36,483
Decrease(increase) in asset
valuation reserve 431 (36,048) (13,694)
Decrease (increase) in additional
investment loss reserve 11,550 3,989 (1,111)
Other changes (4,563) (3,116) (896)
------------ ------------ ------------
Total other transactions (26,878) (21,609) 20,782
------------ ------------ ------------
Net increase in unassigned surplus 52,742 49,684 42,267
Unassigned surplus, beginning of year 479,622 429,938 387,671
------------ ------------ ------------
Unassigned surplus, end of year $ 532,364 $ 479,622 $ 429,938
============ ============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD
STATEMENT OF CASH FLOWS
(in thousands)
For the years ended December 31,
--------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Insurance premiums, annuities
and other considerations $ 998,237 $ 750,592 $ 869,180
Net investment income 633,657 617,717 602,253
Income from charges to separate
accounts 7,666 -- --
Benefits paid to members
and beneficiaries (555,066) (465,060) (377,796)
Commissions, operating expenses
and fraternal benefits paid (215,045) (201,206) (206,190)
Net transfers to separate
accounts (153,479) -- --
Dividends to members (145,667) (150,679) (149,393)
Net loans on insurance contracts (31,514) (27,015) (29,691)
Other operating items, net 2,982 4,979 4,988
------------ ------------ ------------
Net cash provided by
operating activities 541,771 529,328 713,351
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from investments
sold, matured, or repaid:
Bonds 2,365,279 2,416,929 1,909,731
Stocks 791,788 746,154 333,719
Mortgage loans 134,288 126,124 126,666
Real estate 10,758 10,622 4,466
Other invested assets 27,386 25,179 4,854
------------ ------------ ------------
3,329,499 3,325,008 2,379,436
------------ ------------ ------------
Costs of investments acquired:
Bonds 2,142,312 2,651,233 2,298,726
Stocks 711,562 841,860 521,070
Mortgage loans 460,478 397,090 251,382
Real estate 787 364 159
Other invested assets 46,441 26,509 7,741
------------ ------------ ------------
3,361,580 3,917,056 3,079,078
------------ ------------ ------------
Net cash used in investing
activities (32,081) (592,048) (699,642)
------------ ------------ ------------
Net change in cash and
short-term investments 509,690 (62,720) 13,709
Cash and short-term investments
beginning of year 167,912 230,632 216,923
------------ ------------ ------------
Cash and short-term investments
end of year $ 677,602 $ 167,912 $ 230,632
============ ============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
LUTHERAN BROTHERHOOD
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
Note 1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements of Lutheran Brotherhood (the
Society), a fraternal benefit organization offering financial services
and other fraternal benefits for Lutherans, 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.
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.
Management of the Society has not yet determined the effect on its
December 31, 1994 financial statements of applying the new
Interpretation nor whether it will continue to present its general
purpose financial statements in conformity with the statutory basis of
accounting or adopt the accounting changes required in order to continue
to present its financial statements in conformity with generally
accepted accounting principles. If the Society chooses to adopt the
accounting changes required, the effect of the changes would be reported
retroactively through restatement of all previously issued financial
statements 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.
Investment loss reserves are maintained for the purposes of stabilizing
the unassigned surplus against the effects of capital gains and losses
on the value of specific investments. Capital gains and losses on these
investments are reflected in the calculation of these reserves.
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. The Society also maintains an additional
investment loss reserve (AILR) for additional Minnesota reserve
requirements on commercial mortgage loans and real estate owned.
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. During 1993 the
Society provided $50 million of capital to the stock insurance company,
Lutheran Brotherhood Variable Insurance Products Company (LBVIP),
through contributions to LBFC, its parent.
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 $3.5 billion at December
31, 1994. 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.
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.
The Internal Revenue Service is currently examining the Society's
Federal income tax filings and the consolidated income tax returns filed
by its subsidiary LBFC for 1990- 1992 and has proposed certain
adjustments to the LBFC returns which are being contested. Management
believes additional taxes, if any, which may become due with respect to
those years will not have a material adverse effect on the Society's
financial position or operations.
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 $30.4 million and
$28.9 million at December 31, 1994 and 1993, respectively.
Reclassification
Certain prior year financial statement balances have been reclassified
to conform with the current year presentation.
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 1994 the respective carrying amounts of
$50.1 million and $110.8 million approximate fair value.
Other deposit liabilities - The carrying amounts for dividend
accumulations and premium deposit funds of $32.0 million and $3.7
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, 1994 and 1993
follow (in thousands):
<TABLE>
<CAPTION>
December 31, 1994
----------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Bonds Value Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Bonds Value Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Government $ 466,646 $ 10,443 $ 1,326 $ 475,763
Mortgage-backed securities 2,096,271 98,809 12,572 2,182,508
Non-investment grade bonds 144,418 5,557 2,067 147,908
All other corporate bonds 2,591,783 179,181 10,656 2,760,308
------------- ------------- ------------- -------------
5,299,118 293,990 26,621 5,566,487
------------- ------------- ------------- -------------
Preferred Stock 100,083 1,791 1,790 100,084
------------- ------------- ------------- -------------
$5,399,201 $ 295,781 $ 28,411 $5,666,571
============= ============= ============= =============
</TABLE>
The carrying value and estimated market value of bonds at December 31,
1994, by contractual maturity, are as follows (in thousands):
Estimated
Carrying Market
Value Value
------------ ------------
One year or less $ 86,761 $ 86,750
Over 1 year through 5 years 1,042,380 1,014,851
Over 5 years through 10 years 1,222,165 1,177,072
Over 10 years 2,789,347 2,654,730
------------ ------------
$5,140,653 $4,933,403
============ ==============
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, 1994 and 1993 are as
follows (in thousands):
1994 1993
------------ ------------
Cost $ 123,399 $ 179,763
Gross unrealized gains 13,356 31,461
Gross unrealized losses (8,311) (6,547)
------------ ------------
Carrying value $ 128,444 $ 204,677
============ ============
Mortgage loans
The mortgage loan portfolio diversification by property type as of
December 31, 1994 and 1993 is as follows (in thousands):
1994 1993
------------ ------------
Retail $ 629,263 $ 527,256
Apartment 563,162 473,353
Office Buildings 276,752 207,314
Industrial and Other 427,278 370,383
Church 261,867 258,342
------------ ------------
$2,158,322 $1,836,648
============ ============
The estimated fair value of the mortgage loan portfolio at December 31,
1994 is $2.1 billion as compared to the carrying value of $2.2 billion.
The mortgage loan portfolio's five largest geographic concentrations by
state as of December 31, 1994 and 1993 were as follows:
1994 1993
------------ ------------
Minnesota 13.6% 14.5%
Florida 8.7% 8.9%
Washington 7.0% 8.3%
Missouri 7.5% 6.6%
Texas 8.1% 6.0%
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 $32.4 million and $34.3 million at December 31, 1994 and
1993, respectively. The new terms generally defer a portion of contract
interest payments to future periods. The Society had outstanding
commitments to fund up to $95.3 million and $201.5 million in new
commercial and church mortgage loans at December 31, 1994 and 1993,
respectively. These commitment amounts approximate market value.
Real estate
The real estate portfolio diversification by property type as of
December 31, 1994 and 1993 is as follows (in thousands):
1994 1993
------------ ------------
Home Office $ 29,819 $ 31,236
------------ ------------
Other properties
Office Buildings 23,268 27,542
Retail 16,455 18,325
Industrial and Other 27,920 30,058
------------ ------------
67,643 75,925
Total $ 97,462 $ 107,161
============ ============
Real estate is shown net of accumulated depreciation of $22.2 million
and $19.8 million at December 31, 1994 and 1993, respectively.
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, 1994,
the market value of securities loaned and the cash collateral received
were $199.2 million and $207.7 million, respectively.
Investment income and realized capital gains and losses
Investment income and the related gross realized gains and losses for
1994, 1993 and 1992 are as follows (in thousands):
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
===========
Year Ended December 31, 1993
----------------------------------------
Gross Gross
Investment Realized Realized
Income Gains Losses
----------- ----------- -----------
Bonds $426,071 $ 77,787 $ 24,592
Common Stock 3,790 34,700 22,163
Preferred Stock 3,689 13,666 7,018
Mortgage Loans 158,086 1,369 7,207
Real Estate 25,434 1,907 2,491
Other 63,007 2,454 1,247
----------- ----------- -----------
$680,077 $131,883 $ 64,718
=========== ===========
Investment expenses (35,764)
-----------
Net investment income $644,313
===========
Year Ended December 31, 1992
----------------------------------------
Gross Gross
Investment Realized Realized
Income Gains Losses
----------- ----------- -----------
Bonds $437,816 $ 67,499 $ 48,742
Common Stock 3,100 12,530 10,981
Preferred Stock 2,024 6,000 6,266
Mortgage Loans 143,140 1,302 10,692
Real Estate 25,652 878 5,744
Other 53,149 1,272 2,137
----------- ----------- -----------
$664,881 $ 89,481 $ 84,562
=========== ===========
Investment expenses (33,742)
-----------
Net investment income $631,139
===========
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. At December 31, 1994, the Society held
interest rate swap contracts with a notional value of $135 million to
modify the interest rate risk of a segment of the mortgage- backed
securities portfolio. Changes in the market value of these contracts
are deferred and realized upon disposal of the hedged assets. These
interest rate swaps represent most of the Society's derivative
positions. 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, 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, 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 flexible
premium deferred 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, 1994 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 $226 million and $3 million,
respectively. As of that date, approximately $176 million of the plans'
assets were held by the Society and the remaining $55 million were held
in a separate trust. The accrued pension liability at December 31, 1994
of $186 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, 1994 total $38.0 million and $0.6 million respectively, and
are included in other liabilities.
Expense for all retirement plans was $9.6 million, $12.7 million and
$13.1 million for 1994, 1993 and 1992, 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 $2.0 million and $2.1
million at December 31, 1994 and December 31, 1993, respectively. During
1994, the Society recognized $0.3 million of expense related to such
benefits which includes amortization of the initial benefit obligation
of $0.1 million. At December 31, 1994, and December 31, 1993, the
unfunded benefit obligation for the fully eligible or vested
participants was $2.0 million and $2.4 million, respectively. The
estimated post retirement benefit obligation for active non- vested
employees was $2.9 million. The discount rate used to determine the
obligation was 8% and the health care cost trend was 14.0%, graded to 6%
over 13 years. If the health care cost trend rates were increased by
1%, the benefit obligation as of December 31, 1994 would be increased by
$0.1 million.
Note 7. REINSURANCE
The Society obtains reinsurance for all contracts with a face amount
greater than or equal to $1.5 million for individuals and $2.5 million
on second-to-die contracts. The amounts shown in the accompanying
consolidated financial statements are net of reinsurance activity.
Premiums ceded to other companies of $4.2 million are reported as a
reduction in premium income and benefits were reduced by $2.2 million
for reinsurance recoverable for the year ended December 31, 1994.
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.
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 show 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 maximum 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 daily investment advisory fee paid by the
Fund (which is assumed to be equivalent to an annual rate of .40% of the
aggregate average daily net assets of the Fund), 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 - 1.15%, 4.85% and 10.85%, respectively, assuming an
advisory fee of .40% and a Mortality and Expense Risk Charge of .75% and
(b) net annual rates of - 1.0%, 5.0% and 11%, respectively, assuming an
advisory fee of .40% 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 expenses covered by the Expense Reimbursement Agreement include, for
example, the following: compensation of directors not affiliated with
LB; governmental fees; fees and expenses of independent auditors, of
legal counsel and of any transfer agent, registrar and dividend
disbursing agent of the Fund; and expenses of preparing, printing and
mailing prospectuses, shareholders' reports, notices, proxy statements
and reports to governmental officers. For the fiscal year of the Fund
ended December 31, 1994, the Fund was reimbursed approximately
$2,238,502 for such operating expenses. 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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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>
1 788 100,464 464 0 * 100,490 490 0 *
2 1,614 100,923 923 392 100,975 975 444
3 2,483 101,377 1,377 894 101,455 1,455 972
4 3,394 101,814 1,814 1,379 101,919 1,919 1,484
5 4,351 102,246 2,246 1,859 102,378 2,378 1,991
6 5,357 102,661 2,661 2,351 102,832 2,832 2,523
7 6,412 103,059 3,059 2,827 103,270 3,270 3,038
8 7,520 103,440 3,440 3,286 103,692 3,692 3,537
9 8,683 103,806 3,806 3,729 104,098 4,098 4,020
10 9,905 104,155 4,155 4,155 104,487 4,487 4,487
11 11,188 104,537 4,537 4,537 104,909 4,909 4,909
12 12,535 104,890 4,890 4,890 105,315 5,315 5,315
13 13,949 105,227 5,227 5,227 105,704 5,704 5,704
14 15,434 105,536 5,536 5,536 106,078 6,078 6,078
15 16,993 105,819 5,819 5,819 106,436 6,436 6,436
16 18,630 106,074 6,074 6,074 106,767 6,767 6,767
17 20,349 106,291 6,291 6,291 107,071 7,071 7,071
18 22,154 106,481 6,481 6,481 107,348 7,348 7,348
19 24,050 106,634 6,634 6,634 107,598 7,598 7,598
20 26,039 106,749 6,749 6,749 107,811 7,811 7,811
Age
60 52,321 104,571 4,571 4,571 107,054 7,054 7,054
65 71,127 100,000 0 0 * 103,719 3,719 3,719
70 95,130 100,000 0 0 * 100,000 0 0 *
75 125,764 ****** ****** ****** ****** ****** ******
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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 1,575 100,967 967 112 101,041 1,041 186
2 3,229 101,887 1,887 1,092 102,048 2,048 1,253
3 4,965 102,773 2,773 2,038 103,020 3,020 2,285
4 6,788 103,612 3,612 2,937 103,960 3,960 3,285
5 8,703 104,407 4,407 3,792 104,854 4,854 4,239
6 10,713 105,157 5,157 4,665 105,704 5,704 5,212
7 12,824 105,851 5,851 5,482 106,510 6,510 6,141
8 15,040 106,477 6,477 6,231 107,271 7,271 7,025
9 17,367 107,037 7,037 6,914 107,966 7,966 7,843
10 19,810 107,520 7,520 7,520 108,595 8,595 8,595
11 22,376 107,985 7,985 7,985 109,206 9,206 9,206
12 25,069 108,361 8,361 8,361 109,739 9,739 9,739
13 27,898 108,651 8,651 8,651 110,196 10,196 10,196
14 30,868 108,830 8,830 8,830 110,565 10,565 10,565
15 33,986 108,900 8,900 8,900 110,847 10,847 10,847
16 37,261 108,851 8,851 8,851 111,043 11,043 11,043
17 40,699 108,659 8,659 8,659 111,142 11,142 11,142
18 44,309 108,316 8,316 8,316 111,133 11,133 11,133
19 48,099 107,798 7,798 7,798 111,018 11,018 11,018
20 52,079 107,085 7,085 7,085 110,785 10,785 10,785
Age
60 33,986 108,900 8,900 8,900 110,847 10,847 10,847
65 52,079 107,085 7,085 7,085 110,785 10,785 10,785
70 75,170 100,080 80 80 107,341 7,341 7,341
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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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>
1 788 100,000 465 0 * 100,000 491 0 *
2 1,614 100,000 926 395 100,000 977 446
3 2,483 100,000 1,382 899 100,000 1,459 976
4 3,394 100,000 1,821 1,386 100,000 1,926 1,491
5 4,351 100,000 2,257 1,870 100,000 2,388 2,001
6 5,357 100,000 2,676 2,367 100,000 2,846 2,536
7 6,412 100,000 3,080 2,848 100,000 3,289 3,056
8 7,520 100,000 3,468 3,314 100,000 3,716 3,561
9 8,683 100,000 3,842 3,764 100,000 4,129 4,051
10 9,905 100,000 4,200 4,200 100,000 4,526 4,526
11 11,188 100,000 4,591 4,591 100,000 4,957 4,957
12 12,535 100,000 4,957 4,957 100,000 5,374 5,374
13 13,949 100,000 5,308 5,308 100,000 5,775 5,775
14 15,434 100,000 5,633 5,633 100,000 6,163 6,163
15 16,993 100,000 5,933 5,933 100,000 6,536 6,536
16 18,630 100,000 6,208 6,208 100,000 6,884 6,884
17 20,349 100,000 6,448 6,448 100,000 7,208 7,208
18 22,154 100,000 6,664 6,664 100,000 7,508 7,508
19 24,050 100,000 6,845 6,845 100,000 7,783 7,783
20 26,039 100,000 6,992 6,992 100,000 8,024 8,024
Age
60 52,321 100,000 5,322 5,322 100,000 7,798 7,798
65 71,127 100,000 541 541 100,000 4,850 4,850
70 95,130 100,000 0 0 * 100,000 0 0 *
75 125,764 ****** ****** ****** ****** ****** ******
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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 1,044 189
2 3,229 100,000 1,899 1,104 100,000 2,057 1,262
3 4,965 100,000 2,796 2,061 100,000 3,040 2,305
4 6,786 100,000 3,653 2,978 100,000 3,993 3,318
5 8,703 100,000 4,469 3,854 100,000 4,906 4,291
6 10,713 100,000 5,246 4,754 100,000 5,780 5,288
7 12,824 100,000 5,974 5,605 100,000 6,616 6,247
8 15,040 100,000 6,641 6,395 100,000 7,413 7,167
9 17,367 100,000 7,251 7,128 100,000 8,152 8,029
10 19,810 100,000 7,791 7,791 100,000 8,834 8,834
11 22,376 100,000 8,324 8,324 100,000 9,508 9,508
12 25,069 100,000 8,780 8,780 100,000 10,116 10,116
13 27,898 100,000 9,159 9,159 100,000 10,659 10,659
14 30,868 100,000 9,441 9,441 100,000 11,127 11,127
15 33,986 100,000 9,626 9,626 100,000 11,522 11,522
16 37,261 100,000 9,705 9,705 100,000 11,843 11,843
17 40,699 100,000 9,655 9,655 100,000 12,080 12,080
18 44,309 100,000 9,466 9,466 100,000 12,225 12,225
19 48,099 100,000 9,115 9,115 100,000 12,276 12,276
20 52,079 100,000 8,578 8,578 100,000 12,224 12,224
Age
60 33,986 100,000 9,626 9,626 100,000 11,522 11,522
65 52,079 100,000 8,578 8,578 100,000 12,224 12,224
70 75,170 100,000 2,358 2,358 100,000 9,867 9,867
75 104,641 ****** ****** ****** 100,000 1,920 1,920
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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>
1 788 100,499 499 0 * 100,526 526 0 *
2 1,614 101,023 1,023 492 101,078 1,078 547
3 2,483 101,572 1,572 1,089 101,658 1,658 1,175
4 3,394 102,135 2,135 1,700 102,254 2,254 1,819
5 4,351 102,726 2,726 2,339 102,880 2,880 2,493
6 5,357 103,333 3,333 3,023 103,538 3,538 3,228
7 6,412 103,957 3,957 3,725 104,216 4,216 3,984
8 7,520 104,599 4,599 4,444 104,916 4,916 4,761
9 8,683 105,260 5,260 5,183 105,638 5,638 5,561
10 9,905 105,941 5,941 5,941 106,384 6,384 6,384
11 11,188 106,692 6,692 6,692 107,205 7,205 7,205
12 12,535 107,455 7,455 7,455 108,055 8,055 8,055
13 13,949 108,242 8,242 8,242 108,934 8,934 8,934
14 15,434 109,043 9,043 9,043 109,846 9,846 9,846
15 16,993 109,859 9,859 9,859 110,790 10,790 10,790
16 18,630 110,690 10,690 10,690 111,758 11,758 11,758
17 20,349 111,524 11,524 11,524 112,749 12,749 12,749
18 22,154 112,374 12,374 12,374 113,765 13,765 13,765
19 24,050 113,229 13,229 13,229 114,808 14,808 14,808
20 26,039 114,088 14,088 14,088 115,866 15,866 15,866
Age
60 52,321 121,390 21,390 21,390 126,487 26,487 26,487
65 71,127 121,794 21,794 21,794 130,513 30,513 30,513
70 95,130 116,215 16,215 16,215 131,762 31,762 31,762
75 125,764 ****** ****** ****** 126,904 26,904 26,904
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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 1,575 101,038 1,038 183 101,114 1,114 259
2 3,229 102,089 2,089 1,294 102,260 2,260 1,465
3 4,965 103,167 3,167 2,432 103,438 3,438 2,703
4 6,788 104,261 4,261 3,586 104,651 4,651 3,976
5 8,703 105,370 5,370 4,755 105,887 5,887 5,272
6 10,713 106,497 6,497 6,005 107,149 7,149 6,657
7 12,824 107,629 7,629 7,260 108,436 8,436 8,067
8 15,040 108,755 8,755 8,509 109,752 9,752 9,506
9 17,367 109,875 9,875 9,752 111,072 11,072 10,949
10 19,810 110,975 10,975 10,975 112,396 12,396 12,396
11 22,376 112,117 12,117 12,117 113,775 13,775 13,775
12 25,069 113,228 13,228 13,228 115,149 15,149 15,149
13 27,898 114,307 14,307 14,307 116,519 16,519 16,519
14 30,868 115,329 15,329 15,329 117,871 17,871 17,871
15 33,986 116,289 16,289 16,289 119,205 19,205 19,205
16 37,261 117,174 17,174 17,174 120,520 20,520 20,520
17 40,699 117,955 17,955 17,955 121,802 21,802 21,802
18 44,309 118,614 18,614 18,614 123,039 23,039 23,039
19 48,099 119,122 19,122 19,122 124,226 24,226 24,226
20 52,079 119,446 19,446 19,446 125,351 25,351 25,351
Age
60 33,986 116,289 16,289 16,289 119,205 19,205 19,205
65 52,079 119,446 19,446 19,446 125,351 25,351 25,351
70 75,170 117,354 17,354 17,354 129,307 29,307 29,307
75 104,641 104,618 4,618 4,618 127,904 27,904 27,904
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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>
1 788 100,000 500 0 * 100,000 527 0 *
2 1,614 100,000 1,025 494 100,000 1,080 549
3 2,483 100,000 1,577 1,094 100,000 1,662 1,179
4 3,394 100,000 2,144 1,709 100,000 2,262 1,827
5 4,351 100,000 2,739 2,352 100,000 2,892 2,505
6 5,357 100,000 3,353 3,043 100,000 3,555 3,246
7 6,412 100,000 3,985 3,753 100,000 4,240 4,008
8 7,520 100,000 4,638 4,483 100,000 4,949 4,795
9 8,683 100,000 5,312 5,235 100,000 5,683 5,606
10 9,905 100,000 6,009 6,009 100,000 6,444 6,444
11 11,188 100,000 6,779 6,779 100,000 7,281 7,281
12 12,535 100,000 7,565 7,565 100,000 8,152 8,152
13 13,949 100,000 8,381 8,381 100,000 9,056 9,056
14 15,434 100,000 9,216 9,216 100,000 9,996 9,996
15 16,993 100,000 10,071 10,071 100,000 10,975 10,975
16 18,630 100,000 10,950 10,950 100,000 11,984 11,984
17 20,349 100,000 11,841 11,841 100,000 13,024 13,024
18 22,154 100,000 12,758 12,758 100,000 14,099 14,099
19 24,050 100,000 13,691 13,691 100,000 15,209 15,209
20 26,039 100,000 14,642 14,642 100,000 16,349 16,349
Age
60 52,321 100,000 24,291 24,291 100,000 29,183 29,183
65 71,127 100,000 27,915 27,915 100,000 36,327 36,327
70 95,130 100,000 28,384 28,384 100,000 43,655 43,655
75 125,764 100,000 21,084 21,084 100,000 50,426 50,426
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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 1,118 263
2 3,229 100,000 2,102 1,307 100,000 2,271 1,476
3 4,965 100,000 3,195 2,460 100,000 3,461 2,726
4 6,788 100,000 4,309 3,634 100,000 4,691 4,016
5 8,703 100,000 5,448 4,833 100,000 5,952 5,337
6 10,713 100,000 6,613 6,121 100,000 7,248 6,756
7 12,824 100,000 7,796 7,427 100,000 8,580 8,211
8 15,040 100,000 8,987 8,741 100,000 9,951 9,705
9 17,367 100,000 10,188 10,065 100,000 11,344 11,221
10 19,810 100,000 11,391 11,391 100,000 12,760 12,760
11 22,376 100,000 12,659 12,659 100,000 14,255 14,255
12 25,069 100,000 13,926 13,926 100,000 15,773 15,773
13 27,898 100,000 15,192 15,192 100,000 17,317 17,317
14 30,868 100,000 16,441 16,441 100,000 18,882 18,882
15 33,986 100,000 17,674 17,674 100,000 20,472 20,472
16 37,261 100,000 18,882 18,882 100,000 22,090 22,090
17 40,699 100,000 20,048 20,048 100,000 23,732 23,732
18 44,309 100,000 21,162 21,162 100,000 25,394 25,394
19 48,099 100,000 22,206 22,206 100,000 27,080 27,080
20 52,079 100,000 23,159 23,159 100,000 28,786 28,786
Age
60 33,986 100,000 17,674 17,674 100,000 20,472 20,472
65 52,079 100,000 23,159 23,159 100,000 28,786 28,786
70 75,170 100,000 25,980 25,980 100,000 37,445 37,445
75 104,641 100,000 22,051 22,051 100,000 45,744 45,744
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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>
1 788 100,534 534 0 * 100,562 562 0 *
2 1,614 101,127 1,127 596 101,185 1,185 654
3 2,483 101,783 1,783 1,300 101,877 1,877 1,394
4 3,394 102,498 2,498 2,063 102,632 2,632 2,197
5 4,351 103,291 3,291 2,904 103,471 3,471 3,084
6 5,357 104,157 4,157 3,848 104,402 4,402 4,092
7 6,412 105,105 5,105 4,873 105,422 5,422 5,190
8 7,520 106,143 6,143 5,988 106,543 6,543 6,388
9 8,683 107,280 7,280 7,203 107,773 7,773 7,696
10 9,905 108,529 8,529 8,529 109,127 9,127 9,127
11 11,188 109,951 9,951 9,951 110,667 10,667 10,667
12 12,535 111,502 11,502 11,502 112,365 12,365 12,365
13 13,949 113,209 13,209 13,209 114,236 14,236 14,236
14 15,434 115,075 15,075 15,075 116,301 16,301 16,301
15 16,993 117,119 17,119 17,119 118,580 18,580 18,580
16 18,630 119,360 19,360 19,360 121,085 21,085 21,085
17 20,349 121,805 21,805 21,805 123,839 23,839 23,839
18 22,154 124,491 24,491 24,491 126,872 26,872 26,872
19 24,050 127,431 27,431 27,431 130,213 30,213 30,213
20 26,039 130,651 30,651 30,651 133,884 33,884 33,884
Age
60 52,321 185,102 85,102 85,102 197,934 97,934 97,934
65 71,127 236,545 136,545 136,545 261,432 161,432 161,432
70 95,130 315,708 215,708 215,708 364,019 264,019 264,019
75 125,764 436,838 336,838 336,838 529,633 429,633 429,633
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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 1,109 254 101,188 1,188 333
2 3,229 102,301 2,301 1,506 102,481 2,481 1,686
3 4,965 103,596 3,596 2,861 103,892 3,892 3,157
4 6,788 104,995 4,995 4,320 105,432 5,432 4,757
5 8,703 106,507 6,507 5,892 107,104 7,104 6,489
6 10,713 108,145 8,145 7,653 108,921 8,921 8,429
7 12,824 109,911 9,911 9,542 110,901 10,901 10,532
8 15,040 111,805 11,805 11,559 113,061 13,061 12,815
9 17,367 113,841 13,841 13,718 115,395 15,395 15,272
10 19,810 116,023 16,023 16,023 117,922 17,922 17,922
11 22,376 118,429 18,429 18,429 120,716 20,716 20,716
12 25,069 121,007 21,007 21,007 123,740 23,740 23,740
13 27,898 123,778 23,778 23,778 127,022 27,022 27,022
14 30,868 126,735 26,735 26,735 130,577 30,577 30,577
15 33,986 129,899 29,899 29,899 134,434 34,434 34,434
16 37,261 133,281 33,281 33,281 138,627 38,627 38,627
17 40,699 136,879 36,879 36,879 143,181 43,181 43,181
18 44,309 140,703 40,703 40,703 148,122 48,122 48,122
19 48,099 144,753 44,753 44,753 153,493 53,493 53,493
20 52,079 149,028 49,028 49,028 159,329 59,329 59,329
Age
60 33,986 129,899 29,899 29,899 134,434 34,434 34,434
65 52,079 149,028 49,028 49,028 159,329 59,329 59,329
70 75,170 174,054 74,054 74,054 196,829 96,829 96,829
75 104,641 204,440 104,440 104,440 252,656 152,656 152,656
</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.
<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]
Assuming Guaranteed Costs (1)(2) Assuming Current Costs (1)(2)
------------------------------------------ -------------------------------------------
Premiums
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>
1 788 100,000 535 0 * 100,000 562 0 *
2 1,614 100,000 1,129 598 100,000 1,187 656
3 2,483 100,000 1,789 1,306 100,000 1,882 1,399
4 3,394 100,000 2,509 2,074 100,000 2,642 2,207
5 4,351 100,000 3,308 2,921 100,000 3,486 3,099
6 5,357 100,000 4,184 3,874 100,000 4,424 4,115
7 6,412 100,000 5,143 4,911 100,000 5,456 5,223
8 7,520 100,000 6,197 6,043 100,000 6,590 6,435
9 8,683 100,000 7,356 7,279 100,000 7,839 7,762
10 9,905 100,000 8,632 8,632 100,000 9,217 9,217
11 11,188 100,000 10,088 10,088 100,000 10,788 10,788
12 12,535 100,000 11,684 11,684 100,000 12,524 12,524
13 13,949 100,000 13,446 13,446 100,000 14,444 14,444
14 15,434 100,000 15,383 15,383 100,000 16,570 16,570
15 16,993 100,000 17,516 17,516 100,000 18,924 18,924
16 18,630 100,000 19,866 19,866 100,000 21,524 21,524
17 20,349 100,000 22,451 22,451 100,000 24,397 24,397
18 22,154 100,000 25,308 25,308 100,000 27,578 27,578
19 24,050 100,000 28,459 28,459 100,000 31,101 31,101
20 26,039 100,000 31,941 31,941 100,000 35,000 35,000
Age
60 52,321 128,361 95,792 95,792 143,507 107,094 107,094
65 71,127 197,039 161,508 161,508 222,139 182,081 182,081
70 95,130 311,248 268,317 268,317 354,982 306,019 306,019
75 125,764 473,930 442,925 442,925 547,539 511,719 511,719
</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.
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>
<CAPTION>
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
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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>
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
[This page intentionally left blank.]
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>
<CAPTION>
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
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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>
<TABLE>
<CAPTION>
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
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
Insert 1615 LB Series Fund Here.
ARBITRATION AGREEMENT
Applications for variable life insurance and variable annuity contracts
issued by Lutheran Brotherhood are subject to an Arbitration Agreement
between Contract Owners and Lutheran Brotherhood and Lutheran
Brotherhood Securities Corp. to submit disputes to arbitration. That
agreement reads as follows:
I agree to arbitrate any disputes between Lutheran Brotherhood, Lutheran
Brotherhood Securities Corp. and me. I specifically agree and recognize
that all controversies which may arise between Lutheran Brotherhood,
Lutheran Brotherhood Securities Corp., its agents, representatives or
employees and me, concerning any transaction, account or the
interpretation, performance or breach of this agreement between Lutheran
Brotherhood, Lutheran Brotherhood Securities Corp. and me will be
determined by arbitration to the full extent provided by law. Such
arbitration will be in accordance with the rules then in effect of the
National Association of Securities Dealers, Inc.
I further understand and agree that:
1. Arbitration is final and binding on all parties.
2. I am waiving my right to seek remedies in court, including the right
to a jury trial.
3. Pre-arbitration discovery is generally more limited than and
different from court proceedings.
4. The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or seek modification of
rulings by the arbitrators is strictly limited.
5. The panel of arbitrators will typically include a minority of
arbitrators who are affiliated with the securities industry.
(This page is not a part of the prospectuses.)
Diversifying Your Insurance Portfolio Through
Variable Universal Life
Investments in different asset categories react differently to changes
in the economy. The same economic condition that causes one asset to
become more valuable may cause another to become less valuable. By
diversifying your investment dollars among several categories--fixed
income, equities and cash equivalents--you can reduce your overall risk.
In addition, investing for the long term allows your assets to weather
multiple market cycles, allowing more time for capital appreciation.
This reduces the risk of selling the assets for less than your original
investment.
Shown below are samples of three diversified portfolios. Each is
structured with a different objective in mind. As the investor, it is
important for you to determine your primary goals and objectives, and
structure your portfolio accordingly.
Pie chart goes here
Income 55%
High Yield 5%
Growth 25%
Money Market 15%
CONSERVATIVE PORTFOLIO
This portfolio has income and preservation of capital as its primary
objectives. The allocation to money market instruments would provide
stability, while income-oriented investments such as high- quality bonds
would provide income. This portfolio should also include growth-oriented
and high-yield (junk) bond investments in order to maintain a hedge
against inflation.
Pie chart goes here
Growth 50%
Money Market 10%
Income 30%
High Yield 10%
MODERATE PORTFOLIO
The moderate investment port-
folio provides a balance of growth and income- oriented investments.
This portfolio would experience more volatility than the conservative
portfolio due to its higher concentration in growth- oriented and
high-yield (junk) bond investments. However, it also provides the
investor with greater potential earnings and growth.
Pie chart goes here
Growth 70%
Money Market 5%
Income 10%
High Yield 15%
AGGRESSIVE PORTFOLIO
This portfolio has long- term growth as its primary objective. With the
majority of assets invested in growth- oriented investments and
high-yield (junk) bonds, the aggressive investment portfolio would
experience the most volatility of our three examples. However, by
including both money market instruments and fixed income investments, it
has an element of stability that a portfolio invested solely in
growth-oriented investments would not have. Over the long term, this
portfolio offers the greatest potential return.
This page does not constitute part of the prospectuses.
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Lutheran
Brotherhood
No person has been given the authority to give any information or to
make any representations other than those contained in these
Prospectuses. If given or made, such information or representations must
not be relied upon as having been authorized. These Prospectuses do not
constitute an offer to any person in a state where it is unlawful to
make such as offer.
Distributed by Lutheran Brotherhood Securities Corp.
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