As Filed with the Securities and Exchange Commission on April 22, 1999
Registration No. 333-31011 811-0829
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 3
AAL VARIABLE LIFE ACCOUNT I
(Exact name of trust)
AID ASSOCIATION FOR LUTHERANS
(Name of depositor)
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Name and complete address of agent for service of process:
WOODROW E. ENO, ESQ.
SECRETARY AND GENERAL COUNSEL
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, WI 54919-0001
(Name and Address of Agent for Service of Process)
Copy to:
Cheryl A. Johnson, ESQ.
QUARLES AND BRADY
411 E. Wisconsin Ave
Milwaukee, WI 53202-5325
(414) 277-5000
It is proposed that this filing will become effective:
___ on (date) pursuant to paragraph (a) of Rule 485
___ 60 days after filing pursuant to paragraph (a) of Rule 485
X on April 22, 1999 pursuant to paragraph (b) of Rule 485
___ upon filing pursuant to paragraph (b) of Rule 485 this
___ post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title and amount of securities being registered: Interests under variable life
insurance policies. Approximate Date of Proposed Public Offering: As soon as
practical after the effective date. Pursuant to Rule 24f-2 of the Investment
Company Act of 1940, the Registrant elects to register an indefinite number or
amount of its securities under the Securities Act of 1933
AAL VARIABLE LIFE ACCOUNT I
Prospectus
May 1, 1999
for the Flexible Premium Variable Life Insurance Certificates
AAL Variable Universal Life
Aid Association for Lutherans (AAL) is offering the flexible premium variable
life insurance certificate (the certificate) described in this prospectus to
persons who are eligible for membership in AAL. Membership is open to Lutherans
and their families. AAL offers life, disability income insurance and annuities
to its members and to employees of AAL, its subsidiaries and affiliated
companies who reside in Wisconsin. Mutual funds are offered through a
subsidiary, AAL Capital Management Corporation. All members are part of one of
over 10,000 local AAL branches throughout the United States.
The certificate provides life insurance benefits. You may choose from two Death
Benefit Options. Under the Level Death Benefit Option the Death Benefit is
usually the Specified Amount. Under the Variable Death Benefit Option the Death
Benefit is usually equal to the Specified Amount plus the certificate's Cash
Value, which can vary. You can also choose the timing and amounts of your
premium payments and allocate your Cash Value among the underlying Subaccounts.
You may use your Cash Value to keep your certificate in force, or borrow a
portion of it.
You can also surrender your certificate and receive the Cash Value less any
surrender charges and loans. Your certificate's Cash Value will vary with the
investment experience of the underlying funding options you choose. Although
certificate values will vary, the certificate can be guaranteed to stay in force
through the Death Benefit Guarantee Provision. It may not be to your advantage
to replace existing life insurance or supplement existing variable life
insurance with this certificate.
This prospectus contains information about the Variable Account and the
certificate that you should know before you invest. A prospectus for the AAL
Variable Product Series Fund, Inc. accompanies this prospectus. Please read both
prospectuses carefully and keep them for future reference. You should rely only
on the information contained in this document. AAL has not authorized anyone to
provide you with information that is different.
You can contact AAL by writing to 4321 North Ballard Road, Appleton, Wisconsin,
54919-0001, by calling 800-225-5225 or 734-5721 locally, or by sending an e-mail
to [email protected]. The Telecommunications Device for the Deaf (TDD) number is
800-735-9644.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAVE APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The purpose of this variable life insurance certificate is to provide life
insurance protection for the Beneficiary named therein.
No claim is made that this variable life insurance certificate is in any way
similar to or comparable to a systematic investment plan of a mutual fund.
TABLE OF CONTENTS
DEFINITIONS
CERTIFICATE SUMMARY
INTRODUCTION
WHAT IS AAL?
WHAT IS THE PURPOSE OF THE CERTIFICATE?
WHAT LIFE INSURANCE PROTECTION IS PROVIDED?
WHAT PREMIUMS MAY I PAY?
WHAT INVESTMENT OPTIONS DO I HAVE?
WHAT IS THE CASH VALUE OF THE CERTIFICATE?
WHAT CHARGES DO I PAY?
HOW CAN I TAKE CASH OUT OF MY CERTIFICATE?
HOW CAN MY CERTIFICATE TERMINATE?
BENEFITS
DEATH BENEFIT
INCREASING YOUR SPECIFIED AMOUNT
DECREASING YOUR SPECIFIED AMOUNT
CHANGING YOUR DEATH BENEFIT OPTION
DEATH BENEFIT GUARANTEE
MATURITY BENEFIT
ADDITIONAL BENEFITS
PREMIUMS
DEATH BENEFIT GUARANTEE PREMIUM
FLEXIBILITY
LIMITS
NET PREMIUM & PREMIUM ALLOCATION
INVESTMENT OPTIONS
FIXED ACCOUNT
VARIABLE ACCOUNT
INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS
TRANSFERS
REVIEW OF INVESTMENT STRATEGY
VOTING PRIVILEGES
CASH VALUE
FIXED ACCOUNT CASH VALUE
VARIABLE ACCOUNT CASH VALUE
WHAT AFFECTS CASH VALUE
SURRENDER VALUE
CHARGES
PERCENT OF PREMIUM CHARGE
CASH VALUE CHARGES
SURRENDER CHARGE
TRANSFER CHARGE
ACCESS TO CASH VALUE
PARTIAL WITHDRAWALS
LOANS
SURRENDER
CERTIFICATE TERMINATION
EARLY TERMINATION AND REINSTATEMENT
DEATH, MATURITY, AND SURRENDER
PAYOUT OPTIONS
SELECTION
OPTION 1: INTEREST
OPTION 2: A SELECTED AMOUNT OF INCOME
OPTION 3: A SET PERIOD
OPTION 4: LIFE PAYMENT
OPTION 5: JOINT & SURVIVOR
HOW TO MAKE PAYMENTS AND RECEIVE SERVICE
APPLYING FOR A CERTIFICATE
TIMELY PROCESSING
WRITTEN REQUESTS
TELEPHONE TRANSACTIONS
DEATH CLAIMS
GENERAL INFORMATION
FREE LOOK
ENTIRE CONTRACT
STATEMENTS IN THE APPLICATION
CHANGE OF CERTIFICATE
INCONTESTABILITY
MISSTATEMENT OF AGE OR SEX
MAINTENANCE OF SOLVENCY
BASIS OF COMPUTATIONS
REPORTS TO OWNERS
MEMBERSHIP
OWNERSHIP
BENEFICIARY
COLLATERAL ASSIGNMENT
RIGHTS RESERVED BY AAL
DIRECTORS AND OFFICERS
FEDERAL TAX MATTERS
VARIABLE ACCOUNT TAX STATUS
LIFE INSURANCE QUALIFICATION
PRE-DEATH DISTRIBUTIONS
DIVERSIFICATION REQUIREMENTS
OTHER CONSIDERATIONS
LITIGATION
DISTRIBUTION
ILLUSTRATIONS
LEGAL AND ACTUARIAL MATTERS
EXPERTS
FINANCIAL STATEMENTS
AAL CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AAL VARIABLE LIFE ACCOUNT I AUTDITED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
NOTES TO AAL VARIABLE LIFE ACCOUNT I
FINANCIAL STATMENTS
DEFINITIONS
AAL: Aid Association for Lutherans, a fraternal benefit society organized under
the laws of the State of Wisconsin, owned by and operated for its members. It is
the issuer of the certificates.
AALCMC: AAL Capital Management Corporation, an indirect subsidiary of Aid
Association for Lutherans and a registered broker-dealer. It serves as principal
underwriter of the certificates.
AAL Representative: An AAL District Representative who is appropriately licensed
by state insurance department officials to sell the certificates, and is also a
licensed Registered Representative of AALCMC.
Accumulation Unit: A unit of measure used to calculate the Cash Value in each
Subaccount of the Variable Account. A further description is contained in the
Section "Cash Value," specifically the subsection "Variable Account," of this
prospectus.
Accumulation Unit Value: On any Valuation Date, the value of the Accumulation
Unit of each Subaccount of the Variable Account. A further description is
contained in the Section "Cash Value," specifically the subsection "Variable
Account," of this prospectus.
Age: The Issue Age of the Insured plus the number of certificate Years elapsed.
Beneficiary: The person(s) named by the certificate Owner to receive the death
proceeds under the certificate. A Beneficiary need not be a natural person.
Cash Value: The total value of the certificate. Cash Value equals the sum of the
Subaccount cash values plus Fixed Account cash value.
Certificate: The flexible premium variable life insurance certificate offered by
AAL and described in this prospectus.
Certificate Anniversary: The same date in each succeeding year as the
certificate Issue Date.
Certificate Year: The 12-month period following the Issue Date or a certificate
Anniversary. The certificate Year is always based upon the time elapsed since
the Issue Date.
Death Benefit: The amount paid upon the death of the Insured.
Death Benefit Option: Either of the two methods used to determine the Death
Benefit.
Death Benefit Guarantee: A certificate provision that guarantees insurance
coverage if you meet certain conditions.
Death Benefit Guarantee Premium: The minimum monthly premium required to keep
your particular certificate's Death Benefit Guarantee in effect. Different
combinations of age, sex, risk class, specified amount and additional benefits
will result in different Death Benefit Guarantee Premiums. Your Death Benefit
Guarantee Premium is listed on page 3A of your certificate and it is further
described in the Section "Premiums" of this prospectus.
Fixed Account: A Cash Value accumulation option that credits an interest rate.
The Fixed Account is part of AAL's general account, which includes all of AAL's
assets other than those in any AAL separate account.
Fund: AAL Variable Product Series Fund, Inc., which is described in the Fund
prospectus accompanying this prospectus.
Home Office: AAL's office at 4321 North Ballard Road, Appleton, Wisconsin
54919-0001, or such other place as AAL shall specify in a notice to the
certificate Owner.
Insured: The person on whose life the certificate is issued.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended.
Issue Age: The age of the Insured as of his or her last birthday on or before
the issue date.
Issue Date: The date insurance coverage begins under this certificate.
Monthly Deduction Date: The date each month on which charges are taken from Cash
Value. It occurs each month on the nearest Valuation Date, on or preceding the
day of the month which corresponds to the day of the month on which the
certificate was issued. A further description is contained in the "Charges"
Section of this prospectus.
Net Asset Value: The unit of valuation for a Fund portfolio as computed and
described in such Fund's prospectus.
Owner: The person or entity who owns the certificate. The person may be the
Insured or an employer, a trust or any other individual or entity specified in
the application.
Specified Amount: Initially, the amount of life insurance for which the
certificate was issued. The Specified Amount of your certificate may change, as
described in your certificate. This is further described in the "Benefits"
Section of this prospectus.
Subaccount: A subdivision of the Variable Account. Each Subaccount invests
exclusively in the shares of a corresponding portfolio of the Fund. This is
further described in the "Investment Options" Section, specifically in the
"Variable Account" subsection.
Surrender Value: Cash Value less any applicable surrender charges and
outstanding loan balances.
Valuation Date: Any day upon which both the New York Stock Exchange is open for
regular trading and AAL is open for business. The Exchange is regularly closed
on Saturdays and Sundays and on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. If one of these holidays falls on a Saturday or
Sunday, the Exchange will be closed on the preceding Friday or the following
Monday. AAL will also be closed on the Friday after Thanksgiving and the day
before Christmas and the Monday after Christmas. When the markets are trading on
days when the portfolios are notpriced, a Subaccount's value may change on a day
when certificate Owners may not be able to access their certificate's Cash
Value.
Valuation Period: The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
Variable Account: The AAL Variable Life Account I. It is a separate account of
AAL.
Written Request: A written request or notice signed by the certificate Owner,
received in good order by AAL at its Home Office.
You, Your: The Owner of the certificate.
CERTIFICATE SUMMARY
INTRODUCTION
As you read this prospectus, keep in mind that you are considering the purchase
of a life insurance contract. Because a substantial part of your premium pays
for life insurance, you should not buy this certificate unless a primary reason
for your purchase is to provide life insurance protection. Since it is cash
value life insurance with investment aspects, the certificate can also serve a
second purpose. In addition to providing life insurance coverage, cash may also
be available for use during your lifetime. Because it is variable universal life
insurance, it has significant investment aspects that require you to make
investment decisions and take investment risk. No claim is made that the
certificate is in any way similar or comparable to a systematic investment plan
of a mutual fund. This section provides only an overview of the more significant
provisions of the certificate. It omits details that are provided in the rest of
this prospectus. The Table of Contents will help you locate more details or
other specific topics.
WHAT IS AAL?
AAL (Aid Association for Lutherans) was organized on November 24, 1902. It is a
fraternal benefit society under Internal Revenue Code section 501(c)(8) and
incorporated under the laws of the state of Wisconsin. As of December 31, 1998,
AAL had approximately 1.7 million members and is the world's largest fraternal
benefit society in terms of assets (over $20 billion) and life insurance in
force ($85 billion), ranking it in the top two percent of all life insurers in
the United States in terms of ordinary life insurance in force.
WHAT IS THE PURPOSE OF THE CERTIFICATE?
This certificate provides life insurance protection on the Insured as long as
the certificate is in effect. It also may provide cash available for use during
your lifetime.
Like traditional life insurance, the certificate has a Death Benefit,
accumulates a Cash Value and offers loan and surrender privileges. Unlike
traditional life insurance, the certificate offers flexible premiums and a
choice of investment alternatives, including the opportunity to participate in
the risks and returns of equities.
Your choice of premiums, investment options, and your use of withdrawal and loan
privileges will be key factors in the certificate's performance. The choices you
make directly impact how long the certificate remains in effect and the amount
of cash available for use.
WHAT LIFE INSURANCE PROTECTION IS PROVIDED?
You choose one of two Death Benefit Options. Under the Level Death Benefit
option the Death Benefit is usually the Specified Amount. Under the Variable
Death Benefit option the Death Benefit is usually equal to the Specified Amount
plus the certificate's Cash Value which can vary according to gains or losses as
a result of the investment options selected.
If your Cash Value builds to a large total compared to your Specified Amount,
your Death Benefit will be increased as necessary to comply with federal tax
law. This is required to maintain your certificate's tax status as life
insurance.
Your certificate is guaranteed to stay in effect as long as the Death Benefit
Guarantee is in effect. This guarantee is available until age 65 or your 10th
certificate anniversary, if later, provided you pay certain minimum premium
amounts.
You may change Death Benefit Options, and increase or decrease your Death
Benefit by changing your Specified Amount, as provided for in your certificate.
Additional benefits are also available. They include Accidental Death Benefit,
Disability Waiver, Guaranteed Purchase Option, and Applicant Waiver. See your
certificate for details.
WHAT PREMIUMS MAY I PAY?
You choose when and how much premium to pay, within certain restrictions. To
keep your certificate in effect during the first four (4) years, you should pay
at least the Death Benefit Guarantee Premiums. Your certificate will likely
lapse if you fail to pay at least these premiums.
If you want to make regular payments, AAL will send you billing statements in an
amount you select. You can choose monthly, quarterly, semi-annual or annual
payments.
To keep your Death Benefit Guarantee, your total premiums paid less partial
withdrawals must equal or exceed the total Death Benefit Guarantee Premiums plus
any outstanding loan balance. AAL recommends you pay at least the Death Benefit
Guarantee Premiums to adequately fund your certificate. Paying these premiums
guarantees that your certificate will not lapse until age 65, or for 10 years
from issuance if longer.
The amount of premiums paid may effect the tax status of your certificate. The
Internal Revenue Code's definition of life insurance limits the amount of
premium you may pay.
WHAT INVESTMENT OPTIONS DO I HAVE?
You choose where to allocate your premiums among the Variable Accounts (called
Subaccounts) and the Fixed Account.
Premiums you allocate to the Fixed Account are credited to your Fixed Account's
Cash Value. Cash Value in the Fixed Account accumulates at a fixed rate of
interest as declared by AAL. This rate is guaranteed never to be lower than 4%.
The Fixed Account is a part of AAL's general account. The general account
includes all of AAL's assets other than those in our separate accounts
(including the Variable Account(s)).
Each Subaccount invests in a portfolio of a mutual fund. The current portfolios
are Money Market, Bond, Balanced, Large Company Stock, Small Company Stock,
International Stock, and HighYield Bond. Each portfolio has a different
investment strategy. Premiums allocated to a Subaccount will increase that
Subaccount's Cash Value. Each Subaccount's Cash Value will accumulate based on
the investment experience of that Subaccount's portfolio.
You may transfer the Cash Value among the Subaccounts and Fixed Account, as
specified in the certificate. This allows you to adjust your investment strategy
at any time.
WHAT IS THE CASH VALUE OF THE CERTIFICATE?
The total Cash Value at any time is equal to the sum of the Cash Values in the
Subaccounts and the Fixed Account.
Premiums increase Cash Value. Charges and cash you withdraw from the certificate
decrease Cash Value. The investment experience of the Subaccount(s) you select
also affects your certificate's Cash Value as does the interest credited to the
Fixed Account. Investment gains, if any, increase Cash Value, while any
investment losses decrease Cash Value.
Your decisions on the premiums to pay, the accounts to invest in and the amounts
you withdraw from the certificate have a great impact on your certificate's Cash
Value.
Important Note: The primary purpose for paying enough premiums to build your
Cash Value is to cover increasing Cost of Insurance rates as you (the Insured)
get older. Unless you build your Cash Value over time, you will need to cover
increasing costs with higher premiums. Your Cash Value also depends upon the
investment experience of the Subaccount(s) in which your Cash Value is invested
and, if this experience is low or negative, you may also need to pay higher
premiums.
WHAT CHARGES DO I PAY?
Charges are necessary to pay for the insurance coverage provided, cover the
expenses of issuing and administering the certificate, and to fund AAL's
fraternal activities. Charges are:
Cost of Insurance Charge - A monthly charge for life insurance coverage. This
charge varies by risk class, sex, amount at risk and age.
Mortality and Expense Risk Charge - Monthly charges are deducted from the
Subaccounts of the Variable Account to pay for the mortality and expense risks
borne by AAL. Currently, during the first 15 years the monthly charge is .0625%
(approximately .75% annually) of the total Subaccount cash value. This charge
drops to .02083% (approximately .25% annually) of the total Subaccount Cash
Value in certificate Year 16.
Administrative Charge - A monthly charge of $4 is deducted to cover
administrative costs.
Change Fee - A $25 charge will be assessed if you choose to make changes to your
certificate. Such certificate changes include a reduction of insurance charges
that are in excess of standard due to insurance underwriting requirements, a
change from smoker to non-smoker risk class, a change in death benefit options
and changes to the additional benefits under the certificate.
Issue Expense Charge - A monthly charge to cover issue costs is deducted for the
first 36 months. This charge will vary by age, risk class, sex and Specified
Amount.
Percent of Premium Charge - A charge of 3 % of each premium is taken to cover
sales and other expenses and provide support for AAL's fraternal activities.
Additional Benefits Charge - A charge will be taken each month for any
additional benefits you have.
Partial Withdrawal Charge - A $25 charge per withdrawal is made after the first
withdrawal during any certificate Year. This charge is assessed by the
redemption of Accumulation Units and/or reduction in the Fixed Account balance.
Surrender Charge - If you choose to surrender your certificate or reduce your
Specified Amount, AAL will reduce your Cash Value by the Surrender Charge. The
initial surrender charge is level for the first three years and, thereafter, it
declines by 1/8th of the initial amount annually so that, beginning in the 11th
year after the Issue Date (assuming no increases in
Specified Amount) the surrender charge will be zero. A new Surrender Charge
schedule begins for the increase in Specified Amount each time you increase your
Specified Amount. Your initial Surrender Charge is based on an amount per
thousand of Specified Amount for which the certificate is issued. The amount per
thousand varies by sex, risk class and Issue Age. Your actual Surrender Charges
are listed on page 3A.1 of your certificate. If you decrease the Specified
Amount while the Surrender Charge applies, a portion of the Surrender Charge
will be assessed. For further details regarding Surrender Charges, see page 13.
Portfolio Expenses - The expenses for each of the portfolios are limited to the
respective advisory fees.Currently the fees are 0.35% of the average annual
daily net assets of the AAL Variable Product Money Market, Bond, Balanced, Large
Company Stock and Small Company Stock Portfolios up to $250,000,000 of assets,
and 0.30% of the annual daily net assets in excess of that amount; 0.80 % of the
average annual daily net assets of the International Stock Portfolio and 0.40%
of the average annual daily net assets of the High Yield Bond Portfolio. Without
this limitation on expenses through reimbursement by the adviser, which can be
changed or stopped with 30-days' notice, the expenses for the year ended 1998
would have been: Money Market Portfolio - 0.44%, Bond Portfolio - 0.52%, High
Yield Bond Portfolio - 0.54%, Balanced Portfolio - 0.39%, Large Company Stock
Portfolio - 0.38%, International Portfolio - 1.30% and Small Company Stock
Portfolio - 0.43%.
Transfer Charge - AAL will charge $25 for each transfer between Subaccounts
and/or the Fixed Account in excess of 12 in each certificate Year.
HOW CAN I TAKE CASH OUT OF MY CERTIFICATE?
You can choose to take cash out of the certificate through a loan, partial
withdrawal, or full surrender.
You may take one partial withdrawal per certificate year at no charge. You will
be charged $25 for each additional withdrawal. A partial withdrawal will reduce
your Cash Value and may reduce your Specified Amount. It will also reduce the
amount of premiums considered "paid" to meet the Death Benefit Guarantee premium
requirement.
You may take up to 92% of your Cash Value out as a loan. You will be charged 8%
per annum on the loan balance until you reach your 15th certificate anniversary.
Thereafter the rate will drop to 7 1/4% per annum.
Cash Value securing a loan may earn a lower interest rate than other Cash Value
in the Fixed Account. AAL will determine the rates earned.
If you surrender your certificate, you will receive the Cash Value less any
surrender charge and outstanding loans.
Both partial withdrawals and loans will reduce the Cash Value available to pay
your insurance costs. You should carefully consider the impact on the insurance
your certificate will be able to provide, now and in the future, before
exercising these privileges.
These privileges can be a major advantage of this certificate. When you pay
enough premiums, the power of tax-deferred earnings, with favorable investment
experience, can build significant Cash Value. Under these circumstances, some
Cash Value will be available for your use, in addition to paying your insurance
costs.
HOW CAN MY CERTIFICATE TERMINATE?
Without the Death Benefit Guarantee, this certificate will terminate (lapse)
when there is not enough Cash Value to pay the monthly charges. If this happens,
you have a short period to pay enough premiums to keep the certificate in
effect. Your certificate will not terminate while the Death Benefit Guarantee is
in effect.
Your certificate will terminate when the Insured dies and the Death Benefit is
paid.
Your certificate will terminate if you surrender your certificate for its
surrender value (Cash Value less loans and surrender charges).
Your certificate will terminate if you reach age 100. At that time the Cash
Value less any loans, will be paid to you.
There may be tax consequences when money is received from a certificate. Please
consult with your tax advisor.
BENEFITS
DEATH BENEFIT
The Death Benefit is the amount payable upon the death of the Insured. At the
time of purchase, you must choose between two available Death Benefit Options.
The amount payable under either option will be determined as of the date of the
Insured's death. Loans plus unpaid interest always reduce the Death Benefit
paid.
Suicide Exclusion
If the Insured commits suicide within one year of the issue date, AAL will not
pay a Death Benefit but will return all premiums paid. The one-year period in
the Suicide Exclusion provision will apply at issue and to each increase in the
Specified Amount beginning on the effective date of each increase. The only
amount payable attributable to the increase will be a refund of the monthly
deductions for the increase.
Level Death Benefit - Option 1
The Death Benefit under this option is the greater of the Specified Amount, or
the death benefit factor multiplied by Cash Value. The death benefit factor is
2.5 through age 40 and decreases yearly to 1 at age 95. The death benefit factor
helps to qualify your certificate as life insurance under federal tax law. A
table of death benefit factors is contained in your certificate.
Option 1 generally provides a level Death Benefit. Choose Death Benefit Option 1
if: 1) you do not expect your insurance needs to generally increase; and 2) you
wish to minimize your insurance costs. All other things being equal, Option 1
will provide greater growth in Cash Value than Option 2.
Variable Death Benefit - Option 2
The Death Benefit will be the greater of the Specified Amount plus Cash Value or
the death benefit factor (described above) multiplied by Cash Value.
Option 2 provides a Death Benefit that varies over time. It increases and
decreases along with your Cash Value. Choose Death Benefit Option 2 if:
- you expect your insurance needs to increase; or
- you wish to have an increasing Death Benefit. Option 2 will provide a
greater Death Benefit than Option 1.
INCREASING YOUR SPECIFIED AMOUNT
You have the right to increase the Specified Amount at any time on or before the
certificate Anniversary following the Insured's 80th birthday if the Insured is
insurable for the increase under AAL's underwriting guidelines and policies.
An increase must be at least $10,000. Proof of insurability may be required and,
if you are not the Insured, proof of insurable interest may also be required.
When an increase is approved, it becomes effective as of the date shown on the
new page 3A that is sent to you.
The cost of insurance rates charged for each increase will vary based on factors
such as sex, risk class, age and the time elapsed since increase.
Each increase will be subject to AAL's expense charges in effect at the time of
increase. The expense charges for each increase will be based on the Insured's
sex and age on the last Certificate Anniversary at the time of increase and will
apply for the number of months shown on the new page 3A.1. A new set of
surrender charges will apply to each increase in the Specified Amount. These
charges will all be shown on the new page 3A.1.
DECREASING YOUR SPECIFIED AMOUNT
You have the right to decrease the Specified Amount after it has been in effect
for one year. The Specified Amount remaining in effect cannot be less than
$10,000.
The decrease will be effective as of the date the request is received at the
Home Office. The decrease will be subtracted first from any previous increases
in the Specified Amount, starting with the most recent, then from the original
Specified Amount.
A surrender charge will be subtracted from the Cash Value if a surrender charge
is in effect for that part of the Specified Amount decreased. The surrender
charges are shown on the Table of Surrender Charges in the certificate on page
3A.1.
CHANGING YOUR DEATH BENEFIT OPTION
You may change your Death Benefit Option at any time. A $25 charge will be
applied to your Cash Value for each Death Benefit Option change.
If you apply to change from the Level Death Benefit option to the Variable Death
Benefit option, AAL may require proof of insurability from you. Also, your
Specified Amount of insurance decreases so your Death Benefit immediately after
the change will be the same as immediately before the change. The change is not
allowed if it reduces your Specified Amount below $10,000.
If you change from the Variable Death Benefit option to the Level Death Benefit
option your Specified Amount increases. The increase is determined so your Death
Benefit immediately after the change will be the same as immediately before the
change.
DEATH BENEFIT GUARANTEE
The Death Benefit Guarantee, as long as it is in effect, assures that your
coverage will continue even if the Cash Value is insufficient to pay the current
monthly deductions. If the Death Benefit Guarantee terminates, to keep your
coverage in effect you will need to maintain sufficient cash value in your
certificate by paying adequate premiums. The amount of premiums required will
depend on the investment performance of the Fixed Account and/or Subaccount(s)
you have selected.
The Death Benefit Guarantee will terminate automatically at age 65 (or 10 years
after the issue date, whichever is later) or by failure to meet the test
described below. Basically, the test requires you to pay a minimum amount of
premiums, and the Insured to be under age 65 (or the certificate has been in
effect not more than 10 years).
AAL will test the Death Benefit Guarantee on each Monthly Deduction Date as
follows:
1) the sum of all premiums paid (less any partial withdrawals) must be greater
than or equal to the Death Benefit Guarantee Premium (see column to the right)
times the number of months since the certificate Issue Date, plus any
outstanding loan, and
2) the Insured's age is less than 65 or the certificate has been in effect no
more than 10 years.
If part 1) of the test is not met, AAL will notify the certificate Owner and
allow two months to pay enough premium or loan repayment to meet the
requirements of the test. If you do not pay the required premium or loan
repayment, the Death Benefit Guarantee will end, and can not be reinstated.
Changes in the Specified Amount and optional benefits on the certificate will
change the Death Benefit Guarantee Premium. The new Death Benefit Guarantee
Premium is required from the first Monthly Deduction Date following the change.
MATURITY BENEFIT
Upon the Insured attaining age 100, the certificate will provide a maturity
benefit equal to the Cash Value less any loans.
ADDITIONAL BENEFITS
Several additional benefits are available on most certificates. They include
Accidental Death Benefit, Disability Waiver, Guaranteed Purchase Option and
Applicant Waiver. See your certificate for details.
PREMIUMS
DEATH BENEFIT GUARANTEE PREMIUM
The Death Benefit Guarantee Premium is the minimum premium, on a monthly basis,
that is required to keep your Death Benefit Guarantee in effect. Your Death
Benefit Guarantee Premium is equal to:
1) a factor, based on age, sex, and risk class, multiplied by your
Specified Amount divided by 1,000; plus
2) the monthly administrative charge of $4; plus
3) a required premium for each additional benefit you choose.
Your particular Death Benefit Guarantee Premium is listed on page 3A of your
certificate.
You may choose to pay on a different basis than monthly or to pay lump sums. In
these cases, premiums paid in excess of the current month's Death Benefit
Guarantee Premium will be counted toward future Death Benefit Guarantee Premium
requirements.
FLEXIBILITY
You choose when and how much premium to pay, within certain restrictions. You
need to pay at least the Death Benefit Guarantee Premium for four years, without
taking any loans or partial withdrawals, to keep your certificate in effect.
Failure to pay this Premium will likely result in the lapse of your certificate.
After paying the Death Benefit Guarantee Premium for at least four years you may
be able to pay less and keep your certificate in effect. However, if you do pay
less, you will lose the Death Benefit Guarantee and you run a greater risk that
your Cash Value will not grow enough to keep your certificate in effect.
Planned periodic premiums are those you choose to pay on a regular basis. AAL
will send you billing statements of an amount you select. You can choose
quarterly, semi-annual or annual statements. Pre-authorized automatic monthly
check payments may also be arranged.
You may make payments in addition to planned periodic premiums. You also may
choose a new planned periodic premium. AAL recommends you pay at least the Death
Benefit Guarantee premiums to adequately fund your certificate.
LIMITS
AAL reserves the right to:
-Limit any increase in planned periodic premiums.
-Limit the number and amount of payments in addition to planned
periodic payments.
-Refuse any premium if the payment would increase the difference
between the Death Benefit and the Cash Value.
The Internal Revenue Code excludes from gross income life insurance death
benefits
and increases in cash value in life insurance contracts prior to receipt by the
owner. . To qualify for this exclusion, federal tax law limits the premiums
youmay pay and requires that cash value be limited to a certain percentage of
the death benefit. AAL will return the portion of any premium payment that
causes the limit on premiums to be exceeded.
In the event of a reduction in the Specified Amount, or other change to the
certificate which Causes the premiums paid or the Cash Value to exceed the
applicable limit stated in the Internal Revenue Code regarding the definition of
life insurance, AAL will refund any excess premiums or cash necessary to comply
with the limit stated in the Internal Revenue Code.
NET PREMIUM & PREMIUM ALLOCATION
Net premiums equal the premiums you pay less the 3% premium charge. You decide
how to allocate your net premiums among the available accounts. At purchase, you
select a percentage for each account that will be used to allocate each net
premium. The percentages must be whole numbers and total 100%. You may change
your allocation percentages at any time.
Your initial premium will be allocated to the accounts you choose (or to the
Money Market Account as discussed below) at the time the certificate is issued.
AAL will issue your certificate according to AAL's standard administrative
procedures and once all underwriting and other requirements are met.
certificates are issued only on a Valuation Date from the 1st through the 28th
of any month. AAL's standard administrative procedure is to issue new
certificates which meet underwriting and other requirements on the 29th through
the 31st of any month on the first Valuation Date in the following month..
Premiums paid after issue are allocated according to the premium allocation
percentages you have chosen. This allocation occurs at the end of the day if AAL
receives your premium payment before the close of the New York Stock Exchange
(NYSE), which is usually 3:00 P.M. Central Time, and that day is a Valuation
Date. If your payment is received on a non-Valuation Date or after the NYSE
closes, the allocation occurs as of the end of the next Valuation Date. See
definition of "Valuation Date" on page 3..
AAL has a plan that permits you to pay premiums on a regularly scheduled basis
by an automatic deduction from savings or checking accounts. Premium payments
under this plan will be allocated to the Subaccount(s) or Fixed Account on the
date you selected. However, when the date selected falls on a date that is not a
Valuation Date, such as a holiday or weekend, the premium will be allocated as
of the closest preceding Valuation Date.
In certain states, a refund of premium or the greater of premium or accumulated
values is required if you exercise your free look privilege. See "Free Look" in
the "General Information Section". In these cases, AAL reserves the right to
allocate premiums to the Money Market Subaccount until the expiration of the
free look period plus an additional 5 day period. After that time AAL will
allocate your accumulated premiums to the accounts based on your net premium
allocation percentages.
INVESTMENT OPTIONS
You choose where to allocate your net premiums among the Fixed Account and
Subaccounts of the Variable Account.
FIXED ACCOUNT
The Fixed Account is a Cash Value accumulation option that credits an interest
rate. The Fixed Account is part of AAL's general account, which includes all of
AAL's assets other than those in any AAL separate account.
Cash Values allocated to the Fixed Account are combined with all the general
assets of AAL and are invested in those assets chosen by AAL and allowed by
applicable law. Any premiums allocated to the Fixed Account will be subject to
all fees and expenses associated with the Variable Account, except for the
annual expenses of the Fund and the mortality and expense risk charge.
AAL will quarterly declare an effective annual interest rate for the Fixed
Account.
Interest is credited on each premium allocated or accumulated value transferred
to the Fixed Account from the date of the allocation or transfer. Interest is
credited daily.
Under the Fixed Account option, the guaranteed minimum interest credited to the
Fixed Account will be at the effective rate of 4% per year, compounded daily.
AAL may credit interest at a rate in excess of 4% per year; however, AAL is not
obligated to do so. There is no specific formula for the determination of excess
interest. Such excess interest, if any, will be determined by AAL based on
numerous factors. Some of the factors that AAL may consider in determining
whether to credit interest above 4% to amounts allocated to the Fixed Account,
and the amount thereof, include, but are not limited to, general economic
trends, rates of return currently available and anticipated on AAL's
investments, regulatory and tax requirements and competitive factors.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4%
PER YEAR WILL BE DETERMINED AT THE SOLE DISCRETION OF AAL. THE OWNER ASSUMES THE
RISK THAT INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE
MINIMUM GUARANTEE OF 4% FOR ANY GIVEN YEAR.
Because of exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 ("1933 Act"), and the
Fixed Account has not been registered as an investment company under the
Investment Company Act of 1940 ("1940 Act"). Accordingly, neither the Fixed
Account nor any interests therein are generally subject to the provisions of the
1933 or 1940 Acts. Disclosures regarding the Fixed Account option and the Fixed
Account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements in prospectuses.
A lower rate of interest may be credited to the portion of the Fixed Account
securing a loan.
VARIABLE ACCOUNT
The Variable Account is AAL Variable Life Account I. It is a separate account of
AAL established by the Board of Directors of AAL on May 8, 1997 pursuant to the
laws of the State of Wisconsin. The Variable Account is registered with the
Securities and Exchange Commission (the SEC) as a unit investment trust under
the Investment Company Act of 1940. Such registration, however, does not involve
supervision by the SEC of the management or investment policies or practices of
the Variable Account.
AAL owns the assets of the Variable Account and keeps them legally segregated
from the assets of the general account. The assets of the Variable Account
shall, at the time during the year that adjustments in the reserves are made,
have a value at least equal to the reserves and other contract liabilities with
respect to the Variable Account and, at all other times, shall have a value
approximately equal to or in excess of such reserves and liabilities. The assets
of the Variable Account shall not be chargeable with liabilities arising out of
any other business AAL may conduct, except to the extent that the assets of the
Variable Account exceed the reserves and other contract liabilities of the
Variable Account arising under the certificates supported by the Variable
Account.
Income, and gains and losses, whether or not realized, from the assets in each
Subaccount are credited to or charged against that Subaccount without regard to
any of AAL's other income, gains or losses. The value of the assets in the
Variable Account is determined at the end of each Valuation Date.
The Variable Account currently consists of the following seven Subaccounts:
Money Market, Bond, Balanced, Large Company Stock, Small Company Stock,
International Stock and High Yield Bond. Each Subaccount invests in a
corresponding portfolio of the AAL Variable Product Series Fund, Inc. (a mutual
fund referred to below as the "Fund"). Additional portfolios may be added or
substituted for the current portfolios.
Net premiums allocated to a Subaccount, and the resulting Cash Value, will
accumulate based on the investment experience of that Subaccount's corresponding
Fund portfolio.
The AAL Variable Product Series Fund, Inc. is a Maryland corporation registered
with the SEC under the 1940 Act as a diversified, open-end investment company
(commonly known as a "mutual fund"). This registration does not involve
supervision by the SEC of the management or investment practices or policies of
the Fund.
Shares of the Fund are currently offered to the AAL Variable Annuity Account I
and to the AAL Variable Life Account I to fund benefits payable under the
certificates. Shares of the Fund are also offered to retirement plans including
the Aid Association for Lutherans Savings Plan. The Fund may, at a later date,
also offer its shares to other separate accounts of AAL or to a subsidiary or
affiliated company of AAL. Shares of the Fund may also be offered directly to
AAL.
The Fund currently consists of seven separate portfolios, each with its own
investment objectives, investment program, policies and restrictions. The
investment objectives of each portfolio are described below. No assurance can be
given that each portfolio of the Fund will achieve its investment objective.
INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS
The Money Market Portfolio seeks to provide maximum current income to the extent
consistent with liquidity and a stable net asset value of $1.00 per share by
investing in a diversified portfolio of high quality, short-term money market
instruments.
The Bond Portfolio seeks to achieve investment results that approximate the
total return of the Lehman Brothers Aggregate Bond Index by investing primarily
in bonds and other debt securities included in the index. This objective is
consistent with a goal of maximizing total return, consistent with reasonable
risk. Investments are in bonds and other debt securities included in the Index.
The Large Company Stock Portfolio seeks to achieve investment results that
approximate the performance of the Standard & Poor's 500(R) Composite Stock
Price Index* by investing primarily in common stocks included in the Index.
The Balanced Portfolio seeks to achieve investment results that reflect
investment in common stocks, bonds and money market instruments, each of which
will be selected consistent with the investment policies of the AAL Variable
Product Large Company Stock, Bond and Money Market Portfolios, respectively.
The Small Company Stock Portfolio seeks to achieve investment results that
approximate the performance of the Standard & Poor's SmallCap 600(R) Index* by
investing primarily in common stocks included in the Index.
The International Stock Portfolio seeks to achieve long-term capital growth by
investing primarily in a diversified portfolio of foreign stocks.
The High Yield Bond Portfolio seeks to achieve high current income and
secondarily capital growth by investing primarily in a diversified portfolio of
high risk, high yield bonds commonly referred to as "junk bonds". The portfolio
actively seeks to achieve a secondary objective of capital growth to the extent
it is consistent with the primary objective of high current income.
* "Standard & Poor's(R)", "S&P (R)", "S&P 500 (R)", "Standard & Poor's 500",
"500", "Standard & Poor's SmallCap 600" and "S&P SmallCap 600" are trademarks of
The McGraw-Hill Companies, Inc. and have been licensed for use by AAL. The Fund
and the certificates are not sponsored, endorsed, sold or promoted by Standard &
Poor's and Standard & Poor's makes no representation regarding the advisability
of investing in the fund.
The Product is not sponsored, endorsed, sold or promoted by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation
or warranty, express or implied, to the owners of the Product or any member of
the public regarding the advisability of investing in securities generally or in
the Product particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Licensee is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the
Licensee or the Product. S&P has no obligation to take the needs of the Licensee
or the owners of the Product into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Product or the
timing of the issuance or sale of the Product or in the determination or
calculation of the equation by which the Product is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Product.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Fund Expenses
AAL acts as investment adviser to the Fund. For this service, AAL may deduct a
maximum advisory fee of 0.35% of the average annual daily net assets of the AAL
Variable Product Money Market, Bond, Balanced, Large Company Stock and Small
Company Stock Portfolios up to $250,000000 in assets, and 0.30% of the annual
daily net assets in excess of that amount; 0.80 % of the average annual daily
net assets of the International Stock Portfolio, and 0.40% of the average annual
daily net assets of the High YieldBond Portfolio. Portfolio expenses exceeding
the advisory fees are currently reimbursed by AAL but this reimbursement may be
modified or canceled at any time upon 30 days written notice. More information
concerning these additional expenses is contained in the Fund prospectus.
TRANSFERS
You may transfer the Cash Value among the Subaccounts and Fixed Account by
submitting a written request to AAL's Home Office. You may also transfer by
telephone if you have completed the Telephone Transaction Authorization Form.
Any transfer among the Subaccounts or to the Fixed Account will result in the
crediting and cancellation of Accumulation Units based on the Accumulation Unit
Values determined as of the end of the Valuation Period during which the
transfer request is received, in good order, by AAL. You should carefully
consider current market conditions and each portfolio's investment policies and
related risks before allocating money to the portfolios.
The total amount of any transfer must be at least $500, or it may be less as
long as you transfer the entire cash value from an account. Of the total
transfer being made, the amount transferred to any account must be at least $50.
Twelve transfers per certificate Year may be made from Subaccounts without
charge. AAL will charge $25 for each transfer in excess of twelve.
Only one transfer may be made from the Fixed Account in each certificate Year.
The transfer may not exceed the greater of $500 or 25% of the Cash Value in the
Fixed Account at the time of transfer. This transfer is not subject to charge.
REVIEW OF INVESTMENT STRATEGY
You should periodically review the allocation of your Cash Value among the
Subaccounts and Fixed Account. Consider the current market conditions,
investment risks and objectives of the portfolios and your own objectives. A
full description of the portfolios, their investment objectives, policies and
restrictions, expenses, risks and other aspects of their operation is contained
in the accompanying prospectus for the Fund. Read the accompanying Fund
prospectus carefully.
VOTING PRIVILEGES
To the extent required by law, AAL will vote the portfolio shares held in a
Subaccount at shareholder meetings of the Fund, if any, in accordance with
instructions received from persons having voting interests in the corresponding
Subaccount of the Variable Account. If, however, the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result AAL determines that it is permitted to vote the Fund
shares in its own right, it may elect to do so.
The Owner will have the voting interest with respect to Fund shares attributable
to the certificate.
The number of votes which an Owner has the right to instruct will be calculated
separately for each Subaccount. The number of votes that each Owner may instruct
will be determined by dividing a certificate'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 Owner has the right to instruct will be determined as of
the record date established by the portfolio for determining shareholders
eligible to vote at the meeting of the Fund. Voting instructions will be
solicited by written communications prior to such meeting in accordance with
procedures established by the Fund.
Any portfolio shares held in the Variable Account for which AAL does not receive
timely voting instructions, or which are not attributable to Owners will be
represented at the meeting and voted by AAL in proportion to the instructions
received from all Owners. Any portfolio shares held by AAL or its affiliates
will be voted in proportion to the aggregate votes of all shareholders in the
portfolio. Each person having a voting interest in a Subaccount will receive
proxy materials, reports and other materials relating to the appropriate
portfolio.
CASH VALUE
FIXED ACCOUNT CASH VALUE
The Fixed Account Cash Value reflects net premiums allocated to it, transfers to
or from the Subaccounts, credited interest, and any deductions. Each day the
Cash Value in the Fixed Account will change based upon these factors. See the
certificate for further detail.
VARIABLE ACCOUNT CASH VALUE
Number of Accumulation Units
The number of Accumulation Units for this certificate in any Subaccount may
increase or decrease at the end of each Valuation Period depending on the
transactions that occur in the Subaccount during the Valuation Period. When
transactions occur, the actual dollar amounts of the transactions are converted
to Accumulation Units. The number of Accumulation Units for a transaction in a
Subaccount is determined by dividing the dollar amount of the transaction by the
Accumulation Unit Value of the Subaccount at the end of the Valuation Period
during which the transaction occurs.
The number of Accumulation Units in a Subaccount increases when the following
transactions occur during the Valuation Period:
- net premiums are allocated to the Subaccount; or
- Cash Value is transferred to the Subaccount from another Subaccount
or from the Fixed Account.
The number of Accumulation Units in a Subaccount decreases when the following
transactions occur during the Valuation Period:
- Cash Value is transferred from the Subaccount to another
Subaccount or to the Fixed Account, including loan transfers; or
- partial withdrawals and partial withdrawal charges are taken from
the Subaccount; or
- monthly deductions or transfer charges are taken from the
Subaccount;or
- a charge for a Death Benefit Option change is allocated to the
Subaccount;or
- a charge for a certificate change is allocated to the
Subaccount;or
- Surrender Charges are allocated to the Subaccount.
Accumulation Unit Value
For each Subaccount, the initial Accumulation Unit Value was set when the
Subaccount was established. The Accumulation Unit Value may increase or decrease
from one Valuation Period to the next.
The Accumulation Unit Value for a Subaccount for any Valuation Period is equal
to:
- the Net Asset Value of the corresponding Fund portfolio at the end of the
Valuation Period;
- plus the amount of any dividend, capital gain or other distribution made by
the Fund portfolio if the "ex-dividend" date occurs during the Valuation
Period;
- plus or minus any cumulative credit or charge for taxes reserved which is
determined by AAL to have resulted from the operation of the portfolio;
- divided by the total number of Accumulation Units held in the Subaccount at
the end of the Valuation Period before any of the transactions, referred to
in the "Number of Accumulation Units" subsection above, have occurred.
WHAT AFFECTS CASH VALUE
The Cash Value of your certificate, at any one time, is determined by:
(a) multiplying the total number of Accumulation Units for each
Subaccount by its appropriate current Accumulation Unit Value;
(b) if you have elected a combination of Subaccounts, totaling the
resulting values; and
(c) adding any value in the Fixed Account.
While loans are not deducted from Cash Value, loans do reduce the amount you
would receive upon surrender of your certificate and the amount available to pay
insurance charges. Loans also accrue interest charges and may result in less
interest credited to your certificate.
Over the life of your certificate, many factors determine its Cash Value. They
include:
- premiums paid
- the investment experience of the Subaccounts
- interest credited to the Fixed Account
- loans taken and loan repayments
- partial withdrawals taken
- charges and deductions taken
Because a certificate's Cash Value is based on the variables listed above, it
cannot be predetermined. Cash Value in the Variable Account will largely be
determined by market conditions and investment experience of the Fund's
portfolios corresponding to the Subaccounts chosen by the Owner. The Owner will
bear all such risk.
The value of the Fixed Account is guaranteed as to principal and interest at 4%,
subject to the charges described in the "Charges" Section. There is no
guaranteed minimum Cash Value for the Variable Account.
SURRENDER VALUE
The Surrender Value is the total amount you may withdraw from the certificate.
It is equal to the Cash Value less any Surrender Charges and any outstanding
loan principal and accrued interest.
You will be advised at least annually as to the number of Accumulation Units
which are credited to the certificate, the current Accumulation Unit Values, the
Variable Account Cash Value, the Fixed Account Cash Value, the Total Cash Value
and the Surrender Value.
CHARGES
Charges are necessary to pay for the insurance provided, cover the expenses
generated by issuing and administering the certificate, and to fund AAL's
fraternal activities. In addition to the charges described below, a $25 change
fee will be charged for all certificate changes. This is a $25 charge that will
be assessed if you choose to make changes to your certificate. Such certificate
changes include a reduction of insurance charges that are in excess of standard
due to insurance underwriting requirements, a change from smoker to nonsmoker
risk class, a change in Death Benefit Options, and changes to the additional
benefits under the certificate.
PERCENT OF PREMIUM CHARGE
A charge of 3% of each premium payment is taken to cover sales and other
expenses and provide support for AAL's fraternal activities.
CASH VALUE CHARGES
On each Monthly Deduction Date charges are deducted from your Cash Value. These
include cost of insurance, administrative and issue expense charges, mortality
and risk expense charges and charges for additional benefits you may have
selected. (No mortality and risk expense charges are deducted from the Fixed
Account.)
The cost of insurance charge and additional benefit charges vary by risk class,
amount at risk, Specified Amount and, in most states, sex. The cost of insurance
rates, used to calculate these charges, are determined by AAL based on
expectations as to future mortality and expense experience. Any change in these
rates will be applied on a uniform basis to all Insureds of the same risk class.
However, AAL cannot use cost of insurance rates higher than the annual
guaranteed cost of insurance rates shown in the certificate. The guaranteed
rates are no greater than certain of the 1980 Commissioners Standard Ordinary
Mortality Tables (and, where unisex cost of insurance rates apply, the 1980
Commissioners Standard Ordinary Mortality Table B). These rates are based on the
age and risk class of the Insured. They are also based on the sex of the
Insured, except that unisex rates are used where appropriate under applicable
laws. AAL charges rates that are currently lower than the guaranteed rates, and
may also charge current rates in the future.
A monthly administrative charge of $4 is deducted to cover administrative costs.
This charge is for expenses such as premium billing and collection, certificate
value calculation, transaction confirmations and periodic reports.
The monthly issue expense charge covers issue costs. It is deducted for the
first 36 months. This charge will vary by age, risk class, Specified Amount and,
in most states, sex.
Monthly mortality and expense risk charges are deducted from the Variable
Account to pay for the mortality and expense risks borne by AAL. The mortality
risk assumed is that Insureds, as a group, may live for a shorter period of time
than estimated and, therefore, the cost of insurance charges specified in the
certificate will be insufficient to meet actual claims. The expense risk assumed
is that other expenses incurred in issuing and administering the certificates
and operating the Separate Account will be greater than the charges assessed for
such expenses. AAL will realize a gain from this charge to the extent it is not
needed to provide mortality benefits and expenses under the certificates, and
will realize a loss to the extent the charge is not sufficient. The monthly
mortality and expense risk charge is guaranteed never to exceed 0.075%
(approximately 0.9% annually). The charge is applied to the total Cash Value in
the Subaccounts on each Monthly Deduction Date. In addition, the monthly
mortality and expense risk charge on certificates from their 15th certificate
Anniversary and beyond is guaranteed at any time to be at least 0.04166% percent
(approximately 0.5% annually) less than the rate in effect at that time for
certificates which have not reached their 15th certificate Anniversary. The
current charges in effect are as follows: During the first 15 years the monthly
charge is 0.0625% (approximately 0.75% annually) of the total Subaccount Cash
Value. This charge drops to 0.02083% (approximately 0.25% annually) of the total
Subaccount Cash Value in certificate Year 16. The monthly deduction is deducted
from each account on a basis proportional to the Cash Value in that account. For
Subaccounts, this is accomplished by selling Accumulation Units and withdrawing
their value from that account. For the Fixed Account the Cash Value is reduced
by the Fixed Account's proportion of the Monthly Deduction.
The Monthly Deduction is made as of the same date each month, beginning with the
Issue Date, if that day of the month is a Valuation Date. If that day of the
month does not fall on a Valuation Date, the deduction date is the nearest
previous Valuation Date.
SURRENDER CHARGE
If you choose to surrender your certificate or reduce your Specified Amount, AAL
will reduce the Cash Value by the surrender charge assessed proportionately
against the amounts you have invested in each of your selected Subaccounts and
the Fixed Account. This charge is imposed as a deferred sales and administrative
charge. It covers expenses associated with underwriting, issuing and
distributing the certificate.
The initial surrender charge is based on an amount per thousand of Specified
Amount for which the certificate is issued. The amount per thousand varies by
sex, risk class and Issue Age. Your actual surrender charges are listed on page
3A.1 of your certificate. The initial surrender charge is level for the first
three years and, thereafter, it declines by 1/8th of the initial amount annually
so that, beginning in the 11th year after the Issue Date (assuming no increases
in Specified Amount) the surrender charge will be zero.
If you increase your certificate's Specified Amount, a new surrender charge is
applicable, in addition to the existing surrender charge. It is based on an
amount per thousand of the Specified Amount increase. The amount per thousand
varies by sex, risk class and age at time of increase. The actual surrender
charges for the increased Specified Amount will be listed on a new page 3A.1 of
your certificate, which will be mailed to you at the time of the increase. The
new surrender charge is level for the first three years after the increase and,
thereafter, it declines by 1/8th of the initial amount annually so that,
beginning in the 11th year after the increase date (assuming no additional
increases in Specified Amount) the surrender charge will be zero.
If you decrease the Specified Amount while the surrender charge applies, a
portion of the surrender charge will be assessed. The decrease will be
subtracted first from any previous increase in the Specified Amount, starting
with the most recent, then from the original Specified Amount. The portion of
the charge assessed will be proportional to the amount of the decrease, based on
the surrender charges for the Specified Amount from which the decrease is
subtracted.
TRANSFER CHARGE
Twelve transfers per certificate Year may be made between Subaccounts and/or the
Fixed Account without charge. AAL will charge $25 for each transfer in excess of
twelve.
ACCESS TO CASH VALUE
PARTIAL WITHDRAWALS
You may take one partial withdrawal of your Cash Value per year at no charge.
$25 is charged for each additional withdrawal during a certificate Year. The
amount of a partial withdrawal may not exceed the Surrender Value on the date of
the request. It is implemented by either the redemption of Accumulation Units
and/or reduction in the Fixed Account balance. The partial withdrawal will be
taken from the Subaccounts and Fixed Account according to the ratio that the
Cash Value in the Subaccount or Fixed Account of the certificate bears to the
total Cash Value of the certificate at the time of the partial withdrawal; or
according to any other administrative option which you choose and is available
at the time of the partial withdrawal.
For a certificate with the Level Death Benefit Option:
A partial withdrawal will reduce your Cash Value, Specified Amount, Death
Benefit and the amount of premiums considered paid to meet the Death Benefit
Guarantee Premium requirement. If the Death Benefit is equal to the Specified
Amount at the time of the partial withdrawal, the amount of the reduction in the
Death Benefit will be equal to the amount of the partial withdrawal. If the
Death Benefit is greater than the Specified Amount, (a) the Specified Amount
will be reduced by the amount (if any) by which the withdrawal amount exceeds
the difference between the Death Benefit and the Specified Amount, (b) the new
Death Benefit will be based on the death benefit factor, Cash Value, and
Specified Amount after the reduction.
The Specified Amount remaining in effect after a partial withdrawal may not be
less than $10,000. Any request for a partial withdrawal that would reduce the
Specified Amount below this amount will not be granted.
For a certificate with the Variable Death Benefit Option:
A partial withdrawal will reduce the Cash Value, Death Benefit, and the amount
of premiums considered to be paid to meet the Death Benefit Guaranteed Premium
by the amount of the withdrawal. It will not reduce the Specified Amount.
LOANS
You may borrow up to 92% of your Cash Value using your certificate as security
for a loan. Interest will accrue on an annual basis at 8% on the loan balance
until you reach your 15th Certificate Anniversary. Thereafter the rate will drop
to 7 1/4% per annum. The loan will be taken from the Subaccounts and Fixed
Account according to the ratio that the Cash Value in the Subaccount or Fixed
Account of the certificate bears to the total Cash Value of the certificate at
the time of the loan; or according to any other administrative option which you
choose and is available at the time of the loan.
A lower interest rate may be credited to the portion of the Fixed Account Cash
Value that equals the amount of the total outstanding loan. AAL will determine
the rate credited. In no case will the rate credited be less than 4% annually.
The amount of loan allocated to each Subaccount will be transferred from that
account to the Fixed Account as security for the loan. Each month, if the total
loan (principal plus accrued interest) exceeds the total Fixed Account Cash
Value, the difference will be transferred from the Variable Account to the Fixed
Account as security for the loan.
You may repay all or part of your loan at any time while your certificate is in
force. Unless you indicate otherwise to AAL, all payments will be assumed to be
premium payments. Upon your request, AAL will set up a loan repayment schedule
for you.
If you surrender your certificate, you will receive the Cash Value less any
surrender charge and outstanding loan balance. Partial withdrawals also reduce
your premiums credited toward the Death Benefit Guarantee requirements. Loans
are added to the required premiums when testing whether Death Benefit Guarantee
requirements have been met.
Both partial withdrawals and loans will reduce the Cash Value available to pay
your insurance costs. You should carefully consider the impact on the insurance
your certificate will be able to provide, now and in the future, before
exercising these privileges.
SURRENDER
You may surrender this certificate for its Surrender Value by sending a written
request to AAL.
CERTIFICATE TERMINATION
EARLY TERMINATION AND REINSTATEMENT
Termination
Your certificate will terminate if your Monthly Deduction is greater than your
Surrender Value, your Death Benefit Guarantee is not in effect, and payment
sufficient to cover the next two monthly deductions is not received within 61
days of notification of the Cash Value deficiency (in most states). If this Cash
Value deficiency occurs, you have the right to reinstate your certificate,
within certain limitations. The requirements for reinstatement and associated
limitations are described in your certificate.
Reinstatement
You may reinstate the certificate any time within three years after it has
terminated so long as you did not surrender it for its Surrender Value. To
reinstate your certificate you must submit evidence of insurability satisfactory
to AAL and pay a premium at least equal to:
- the reinstated loan amount; plus
- any Surrender Charge at the time of reinstatement; plus
- the first two Monthly Deduction amounts after reinstatement; less
- the Cash Value at termination; less
- any Surrender Charge credited back at reinstatement; plus
- the new Surrender Charge taken for any reduction in the Specified
Amount you request at reinstatement plus 3% on the sum of the above
to cover the percent of premium charge.
The premium paid upon reinstatement will be used first to pay any unpaid monthly
deductions that occurred during the grace period. Your certificate will then be
reinstated as of the date AAL approves your application for reinstatement.
If you reinstate this certificate, AAL will not contest the validity of the
reinstated certificate after it has been in effect during the lifetime of the
Insured for two years from the date of reinstatement. After this certificate has
been in force two years from the Issue Date, any contest of the validity of the
reinstated certificate will be limited to statements made in the application for
reinstatement.
DEATH, MATURITY AND SURRENDER
Your certificate will terminate if the Insured dies, or if the Owner surrenders
the certificate. If the certificate is in effect at age 100, it will mature
(end) and the Cash Value less any outstanding loan will be paid to the Owner.
PAYOUT OPTIONS
SELECTION
All or part of the life insurance proceeds from death, maturity or surrender may
be applied to one of several Payout Options in place of a lump sum payment. You
may choose or change a payout option while the Insured is alive. The Beneficiary
may choose an option at the Insured's death, unless you have chosen an option
which does not allow the beneficiary to change it.
OPTION 1: INTEREST
The proceeds are left with AAL to earn interest. The rate of interest is
determined annually by the AAL Board of Directors. It will never be less than 3%
annually.
OPTION 2: A SELECTED AMOUNT OF INCOME
The proceeds with interest are used to make payments of a selected amount at
regular intervals until the proceeds with interest have been paid. The payment
period may not exceed 30 years. The rate of interest used will not be less than
3% annually.
OPTION 3: A SET PERIOD
The proceeds with interest are used to make payments at regular intervals. You
may choose a specified number of years, not to exceed 30. Guaranteed payments
are shown in the certificate. The rate of interest used will not be less than 3%
annually. The amount of payment may be greater than that guaranteed, as declared
annually by AAL's Board of Directors.
OPTION 4: LIFE PAYMENT
The proceeds are left with AAL to earn interest. These funds are used to make
payments at regular intervals while the person named to receive payments is
alive. AAL will guarantee the amount of these payments for a specified number of
years. A period of 10 or 20 years may be selected.
The amount of the payments depends on the age and sex of the persons named to
receive payments at the time AAL issues the payment contract. Representative
guaranteed payments are shown in the certificate. They are based on a guaranteed
effective annual interest rate of 3.5% using the "1983 Table a" annuitant
mortality table.
OPTION 5: JOINT & SURVIVOR
The proceeds with interest are used to make payments at regular intervals while
both persons named to receive payments are alive. AAL will guarantee the amount
of these payments for a specified number of years. A period of 10 or 20 years
may be selected.
Upon the death of one of the persons named to receive payments, AAL will
continue making payments to the survivor with the payments reduced by 1/3 after
the end of the guaranteed period. If the survivor also dies during the
guaranteed period, the unpaid proceeds will be paid in one sum at the survivor's
death.
The amount of the payments depends on the age and sex of the persons named to
receive payments at the time AAL issues the payment contract. Representative
guaranteed payments are shown in the certificate. They are based on a guaranteed
effective annual interest rate of 3.5% using the "1983 Table a" annuitant
mortality table.
HOW TO MAKE PAYMENTS AND RECEIVE SERVICE
APPLYING FOR A CERTIFICATE
AAL Variable Universal Life certificates are sold by District Representatives of
AAL who are also Registered Representatives of AALCMC. To apply for an AAL
Variable Universal Life certificate please contact your AAL Representative. You
can locate your Representative by calling (800) 225-5225 or visiting our Webpage
www.aal.org.
TIMELY PROCESSING
AAL will process all requests in a timely fashion. Requests received by 3:00
p.m. Central Time on a Valuation Date will use the certificate's Cash Value as
of the close of that Valuation Date. AAL will process requests received after
that time using the certificate's Cash Value as of the close of business of the
following Valuation Date.
After your certificate is issued, AAL will process payment of any amount due
from the Variable Account within seven calendar days after AAL receives your
written request. Payment may be postponed when the New York Stock Exchange has
been closed and for such other periods as the SEC may permit. Payment from the
Fixed Account Cash Value may be deferred up to six months.
WRITTEN REQUESTS
You may exercise any of the following privileges:
- Premium Payment
- Change in Death Benefit Option
- Increase/Decrease in Specified Amount
- Partial Withdrawal
- Surrender
- Reinstatement
- Transfers
- Dropping/Adding an Additional Benefit
- Loan
- Filing a Death Claim
- Selecting/Changing a Settlement Option
- Change in Allocation Instructions
- Loan Repayment
- Beneficiary Change(s) by sending written notice (and payment and/or
evidence of insurability, if applicable) to AAL at its Home Office:
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
TELEPHONE TRANSACTIONS
If AAL has received a properly completed Telephone Transaction Authorization
Form, you may perform various transactions over the phone. Phone services
include: transfers, premium payment allocation changes, loans and certain other
transactions.
AAL has adopted reasonable security procedures to ensure the authenticity of
telephone instructions, including: requiring identifying information, recording
conversations and providing written confirmations of transactions. Nevertheless,
AAL will honor telephone instructions from any person who provides the correct
identifying information, so there is a risk of possible loss to the Owner if an
unauthorized person uses this service in the Owner's name.
If several persons seek to effect telephone instructions at or about the same
time, or if AAL's recording equipment malfunctions, it may be impossible for you
to make a telephone transaction at that time. If this occurs, you should submit
a Written Request. Also, if due to malfunction or other circumstances, the
recording of the Owner's telephone request is incomplete or not fully
comprehensible, AAL will not process the transaction.
The phone number for telephone transactions is (800) 225-5225.
AAL reserves the right to restrict telephone transactions at any time.
DEATH CLAIMS
Written notice of death must be given to AAL. Notice should include the
Insured's name and certificate number. Help may be obtained through your AAL
Representative.
A claim form will be sent, when AAL receives your notice. Complete the claim
form and send it to the Home Office along with a certified copy of the death
certificate. Processing of the claim will begin as soon as these items are
received.
GENERAL INFORMATION
FREE LOOK
How to Cancel Your certificate
Your certificate provides for an initial "free look" period. That is, you as the
certificate Owner, have the right to return your certificate within 10 days
after you receive it. To return your certificate you may either:
1) deliver or mail your certificate along with a written request to cancel to
your AAL Representative, or
2) deliver or mail your certificate along with a written request to cancel to
the Home Office:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, WI 54919-0001
Generally within seven days after AAL receives your request for cancellation, it
will cancel the certificate and send you a refund. Some states may require a
"free look" period longer than 10 days.
The Amount Refunded After Canceling a certificate During the "Free Look" Period
AAL will refund to you an amount equal to the certificate's Accumulation Unit
Value as of the date the returned certificate or notification of cancellation is
received by AAL. This may be more or less than the premium you paid depending
upon the investment experience of the Subaccount(s) you selected.
If your state requires a full refund of all premiums, your premium will be
allocated to the Money Market Subaccount until your "free look" plus five- day
period has expired.
ENTIRE CONTRACT
The entire contract between you and AAL is made up of:
- the certificate including any attached riders, endorsements or
amendments;
- the application attached to the certificate, including any
applications for increase in the Specified Amount; and
- the AAL Articles of Incorporation and Bylaws which are in effect on
the Issue Date of the certificate.
STATEMENTS IN THE APPLICATION
Statements made in the application will be treated as representations and not
warranties. No statement will be used by AAL to void the contract or to deny a
claim unless it appears in the application.
CHANGE OF CERTIFICATE
No representative of AAL except the president or the secretary may change any
part of the certificate on behalf of AAL.
INCONTESTABILITY
AAL will not contest the validity of the certificate after it has been in effect
during the lifetime of the Insured for two years from the Issue Date. AAL will
not contest the validity of an increase in the Specified Amount after it has
been in effect during the lifetime of the Insured for two years from the date of
increase. Any contest of the validity of the increase will be limited to
statements made in the application for the increase. See the certificate for
more details.
MISSTATEMENT OF AGE OR SEX
The values of the certificate are based on the Insured's age and sex. If the
date of birth or sex shown on the application is wrong, the proceeds payable
will be adjusted to the amount that would be provided by the most recent cost of
insurance charge at the correct attained age or sex.
MAINTENANCE OF SOLVENCY
This provision applies only to values in the Fixed Account.
If AAL's reserves for any class of certificates become impaired, you may be
required to make an extra payment. AAL's Board of Directors will determine the
amount of any extra payment based on each member's fair share of the deficiency.
If the payment is not made, it will be charged as a loan against the certificate
with interest at a rate of 5% per year. You may choose an equivalent reduction
in benefits instead of or in combination with the loan. Any indebtedness and
interest charged against the certificate, or any agreement for a reduction in
benefits, shall have priority over the interest of any Owner, Beneficiary, or
collateral assignee under the certificate.
BASIS OF COMPUTATIONS
Minimum guaranteed Cash Values for the Fixed Account are based on the
Commissioner's 1980 Standard Ordinary Mortality Table, age at last birthday,
with interest at the rate of 4%. These values equal or exceed the minimum values
required by law. A detailed statement of how AAL calculates Cash Values for the
certificate has been filed with the insurance department of the state or
district where this certificate was delivered.
REPORTS TO OWNERS
At least once each certificate year, AAL will send you a report concerning the
current status of your certificate. There is no charge for this report.
Upon your request, AAL will send you an illustration of hypothetical values for
the certificate. AAL may charge a reasonable fee for each illustration
requested.
We will also send periodic reports with financial information on the portfolios,
including information on the investments held in each portfolio as required by
the SEC.
Confirmation notices will be sent during the year for certain certificate
transactions.
MEMBERSHIP
For Insureds Issue Age 15 and under, the Insured will become a benefit member of
AAL at Insurance Age 16. For Insureds Issue Age 16 and over, the person who
applied for membership is a benefit member of AAL. The rights and benefits of
membership are set forth in the Articles of Incorporation and Bylaws of AAL.
Membership cannot be transferred.
OWNERSHIP
For Insureds Issue Age 15 and under, the Insured is the Owner of the
certificate, unless ownership has been transferred. However, because of age, the
Insured cannot exercise the rights of ownership. Therefore, the person who
applied for the certificate will have control over ownership rights, except for
transfer of ownership, until the Insured gains control of the certificate. For
Insureds Issue Age 16 and over, the person who is named as the Owner on the
application for insurance is the Owner, unless ownership has been transferred.
If you are the Owner of the certificate but you are not the Insured, you should
name a successor Owner who will become the Owner if you die before the Insured.
If you die before the Insured and there is no successor Owner named, ownership
of the certificate will pass to your estate.
During the Insured's lifetime, you may transfer ownership of the certificate by
sending a signed written request to AAL. The transfer must be approved by AAL
before it is valid.
BENEFICIARY
The Beneficiary is the person, entity or organization named to receive the Death
Benefit after the Insured dies. The Bylaws of AAL list those eligible to be
beneficiaries. Beneficiaries are designated as first, second and third class.
You may name more than one person or organization in the same class.
If no Beneficiary has been named or survives the Insured, AAL will pay the
proceeds as follows:
- to your estate if you are the Insured; or
- to you if you are not the Insured.
During the Insured's lifetime, you may change the Beneficiary by sending a
signed written request to AAL. The change must be approved by AAL before it is
valid.
COLLATERAL ASSIGNMENT
You may assign the certificate as collateral security for a loan or other
obligation. This may limit your rights to the Cash Value and the beneficiary's
rights to the proceeds.
The assignments must be in writing and filed at our home office. AAL assumes no
responsibility as to the validity of any assignment. AAL is not liable for any
payment made or any other action taken on the certificate before the assignment
was recorded at our home office.
Any certificate loan obtained before an assignment is recorded at our home
office has priority over the assignment.
RIGHTS RESERVED BY AAL
Subject to applicable law, AAL reserves the right to make certain changes if, in
its judgment, they would best serve the interests of the Owners or would be
appropriate in carrying out the purposes of the certificate. AAL will obtain,
when required, the necessary Owner approval or regulatory approval. Examples of
the changes AAL may make include, but are not limited to:
- To operate the Variable Account in any form permitted under the 1940
Act or in any other form permitted by law.
- To add, delete, combine, or modify Subaccounts in the Variable
Account.
- To add, delete, or substitute, for the portfolio shares held in any
Subaccount, the shares of another portfolio of the Fund or the shares
of another investment company or series thereof, or any other
investment permitted by law.
- To make any amendments to the certificates necessary for the
certificates to comply with the provisions of the Internal Revenue Code
or any other applicable federal or state law.
DIRECTORS AND OFFICERS
Our Board of Directors decides matters of general policy and reviews the
activities of AAL and the Officers who conduct and supervise the daily business
operations.
AAL's Directors and Officers, and their principal occupations during the past
five years are:
<TABLE>
<CAPTION>
<S> <C>
Herbert J. Arkebauer Director since 6/72; Professor, Southwest Missouri
State University
Raymond G. Avischious Director since 5/77; President and Chief Executive Officer,
Shurfine Central Corp.
Richard E. Beumer Director since 2/87; President and Chief Executive Officer,
Sverdrup Corporation
Kenneth Daly Director since 2/94; Partner, KPMG Peat Marwick LLP
Elizabeth A. Duda Director since 5/79
Edward A. Engel Director since 11/78; President, E. A. Engel & Associates
Gary J. Greenfield Director since 1/93; President, Wisconsin Lutheran College
Robert H. Hoffman Director since 2/87; Executive, Taylor Corp
Robert E. Long Director since 2/82; Senior Vice President, Park Bank
Robert B. Peregrine Director since 2/78; Attorney, Peregrine Law offices, S. C.
Paul D. Schrage Director since 1/98; Senior Executive Vice President and
Chief Marketing Officer, McDonald's
Corporation
James H. Scott Director since 6/98; Principal, Miller Anderson & Shernerd
Vice President, Corporate Secretary and
Assistant Treasurer, Texas Utilities Company
Kathi P. Seifert Director since 12/94; Group President, Kimberly Clark Corp.
Roger G. Wheeler Director since 8/91; President, Wheel-Air, Inc.,
Wheel-Air Charter, Inc.
E. Marlene Wilson Director since 6/81; President, Volunteer Management
Associates
Rev. Thomas R. Zehnder Director since 1/97; President, Florida-Georgia District,
Lutheran Church Missouri Synod
Richard L. Gunderson Chairman of the Board since
1/95, Director since 9/85, Chief Executive
Officer from 1/87 to 1/97, and President,
9/85 to 12/95
John O. Gilbert Chief Executive Officer since
1/97, Director since 1/96, President
since12/95, Chief Operating Officer from
12/95 to 12/96, Executive Vice President
from 1/95 to 12/95, and Senior Vice
President from 1/92 to 1/95
James H. Krueger General Agent and Director of Agencies since 4/99
General Agent and Director of Field Leadership 4/97 to 4/99
Ronald G. Anderson Senior Vice President since 2/99 Senior Vice President and Chief Investment
Officer 4/96 to 2/99; President since 1/97,
AAL Capital Management Corporation; Vice
President from 3/95 to 4/96, General Re
Corp; Chairman from 1/91 to 3/95, General Re
Financial Products Corp.
Woodrow E. Eno Senior Vice President, Secretary and
General Counsel since 1/96; Vice President
from 5/93 to 1/96, AEGON
Steven A. Weber Senior Vice President since 11/95 and
Vice President from 2/89 to 11/95
Jon Stellmacher Senior Vice President, Member Services since 2/99
Fred Ohlde Senior Vice President since 11/95,
Vice President from 5/93 to 11/95 and Second
Vice President from 3/88 to 5/93
Walter S. Rugland Executive Vice President and
Chief Operating Officer since 7/98; Equity
Principal from 11/75 to 6/98, Milliman &
Robertson, Inc.
Carl J. Rudolph Vice President, Controller, Treasurer and Chief Financial
Officer since 2/99
James Jawort Vice President since 2/99
Karl Anderson Vice President since 2/99
James H Abitz Vice President-Investments since 2/97
</TABLE>
FEDERAL TAX MATTERS
VARIABLE ACCOUNT TAX STATUS
Both investment income and realized capital gains of the Variable Account (i.e.,
income and capital gains distributed to the Variable Account by the Fund) are
reinvested without tax since the Internal Revenue Code (the Code) presently
imposes no applicable tax. However, AAL reserves the right to make a deduction
for taxes, should they be imposed with respect to such items in the future.
LIFE INSURANCE QUALIFICATION
Section 7702 of the Code includes a definition of life insurance for tax
purposes. The Secretary of the Treasury has been granted authority to prescribe
regulations to carry out the purposes of the section, and proposed regulations
governing mortality charges were issued in 1991. AAL believes that the
certificate meets the statutory definition of life insurance. As such, and
assuming the diversification standards of Section 817(h), discussed below, are
satisfied, (a) death benefits paid under the certificate should generally be
excluded from the gross income of the Beneficiary for federal income tax
purposes under Section 101(a)(1) of the Code and (b) you should not generally be
taxed on the Cash Value under a certificate, including increments thereof, prior
to actual receipt.
AAL intends to comply with any future final regulations issued under Sections
7702 and 817(h) and any amendments to these sections, and reserves the right to
make such changes as deemed necessary to assure such compliance. Any changes
will apply uniformly to affected certificateholders and will be made only after
advance written notice.
PRE-DEATH DISTRIBUTIONS
The taxation of pre-death distributions depends on whether the certificate is
considered a modified endowment contract (a MEC). A certificate's qualification
as a MEC is discussed below.
General Rules: Assuming a certificate is not a MEC, upon surrender you will be
taxed on the excess of Surrender Value plus unpaid certificate loans and
interest less gross premiums paid reduced by untaxed withdrawals.
Partial withdrawals are only taxable to the extent the withdrawal exceeds total
premiums paid less prior untaxed partial withdrawals. However, partial
withdrawals made within the first 15 years may be taxable in certain limited
instances where the Surrender Value plus unpaid loans exceeds the total premiums
paid less the untaxed portion of prior partial withdrawals.
Loans received under the certificate, assuming the certificate is not a MEC,
will not be treated as subject to tax when taken. Generally, amounts of loan
interest paid by individuals will be considered nondeductible "personal
interest".
Modified Endowment Contracts:
A class of contracts known as "MECs" has been created under Section 7702A of the
Code. Pre-death distribution rules for certificates considered to be MECs will
differ from the general rules above. A contract will be a MEC if it fails the
"7-Pay Premium test." A certificate fails this test if the amount paid into the
certificate in the first seven years or in the first seven years after a
material change, exceeds the amount that would have been paid had the
certificate provided for the payment of seven level annual premiums. AAL will
notify you if the certificate becomes a MEC.
A MEC certificate may be aggregated with other MECs purchased by you from AAL
during any one calendar year for purposes of determining the taxable portion of
withdrawals from the certificate. The certificate is subject to a 7-Pay Premium
test during the first seven certificate Years and any time a material change to
the contract takes effect. A material change, for these purposes, includes the
exchange of a life insurance certificate for another, and conversion of a term
life certificate to a whole life or universal life certificate. In addition, an
increase in the future benefits provided constitutes a material change unless
the increase is attributable to (1) the payment of premiums necessary to fund
the lowest Death Benefit payable in the first seven certificate Years, or (2)
the crediting of interest or other earnings with respect to such premiums. A
reduction in Death Benefits during the first seven certificate Years, or during
any pay test period, may also cause a certificate to be considered a MEC.
All distributions, including certificate loans and collateral assignments, from
a MEC certificate will be currently taxable to the extent that the Cash Value of
the certificate immediately before payment exceeds gross premiums paid
(increased by the amount of loans previously taxed and reduced by untaxed amount
previously received). These rules may also apply to distributions made during
the two -year period prior to the time that a certificate becomes a MEC. A
penalty tax equal to 10% of the amount includible in income will also apply to
certain surrenders or loans taken by you if you have not reached the age of 59
1/2, unless you are disabled, or the surrenders are part of a series of equal
periodic payments made not less frequently than annually for your life or life
expectancy. The penalty tax will also apply to income received on a surrender or
loan if the Owner of a MEC is a corporation.
DIVERSIFICATION REQUIREMENTS
For the certificate to be treated as a life insurance contract for federal
income tax purposes, the Variable Account and the Fund must satisfy investment
diversification requirements set forth in Section 817(h) of the Code and
Treasury Department regulations thereunder. These requirements must be satisfied
at the end of each calendar quarter, or within 30 days thereafter.
The AAL Variable Product Series Fund, Inc. has met the diversification
requirements at all relevant items. AAL intends to take any action necessary to
maintain the compliance of the Variable Account and the Fund with the
diversification requirements. In addition, the Treasury Department may provide
future guidance concerning the extent to which you may direct investments in
variable funding options under the certificate. If such guidance is issued, the
certificate may need to be modified to comply with it.
OTHER CONSIDERATIONS
Because of the complexity of the law and its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
certificate or the exercise of options under a certificate. The above comments
concerning federal income tax consequences are not exhaustive, and special rules
exist with respect to situations not discussed in the prospectus.
The preceding description is based upon AAL's understanding of current federal
income tax law. AAL cannot assess the probability that changes in tax laws,
particularly affecting life insurance, will be made.
The preceding comments do not take into account estate and gift, state income or
other state tax considerations which may be involved in the purchase of a
certificate or the exercise of elections under the certificate. For complete
information on such federal and state tax considerations, a qualified tax
adviser should be consulted.
LITIGATION
There are no pending proceedings commenced by, or known to be contemplated by a
governmental authority, and no pending legal proceedings, material with respect
to prospective purchasers of the certificates, to which the Variable Account,
AAL or the principal underwriter is a party to or to which the assets of the
Variable Account are subject. As a fraternal benefit society offering
certificates of insurance, AAL is ordinarily involved in litigation. AAL does
not believe that any current litigation or administrative proceeding is material
to its ability to meet its obligations under the certificate or to the Variable
Account, nor does AAL expect to incur significant losses from such actions.
DISTRIBUTION
AAL Capital Management Corporation, 222 West College Avenue, Appleton,
Wisconsin, 54919-0007 (AALCMC) is an indirect subsidiary of AAL and a registered
broker-dealer. AALCMC is a corporation organized under Delaware law in 1986 and
it serves as the principal underwriter of the certificates. Certificates are
distributed by Registered Representatives of AALCMC. AALCMC also serves as the
principal underwriter of the AAL Variable Annuity and the AAL Mutual Funds.
AALCMC's fiscal year operates on a calendar year basis.
ILLUSTRATIONS
The following tables illustrate how the Death Benefits, Cash Values, and
Surrender Values of a hypothetical certificate could vary over an extended
period of time, assuming hypothetical rates of return equivalent to constant
gross annual rates of 0%, 8%, and 12%.
The certificates illustrated include the following:
1. Male, Nonsmoker, Age 40, Level Death Benefit, Specified Amount $250,000,
Current Rates
2. Male, Nonsmoker, Age 40, Level Death Benefit, Specified Amount $250,000,
Guaranteed Rates
3. Male, Nonsmoker, Age 40, Variable Death Benefit, Specified Amount $250,000,
Current Rates
4. Male, Nonsmoker, Age 40, Variable Death Benefit, Specified Amount $250,000,
Guaranteed Rates
The values would be different from those shown if the gross annual investment
rates of return averaged 0%, 8%, or 12% over a period of years, but also
fluctuated above or below those averages for individual certificate years. The
illustrations assume no certificate loans or withdrawals have been taken. The
amounts would differ if unisex rates were used.
The second column of each table, labeled "Premiums Accumulated at 5%," shows the
amount which would accumulate if an amount equal to the annual premium, (after
taxes) were invested to earn interest at 5% compounded annually. All premium
payments are illustrated as if they were made at the beginning of the year.
The amounts shown for Death Benefits, Cash Values and Surrender Values reflect
the fact that the net investment return on the certificate is lower than the
gross investment return on the Variable Account. This results from the charges
levied against the Variable Account (e.g., the mortality and expense risk
charge) as well as the premium charge, administrative charges and Surrender
Charges. The difference between the Cash Value and the Surrender Value is the
Surrender Charge.
The tables illustrate the cost of insurance and other charges at both current
rates and the maximum rates guaranteed in the certificate. The amounts shown at
the end of each certificate year reflect a daily investment advisory fee
equivalent to an annual rate of 0.4175% of the aggregate average daily net
assets of the Subaccounts. This hypothetical rate is representative of the
average maximum advisory fee applicable to the portfolios in which the
Subaccount invests. Actual fees may vary by Subaccount and are subject to
agreements by the sponsor to waive or otherwise reimburse each Fund for
operating expenses which exceed certain limits. This reimbursement is further
described elsewhere in these prospectuses. There can be no assurance that the
expense reimbursement arrangements will continue in the future, and any
unreimbursed expenses would be reflected in the values included on the tables.
The effect of these investment management expenses on a 0% gross rate of return
would result in a net rate of return of (0.4175)%, on 8% it would be 7.58%, and
on 12% it would be 11.58%.
The tables assume the deduction of charges including administrative and sales
charges. The tables reflect the fact that we do not currently make any charge
against the Variable Account for state or federal taxes. If such a charge is
made in the future, it will take a higher gross rate of return than the rates
shown to produce the Death Benefits, Cash Values and Surrender Values shown.
AAL will furnish, upon request, a comparable illustration based on the proposed
Insured's Issue Age, Risk Class, Sex, Specified Amount, Death Benefit Option and
premium amount requested.
FLEXIBLE PREMIUM VARIABLE UNIVERAL LIFE
Illustration of Death Benefits, Cash Values and Surender Values
Based on Current Charges
Issue Age: 40
Risk Class: Standard Nonsmoker
Death Benefit Option: Level
Specified Amount: $250,000
Sex: Male
Annual Premium: $2,534
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
End of Year Death Benefit Assuming
End of Annual Premium Hypothetical Gross Annual Investment
Certificate Premiums Accumulated Return of
Year Paid at 5% 0% 8% 12%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
1 $2,534 $2,661 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
2 $2,534 $5,454 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
3 $2,534 $8,388 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
4 $2,534 $11,468 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
5 $2,534 $14,702 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
6 $2,534 $18,098 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
7 $2,534 $21,663 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
8 $2,534 $25,407 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
9 $2,534 $29,338 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
10 $2,534 $33,466 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
15 $2,534 $57,414 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
20 $2,534 $87,979 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
25 $2,534 $126,987 $250,000 $250,000 $258,920
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
30 $2,534 $176,774 $250,000 $250,000 $434,286
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Year Cash Value End of Year Surrender Value Assuming
End of Annual Assuming Hypothetical Gross Hypothetical Gross Annual Investment
Certificate Premiums Annual Investment Return of Return of
Year Paid 0% 8% 12% 0% 8% 12%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1 $2,534 $1,607 $1,767 $1,848 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2 $2,534 $3,156 $3,613 $3,852 $115 $572 $811
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3 $2,534 $4,644 $5,541 $6,029 $1,603 $2,500 $2,988
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
4 $2,534 $6,282 $7,776 $8,620 $3,624 $5,118 $5,962
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
5 $2,534 $7,878 $10,140 $11,469 $5,602 $7,865 $9,193
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
6 $2,534 $9,457 $12,670 $14,630 $7,564 $10,776 $12,737
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
7 $2,534 $11,019 $15,374 $18,138 $9,508 $13,863 $16,627
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
8 $2,534 $12,498 $18,200 $21,963 $11,369 $17,072 $20,835
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
9 $2,534 $13,939 $21,202 $26,188 $13,193 $20,456 $25,442
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
10 $2,534 $15,340 $24,390 $30,854 $14,977 $24,026 $30,491
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
15 $2,534 $21,475 $43,369 $62,528 $21,475 $43,369 $62,528
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
20 $2,534 $26,124 $69,968 $117,395 $26,124 $69,968 $117,395
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
25 $2,534 $27,284 $106,013 $212,229 $27,284 $106,013 $212,229
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
30 $2,534 $21,152 $154,952 $374,384 $21,152 $154,952 $374,384
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The values would be different from those shown above if the actual gross annual
rates of return averaged 0%, 8%, and 12% over a period of years but varied above
or below that average during the period. The above values assume no loans or
withdrawals are taken.
FLEXIBLE PREMIUM VARIABLE UNIVERAL LIFE
Illustration of Death Benefits, Cash Values and Surender Values
Based on Maximum Charges
Issue Age: 40
Risk Class: Standard Nonsmoker
Death Benefit Option: Level
Specified Amount: $250,000
Sex: Male
Annual Premium: $2,534
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
End of Year Death Benefit Assuming
End of Annual Premium Hypothetical Gross Annual Investment
Certificate Premiums Accumulated Return of
Year Paid at 5% 0% 8% 12%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
1 $2,534 $2,661 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
2 $2,534 $5,454 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
3 $2,534 $8,388 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
4 $2,534 $11,468 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
5 $2,534 $14,702 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
6 $2,534 $18,098 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
7 $2,534 $21,663 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
8 $2,534 $25,407 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
9 $2,534 $29,338 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
10 $2,534 $33,466 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
15 $2,534 $57,414 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
20 $2,534 $87,979 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
25 $2,534 $126,987 $250,000 $250,000 $250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
30 $2,534 $176,774 $250,000 $250,000 $358,216
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Year Cash Value End of Year Surrender Value Assuming
End of Annual Assuming Hypothetical Gross Hypothetical Gross Annual Investment
Certificate Premiums Annual Investment Return of Return of
Year Paid 0% 8% 12% 0% 8% 12%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1 $2,534 $1,604 $1,764 $1,844 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2 $2,534 $3,147 $3,604 $3,842 $107 $563 $801
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3 $2,534 $4,628 $5,522 $6,008 $1,587 $2,481 $2,967
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
4 $2,534 $6,233 $7,719 $8,558 $3,574 $5,060 $5,900
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
5 $2,534 $7,768 $10,013 $11,332 $5,493 $7,737 $9,056
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
6 $2,534 $9,227 $12,403 $14,343 $7,333 $10,510 $12,450
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
7 $2,534 $10,604 $14,892 $17,616 $9,094 $13,381 $16,106
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
8 $2,534 $11,898 $17,483 $21,176 $10,770 $16,355 $20,048
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
9 $2,534 $13,103 $20,178 $25,050 $12,357 $19,432 $24,305
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
10 $2,534 $14,212 $22,979 $29,268 $13,849 $22,616 $28,905
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
15 $2,534 $17,921 $38,452 $56,676 $17,921 $38,452 $56,676
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
20 $2,534 $17,642 $57,338 $101,695 $17,642 $57,338 $101,695
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
25 $2,534 $9,800 $78,384 $177,156 $9,800 $78,384 $177,156
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
30 $2,534 $0 $99,915 $308,807 $0 $99,915 $308,807
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The values would be different from those shown above if the actual gross annual
rates of return averaged 0%, 8%, and 12% over a period of years but varied above
or below that average during the period. The above values assume no loans or
withdrawals are taken.
FLEXIBLE PREMIUM VARIABLE UNIVERAL LIFE
Illustration of Death Benefits, Cash Values and Surender Values
Based on Current Charges
Issue Age: 40
Risk Class: Standard Nonsmoker
Death Benefit Option: Variable
Specified Amount: $250,000
Sex: Male
Annual Premium: $2,534
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
End of Year Death Benefit Assuming
End of Annual Premium Hypothetical Gross Annual Investment
Certificate Premiums Accumulated Return of
Year Paid at 5% 0% 8% 12%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
1 $2,534 $2,661 $251,603 $251,762 $251,842
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
2 $2,534 $5,454 $253,142 $253,597 $253,835
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
3 $2,534 $8,388 $254,616 $255,508 $255,992
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
4 $2,534 $11,468 $256,236 $257,718 $258,555
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
5 $2,534 $14,702 $257,808 $260,047 $261,361
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
6 $2,534 $18,098 $259,359 $262,531 $264,466
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
7 $2,534 $21,663 $260,887 $265,178 $267,900
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
8 $2,534 $25,407 $262,326 $267,930 $271,627
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
9 $2,534 $29,338 $263,720 $270,840 $275,725
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
10 $2,534 $33,466 $265,068 $273,916 $280,232
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
15 $2,534 $57,414 $270,816 $291,868 $310,259
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
20 $2,534 $87,979 $274,762 $315,853 $360,178
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
25 $2,534 $126,987 $274,711 $345,443 $440,532
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
30 $2,534 $176,774 $266,704 $377,954 $567,288
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Year Cash Value End of Year Surrender Value Assuming
End of Annual Assuming Hypothetical Gross Hypothetical Gross Annual Investment
Certificate Premiums Annual Investment Return of Return of
Year Paid 0% 8% 12% 0% 8% 12%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1 $2,534 $1,603 $1,762 $1,842 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2 $2,534 $3,142 $3,597 $3,835 $101 $557 $795
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3 $2,534 $4,616 $5,508 $5,992 $1,575 $2,467 $2,952
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
4 $2,534 $6,236 $7,718 $8,555 $3,578 $5,060 $5,896
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
5 $2,534 $7,808 $10,047 $11,361 $5,532 $7,771 $9,085
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
6 $2,534 $9,359 $12,531 $14,466 $7,466 $10,638 $12,573
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
7 $2,534 $10,887 $15,178 $17,900 $9,376 $13,667 $16,389
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
8 $2,534 $12,326 $17,930 $21,627 $11,197 $16,802 $20,498
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
9 $2,534 $13,720 $20,840 $25,725 $12,974 $20,094 $24,979
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
10 $2,534 $15,068 $23,916 $30,232 $14,705 $23,553 $29,868
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
15 $2,534 $20,816 $41,868 $60,259 $20,816 $41,868 $60,259
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
20 $2,534 $24,762 $65,853 $110,178 $24,762 $65,853 $110,178
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
25 $2,534 $24,711 $95,443 $190,532 $24,711 $95,443 $190,532
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
30 $2,534 $16,704 $127,954 $317,288 $16,704 $127,954 $317,288
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The values would be different from those shown above if the actual gross annual
rates of return averaged 0%, 8%, and 12% over a period of years but varied above
or below that average during the period. The above values assume no loans or
withdrawals are taken.
FLEXIBLE PREMIUM VARIABLE UNIVERAL LIFE
Illustration of Death Benefits, Cash Values and Surender Values
Based on Maximum Charges
Issue Age: 40
Risk Class: Standard Nonsmoker
Death Benefit Option: Variable
Specified Amount: $250,000
Sex: Male
Annual Premium: $2,534
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
End of Year Death Benefit Assuming
End of Annual Premium Hypothetical Gross Annual Investment
Certificate Premiums Accumulated Return of
Year Paid at 5% 0% 8% 12%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
1 $2,534 $2,661 $251,600 $251,759 $251,839
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
2 $2,534 $5,454 $253,134 $253,588 $253,825
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
3 $2,534 $8,388 $254,600 $255,489 $255,972
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
4 $2,534 $11,468 $256,186 $257,660 $258,492
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
5 $2,534 $14,702 $257,697 $259,917 $261,221
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
6 $2,534 $18,098 $259,123 $262,257 $264,171
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
7 $2,534 $21,663 $260,461 $264,679 $267,358
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
8 $2,534 $25,407 $261,707 $267,184 $270,804
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
9 $2,534 $29,338 $262,855 $269,770 $274,528
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
10 $2,534 $33,466 $263,899 $272,433 $278,551
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
15 $2,534 $57,414 $267,097 $286,551 $303,788
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
20 $2,534 $87,979 $265,901 $301,760 $341,739
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
25 $2,534 $126,987 $256,900 $313,823 $395,781
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
30 $2,534 $176,774 $0 $314,788 $469,823
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Year Cash Value End of Year Surrender Value Assuming
End of Annual Assuming Hypothetical Gross Hypothetical Gross Annual Investment
Certificate Premiums Annual Investment Return of Return of
Year Paid 0% 8% 12% 0% 8% 12%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1 $2,534 $1,600 $1,759 $1,839 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2 $2,534 $3,134 $3,588 $3,825 $93 $547 $784
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3 $2,534 $4,600 $5,489 $5,972 $1,560 $2,448 $2,931
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
4 $2,534 $6,186 $7,660 $8,492 $3,528 $5,001 $5,834
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
5 $2,534 $7,697 $9,917 $11,221 $5,421 $7,641 $8,945
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
6 $2,534 $9,123 $12,257 $14,171 $7,230 $10,364 $12,277
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
7 $2,534 $10,461 $14,679 $17,358 $8,950 $13,168 $15,848
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
8 $2,534 $11,707 $17,184 $20,804 $10,579 $16,056 $19,676
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
9 $2,534 $12,855 $19,770 $24,528 $12,109 $19,024 $23,782
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
10 $2,534 $13,899 $22,433 $28,551 $13,536 $22,070 $28,188
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
15 $2,534 $17,097 $36,551 $53,788 $17,097 $36,551 $53,788
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
20 $2,534 $15,901 $51,760 $91,739 $15,901 $51,760 $91,739
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
25 $2,534 $6,900 $63,823 $145,781 $6,900 $63,823 $145,781
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
30 $2,534 $0 $64,788 $219,823 $0 $64,788 $219,823
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The values would be different from those shown above if the actual gross annual
rates of return averaged 0%, 8%, and 12% over a period of years but varied above
or below that average during the period. The above values assume no loans or
withdrawals are taken.
LEGAL AND ACTUARIAL MATTERS
The legal validity of the certificates described in this prospectus has been
passed upon by Mark J. Mahoney, Esq. of the law department of AAL
Actuarial matters in this prospectus have been examined by David C. Vanden
Heuvel FSA, MAAA Director and Associate Actuary, for AAL. His opinion on
actuarial matters is filed as an exhibit to the registration statement filed
with the Securities and Exchange Commission for the AAL Variable Life Account I.
EXPERTS
The audited consolidated financial statements of Aid Association for Lutherans
at December 31, 1998, and 1997, and for each of the three years in the period
ended December 31, 1998, and AAL Variable Life Account I at December 31, 1998,
and for the period from May 15, 1998 (date operations in commenced), to December
31, 1998, both appearing in the prospectus and registration statement, as set
forth in the reports, are included in reliance on such reports given upon the
authority of such firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of AAL should be considered only as bearing upon the
ability of AAL to meet its obligations under the certificates. The financial
statements of AAL should not be considered as bearing on the investment
experience of the assets held in any Variable Account.
The most current financial statements of AAL are those as of the end of the most
recent fiscal year ended December 31, 1998. AAL does not prepare financial
statements more often than annually in the form required to be included in a
prospectus and believes that any incremental benefit to prospective certificate
owners that may result from preparing and delivering more current financial
statements, though unaudited, does not justify the additional cost that would be
incurred. In addition, AAL represents that there have been no adverse changes in
the financial condition or operations of AAL between the end of the fiscal year
ended December 31, 1998, and the date of this prospectus.
The financial statements of AAL and the financial statements of AAL Variable
Life Account I follow.
Aid Association for Lutherans
Consolidated Financial Statements
December 31, 1998
Contents
Report of Independent Auditors.................................................1
Consolidated Balance Sheets....................................................2
Consolidated Statements of Income..............................................3
Consolidated Statements of Changes in Certificateholders' Surplus..............4
Consolidated Statements of Cash Flows..........................................5
Notes to Consolidated Financial Statements.....................................6
Report of Independent Auditors
The Board of Directors
Aid Association for Lutherans
We have audited the accompanying consolidated balance sheets of Aid Association
for Lutherans (AAL) as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in certificateholders' surplus and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of AAL's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AAL at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years ended December 31, 1998, in conformity with generally
accepted accounting principles.
January 27, 1999
Aid Association for Lutherans
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------------- -------------------
(In Thousands)
<S> <C> <C>
Assets
Investments:
Securities available for sale, at fair value
Fixed maturities $9,067,041 $7,717,917
Equity securities 823,519 681,216
Fixed maturities held to maturity, at amortized cost 3,905,705 4,365,805
Mortgage loans 3,149,509 3,218,193
Real estate 74,529 113,793
Certificate loans 499,509 501,327
Other invested assets 10,425 9,441
------------------- -------------------
Total investments 17,530,237 16,607,692
Cash and cash equivalents 231,761 291,302
Premiums and fees receivable 18,904 13,999
Accrued investment income 198,226 190,776
Deferred acquisition costs 666,837 659,815
Property and equipment 95,057 95,453
Assets held in separate accounts 1,406,402 824,995
Other assets 6,434 7,473
------------------- -------------------
Total Assets $20,153,858 $18,691,505
=================== ===================
Liabilities and Certificateholders' Surplus Certificate liabilities and
accruals:
Future certificate benefits $2,800,287 $2,640,172
Unpaid claims and claim expenses 97,942 97,670
------------------- -------------------
Total certificate liabilities and accruals 2,898,229 2,737,842
Certificateholder funds 13,111,702 12,783,985
Liabilities related to separate accounts 1,406,402 824,995
Other liabilities 189,086 126,616
------------------- -------------------
Total Liabilities 17,605,419 16,473,438
Certificateholders' Surplus
Accumulated surplus 2,137,075 1,890,394
Accumulated other comprehensive income 411,364 327,673
------------------- -------------------
Total Certificateholders' Surplus 2,548,439 2,218,067
------------------- -------------------
Total Liabilities and Certificateholders' Surplus $20,153,858 $18,691,505
=================== ===================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------------- ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
Revenue
Insurance premiums $ 406,153 $ 390,881 $ 364,078
Insurance charges 309,326 297,171 278,774
Net investment income 1,231,684 1,210,481 1,171,590
Net realized investment gains 117,615 107,445 62,959
Other revenue 82,798 68,401 63,141
----------------- ------------------ ------------------
Total revenue 2,147,576 2,074,379 1,940,542
Benefits and expenses
Certificate claims and other benefits 369,443 356,943 345,786
Increase in certificate reserves 172,673 150,754 134,900
Interest credited 800,093 775,196 748,350
Surplus refunds 112,264 109,491 105,997
----------------- ------------------ ------------------
Total benefits 1,454,473 1,392,384 1,335,033
Underwriting, acquisition and insurance
expenses 331,352 329,448 303,162
Fraternal benefits and expenses 115,070 104,279 104,306
----------------- ------------------ ------------------
Total expenses 446,422 433,727 407,468
----------------- ------------------ ------------------
Total benefits and expenses 1,900,895 1,826,111 1,742,501
----------------- ------------------ ------------------
Net income $ 246,681 $ 248,268 $ 198,041
================= ================== ==================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Changes in Certificateholders' Surplus
<TABLE>
<CAPTION>
Accumulated
other Total
Accumulated comprehensive certificateholders'
surplus income surplus
------------------- ----------------------- --------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1,444,085 $ 238,680 $ 1,682,765
Comprehensive income
Net income 198,041 - 198,041
Net increase in unrealized
appreciation of securities
available for sale * - (89,977) (89,977)
------------------- ----------------------- --------------------------
Total comprehensive income 198,041 (89,977) 108,064
Balance at December 31, 1996 1,642,126 148,703 1,790,829
Comprehensive income
Net income 248,268 - 248,268
Net increase in unrealized
appreciation of securities
available for sale * - 178,970 178,970
------------------- ----------------------- --------------------------
Total comprehensive income 248,268 178,970 427,238
Balance at December 31, 1997 1,890,394 327,673 2,218,067
Comprehensive income
Net income 246,681 - 246,681
Net increase in unrealized
appreciation of securities
available for sale * - 83,691 83,691
------------------- ----------------------- --------------------------
Total comprehensive income 246,681 83,691 330,372
Balance at December 31, 1998 $ 2,137,075 $ 411,364 $ 2,548,439
=================== ======================= ==========================
* Net increase in unrealized appreciation of securities available for sale is
reported net of reclassification adjustment calculated as follows:
1998 1997 1996
------------------- ----------------------- --------------------------
Unrealized appreciation of securities
available for sale $ 211,369 $ 247,980 $ (11,170)
Less: reclassification adjustment for
realized gains included in net income 127,678 69,010 78,807
------------------- ----------------------- --------------------------
Net increase (decrease) in appreciation
of securities available for sale $ 83,691 $ 178,970 $ (89,977)
=================== ======================= ==========================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income $246,681 $248,268 $198,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in certificate liabilities and accruals 160,387 131,364 135,911
Increase in certificateholder funds 435,667 424,048 449,570
(Increase) decrease in deferred acquisition costs (8,323) 14,818 (17,547)
Realized gains on investments (105,957) (104,418) (63,219)
Provisions for amortization and depreciation 19,843 17,902 20,309
Changes in other assets and liabilities 50,563 (682) 3,914
----------------- ----------------- -----------------
Net cash provided by operating activities 798,861 731,300 726,979
Investing Activities:
Securities available for sale:
Purchases - fixed maturities (6,269,175) (2,708,407) (2,311,534)
Sales - fixed maturities 4,119,193 1,599,720 1,606,098
Maturities - fixed maturities 847,842 513,605 476,592
Purchases - equities (428,246) (419,487) (203,720)
Sales - equities 402,485 406,714 201,119
Securities held to maturity:
Purchases (294,364) (530,430) (785,732)
Maturities 752,177 576,810 435,374
Mortgage loans funded (244,184) (212,634) (559,005)
Mortgage loans repaid 318,378 308,598 207,904
Certificate loans, net 1,818 (64) (957)
Other 43,623 (6,377) 1,351
----------------- ----------------- -----------------
Net cash used in investing activities (750,453) (471,952) (932,510)
Financing Activities:
Universal life and investment contract receipts 1,029,287 1,051,931 1,086,856
Universal life and investment contract withdrawals (1,137,236) (1,126,545) (940,777)
----------------- ----------------- -----------------
Net cash (used in) provided by financing activities (107,949) (74,614) 146,079
----------------- ----------------- -----------------
Net (decrease) increase in cash and cash equivalents (59,541) 184,734 (59,452)
Cash and cash equivalents, beginning of year 291,302 106,568 166,020
----------------- ----------------- -----------------
Cash and cash equivalents, end of year $231,761 $291,302 $106,568
================= ================= =================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Notes to Consolidated Financial Statements
December 31, 1998
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Aid Association for Lutherans (AAL) is the nation's largest fraternal benefit
society in terms of assets and individual life insurance in force. It provides
its 1.7 million members with life insurance and retirement products (both fixed
and variable), as well as disability income and long-term care insurance, in
most states. Mutual funds are offered to members by AAL Capital Management
Corporation (CMC). AAL Trust Company, FSB (AALTC), which commenced operations in
November of 1998, provides personal asset management, administrative and other
trust services to members. CMC and AALTC are wholly-owned by AAL Holdings Inc.,
AAL's wholly-owned subsidiary. Credit union services are available to members
from the AAL Member Credit Union, an affiliate of AAL. AAL members are served by
nearly 1,700 district representatives across the country.
Basis of Presentation
The accompanying consolidated financial statements of AAL and its wholly-owned
subsidiary have been prepared in accordance with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of AAL, its
wholly-owned subsidiary, AAL Holdings Inc., and its wholly-owned subsidiaries,
including CMC, AALTC and North Meadows Investment Ltd. All significant
intercompany transactions have been eliminated.
The significant accounting practices used in preparation of the financial
statements are summarized as follows:
Investments
Investments in fixed maturities are classified as available for sale or held to
maturity according to the holder's intent. Securities classified in the
available for sale category are carried at fair value and consist of those
securities which AAL intends to hold for an indefinite period of time but not
necessarily to maturity. Securities in the held to maturity category are carried
at amortized cost and consist of those which AAL has both the ability and the
positive intent to hold to maturity.
Changes in fair values of available for sale securities, after adjustment of
deferred acquisition costs (DAC), are reported as unrealized appreciation or
depreciation directly in certificateholders' surplus as other comprehensive
income and, accordingly, have no effect on net income. The DAC offsets to the
unrealized appreciation or depreciation represent valuation adjustments of DAC
that would have been required as a charge or credit to operations had such
unrealized amounts been realized.
The cost of fixed maturity investments classified as available for sale and as
held to maturity is adjusted for amortization of premiums and accretion of
discounts calculated using the effective interest method. That amortization or
accretion is included in net investment income.
Mortgage loans generally are stated at their outstanding unpaid principal
balances. Interest income is accrued on the unpaid principal balance. Discounts
and premiums are amortized to income using the effective interest method.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Investments (Continued)
Investment real estate is valued at original cost plus capital expenditures less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of the property. Real estate expected to
be disposed of is carried at the lower of cost or fair value, less cost to sell.
Certificate loans are generally valued at the aggregate unpaid balances. Other
investments, consisting of limited partnerships, are valued on the equity basis.
All investments are carried net of allowances for declines in value that are
other than temporary; the changes in those reserves are reported as realized
gains or losses on investments.
Realized gains and losses on the sale of investments and declines in value
considered to be other than temporary are recognized in the Consolidated
Statements of Income on the specific identification basis.
Securities loaned under AAL's securities lending agreement are stated in the
Consolidated Balance Sheets at amortized cost or fair market value, consistent
with AAL's classifications of such securities as held to maturity or available
for sale. AAL measures the fair value of securities loaned against the
collateral received on a daily basis. Additional collateral is obtained as
necessary to ensure such transactions are adequately collateralized.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and include all highly liquid
investments purchased with an original maturity of three months or less.
Deferred Acquisition Costs
Costs which vary with and are primarily attributable to the production of new
business have been deferred to the extent such costs are deemed recoverable from
future profits. Such costs include commissions, selling, selection and
certificate issue expenses. For interest sensitive life, participating life and
investment products, these costs are amortized in proportion to estimated
margins from interest, mortality and other factors under the contracts.
Amortization of acquisition costs for other certificates is charged to expense
in proportion to premium revenue recognized.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. The
cost of property and equipment is being depreciated by the straight-line method
over the estimated useful lives. Accumulated depreciation was $94,297,000 and
$113,453,000 at December 31, 1998 and 1997, respectively.
Certificate Liabilities and Accruals
Reserves for future certificate benefits for participating life insurance are
net level reserves computed using the same interest and mortality assumptions as
used to compute cash values. Reserves for future certificate benefits for
non-participating life insurance are also net level reserves, computed using
assumptions as to mortality, interest and withdrawal, with a provision for
adverse deviation. Interest assumptions generally range from 2.5% to 4.0% for
participating life insurance and from 7.8% to 9.6% for non-participating life
insurance.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Certificate Liabilities and Accruals (Continued)
Reserves for future certificate benefits for universal life insurance and
deferred annuities consist of certificate account balances before applicable
surrender charges. The average interest rate credited to account balances in
1998 was 7.4% for universal life, 6.0% for portfolio-average deferred annuities,
and ranged from 4.4% to 7.2% for investment generation deferred annuities (IGA).
Reserves for health certificates are generally computed using current pricing
assumptions. For Medicare supplement, disability income and long term care
certificates, reserves are computed on a net level basis using realistic
assumptions, with provision for adverse deviation.
Claim reserves are established for future payments not yet due on claims already
incurred, relating primarily to health certificates. These reserves are based on
past experience and applicable morbidity tables. Reserves are continuously
reviewed and updated, with any resulting adjustments reflected in current
operations.
Separate Accounts
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable annuity and
variable universal life contracts, and for which the certificateholder, rather
than AAL, bears the investment risk. Fees charged on separate account
certificateholder deposits are included in insurance charges. Separate account
assets, which are stated at fair value based on quoted market prices, and
separate account liabilities are shown separately in the Consolidated Balance
Sheets. Operating results of the separate accounts are not included in the
Consolidated Statements of Income.
Insurance Premiums and Charges
For life and some annuity contracts other than universal life or investment
contracts, premiums are recognized as revenues over the premium paying period,
with reserves for future benefits established on a prorated basis from such
premiums.
Revenues for universal life and investment contracts consist of policy charges
for the cost of insurance, policy administration and surrender charges assessed
during the period. Expenses include interest credited to certificate account
balances and benefits incurred in excess of certificate account balances.
Certain profits on limited payment certificates are deferred and recognized over
the certificate term.
For health certificates, gross premiums are prorated over the contract term of
the certificates with the unearned premium included in the certificate reserves.
Surplus Refunds
Surplus refunds are recognized over the certificate year and are reflected in
the Consolidated Statements of Income. The majority of life insurance
certificates, except for universal life and term certificates, begin to receive
surplus refunds at the end of the second certificate year. Surplus refunds are
not currently being paid on interest-sensitive and health insurance
certificates. Surplus refund scales are approved annually by AAL's Board of
Directors.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Fraternal Benefits
Fraternal benefits and expenses include all fraternal activities as well as
expenses incurred to provide or administer fraternal benefits, and expenses
related to AAL's fraternal character. This would include items such as
benevolences to help meet the needs of people, educational benefits to raise
community and family awareness of an issue, as well as various programs and
church grants. Expenses, such as those necessary to maintain the branch system,
are also included.
Other Revenue
Other revenue consists primarily of concessions and investment advisory fees of
CMC.
Income Taxes
AAL, a fraternal benefit society, qualifies as a tax-exempt organization under
the Internal Revenue Code. Accordingly, income earned by AAL is generally exempt
from taxation. AAL's wholly-owned subsidiary and its subsidiaries are subject to
federal and state taxation; however, the resulting income taxes are not material
to AAL's financial statements.
Recent Pronouncements
As of January 1, 1998, AAL adopted Financial Accounting Standards Board (FASB)
Statement 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on AAL's net income or
certificateholders' surplus. Statement 130 requires unrealized appreciation or
depreciation on AAL's securities available for sale, which prior to adoption
were reported separately in certificateholders' surplus, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.
In June 1998, the FASB issued Statement 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. Because of AAL's minimal involvement with
derivative instruments and hedging activities, management does not anticipate
that the adoption of the new statement will have a significant effect on
earnings or the financial position of AAL.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments
AAL's investments in available for sale securities and held to maturity
securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities at December 31, 1998:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $1,741,661 $17,854 $ (2,203) $1,757,312
Obligations of other
governments, states and
political subdivisions 18,528 996 19,524
-
Corporate bonds 5,862,020 147,705 (28,691) 5,981,034
Mortgage & asset-backed securities 1,292,057 18,926 (1,812) 1,309,171
------------------ --------------- --------------- -----------------
Total fixed maturity securities 8,914,266 185,481 (32,706) 9,067,041
Equity securities 531,061 292,458 823,519
-
------------------ --------------- --------------- -----------------
Total $9,445,327 $477,939 $ (32,706) $9,890,560
================== =============== =============== =================
Held to maturity securities at December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 30,845 $ 1,387 $ (420) $ 31,812
Loan-backed obligations of U.S.
Government corporations
and agencies 320,156 32,406 352,562
-
Obligations of other
governments, states and
political subdivisions 53,983 834 (623) 54,194
Corporate bonds 2,929,495 124,565 (7,503) 3,046,557
Mortgage & asset-backed securities 571,226 14,637 (48) 585,815
------------------ --------------- --------------- -----------------
Total $3,905,705 $173,829 $ (8,594) $4,070,940
================== =============== =============== =================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities at December 31, 1997:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $ 331,935 $ 5,319 $ (297) $ 336,957
Obligations of other
governments, states and
political subdivisions 129,229 3,894 (34) 133,089
Corporate bonds 4,985,444 120,781 (10,917) 5,095,308
Mortgage & asset-backed securities 2,124,120 33,787 (5,344) 2,152,563
------------------ --------------- --------------- -----------------
Total fixed maturity securities 7,570,728 163,781 (16,592) 7,717,917
Equity securities 468,164 213,052 681,216
-
------------------ --------------- --------------- -----------------
Total $8,038,892 $376,833 $ (16,592) $8,399,133
================== =============== =============== =================
Held to maturity securities at December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 38,598 $ 1,729 $ (470) $ 39,857
Loan-backed obligations of U.S.
Government corporations
and agencies 383,182 26,792 (360) 409,614
Obligations of other
governments, states and
political subdivisions 59,550 926 (474) 60,002
Corporate bonds 3,051,373 134,047 (5,725) 3,179,695
Mortgage & asset-backed securities 833,102 17,760 (1,386) 849,477
------------------ --------------- --------------- -----------------
Total $4,365,805 $181,254 $ (8,415) $4,538,645
================== =============== =============== =================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are shown below. 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.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- ----------------- ----------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 256,545 $ 258,984 $ 206,753 $ 210,971
Due after one year through five years 3,411,546 3,478,956 1,272,248 1,317,236
Due after five years through ten years 1,976,689 2,014,414 998,402 1,033,607
Due after ten years 235,768 248,204 536,920 570,749
----------------- ----------------- ----------------- ------------------
Total fixed maturity securities
excluding mortgage and
asset-backed bonds 5,880,548 6,000,558 3,014,323 3,132,563
Loan-backed obligations of U.S.
Government corporations and
agencies 1,741,661 1,757,312 320,156 352,562
Mortgage and asset-backed securities 1,292,057 1,309,171 571,226 585,815
----------------- ----------------- ----------------- ------------------
Total fixed maturity securities $8,914,266 $9,067,041 $3,905,705 $4,070,940
================= ================= ================= ==================
Major categories of AAL's investment income are summarized as follows:
Years Ended December 31
1998 1997 1996
----------------- ----------------- ------------------
(In Thousands)
Fixed maturity securities $ 884,754 $ 854,080 $ 828,565
Equity securities 23,375 20,257 11,030
Mortgage loans 279,025 294,285 284,534
Investment real estate 17,988 19,570 21,998
Certificate loans 35,184 34,993 34,882
Other invested assets 4,628 4,594 6,666
----------------- ----------------- ------------------
Gross investment income 1,244,954 1,227,779 1,187,675
Investment expenses 13,270 17,298 16,085
----------------- ----------------- ------------------
Net investment income $1,231,684 $1,210,481 $1,171,590
================= ================= ==================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
AAL's realized gains and losses on investments are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
--------------- -------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Securities available for sale:
Fixed maturity securities:
Gross realized gains $69,246 $47,366 $41,313
Gross realized losses (16,316) (11,350) (9,058)
Equity securities:
Gross realized gains 76,231 66,140 37,001
Gross realized losses (37,398) (5,537) (7,546)
Other investments, net 25,852 10,826 1,249
--------------- -------------- ---------------
Net realized investment gains $117,615 $107,445 $62,959
=============== ============== ===============
Net unrealized appreciation of securities available for sale credited directly
to certificateholders' surplus as other comprehensive income was as follows:
December 31
1998 1997 1996
--------------- -------------- ---------------
(In Thousands)
Fair value adjustment to available for sale securities $445,233 $360,241 $151,389
Decrease in deferred acquisition costs (33,869) (32,568) (2,686)
--------------- -------------- ---------------
Net unrealized gains on available for sale securities $411,364 $327,673 $148,703
=============== ============== ===============
The net increase (decrease) in accumulated other comprehensive income due to
unrealized appreciation of securities available for sale is as follows:
Years Ended December 31
1998 1997 1996
--------------- -------------- ----------------
(In Thousands)
Fixed maturity securities available for sale $ 5,586 $138,125 $(187,064)
Equity securities available for sale 79,406 70,727 53,659
Deferred acquisition costs (1,301) (29,882) 43,428
--------------- -------------- ----------------
$83,691 $178,970 $(89,977)
=============== ============== ================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
AAL invests in mortgage loans, principally involving commercial real estate.
Such investments consist of first mortgage liens on completed income producing
properties. AAL manages its investments in mortgage loans to limit credit risk
by diversifying among various geographic regions and property types as follows
as of December 31, 1998:
<TABLE>
<CAPTION>
Principal Percent
------------------ ----------
(In Thousands)
<S> <C> <C>
Geographic Region:
Pacific $ 1,034,925 31.7
South Atlantic 1,108,708 33.9
Midwest 612,823 18.8
Other 511,423 15.6
------------------ ----------
Total Mortgage Loans $ 3,267,879 100.0
================== ==========
Property Type:
Office $ 828,505 25.4
Industrial 890,291 27.2
Retail 418,166 12.8
Residential 392,198 12.0
Church 222,635 6.8
Other 516,084 15.8
------------------ ----------
Total Mortgage Loans $ 3,267,879 100.0
================== ==========
The following table presents changes in the allowance for credit losses:
Years Ended December 31
1998 1997 1996
----------------- ----------------- -----------------
(In Thousands)
Balance at January 1 $123,880 $139,702 $134,402
Provisions for credit losses (3,219) (13,264) 9,066
Charge offs (2,291) (2,558) (3,766)
----------------- ----------------- -----------------
Balance at December 31 $118,370 $123,880 $139,702
================= ================= =================
</TABLE>
AAL's investment in mortgage loans includes $198,314,000 and $233,938,000 of
loans that are considered to be impaired at December 31, 1998 and 1997,
respectively, for which the related allowance for credit losses are $38,167,000
and $43,484,000 at December 31, 1998 and 1997, respectively. The average
recorded investment in impaired loans during the years ended December 31, 1998
and 1997, was $216,126,000 and $257,907,000, respectively. AAL recorded interest
income, using the accrual method, on impaired loans of $16,460,000, $18,804,000
and $19,366,000 for 1998, 1997 and 1996, respectively.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 3. Deferred Acquisition Costs
The changes in deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $659,815 $704,515 $643,540
Acquisition costs deferred:
Commissions, net of certificate charges 73,891 76,265 78,627
Other costs 29,072 27,039 27,499
---------------- ---------------- ----------------
Total deferred 102,963 103,304 106,126
Acquisition costs amortized (94,640) (118,122) (88,579)
---------------- ---------------- ----------------
Increase (decrease) in deferred acquisition costs 8,323 (14,818) 17,547
(Decrease) increase related to unrealized
appreciation of fixed maturity investments
recorded directly to certificateholders'
as comprehensive income (1,301) (29,882) 43,428
---------------- ---------------- ----------------
Total increase (decrease) 7,022 (44,700) 60,975
---------------- ---------------- ----------------
Balance at end of year $666,837 $659,815 $704,515
================ ================ ================
</TABLE>
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions
AAL offers a noncontributory defined retirement plan and a contributory savings
plan to substantially all home office and field employees. The savings plan is
defined under the Internal Revenue Code section 401(k) as a profit sharing plan
that allows participant contributions on a before-tax basis as well as an
after-tax basis. AAL also provides postretirement benefits in the form of health
and life insurance for substantially all retired home office and field
personnel.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions (continued)
The following tables set forth the amounts recognized in AAL's financial
statements and the plans' funding status.
<TABLE>
<CAPTION>
Retirement Plans Other Benefits
December 31
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Projected benefit obligation for
services rendered to date $268,685 $236,887 $ 41,527 $ 38,993
Plan assets at fair value 320,987 286,314
- -
----------------- ----------------- ----------------- -----------------
Funded (unfunded) status of
the plan $ 52,302 $ 49,427 $ (41,527) $ (38,993)
================= ================= ================= =================
Accrued liability included in
consolidated balance sheet $ (5,651) $ (1,080) $ (42,987) $ (41,456)
</TABLE>
The following summarizes certain assumptions included in the preceding schedule:
<TABLE>
<CAPTION>
Retirement Plans Other Benefits
Years Ended December 31
1998 1997 1996 1998 1997 1996
------------ ----------- ------------ ----------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 8.0% 7.0% 7.5% 8.0%
Expected return
on plan assets 9.0% 9.0% 8.5% - - -
Rate of compensation
increase 5.0% 5.0% 5.0% - - -
Health care trend rate - - - 6.0% 6.0% 6.0%
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions (continued)
Years Ended December 31
1998 1997 1996
----------- ------------ -----------
(In Thousands)
Savings Plan
Benefit cost $ $ - $
- -
Employer contributions 3,833 3,729 3,609
Employee contributions 14,014 13,360 12,570
Benefits paid 21,804 18,027 12,608
Retirement Plans
Benefit cost $4,571 $4,643 $5,045
Employer contributions 4,771 6,993
-
Employee contributions
- - -
Benefits paid 10,595 9,307 8,729
Other Benefits
Benefit cost $3,669 $3,947 $4,156
Employer contributions
- - -
Employee contributions
- - -
Benefits paid 2,137 2,531 2,159
Note 5. Synopsis of Statutory Financial Results
The accompanying financial statements differ from those prepared in accordance
with statutory accounting practices prescribed or permitted by regulatory
authorities. The more significant differences are as follows: (a) investments in
bonds are reported at amortized cost or at fair value with unrealized holding
gains and losses reported as a separate component of certificateholders'
surplus, depending on their designation at purchase as held to maturity or
available for sale, respectively, rather than being valued based on the bond's
NAIC rating; (b) certain acquisition costs of new business are deferred and
amortized rather than being charged to operations as incurred; (c) the
liabilities for future certificate benefits and expenses are based on reasonably
conservative estimates of expected mortality, interest, withdrawals and future
maintenance and settlement expenses rather than using statutory rates for
mortality and interest; (d) certain assets, principally costs in excess of net
assets acquired, furniture, equipment and agents' debit balances are reported as
assets rather than being charged to certificateholders' surplus and excluded
from the balance sheet; (e) the interest maintenance reserve and asset valuation
reserve are reported as part of certificateholders' surplus rather than as a
liability; and (f) revenues for universal life and investment-type contracts
include mortality, expense and surrender charges levied against the
certificateholders' accounts rather than including as revenues the premiums
received on these certificates. Expenses include interest added to the
certificateholders' accounts rather than reserve changes related to the
investment portion of these policies. Summarized statutory-basis financial
information for AAL on an unconsolidated basis is as follows:
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 5. Synopsis of Statutory Financial Results (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31
1998 1997
------------------ -------------------
(In Thousands)
Assets $19,417,667 $17,974,813
================== ===================
Liabilities $17,899,692 $16,594,333
Unassigned funds 1,517,975 1,380,480
------------------ -------------------
Total liabilities and unassigned funds $19,417,667 $17,974,813
================== ===================
Years ended December 31
1998 1997 1996
---------------- ------------------ -------------------
(In Thousands)
Premium income and certificate proceeds $1,806,096 $1,785,172 $1,663,403
Net investment income 1,218,981 1,205,622 1,162,629
Other income 35,977 27,411 23,647
---------------- ------------------ -------------------
Total income 3,061,054 3,018,205 2,849,679
Reserve increase 569,233 518,656 741,518
Certificateholders' benefits 1,543,577 1,489,662 1,285,702
Surplus refunds 114,728 111,981 107,472
Commissions and operating costs 377,368 362,912 367,155
Other 367,301 365,518 226,097
---------------- ------------------ -------------------
Total benefits and expenses 2,972,207 2,848,729 2,727,944
---------------- ------------------ -------------------
Net gain from operations 88,847 169,476 121,735
Net realized capital gains 44,835 40,281 7,967
---------------- ------------------ -------------------
Net income $ 133,682 $ 209,757 $ 129,702
================ ================== ===================
</TABLE>
AAL is in compliance with the statutory surplus requirements of all states.
Note 6. Fair Value of Financial Instruments
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the accompanying balance sheets for these
instruments approximate their fair values.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 6. Fair Value of Financial Instruments (Continued)
Investment Securities
Fair values for fixed maturity securities are based on quoted market prices
where available, or are estimated using values obtained from independent pricing
services. All fixed maturity issues are individually priced based on year-end
market conditions, the credit quality of the issuing company, the interest rate
and the maturity of the issue. The fair values for investments in equity
securities are based on quoted market prices.
Mortgage Loans
The fair values for mortgage loans are estimated using discounted cash flow
analyses, based on interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations.
Certificate Loans
The carrying amounts reported in the accompanying balance sheets for these loans
are considered to be reasonable estimates of their fair value.
Financial Liabilities
The fair values for AAL's liabilities under investment-type contracts, such as
deferred annuities and other liabilities, including supplementary contracts
without life contingencies, deferred income settlement options and refunds on
deposit, are estimated to be the cash surrender value payable upon immediate
withdrawal. These amounts are included in certificateholder funds in the
accompanying balance sheets.
The cost and estimated fair value of AAL's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- ----------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
------------------ ------------------- ------------------- -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities $12,819,971 $13,137,981 $11,936,533 $12,256,562
Equity securities 531,061 823,519 468,164 681,216
Mortgage loans 3,149,509 3,628,252 3,218,193 3,625,645
Cash and cash equivalents 231,761 231,761 291,302 291,302
Certificate loans 499,509 499,509 501,327 501,327
Financial Liabilities:
Deferred annuities 7,309,453 7,238,292 7,354,135 7,256,623
Variable annuities 1,433,221 1,356,276 842,301 795,052
Other 680,637 677,814 600,588 598,264
</TABLE>
Note 7. Contingent Liabilities
AAL is involved in various lawsuits and contingencies that have arisen from the
normal conduct of business. Contingent liabilities arising from litigation, tax
and other matters are not considered material in relation to the financial
position of AAL. AAL has not made any provision in the financial statements for
liabilities, if any, that might ultimately result from these contingencies.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 8. Year 2000 Issue (Unaudited)
AAL is proceeding with its plan to modify internal information technology to be
ready for the year 2000. AAL has completed its assessment of all systems that
could be significantly affected by the year 2000. Programming to convert
critical mainframe systems and corporate testing is substantially complete. The
project also includes determining whether third-party service providers have
reasonable plans in place to become year 2000 compliant. To date this project
has not had a material effect on operations, nor does AAL expect the project to
have a material effect on future operations.
Management of AAL believes it has an effective plan in place to resolve the year
2000 issue in a timely manner. AAL is currently developing contingency plans in
the event it does not complete all phases of its year 2000 plan. Utilization of
such contingency plans is not expected as the project is substantially complete
and no significant issues have been identified.
AAL Variable Life Account I
Audited Financial Statements
December 31, 1998
Contents
Report of Independent Auditors.................................................1
Statement of Net Assets........................................................2
Statement of Operations........................................................3
Statement of Changes in Net Assets.............................................4
Notes to Financial Statements..................................................5
Report of Independent Auditors
The Board of Directors and Certificate Owners
Aid Association for Lutherans
We have audited the accompanying statement of net assets of the AAL Variable
Life Account I (comprising, respectively, the Money Market, Bond, Balanced,
Large Company Stock, Small Company Stock, International Stock, and High Yield
Bond Subaccounts) as of December 31, 1998, and the related statements of
operations and changes in net assets for the period from May 15, 1998 (date
operations commenced) to December 31, 1998. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the AAL Variable Life Account I at December 31, 1998,
and the results of their operations and changes in their net assets for the
period then ended, in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin
January 27, 1999
AAL Variable Life Account I
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments in AAL Variable Product Series Fund, Inc.:
Money Market Subaccount:
Money Market Portfolio, 344,876 shares at net asset value of
$1.00 per share (cost $344,876) $ 344,923
Bond Subaccount:
Bond Portfolio, 2,505 shares at net asset value of $10.36 per
share (cost $26,117) 25,942
Balanced Subaccount:
Balanced Portfolio, 37,878 shares at net asset value of $15.97
per share (cost $577,403) 604,729
Large Company Stock Subaccount:
Large Company Stock Portfolio, 94,418 shares at net asset
value of $22.90 per share (cost $1,899,896) 2,162,697
Small Company Stock Subaccount:
Small Company Stock Portfolio, 39,678 shares at net asset
value of $12.39 per share (cost $514,386) 491,803
International Stock Subaccount:
International Stock Portfolio, 10,230 shares at net asset
value of $11.05 per share (cost $104,806) 112,960
High Yield Bond Subaccount:
High Yield Bond Portfolio, 7,723 shares at net asset value
of $8.95 per share (cost $69,380) 69,110
-------------------
Total Investments (cost $3,536,864) 3,812,164
Liabilities -
-------------------
Net Assets $ 3,812,164
===================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Unit Extended
Units Value Value
---------------- ------------- --------------------
Net Assets are represented by:
Money Market Subaccount 333,936 1.03 $ 344,923
Bond Subaccount 2,443 10.62 25,942
Balanced Subaccount 55,272 10.94 604,729
Large Company Stock Subaccount 193,053 11.20 2,162,697
Small Company Stock Subaccount 54,240 9.07 491,803
International Stock Subaccount 11,016 10.25 112,960
High Yield Bond Subaccount 7,244 9.54 69,110
--------------------
Total Net Assets $ 3,812,164
====================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
AAL Variable Life Account I
Statement of Operations
For the Period May 15, 1998 (1) to December 31, 1998
<TABLE>
<CAPTION>
Large Small High
Money Company Company International Yield
Market Bond Balanced Stock Stock Stock Bond
Combined Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ----------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 18,797 $ 5,267 $ 353 $ 4,337 $ 6,674 $ 761 $ 8 $ 1,397
Capital gain distributions
87,547 - - 9,104 1,303 77,140 - -
----------- ----------- ----------- ----------- ----------- ----------- ------------ -------------
Total investment income
106,344 5,267 353 13,441 7,977 77,901 8 1,397
Expenses-mortality and expense
risk charges
6,517 1,174 34 840 3,392 802 184 91
----------- ----------- ----------- ----------- ----------- ----------- ------------ -------------
Net investment income (loss)
99,827 4,093 319 12,601 4,585 77,099 (176) 1,306
Net realized and unrealized gain
(loss) on investments:
Net realized (loss) gain from
investment transactions
(4,662) - 4 (987) (41) (3,185) (123) (330)
Change in unrealized
appreciation (depreciation)
of investments
275,254 - (175) 27,325 262,802 (22,581) 8,154 (271)
----------- ----------- ----------- ----------- ----------- ----------- ------------ -------------
Net gain (loss) on investments
270,592 - (171) 26,338 262,761 (25,766) 8,031 (601)
----------- ----------- ----------- ----------- ----------- ----------- ------------ -------------
Net increase in net assets
resulting from operations $ 370,419 $ 4,093 $ 148 $ 38,939 $ 267,346 $ 51,333 $ 7,855 $ 705
=========== =========== =========== =========== =========== =========== ============ =============
</TABLE>
(1) Commencement of operations
The accompanying notes to the financial statements are an integral part of this
statement.
AAL Variable Life Account I
Statement of Changes in Net Assets
For the Period May 15, 1998 (1) to December 31, 1998
<TABLE>
<CAPTION>
Large Small High
Money Company Company International Yield
Market Bond Balanced Stock Stock Stock Bond
Combined Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ----------- ----------------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net assets
Net investment income (loss)
99,827 4,093 319 12,601 4,585 77,099 (176) 1,306
Net realized (loss) gain from
investment transactions
(4,662) - 4 (987) (41) (3,185) (123) (330)
Change in unrealized appreciation
(depreciation) of investments
275,254 - (175) 27,325 262,802 (22,581) 8,154 (271)
---------- ----------------------- ----------- ------------ ------------------------- -----------
Net increase in net assets
resulting from operations
370,419 4,093 148 38,939 267,346 51,333 7,855 705
Policy related transactions
Transfers of net premiums
3,640,935 1,888,524 5,477 297,821 1,046,253 290,822 77,057 34,981
Transfers of surrenders and
terminations
(1,720) (5) - - (808) (662) (60) (185)
Policy loan transfers
(2,000) - - (2,000) - - - -
Cost of insurance and administrative
charges (187,962) (39,198) (701) (26,503) (79,926) (32,944) (6,043) (2,647)
Transfers between subaccounts
(7,508) (1,508,491) 21,018 296,472 929,832 183,254 34,151 36,256
--------- ----------------------- ----------- ------------ ------------------------- -----------
Net increase in net assets
resulting from policy related
transactions
3,441,745 340,830 25,794 565,790 1,895,351 440,470 105,105 68,405
--------- ----------------------- ----------- ------------ ------------------------- -----------
Total increase
3,812,164 344,923 25,942 604,729 2,162,697 491,803 112,960 69,110
--------- ----------------------- ----------- ------------ ------------------------- -----------
Net assets at December 31, 1998 $3,812,164 $ 344,923 $ 25,942 $ 604,729 $ 2,162,697 $ 491,803 $ 112,960 $ 69,110
========== ======================= =========== ============ ============= =========== ===========
</TABLE>
(1) Commencement of operations
The accompanying notes to the financial statements are an integral part of this
statement.
AAL Variable Life Account I
Notes to Financial Statements
December 31, 1998
Note 1. Summary of Significant Accounting Policies
The AAL Variable Life Account I (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within Aid Association for Lutherans (AAL) to
fund flexible premium variable universal life insurance certificates. The
Account commenced operations on May 15, 1998.
The Account has seven separate subaccounts, each of which invests solely, as
directed by certificate owners, in a different portfolio of AAL Variable Product
Series Fund, Inc. (the Fund), an open-end, diversified management investment
company sponsored by AAL. Certificate owners also may direct investments to a
guaranteed interest subaccount held in the general account of AAL.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The first-in,
first-out basis has been used in determining the net realized gain or loss from
investment transactions and unrealized appreciation or depreciation of
investments. Dividends and capital gain distributions paid to the Account are
automatically reinvested in shares of the Fund on the payment date.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Note 2. Expense Charges
The Account pays AAL certain amounts relating to the distribution and
administration of the certificates funded by the Account and as reimbursement
for certain mortality and other risks assumed by AAL. The following summarizes
those amounts.
Mortality and expense risks assumed by AAL are compensated for by a charge
equivalent to an annual rate of approximately 0.75% of the total subaccount cash
value during the first 15 years dropping to approximately 0.25% thereafter. A
per policy monthly administration charge of $4 and a cost of insurance charge,
which varies by risk class, sex, amount at risk, and age, is deducted as
compensation for administrative and insurance expenses, respectively. A sales
charge of 3.0% is deducted from each participant payment to cover sales and
other expenses and to provide support for AAL's fraternal activities. In
addition, a surrender charge is imposed in the event the certificate is
surrendered or the specified amount is reduced. The initial surrender charge is
based on an amount per thousand of specified coverage for which the certificate
is issued. The amount per thousand varies by risk class, sex, and issue age. The
cash value is reduced by the surrender charge. The charge decreases over the
first 10 certificate years to zero in the 11th certificate year.
Note 3. Federal Income Taxes
The operations of the Account form a part of the operations of AAL. AAL, a
fraternal benefit society, qualifies as a tax-exempt organization under the
Internal Revenue Code. Under current law, no federal income taxes are payable
with respect to the Account's net investment income and net realized gains on
investments. Accordingly, no charge for income taxes is currently being made to
the Account. If such taxes are incurred by AAL in the future, a charge to the
Account may be assessed.
AAL Variable Life Account I
Notes to Financial Statements (Continued)
Note 4. Investment Transactions
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
Period May 15, 1998 to December 31, 1998 Purchases Sales
------------------ ---------------
Money Market Subaccount $ 1,259,772 $ 914,896
Bond Subaccount 26,411 298
Balanced Subaccount 641,271 62,882
Large Company Stock Subaccount 1,902,143 2,206
Small Company Stock Subaccount 530,246 12,675
International Stock Subaccount 105,905 976
High Yield Bond Subaccount 74,579 4,869
------------------ ---------------
Combined $ 4,540,327 $ 998,802
================== ===============
Note 5. Summary of Changes from Unit Transactions
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
Units Sold Units Redeemed Net Increase
------------------------------- ------------------------------- -------------------------------
Units Amount Units Amount Units Amount
-------------- --------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Period May 15, 1998 to
December 31, 1998
Money Market Subaccount
1,848,895 $ 1,888,524 1,514,959 $ 1,547,694 333,936 $ 340,830
Bond Subaccount
2,512 26,495 69 701 2,443 25,794
Balanced Subaccount
58,110 594,293 2,838 28,503 55,272 565,790
Large Company Stock
Subaccount
201,345 1,976,085 8,292 80,734 193,053 1,895,351
Small Company Stock
Subaccount
58,402 474,076 4,162 33,606 54,240 440,470
International Stock Subaccount
11,681 111,208 665 6,103 11,016 105,105
High Yield Bond Subaccount
7,555 71,237 311 2,832 7,244 68,405
-------------- --------------- -------------- --------------- -------------- ---------------
Combined
2,188,500 $ 5,141,918 1,531,296 $ 1,700,173 657,204 $ 3,441,745
============== =============== ============== =============== ============== ===============
</TABLE>
AAL Variable Life Account I
Notes to Financial Statements (Continued)
Note 6. Net Assets
The Account has an unlimited number of accumulation units authorized with no par
value. Net assets as of December 31, 1998, consisted of:
<TABLE>
<CAPTION>
Large Small High
Money Company Company International Yield
Market Bond Balanced Stock Stock Stock Bond
Combined Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paid-in capital $ 3,629,707 $ 380,028 $ 26,495 $ 592,292 $1,975,277 $ 473,415 $ 111,148 $ 71,052
Accumulated undistributed net
investment income (loss) $ (88,135)
(35,105) (382) (13,901) (75,341) 44,154 (6,219) (1,341)
Accumulated undistributed net
realized gain (loss) from
investment transactions $ (4,662)
- 4 (987) (41) (3,185) (123) (330)
Net unrealized appreciation
(depreciation) of investments
275,254 - (175) 27,325 262,802 (22,581) 8,154 (271)
----------- ----------- ---------- ------------- ------------- ------------ ------------ -----------
Net assets $ 3,812,164 $ 344,923 $ 25,942 $ 604,729 $2,162,697 $ 491,803 $ 112,960 $ 69,110
=========== =========== ========== ============= ============= ============ ============ ===========
</TABLE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Bylaws of Aid Association for Lutherans do provide for the indemnification
of officers, directors, employees or agents of the Company.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
AAL represents that the fees and charges deducted under the Certificate, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by AAL.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross Reference Sheet.
The prospectus consisting of ___ pages. Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons:
Mark J. Mahoney, Esq.
Quarles & Brady
Ernst & Young LLP
David Vanden Heuvel Actuary
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
1.A.
(1) Resolution of the Board of Directors of Aid Association for Lutherans
establishing AAL Variable Life Account I*
(2) Not Applicable
(3) (a) Underwriting Agreement & First Amendment to Amended & Restated
Principal Underwriting & Services Agreement, dated 3/15/99***
(b) Distribution Agreement (Registered Representative Contract)****
(c) Amendment to and Trade Name/Service Mark Agreement dated
3/15/99.***
(d) Schedule of Sales Commissions****
(4) Not applicable
(5) (a) Specimen Flexible Premium Variable Universal Life Insurance
Certificates*
(b) Certificate Riders and Endorsements*
(c) Application Forms (Adult and Juvenile)****
(6) (a) Articles of Incorporation of Aid Association for Lutherans*
(b) By-laws of Aid Association for Lutherans***
(7) Not applicable
(8) (a) Amended and Restated Participation agreement, dated 3/15/99.***
(b) Amendment & Restated Transfer Agency Agreement, dated 3/15/99.***
(9) Not applicable
(10) Not applicable
B. Not applicable
C. Not applicable
2. Opinion and consent of Mark J. Mahoney, Esq., as to the legality of the
securities being registered **
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of David C. Vanden Heuvel, FSA, MAAA Director and
Associate Actuary , as to actuarial matters pertaining to the securities
being registered.**
7. (a) Consent of Ernst & Young LLP, Independent Accountants
(b) Consent of Quarles and Brady.
Powers of Attorney*
Power of Attorney for James H. Scott
*Incorporated by reference from the registration statement filed on Form S-6 on
July 10, 1997 by registrant (file numbers 333-31011, 811-08289)
**Incorporated by reference from the registration statement filed on Form S-6 on
November 20, 1997 by registrant (file numbers 333-31011, 811-08289)
***Incorporated by reference from the registration statement filed on Form N-4
on April 22, 1999 by AAL Variable Annuity Account I (file numbers 33-82054,
811-8600)
****Incorporated by reference from the registration statement filed on Form S-6
on March 31, 1998 by registrant (File No. 333-31011, 811-08289)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this amendment to its
Registration Statement pursuant to rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Appleton, and State of
Wisconsin on the 22nd day of April 1999.
<TABLE>
<CAPTION>
<S> <C>
AAL VARIABLE LIFE ACCOUNT I
(Registrant)
[SEAL]
By: Aid Association for Lutherans
(Depositor, on behalf of itself and Registrant)
Attest: /s/ Woodrow E. Eno By: /s/ John O. Gilbert
----------------------------------- ---------------------------------------
Woodrow E. Eno John O. Gilbert
Senior Vice President, President and
Secretary and General Counsel Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed below by the following persons in the capacities
indicated.
/s/ John O. Gilbert President and Chief Executive Officer
- --------------------------------- (Principal Executive Officer)
John O. Gilbert
/s/ Carl J. Rudolph Vice President, Controller, Treasurer and
- --------------------------------- Chief Financial Officer
Carl J. Rudolph (Principal Financial Officer,
Principal Accounting Officer)
All of the Board of Directors:
Herbert J. Arkebauer John O. Gilbert Paul D. Schrage
Raymond G. Avischious Gary J. Greenfield James H. Scott
Richard E. Beumer Richard L. Gunderson Kathi P. Seifert
Kenneth Daly Robert H. Hoffman Roger B. Wheeler
Elizabeth A. Duda Robert E. Long E. Marlene Wilson
Edward A. Engel Robert B. Peregrine Rev. Thomas R. Zehnder
John O. Gilbert, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named Directors of Aid Association for
Lutherans pursuant to powers of attorney duly executed by such persons.
/s/ John O. Gilbert April 22, 1999
- ------------------------------------
John O. Gilbert
Attorney-in-Fact
Exhibit Index
1.A.
(1) Resolution of the Board of Directors of Aid Association for Lutherans
establishing AAL Variable Life Account I *
(2) Not Applicable
(3) (a) Underwriting Agreement & First Amendment to Amended & Restated
Principal Underwriting & Services Agreement, dated 3/15/99***
(b) Distribution Agreement (Registered Representative Contract)****
(c) Amendment to and Trade Name/Service Mark Agreement, dated
3/15/99 ***
(d) Schedule of Sales Commissions ****
(4) Not applicable
(5) (a) Specimen Flexible Premium Variable Universal Life Insurance
Certificates*
(b) Certificate Riders and Endorsements*
(c) Application Forms (Adult and Juvenile)****
(6) (a) Articles of Incorporation of Aid Association for Lutherans*
(b) By-laws of Aid Association for Lutherans***
(7) Not applicable
(8) (a) Amended and Restated Participation Agreement, dated 3/15/99.***
(b) Amended and Restated Transfer Agency Agreement, dated 3/15/99.***
(9) Not applicable
(10) Not Applicable
B. Not applicable
C. Not applicable
2. Opinion and consent of Mark J. Mahoney, Esq., as to the legality of the
securities being registered**
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of David C. Vanden Heuvel, FSA, MAAA Director and
Associate Actuary , as to actuarial matters pertaining to the securities
being registered**
7. (a) Consent of Ernst & Young LLP, Independent Accountants
(b) Consent of Quarles & Brady
Powers of Attorney*
Power of Attorney for James H. Scott
* Incorporated by reference from the registration statement filed on Form S-6 on
July 10, 1997 by registrant (File No. 333-31011, 811-08289)
** Incorporated by reference from the registration statement filed on Form S-6
on November 20, 1997 by registrant (File No. 333-31011, 811-08289)
*** Incorporated by reference from the registration statement filed on Form N-4
on April 22, 1999, by AAL Variable Annuity Account I (File No.33-82054,
811-8600)
**** Incorporated by reference from the registration statement filed on Form S-6
on March 31, 1998 by registrant (File No. 333-31011, 811-08289)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated January 27, 1999, with respect to Aid Association for
Lutherans, and to the use of our report dated January 27, 1999 with respect to
AAL Variable Life Account I, in this Post-Effective Amendment No. 3 to Form S-6
Registration Statement under the Securities Act of 1933 (File No. 333-31011) and
this Amendment No. 2 to the Registration Statement under the Investment Company
Act of 1940 (File No. 811-08289) and related Prospectus of AAL Variable Life
Account I.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
Milwaukee, Wisconsin
April 20, 1999
411 East Wisconsin Avenue Attorneys at Law in
Milwaukee, Wisconsin 53202-4497 Milwaukee and Madison, Wisconsin
414/277-5000 West Palm Beach and Naples, Florida
FAX 414/271-3552 Phoenix, Arizona
http://www.quarlescom
Quarles & Brady LLP
Direct Dial: (414) 277-5677
E-Mail: [email protected]
March 22, 1999
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 5th Street, N.W.
Washington, D.C. 20549
Re: AAL Variable Life Account I (The "Registrant")
1933 Act Reg. No. 333-31011
1940 Act File No. 811-08289
Post-Effective Amendment No. 3 to Form S-6
Filed in Accordance with Rule 485(b)
Ladies and Gentlemen:
This letter is submitted in connection with the filing, pursuant to
Rule 485(b) under the Securities Act of 1933, as amended, (The "1933 Act"), of
Post-Effective Amendment No. 3 (the "Amendment") to the Registrant's
Registration Statement on Form S-6 (the "Registration Statement").
The Registrant's initial Registration Statement was prepared in light
of the principles of prospectus simplification and Plain English,
notwithstanding that the Commission's Plain English rules were not effective at
the time the Registration Statement was filed. The structure and style of the
Prospectus and Statement of Additional Information included in the initial
Registration Statement complied substantially with the Commission's Plain
English rules.
On February 2, 1999, a representative of our office discussed with
Susan Olson the Registrant's plan to file an annual updating amendment under
Rule 485(b) in anticipation that it would not be necessary to make other than
non-material changes to the Registration Statement in order to achieve full
compliance under the Plain English rules. Ms. Olson confirmed that, assuming
only non-material changes would be made in response to the Plain English rules,
Rule 485(b) would be available for the filing of the annual updating amendment
to the Registration Statement.
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Securities and Exchange Commission
March 22, 1999
Page 2
As legal counsel to the Registrant, we assisted in the preparation of
the Amendment and we certify that the Amendment does not contain any disclosure
that would render it ineligible to become effective automatically on May 1,
1999, pursuant to Rule 485(b) under the 1933 Act.
Please direct any questions or comments regarding this filing to the
undersigned at (414) 277-5677.
Very truly yours,
QUARLES & BRADY LLP
/s/ Cheryl A. Johnson
Cheryl A. Johnson
CAJ:jmf
