1933 Act Registration No. 333-31011
1940 Act Registration No. 811-08289
As filed with the Securities and Exchange Commission on April 20, 2000.
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OF SECURITIES OF
UNIT INVESTMENT TRUST REGISTERED ON
FORM N-8B-2
Post-Effective Amendment No. 4 X
AAL VARIABLE LIFE ACCOUNT I
(Exact name of trust)
Aid Association for Lutherans
(Name of Depositor)
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (920) 734-5721
WOODROW E. ENO, ESQ.
Senior Vice President, Secretary and General Counsel of
AID ASSOCIATION FOR LUTHERANS
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b):
X on May 1, 2000 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2)
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Approximate Date of Proposed Public Offerings: Continuous
AAL VARIABLE LIFE ACCOUNT I
Prospectus
May 1, 2000
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 who serve or are associated with Lutherans or Lutheran
organizations, but who are not Lutheran. AAL offers life insurance, certain
types of health insurance products and annuities, to its members and to
employees of AAL, its subsidiaries and affiliated companies who reside in
Wisconsin. 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 choose the timing and amounts of your premium
payments and allocate your cash value among the subaccounts and the fixed
account. You may use your cash value to keep your certificate in force, or
borrow a portion of it.
You can surrender your certificate and receive the cash value less any
surrender charges and loans. Your certificate's cash value allocated to the
subaccounts will vary with the investment experience of the subaccounts 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 AAL Variable Life Account I (the
variable account) and the certificate that you should know before you invest.
Each subaccount of the variable account invests in a portfolio of the AAL
Variable Product Series Fund, Inc. 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 (920)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 PUPOSE 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
PREMIUMS
INVESTMENT OPTIONS
CASH VALUE
CHARGES
FUND EXPENSES
ACCESS TO CASH VALUE
CERTIFICATE TERMINATION
PAYOUT OPTIONS
HOW TO MAKE PAYMENTS AND RECEIVE SERVICE
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
OTHER CONSIDERATIONS
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.
AAL CMC: 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 AAL CMC.
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
"Cash Value" section 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 "Cash Value" section 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 value(s) 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
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 "Premiums" section 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 AAL deducts charges 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 AAL
issued the certificate. 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 AAL issued
the certificate. 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 of this prospectus.
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.
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,which 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. Please refer to the rest of this prospectus for
additional details.
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, 1999,
AAL has approximately 1.7 million members and is the world's largest fraternal
benefit society in terms of assets (over $27 billion) and life insurance in
force ($88 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. See "Benefits."
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. See the "Premiums" section of this prospectus.
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 life insurance in effect, you should maintain your death benefit
guarantee. You do this by paying your death benefit guarantee premiums and
refrain from taking loans and/or partial withdrawals. It is very important to
pay the death benefit guarantee premiums, or more, in the earlier years of your
certificate. This builds your cash value, making it more likely that your
certificate will have enough cash value to pay certificate charges during any
period of adverse investment returns.
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. See the "Premiums" section of this
prospectus.
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 net premiums (premiums minus the 3% premium
expense charge) among the subaccounts and the fixed account. See "Investment
Options."
Each subaccount invests in a portfolio of the AAL Variable Product Series Fund,
Inc., a mutual fund. The current portfolios are Small Company Stock,
International Stock, Large Company Stock, Balanced, High Yield Bond, Bond and
Money Market. Each portfolio has a different investment objective. Each
subaccount's cash value will increase or decrease based on the investment
experience of that subaccount's portfolio.
Net 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).
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. See "Cash Value."
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, which replace and are generally equivalent to corporate
taxes. See "Charges." 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
AAL bears. Currently, during the first 15 certificate 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.
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 "Charges."
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 Small Company Stock, Large Company
Stock, Balanced, Bond and Money Market 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 theaverage annual daily net assets of the High Yield Bond Potfolio.
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
1999 would have been:
PORTFOLIO TOTAL ANNUAL FUND EXPENSES
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- ------------------------------------- -----------------------------------
Small Company Stock 0.41%
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- ------------------------------------- -----------------------------------
International Stock 1.13%
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- ------------------------------------- -----------------------------------
Large Company Stock 0.35%
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
Balanced 0.36%
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
High Yield Bond 0.50%
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- ------------------------------------- -----------------------------------
Bond 0.44%
- ------------------------------------- -----------------------------------
- ------------------------------------- -----------------------------------
Money Market 0.41%
- ------------------------------------- -----------------------------------
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 partial
withdrawal, loan, or full surrender. See "Access to Cash Value."
You may take up to 92% of your surrender value out as a loan. You will be
charged 8% per year on the loan balance until you reach your 15th certificate
anniversary. Thereafter the rate will drop to 7 1/4% per year.
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 surrender value, which
equals the cash value less any surrender charge and outstanding loans (including
interest you owe).
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. There may be tax consequences when money is received from a certificate.
Please consult with your tax adviser.
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. This may occur
because of the deduction of these charges and for negative or insufficient
performance of subaccounts selected. If this happens, you have a short period to
pay enough premiums to keep the certificate in effect. See "Certificate
Termination." 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.
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 loan 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:
- you do not expect your insurance needs to generally increase; or
- 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.
There may be tax consequences when you change your death benefit option. Please
consult your tax adviser.
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.
There may be tax consequences when you change your death benefit option. Please
consult your tax adviser.
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.
There may be tax consequences when you change your death benefit option. Please
consult your tax adviser.
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 times the number of months
since the certificate issue date, plus any outstanding loan balance, 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. To
keep your life insurance in effect, you should maintain your death benefit
guarantee You do this by paying your death benefit guarantee premiums and
refrain from taking loans and/or partial withdrawals. It is very important to
pay the death benefit guarantee premiums, or more, in the earlier years of your
certificate. This builds your cash value, making it more likely that your
certificate will have enough value to pay certificate charges during any period
of adverse investment returns.
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 prior to receipt by the owner. To qualify
for this exclusion, federal tax law limits the premiums you may pay and requires
that the 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 subaccounts and fixed
account. 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 net 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. Net
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 4:00 P.M. Eastern 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" in the "Definitions" section of this prospectus.
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 of this prospectus. In these cases, AAL
reserves the right to allocate net 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 net 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 1940 Act. 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:
Small Company Stock, International Stock, Large Company Stock, Balanced, High
Yield Bond, Bond and Money Market. 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
increase or decrease based on the investment experience of that subaccount's
corresponding Fund portfolio. You bear the investment risk for amounts in the
subaccount(s).
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. AAL served as the Funds' investment adviser until December 31, 1999.
As of January 1, 2000, AAL Capital Management Corporation (AAL CMC) became the
Funds' investment adviser.
Shares of the Fund are currently offered to the AAL Variable Annuity Account I,
AAL Variable Annuity Account II and to the AAL Variable Life Account I to fund
benefits payable under the certificates issued through each account. 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.
AAL currently does not forsee any disadvantage to owners arising from the sale
of Fund shares to support variable life insurance certificates and variable
annuity certificates, or from shares being sold to separate accounts of
insurance companies that may be affiliated with AAL. However, AAL will monitor
events in order to identify any material irreconcilable conflicts that may
arise, and will determine what action, if any, it should take in response to
those conflicts. In addition, if AAL believes that the Fund's response to any of
those conflicts insufficiently protects owners, we will take appropriate action
on our own.
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.
AAL CMC, a subsidiary of AAL, also offers mutual funds. The investment
objectives and policies of certain Fund portfolios are similar to the investment
objectives and policies of other portfolios that AAL CMC may manage. The
investment results of the Fund portfolios may be higher or lower than the
results of other such portfolios. There can be no assurance, and AAL makes no
representation, that the investment results of any of the Fund portfolios will
be comparable to the investment results of any other portfolio, even if the
other portfolio has the same investment adviser or sub-adviser.
INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS
The Small Company Stock Portfolio seeks to achieve investment results that
approximate the performance of the Standard & Poor's SmallCap 600 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 Large Company Stock Portfolio seeks to achieve investment results that
approximate the performance of the Standard & Poor's 500 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 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.
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 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.
* "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 securites 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.
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; and
- 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, to 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 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. To the extent that
sales expenses are not recovered from this charge, AAL may recover these
expenses from other sources, including the mortality and expense risk charge
described below.
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% of the
total subaccount cash value (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.
FUND EXPENSES
The value of the variable account's net assets will reflect the investment
advisory fee and other expenses incurred by the underlying Fund portfolios. For
more information on these fees and expenses, see the "Portfolio Expenses" table
included in the "Certificate Summary" section of the prospectus.
ACCESS TO CASH VALUE
PARTIAL WITHDRAWALS
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.
- - A partial withdrawal may have tax consequences. See "Federal Tax Matters."
LOANS
You may borrow up to 92% of your surrender 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.
A loan may have tax consequences. See "Federal Tax Matters."
SURRENDER
You may surrender this certificate for its surrender value by sending a written
request to AAL.
A surrender may have tax consequences. See "Federal Tax Matters."
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.
Amounts paid pursuant to a payout option do not vary with the investment
performance of the variable account. 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 AAL CMC. 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
at www.aal.org.
TIMELY PROCESSING
AAL will process all requests in a timely fashion. Requests received by 4:00
p.m. Eastern Time on a valuation date will use the certificate's cash value as
of the close of business on 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 NYSE 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; and
- 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 telephone 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.
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 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
AAL offers special insurance certificate forms for insureds issue age 15 and
under. Under the terms of these certificates, 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. The transfer of ownership may be a taxable event.
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.
A collateral assignment of the certificate may have tax consequences. See
"Federal Tax Matters."
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:
Raymond G. Avischious Director
President and Chief Executive Officer,
Shurfine Central Corp.
Richard E. Beumer Director
President and Chief Executive Officer,
Sverdrup Corporation
Kenneth Daly Director
Partner, KPMG Peat Marwick LLP
Elizabeth A. Duda Director
Edward A. Engel Director
President, E. A. Engel & Associates
Gary J. Greenfield Director
President, Wisconsin Lutheran College
Robert H. Hoffman Director
Executive, Taylor Corp.
Robert E. Long Director
Senior Vice President, Park Bank
Robert B. Peregrine Director
Attorney, Peregrine Law offices, S. C.
Paul D. Schrage Director
Senior Executive Vice President and
Chief Marketing Officer, McDonald's
Corporation
James H. Scott Director
Principal, Miller Anderson & Shernerd
Vice President, Corporate Secretary and
Assistant Treasurer, Texas Utilities Company
Kathi P. Seifert Director
Group President, Kimberly Clark Corp.
Roger G. Wheeler Director
President, Wheel-Air, Inc.,
Wheel-Air Charter, Inc.
E. Marlene Wilson Director
President, Volunteer Management Associates
Rev. Thomas R. Zehnder Director
President, Florida-Georgia District,
Lutheran Church Missouri Synod
John O. Gilbert Chairman of the Board,
President and Chief Executive
Officer
Woodrow E. Eno Senior Vice President,
Secretary and General Counsel
Steven A. Weber Senior Vice President
Jon Stellmacher Senior Vice President
Fred Ohlde Senior Vice President
Walter S. Rugland Executive Vice President and
Chief Operating Officer
Carl J. Rudolph Sr. Vice President,
Controller, Treasurer and
Chief Financial Officer
James H. Abitz Sr. Vice President and Chief
Investment Officer
Robert G. Same Vice President, Deputy General
Counsel and Chief Compliance
Officer
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. Although there is limited
guidance, 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 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. If a loan is outstanding when
a certificate that is not a MEC is canceled or lapses, the amount of
the outstanding indebtedness will be added to the amount distributed and will be
taxed accordingly. 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 generally 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 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. This means that a
distribution from a certificate that is not a MEC at the time when the
distribution is made could later become taxable as a distribution from 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
Section 817(h) of the Internal Revenue Code requires that the investments of the
variable account be "adequately diversified" in order for the contract to be
treated as a life insurance contract for federal income tax purposes. It is
intended that the variable account, through the Fund portfolios, will satisfy
these diversification requirements.
In certain circumstances, owners of variable life insurance contracts have been
considered, for federal income tax purposes, to be the owners of the assets of
the separate account supporting their contracts, due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features such as the flexibility of an owner to allocate premium payments and
transfer contract accumulation values have not been explicitly addressed in
published rulings. While we believe that the certificate does not give owners
investment control over variable account assets, we reserve the right to modify
the certificate as necessary to prevent an owner from being treated as the owner
of the variable account assets supporting the certificate.
OTHER CONSIDERATIONS
The certificate can be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, tax exempt and nonexempt welfare benefit plans, retiree
medical benefit plans and others. The tax consequences of such arrangements may
vary depending on the particular facts and circumstances. If you are purchasing
the certificate for any arrangement the value of which depends in part on its
tax consequences, you should consult a qualified tax adviser. In recent years,
moreover, Congress has adopted new rules relating to life insurance owned by
businesses. Any business contemplating the purchase of a new certificate or a
change in an existing certificate should consult a tax adviser.
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. Although the likelihood of legislative change is uncertain,
there is always the possibility that the tax treatment of the certificate could
change by legislation or otherwise. It is possible that any legislative change
could be retroactive (that is, effective prior to the date of change) . You
should consult with a tax adviser with respect to legislative developments and
their effect on the certificate.
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 (AAL CMC) is an indirect subsidiary of AAL and a
registered broker-dealer. AAL CMC 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 AAL CMC. AAL CMC
also serves as the principal underwriter of the AAL Variable Annuity and The AAL
Mutual Funds. AAL CMC'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 (0.33)%, on 8% it would be 7.67% and on
12% it would be 11.67%.
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 UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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 HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN
END OF ANNUAL PREMIUM OF
CERTIFICATE PREMIUMS ACCUMULATED ---------------------------------
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>
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
<PAGE>
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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> <C> <C>
END OF YEAR
END OF YEAR CASH SURRENDER VALUE
VALUE ASSUMING ASSUMING
HYPOTHETICAL GROSS HYPOTHETICAL GROSS
ANNUAL INVESTMENT ANNUAL INVESTMENT
END OF ANNUAL RETURN OF RETURN OF
CERTIFICATE PREMIUMS -------------------------------------------------------------------------------------------
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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 HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN
END OF ANNUAL PREMIUM OF
CERTIFICATE PREMIUMS ACCUMULATED --------------------------------------------
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>
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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> <C> <C>
END OF YEAR
END OF YEAR CASH SURRENDER VALUE
VALUE ASSUMING ASSUMING
HYPOTHETICAL GROSS HYPOTHETICAL GROSS
ANNUAL INVESTMENT ANNUAL INVESTMENT
END OF ANNUAL RETURN OF RETURN OF
CERTIFICATE PREMIUMS --------------------------------------------------------------------------------------
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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 HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN
END OF ANNUAL PREMIUM OF
CERTIFICATE PREMIUMS ACCUMULATED --------------------------------------------
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>
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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> <C> <C>
END OF YEAR
END OF YEAR CASH SURRENDER VALUE
VALUE ASSUMING ASSUMING
HYPOTHETICAL GROSS HYPOTHETICAL GROSS
ANNUAL INVESTMENT ANNUAL INVESTMENT
END OF ANNUAL RETURN OF RETURN OF
CERTIFICATE PREMIUMS ---------------------------------------------------------------------------------------
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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 HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN
END OF ANNUAL PREMIUM OF
CERTIFICATE PREMIUMS ACCUMULATED ---------------------------------------------
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>
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
FLEXIBLE PREMIUM UNIVERSAL LIFE
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND SURRENDER 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> <C> <C>
END OF YEAR
END OF YEAR CASH SURRENDER VALUE
VALUE ASSUMING ASSUMING
HYPOTHETICAL GROSS HYPOTHETICAL GROSS
ANNUAL INVESTMENT ANNUAL INVESTMENT
END OF ANNUAL RETURN OF RETURN OF
CERTIFICATE PREMIUMS ------------------------------------------------------------------------------------------
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.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT,
AND THE ALLOCATIONS MADE TO THE VARIABLE ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME. THIS IS AN ILLUSTRATION. AN ILLUSTRATION IS
NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. RATES OF RETURN AND VALUES SET FORTH
IN THE ILLUSTRATION ARE NOT GUARANTEED.
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 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
on December 31, 1999 and 1998, and for each of three years in the period ended
December 31, 1999, and AAL Variable Life Account I at December 31, 1999, and for
the period from May 15, 1998 (date operations commenced), to December 31, 1998,
both appearing in this prospectus and registration statement, have been audited
by Ernst & Young, LLP, independent auditors, as set forth in the reports, and
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, 1999. 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, 1999, 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, 1999
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, 1999 and 1998, 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, 1999.
These financial statements are the responsibility of AAL's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated results of its operations and its cash
flows for each of the three years ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
January 26, 2000
AID ASSOCIATION FOR LUTHERANS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31
1999 1998
------------------ ------------------
(In Millions)
ASSETS
Investments:
Securities available for sale, at fair value
Fixed maturities $ 9,952 $ 9,067
Equity securities 849 824
Fixed maturities held to maturity, at amortized cost 3,261 3,906
Mortgage loans 3,151 3,150
Real estate 62 75
Certificate loans 494 500
Other invested assets 10
8
------------------ ------------------
Total investments 17,779 17,530
Cash and cash equivalents 243 232
Premiums and fees receivable 22 19
Accrued investment income 212 198
Deferred acquisition costs 807 667
Property and equipment 89 95
Assets held in separate accounts 2,002 1,406
Other assets
4 7
------------------ ------------------
TOTAL ASSETS $ 21,158 $ 20,154
================== ==================
LIABILITIES AND CERTIFICATEHOLDERS' SURPLUS Certificate liabilities and
accruals:
Future certificate benefits $ 2,970 $ 2,800
Unpaid claims and claim expenses 84 98
------------------ ------------------
Total certificate liabilities and accruals 3,054 2,898
Certificateholder funds 13,582 13,112
Liabilities related to separate accounts 2,002 1,406
Other liabilities 166 190
------------------ ------------------
TOTAL LIABILITIES 18,804 17,606
CERTIFICATEHOLDERS' SURPLUS
Accumulated surplus 2,363 2,137
Accumulated other comprehensive income (deficit) 411
(9)
------------------ ------------------
TOTAL CERTIFICATEHOLDERS' SURPLUS 2,354 2,548
------------------ ------------------
TOTAL LIABILITIES AND CERTIFICATEHOLDERS' SURPLUS $ 21,158 $ 20,154
================== ==================
</TABLE>
See accompanying notes.
AID ASSOCIATION FOR LUTHERANS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
1999 1998 1997
----------------- ------------------ ------------------
(In Millions)
REVENUE
Insurance premiums $ 419 $ 406 $ 391
Insurance charges 309 297
307
Net investment income 1,266 1,232 1,211
Net realized investment gains 118 107
103
Other revenue 83 68
96
----------------- ------------------ ------------------
TOTAL REVENUE 2,191 2,148 2,074
BENEFITS AND EXPENSES
Certificate claims and other benefits 370 357
383
Increase in certificate reserves 173 151
184
Interest credited 800 775
809
Surplus refunds 112 110
115
----------------- ------------------ ------------------
Total benefits 1,491 1,455 1,393
Underwriting, acquisition and insurance
expenses 331 329
355
Fraternal benefits and expenses 115 104
119
----------------- ------------------ ------------------
Total expenses 446 433
474
----------------- ------------------ ------------------
TOTAL BENEFITS AND EXPENSES 1,965 1,901 1,826
----------------- ------------------ ------------------
NET INCOME $ 226 $ 247 $ 248
================= ================== ==================
</TABLE>
See accompanying notes.
AID ASSOCIATION FOR LUTHERANS
CONSOLIDATED STATEMENTS OF CHANGES IN CERTIFICATEHOLDERS' SURPLUS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ACCUMULATED
OTHER TOTAL
ACCUMULATED COMPREHENSIVE CERTIFICATEHOLDERS'
SURPLUS INCOME (DEFICIT) SURPLUS
------------------- ------------------------------------------
(In Millions)
BALANCE AT JANUARY 1, 1997 $ 1,642 $ 149 $ 1,791
Comprehensive income
Net income 248 - 248
Change in unrealized gains/losses
on securities available for sale * - 179 179
---------------------
---------------------
Total comprehensive income 427
------------------- ------------------- ---------------------
BALANCE AT DECEMBER 31, 1997 1,890 328 2,218
Comprehensive income
Net income 247 - 247
Change in unrealized gains/losses
on securities available for sale * -
83 83
---------------------
---------------------
Total comprehensive income 330
------------------- ------------------- ---------------------
BALANCE AT DECEMBER 31, 1998 2,137 411 2,548
Comprehensive income
Net income 226 - 226
Change in unrealized gains/losses
on securities available for sale * - (420) (420)
---------------------
---------------------
Total comprehensive loss (194)
------------------- ------------------- ---------------------
BALANCE AT DECEMBER 31, 1999 $ 2,363 $ (9) $ 2,354
=================== =================== =====================
* Net change in unrealized gains/losses on securities available for sale is
reported net of reclassification adjustment calculated as follows:
1999 1998 1997
------------------- ------------------- ---------------------
Unrealized gains/losses on
securities available for sale $ (237) $ 211 $ 248
Less: reclassification adjustment for
realized gains included in net income 183 128
69
------------------- ------------------- ---------------------
Change in unrealized gains/losses
on securities available for sale $ (420) $ 83 $ 179
=================== =================== =====================
</TABLE>
See accompanying notes.
AID ASSOCIATION FOR LUTHERANS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
1999 1998 1997
--------------- --------------- ---------------
(In Millions)
OPERATING ACTIVITIES:
Net Income $ 226 $ 247 $ 248
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in certificate liabilities and accruals 156 160 131
Increase in certificateholder funds 488 436 424
(Increase) decrease in deferred acquisition costs (24) 15
(9)
Realized gains on investments (96) (106) (104)
Provisions for amortization and depreciation 19 20 18
Changes in other assets and liabilities 51
9 (1)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 778 799 731
INVESTING ACTIVITIES:
Securities available for sale:
Purchases - fixed maturities (3,839) (6,269) (2,708)
Sales - fixed maturities 1,449 4,119 1,600
Maturities - fixed maturities 972 848 514
Purchases - equities (580) (428) (420)
Sales - equities 636 402 407
Securities held to maturity:
Purchases (82) (294) (530)
Maturities 730 752 577
Mortgage loans funded (249) (244) (213)
Mortgage loans repaid 259 318 309
Certificate loans, net
6 2 -
Other (51) 44
(8)
--------------- --------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (749) (750) (472)
FINANCING ACTIVITIES:
Universal life and investment contract receipts 1,028 1,029 1,052
Universal life and investment contract withdrawals (1,046) (1,137) (1,127)
--------------- --------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (18) (108) (75)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 11 (59) 184
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 232 291 107
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 243 $ 232 $ 291
=============== =============== ===============
</TABLE>
See accompanying notes.
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 1.8 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. AAL members are served by more than 1,700 district representatives
across the country and are offered ancillary services through various AAL
subsidiaries and affiliates. Mutual funds are offered to members by AAL Capital
Management Corporation (CMC), and personal asset management, administrative and
other trust services are offered by AAL Trust Company, FSB (AALTC). 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.
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 gains or losses
directly in certificateholders' surplus as comprehensive income and,
accordingly, have no effect on net income. The DAC offsets to the unrealized
gains or losses 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.
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
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.
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 estimated
costs 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 $102,000,000 and
$94,000,000 at December 31, 1999 and 1998, respectively.
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
1999 was 7.1% for universal life, 5.8% for portfolio-average deferred annuities,
and ranged from 4.3% 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,
variable immediate 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.
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 includes items such as benevolences
to help meet the needs of people, educational benefits to raise community and
family awareness of issues, 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
In June 1998, the FASB issued Statement 133, Accounting for Derivative
Instruments and Hedging Activities, adoption of which has been deferred to
fiscal years beginning after June 15, 2000. 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.
RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform with their 1999
presentation.
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>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ------------- ------------- -----------------
(In Millions)
Available for sale securities at December 31, 1999:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $ 2,182 $ - $ (86) $ 2,096
Obligations of other
governments, states and
political subdivisions 17 17
- -
Corporate bonds 6,585 14 (267) 6,332
Mortgage & asset-backed securities 1,542 (36) 1,507
1
----------------- ------------- ------------- -----------------
Total fixed maturity securities 10,326 15 (389) 9,952
Equity securities 565 284 849
-
----------------- ------------- ------------- -----------------
Total $ 10,891 $ 299 $ (389) $ 10,801
================= ============= ============= =================
Held to maturity securities at December 31, 1999:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 165 $ 3 $ (5) $ 163
Loan-backed obligations of U.S.
Government corporations
and agencies 128 130
3 (1)
Obligations of other
governments, states and
political subdivisions 48 47
- (1)
Corporate bonds 2,525 43 (48) 2,520
Mortgage & asset-backed securities 395 395
4 (4)
----------------- ------------- ------------- -----------------
Total $ 3,261 $ 53 $ (59) $ 3,255
================= ============= ============= =================
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENTS (CONTINUED)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ------------- ------------- -----------------
(In Millions)
Available for sale securities at December 31, 1998:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $ 1,741 $ 18 $ (2) $ 1,757
Obligations of other
governments, states and
political subdivisions 19 20
1 -
Corporate bonds 5,862 148 (29) 5,981
Mortgage & asset-backed securities 1,292 19 1,309
(2)
----------------- ------------- ------------- -----------------
Total fixed maturity securities 8,914 186 (33) 9,067
Equity securities 531 293 824
-
----------------- ------------- ------------- -----------------
Total $ 9,445 $ 479 $ (33) $ 9,891
================= ============= ============= =================
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 $ 199 $ 1 $ - $ 200
Loan-backed obligations of U.S.
Government corporations
and agencies 320 32 352
-
Obligations of other
governments, states and
political subdivisions 54 54
1 (1)
Corporate bonds 2,762 125 2,879
(8)
Mortgage & asset-backed securities 571 15 586
-
----------------- ------------- ------------- -----------------
Total $ 3,906 $ 174 $ (9) $ 4,071
================= ============= ============= =================
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, 1999, 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.
Available for Sale Held to Maturity
------------------------------- -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------- --------------- -------------- ---------------
(In Millions)
Due in one year or less $ 269 $ 268 $ 191 $ 191
Due after one year through five years 3,907 3,777 1,181 1,194
Due after five years through ten years 2,084 1,978 882 873
Due after ten years 342 326 484 472
-------------- --------------- -------------- ---------------
Total fixed maturity securities
excluding mortgage and
asset-backed bonds 6,602 6,349 2,738 2,730
Loan-backed obligations of U.S.
Government corporations and
agencies 2,182 2,096 128 130
Mortgage and asset-backed securities 1,542 1,507 395 395
-------------- --------------- -------------- ---------------
Total fixed maturity securities $10,326 $ 9,952 $ 3,261 $ 3,255
============== =============== ============== ===============
Major categories of AAL's investment income are summarized as follows:
Years Ended December 31
1999 1998 1997
--------------- -------------- ---------------
(In Millions)
Fixed maturity securities $ 942 $ 885 $ 854
Equity securities 13 20
23
Mortgage loans 270 279 294
Investment real estate 11 20
18
Certificate loans 35 35
35
Other invested assets
5 5 5
--------------- -------------- ---------------
Gross investment income 1,276 1,245 1,228
Investment expenses 10 17
13
--------------- -------------- ---------------
Net investment income $ 1,266 $ 1,232 $ 1,211
=============== ============== ===============
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:
Years Ended December 31
1999 1998 1997
--------------- -------------- ---------------
(In Millions)
Securities available for sale:
Fixed maturity securities:
Gross realized gains $ 14 $ 69 $ 47
Gross realized losses (18) (11)
(16)
Equity securities:
Gross realized gains 152 66
76
Gross realized losses (62)
(37) (6)
Other investments, net 17 11
26
--------------- -------------- ---------------
Net realized investment gains $ 103 $ 118 $ 107
=============== ============== ===============
Net unrealized gains/losses on securities available for sale credited directly
to certificateholders' surplus as comprehensive income (loss) were as follows:
December 31
1999 1998 1997
--------------- -------------- ---------------
(In Millions)
Fair value adjustment to available for sale securities $ (90) $ 446 $ 361
Increase (decrease) in deferred acquisition costs 81 (33)
(35)
--------------- -------------- ---------------
Net unrealized (losses) gains on available for
sale securities $ (9) $ 411 $ 328
=============== ============== ===============
The change in accumulated other comprehensive income (deficit) due to unrealized
gains/losses on securities available for sale is as follows:
Years Ended December 31
1999 1998 1997
--------------- -------------- ---------------
(In Millions)
Fixed maturity securities available for sale $ (527) $ 6 $ 138
Equity securities available for sale 71
(9) 79
Deferred acquisition costs 116 (30)
(2)
--------------- -------------- ---------------
$ (420) $ 83 $ 179
=============== ============== ===============
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, 1999:
Principal Percent
------------------ ----------
(In Millions)
Geographic Region:
Pacific $ 972 29.8
South Atlantic 1,091 33.5
Midwest 663 20.4
Other 532 16.3
------------------ ----------
Total Mortgage Loans $ 3,258 100.0
================== ==========
Property Type:
Office $ 844 25.9
Industrial 1,022 31.3
Retail 397 12.2
Residential 274 8.4
Church 237 7.3
Other 484 14.9
------------------ ----------
Total Mortgage Loans $ 3,258 100.0
================== ==========
</TABLE>
The following table presents changes in the allowance for credit losses:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years Ended December 31
1999 1998 1997
----------------- ----------------- -----------------
(In Millions)
Balance at January 1 $ 118 $ 124 $ 140
Provisions for credit losses (credit) (11) (4) (13)
Charge offs (2) (3)
-
----------------- ----------------- -----------------
Balance at December 31 $ 107 $ 118 $ 124
================= ================= =================
AAL's investment in mortgage loans includes $178,000,000 and $198,000,000 of
loans that are considered to be impaired at December 31, 1999 and 1998,
respectively, for which the related allowance for credit losses are $35,000,000
and $38,000,000 at December 31, 1999 and 1998, respectively. The average
recorded investment in impaired loans during the years ended December 31, 1999
and 1998, was $192,000,000 and $216,000,000, respectively. AAL recorded interest
income, using the accrual method, on impaired loans of $14,000,000, $17,000,000
and $19,000,000 for 1999, 1998 and 1997, 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:
Years Ended December 31
1999 1998 1997
----------------- ----------------- -----------------
(In Millions)
Balance at beginning of year $ 667 $ 660 $ 705
Acquisition costs deferred:
Commissions, net of certificate charges 81 74 76
Other costs 29 29 27
----------------- ----------------- -----------------
Total deferred 110 103 103
Acquisition costs amortized (86) (94) (118)
----------------- ----------------- -----------------
Increase (decrease) in deferred acquisition costs 24 9 (15)
Change in unrealized gains/losses on
fixed maturity investments recorded
directly to certificateholders' surplus
as comprehensive income (loss) 116 (2) (30)
----------------- ----------------- -----------------
Total increase (decrease) 140 7 (45)
----------------- ----------------- -----------------
Balance at end of year $ 807 $ 667 $ 660
================= ================= =================
</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.
The following tables set forth the amounts recognized in AAL's financial
statements and the plans' funding status.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Retirement Plans Other Benefits
December 31
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
(In Millions)
Projected benefit obligation for
services rendered to date $ 266 $ 269 $ 63 $ 42
Plan assets at fair value 332 321
- -
----------------- ----------------- ----------------- -----------------
Funded (unfunded) status of
the plan $ 66 $ 52 $ (63) $ (42)
================= ================= ================= =================
Accrued liability included in
consolidated balance sheet $ 10 $ 6 $ 44 $ 43
</TABLE>
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 summarizes certain assumptions included in the preceding schedule:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Retirement Plans Other Benefits
Years Ended December 31
1999 1998 1997 1999 1998 1997
------------ ----------- ------------ ----------- ------------ ------------
Discount rate 7.5% 7.0% 7.5% 7.5% 7.0% 7.5%
Expected return
on plan assets 9.0% 9.0% 9.0% - - -
Rate of compensation
increase 5.0% 5.0% 5.0% - - -
Health care trend rate - - - 6.0% 6.0% 6.0%
Years Ended December 31
1999 1998 1997
----------- ------------ -----------
(In Millions)
Savings Plan
Benefit cost $ $ - $
- -
Employer contributions 4
5 4
Employee contributions 18 14 13
Benefits paid 18 22 18
Retirement Plans
Benefit cost $ 4 $ 5 $ 5
Employer contributions
- - 5
Employee contributions
- - -
Benefits paid 11 11
9
Other Benefits
Benefit cost $ 4 $ 4 $ 4
Employer contributions
- - -
Employee contributions
- - -
Benefits paid 2 2 3
</TABLE>
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 sheets; (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:
December 31
1999 1998
----------------- -----------------
(In Millions)
Assets $ 20,800 $ 19,418
================= =================
Liabilities $ 19,044 $ 17,900
Unassigned funds 1,756 1,518
----------------- -----------------
Total liabilities and unassigned funds $ 20,800 $ 19,418
================= =================
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. SYNOPSIS OF STATUTORY FINANCIAL RESULTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years ended December 31
1999 1998 1997
----------------- ----------------- -----------------
(In Millions)
Premium income and certificate proceeds $ 1,849 $ 1,806 $ 1,785
Net investment income 1,256 1,219 1,206
Other income
42 36 27
----------------- ----------------- -----------------
Total income 3,147 3,061 3,018
Reserve increase 623 569 519
Certificateholders' benefits 1,487 1,544 1,490
Surplus refunds 117 115 112
Commissions and operating costs 402 377 363
Other 350 367 364
----------------- ----------------- -----------------
Total benefits and expenses 2,979 2,972 2,848
----------------- ----------------- -----------------
Net gain from operations 168 170
89
Net realized capital gains
88 45 40
----------------- ----------------- -----------------
Net income $ 256 $ 134 $ 210
================= ================= =================
</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.
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.
AID ASSOCIATION FOR LUTHERANS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SEPARATE ACCOUNTS
The fair values for separate account assets are based on quoted market prices.
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>
<S> <C> <C> <C> <C>
1999 1998
---------------------------------- ----------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
---------------- ---------------- ---------------- ----------------
(In Millions)
Financial Assets:
Fixed maturities $ 13,587 $ 13,207 $ 12,820 $ 13,138
Equity securities 565 849 531 824
Mortgage loans 3,151 3,204 3,150 3,628
Cash and cash equivalents 243 243 232 232
Certificate loans 494 494 500 500
Separate accounts 2,002 2,002 1,406 1,406
Financial Liabilities:
Deferred annuities 7,419 7,368 7,310 7,238
Variable annuities 2,016 1,923 1,433 1,356
Other 721 718 681 678
</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.
AAL VARIABLE LIFE ACCOUNT I
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Contents
Report of Independent Auditors................................................1
Statement of Net Assets.......................................................2
Statement of Operations.......................................................3
Statements 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 (the Account) (comprising, respectively, the Money Market, Bond,
Balanced, Large Company Stock, Small Company Stock, International Stock, and
High Yield Bond Subaccounts) as of December 31, 1999, and the related statements
of operations for the year then ended and changes in net assets for the period
May 15, 1998 (date operations commenced) to December 31, 1998 and for the year
ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999, 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
audits provide 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, 1999,
and the results of their operations for the year then ended, and changes in
their net assets for the period May 15, 1998 (date operations commenced) to
December 31, 1998 and for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Milwaukee, Wisconsin
January 26, 2000
AAL VARIABLE LIFE ACCOUNT I
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS
Investments in AAL Variable Product Series Fund, Inc.:
Small Company Stock Subaccount:
Small Company Stock Portfolio, 129,383 shares at net asset
value of $13.20 per share (cost $1,607,082) $ 1,707,261
International Stock Subaccount:
International Stock Portfolio, 38,781 shares at net asset
value of $15.44 per share (cost $468,787) 598,889
Large Company Stock Subaccount:
Large Company Stock Portfolio, 294,706 shares at net asset
value of $27.10 per share (cost $6,886,614) 7,987,516
Balanced Subaccount:
Balanced Portfolio, 149,767 shares at net asset value of $16.72
per share (cost $2,418,463) 2,504,497
High Yield Bond Subaccount:
High Yield Bond Portfolio, 35,966 shares at net asset value
of $7.69 per share (cost $306,556) 276,622
Bond Subaccount:
Bond Portfolio, 13,880 shares at net asset value of $9.60 per
share (cost $139,013) 133,185
Money Market Subaccount:
Money Market Portfolio, 568,546 shares at net asset value of
$1.00 per share (cost $568,546) 568,546
--------------------
Total Investments (cost $12,395,061) 13,776,516
LIABILITIES
-
--------------------
NET ASSETS $13,776,516
====================
Unit Extended
Units Value Value
---------------- ------------- --------------------
Net Assets are represented by:
Small Company Stock Subaccount 167,815 $10.17 $ 1,707,261
International Stock Subaccount 41,283 14.50 598,889
Large Company Stock Subaccount 591,677 13.49 7,987,516
Balanced Subaccount 206,124 12.15 2,504,497
High Yield Bond Subaccount 30,335 9.11 276,622
Bond Subaccount 12,715 10.47 133,185
Money Market Subaccount 524,426 1.08 568,546
--------------------
Total Net Assets $ 13,776,516
====================
</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 YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SMALL LARGE
COMPANY INTERNATIONAL COMPANY
STOCK STOCK STOCK
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- --------------- -------------- ---------------
Investment income:
Dividends $ 149,782 $ 5,339 $ 4,546 $ 49,411
Capital gain distributions
207,012 76,179 2,180 64,752
-------------- --------------- -------------- ---------------
Total investment income
356,794 81,518 6,726 114,163
Expenses-mortality and expense
risk charges
61,066 7,642 2,006 35,287
-------------- --------------- -------------- ---------------
Net investment income
295,728 73,876 4,720 78,876
Net realized and unrealized gain
(loss) on investments:
Net realized (loss) gain from
investment transactions
18,674 (10,167) 673 26,751
Change in unrealized
appreciation (depreciation)
of investments
1,106,202 122,760 121,948 838,100
-------------- --------------- -------------- ---------------
Net gain (loss) on investments
1,124,876 112,593 122,621 864,851
-------------- --------------- -------------- ---------------
Net increase (decrease) in net assets
resulting from operations $ 1,420,604 $ 186,469 $ 127,341 $ 943,727
============== =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HIGH
YIELD MONEY
BALANCED BOND BOND MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- --------------- -------------- ---------------
Investment income:
Dividends $ 49,785 $ 21,256 $ 5,486 $ 13,959
Capital gain distributions
63,901 - - -
-------------- --------------- -------------- ---------------
Total investment income
113,686 21,256 5,486 13,959
Expenses-mortality and expense
risk charges
11,023 1,456 639 3,013
-------------- --------------- -------------- ---------------
Net investment income
102,663 19,800 4,847 10,946
Net realized and unrealized gain
(loss) on investments:
Net realized (loss) gain from
investment transactions
4,239 (2,374) (448) -
Change in unrealized
appreciation (depreciation)
of investments
58,709 (29,663) (5,652) -
-------------- --------------- -------------- ---------------
Net gain (loss) on investments
62,948 (32,037) (6,100) -
-------------- --------------- -------------- ---------------
Net increase (decrease) in net assets
resulting from operations $ 165,611 $ (12,237) $ (1,253) $ 10,946
============== =============== ============== ===============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
AAL VARIABLE LIFE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 15, 1998 (1) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SMALL LARGE
COMPANY INTERNATIONAL COMPANY
STOCK STOCK STOCK
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------- --------------- -------------- ---------------
NET ASSETS AT MAY 15, 1998 $ - $ - $ - $ -
INCREASE IN NET ASSETS
Net investment income (loss)
99,827 77,099 (176) 4,585
Net realized (loss) gain from
investment transactions
(4,662) (3,185) (123) (41)
Change in unrealized appreciation
(depreciation) of investments
275,254 (22,581) 8,154 262,802
---------------- --------------- -------------- ---------------
Net increase in net assets
resulting from operations
370,419 51,333 7,855 267,346
CAPITAL SHARE TRANSACTIONS
Transfers of net premiums 1,046,253
3,640,935 290,822 77,057
Transfers of surrenders and
terminations
(1,720) (662) (60) (808)
Transfers of policy loans
(2,000) - - -
Cost of insurance and administrative
charges
(187,962) (32,944) (6,043) (79,926)
Transfers between subaccounts
(7,508) 183,254 34,151 929,832
---------------- --------------- -------------- ---------------
Net increase in net assets
resulting from capital share
transactions 1,895,351
3,441,745 440,470 105,105
---------------- --------------- -------------- ---------------
Total increase in net assets 2,162,697
3,812,164 491,803 112,960
---------------- --------------- -------------- ---------------
NET ASSETS AT DECEMBER 31, 1998 2,162,697
3,812,164 491,803 112,960
INCREASE IN NET ASSETS
Net investment income
295,728 73,876 4,720 78,876
Net realized (loss) gain from
investment transactions
18,674 (10,167) 673 26,751
Change in unrealized appreciation
(depreciation) of investments
1,106,202 122,760 121,948 838,100
---------------- --------------- -------------- ---------------
Net increase (decrease) in net assets
resulting from operations
1,420,604 186,469 127,341 943,727
CAPITAL SHARE TRANSACTIONS
Transfers of net premiums 10,280,205 3,393,404
886,595 259,456
Transfers of maturities
(6,563) (1,328) (461) (2,887)
Transfers of surrenders and
terminations
(4,906) (1,000) (298) (1,815)
Transfers of policy loans
(56,725) (17,699) (1,552) (34,857)
Cost of insurance and administrative
charges (1,607,932) (833,652)
(255,086) (61,749)
Transfers between subaccounts 2,360,899
(60,331) 417,507 163,192
---------------- --------------- -------------- ---------------
Net increase in net assets
resulting from capital share
transactions 4,881,092
8,543,748 1,028,989 358,588
---------------- --------------- -------------- ---------------
Total increase in net assets 5,824,819
9,964,352 1,215,458 485,929
---------------- --------------- -------------- ---------------
NET ASSETS AT DECEMBER 31, 1999 $ 13,776,516 $1,707,261 $ 598,889 $ 7,987,516
================ =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HIGH
YIELD MONEY
BALANCED BOND BOND MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------- --------------- -------------- --------------
NET ASSETS AT MAY 15, 1998 $ - $ - $ - $ -
INCREASE IN NET ASSETS
Net investment income (loss)
12,601 1,306 319 4,093
Net realized (loss) gain from
investment transactions
(987) (330) 4 -
Change in unrealized appreciation
(depreciation) of investments
27,325 (271) (175) -
---------------- --------------- -------------- --------------
Net increase in net assets
resulting from operations
38,939 705 148 4,093
CAPITAL SHARE TRANSACTIONS
Transfers of net premiums 297,821 1,888,524
34,981 5,477
Transfers of surrenders and
terminations
- (185) - (5)
Transfers of policy loans
(2,000) - - -
Cost of insurance and administrative
charges
(26,503) (2,647) (701) (39,198)
Transfers between subaccounts 296,472 (1,508,491)
36,256 21,018
---------------- --------------- -------------- --------------
Net increase in net assets
resulting from capital share
transactions 565,790
68,405 25,794 340,830
---------------- --------------- -------------- --------------
Total increase in net assets 604,729
69,110 25,942 344,923
---------------- --------------- -------------- --------------
NET ASSETS AT DECEMBER 31, 1998 604,729
69,110 25,942 344,923
INCREASE IN NET ASSETS
Net investment income 102,663
19,800 4,847 10,946
Net realized (loss) gain from
investment transactions
4,239 (2,374) (448) -
Change in unrealized appreciation
(depreciation) of investments
58,709 (29,663) (5,652) -
---------------- --------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations 165,611
(12,237) (1,253) 10,946
CAPITAL SHARE TRANSACTIONS
Transfers of net premiums 1,397,983 158,002 4,104,843
79,922
Transfers of maturities
(1,740) (147) - -
Transfers of surrenders and
terminations
(1,301) (291) (101) (100)
Transfers of policy loans
(1,278) (1,167) (172) -
Cost of insurance and administrative
charges (300,884) (118,096)
(23,802) (14,663)
Transfers between subaccounts 641,377 (3,773,970)
87,154 43,510
---------------- --------------- -------------- --------------
Net increase in net assets
resulting from capital share
transactions 1,734,157 219,749
108,496 212,677
---------------- --------------- -------------- --------------
Total increase in net assets 1,899,768 207,512
107,243 223,623
---------------- --------------- -------------- --------------
NET ASSETS AT DECEMBER 31, 1999 $ 2,504,497 $ 276,622 $ 133,185 $ 568,546
================ =============== ============== ==============
</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, 1999
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:
YEAR ENDED DECEMBER 31, 1999 Purchases Sales
------------------ ------------------
Small Company Stock Subaccount $1,178,696 $ 75,833
International Stock Subaccount 371,193 7,884
Large Company Stock Subaccount 5,103,390 143,422
Balanced Subaccount 1,876,892 40,071
High Yield Bond Subaccount 259,485 19,936
Bond Subaccount 120,606 7,263
Money Market Subaccount 2,609,988 2,386,318
------------------ ------------------
Combined $11,520,250 $ 2,680,727
================== ==================
PERIOD MAY 15, 1998 TO DECEMBER 31, 1998 Purchases Sales
------------------ ------------------
Small Company Stock Subaccount $ 530,246 $ 12,675
International Stock Subaccount 105,905 976
Large Company Stock Subaccount 1,902,143 2,206
Balanced Subaccount 641,271 62,882
High Yield Bond Subaccount 74,579 4,869
Bond Subaccount 26,411 298
Money Market Subaccount 1,259,772 914,896
------------------ ------------------
Combined $4,540,327 $ 998,802
================== ==================
AAL VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount were as follows:
UNITS SOLD UNITS REDEEMED NET INCREASE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------- ------------------------------- -----------------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
-------------- ----------------- -------------- --------------- --------------- -------------
YEAR ENDED DECEMBER 31, 1999
Small Company Stock
Subaccount $ 1,309,175 $ 280,186 $ 1,028,989
145,382 31,807 113,575
International Stock Subaccount
36,215 426,046 5,948 67,458 30,267 358,588
Large Company Stock
Subaccount 4,881,092
473,725 5,764,329 75,101 883,237 398,624
Balanced Subaccount 1,734,157
179,038 2,047,769 28,186 313,612 150,852
High Yield Bond Subaccount
26,076 246,172 2,985 26,423 23,091 219,749
Bond Subaccount
11,757 123,426 1,485 14,930 10,272 108,496
Money Market Subaccount 3,892,166
3,870,816 4,104,843 3,680,326 190,490 212,677
-------------- ----------------- -------------- --------------- --------------- -------------
Combined $14,021,760 $ 5,478,012 $ 8,543,748
4,743,009 3,825,838 917,171
============== ================= ============== =============== =============== =============
PERIOD MAY 15, 1998 TO
DECEMBER 31, 1998
Small Company Stock
Subaccount $ 474,076 $ 33,606 $ 440,470
58,402 4,162 54,240
International Stock Subaccount
11,681 111,208 665 6,103 11,016 105,105
Large Company Stock
Subaccount 1,895,351
201,345 1,976,085 8,292 80,734 193,053
Balanced Subaccount
58,110 594,293 2,838 28,503 55,272 565,790
High Yield Bond Subaccount
7,555 71,237 311 2,832 7,244 68,405
Bond Subaccount
2,512 26,495 69 701 2,443 25,794
Money Market Subaccount 1,547,694
1,848,895 1,888,524 1,514,959 333,936 340,830
-------------- ----------------- -------------- --------------- --------------- -------------
Combined $ 5,141,918 $ 1,700,173 $ 3,441,745
2,188,500 1,531,296 657,204
============== ================= ============== =============== =============== =============
</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, 1999, consisted of:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SMALL LARGE
COMPANY INTERNATIONAL COMPANY
STOCK STOCK STOCK
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------- ---------------- --------------- ---------------
Paid-in capital $ 13,781,388 $1,757,489 $ 531,485 $ 7,690,022
Accumulated undistributed net
investment loss $ (1,400,340) (137,055) (830,118)
(63,248)
Accumulated undistributed net
realized gain (loss) from
investment transactions $ 14,013
(13,352) 550 26,710
Net unrealized appreciation
(depreciation) of investments 1,381,455 1,100,902
100,179 130,102
----------------- ---------------- --------------- ---------------
Net assets $ 13,776,516 $1,707,261 $ 598,889 $ 7,987,516
================= ================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HIGH
YIELD MONEY
BALANCED BOND BOND MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- -------------- -----------------------------
Paid-in capital $ 2,627,334 $314,603 $149,654 $ 710,801
Accumulated undistributed net
investment loss (212,123) (142,255)
(5,343) (10,198)
Accumulated undistributed net
realized gain (loss) from
investment transactions
3,252 (2,704) (443) -
Net unrealized appreciation
(depreciation) of investments
86,034 (29,934) (5,828) -
--------------- -------------- ------------- --------------
Net assets $ 2,504,497 $276,622 $133,185 $ 568,546
=============== ============== ============= ==============
</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
The prospectus
Undertaking to file reports
Rule 484 undertaking
Representation pursuant to Section 26(e) 2(A)
The signatures
Written consents of the following persons:
Ernst & Young LLP
EXHIBITS
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<S> <C> <C> <C>
EXHIBIT NAME OF EXHIBIT INCORPORATED BY REFERENCE FILED
NUMBER HEREWITH
1.A. Resolution of the Board of Directors of the Depositor Initial Filing July 10, 1997
authorizing the establishing AAL Variable Life
Account I
1.A.2. Not applicable
1.A.3.a. Amended and Restated Principal Underwriting Agreement X
dated 1/1/2000
1.A.3.b. Specimen of Distribution Agreement with Registered Post Effective Amendment #1
Representatives dated 3/31/98
1.A.3.c. Schedule of Sales Commissions Post Effective Amendment #1
dated 3/31/98
1.A.4. Amended and Restated Transfer Agency Agreement dated X
3/15/99
1.A.5.a. Specimen Flexible Premium Variable Life Insurance Initial Filing July 10, 1997
Certificates
1.A.5.b. Certificate Riders and Endorsements Initial Filing July 10, 1997
1.A.5.c. Application Form Post Effective Amendment #1
dated 3/31/98
1.A.6.a. Articles of Incorporation of Depositor Initial Filing July 10, 1997
1.A.6.b. Bylaws of Depositor X
1.A.7. Not Applicable
1.A.8.a. Amended and Restated Participation Agreement between X
AAL, the Accounts and the Fund as of January 1, 2000
ate
1.A.8.b. Amended and Restated Participation Agreement between X
AAL, the Accounts, the AAL Savings Plan, CMC and the
Fund dated January 1, 2000
1.A.9. Second Amendment to the Trade Name/Service Mark X
Licensing Agreement by and Between AAL and the Fund
dated 3/15/99
1.A.10. Not applicable
1.A.11. Code of Ethics X
2. Opinion and Consent of Counsel as to the legality of Pre Effective Amendment #1 dated
the securities being registered (including written 11/20/97
consent)
3. Not applicable
4. Not applicable
5. Not applicable
6 Actuarial Opinion and Consent Pre Effective Amendment #1 dated
11/20/97
7 Consent of Independent Auditors X
8 Powers of Attorney Post Effective Amendment #3
dated 4/22/99
9. Transmittal Letter X
9. Opinion of Counsel as to the legality of the Post Effective Amendment #1
securities being registered (including written dated May 27, 1999
consent)
</TABLE>
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 20th day of April 2000.
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, Chairman, President and
Secretary and General Counsel Chief Executive Officer
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 Chairman, President and
-------------------
John O. Gilbert Chief Executive Officer
(Principal Executive Officer)
/s/ Carl J. Rudolph Senior Vice President, Controller,
-------------------
Carl J. Rudolph Treasurer and Chief Financial Officer
(Principal Financial Officer,
Principal Accounting Officer)
All of the Board of Directors:
Raymond G. Avischious Gary J. Greenfield James H. Scott
Richard E. Beumer Robert H. Hoffman Kathi P. Seifert
Kenneth Daly Robert E. Long Roger B. Wheeler
Elizabeth A. Duda Robert B. Peregrine E. Marlene Wilson
Edward A. Engel Paul D. Schrage Rev. Thomas R. Zehnder
John O. Gilbert, by signing his name hereto, does hereby sign this
document on behalf of himself and 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 20, 2000
- -------------------------------
John O. Gilbert
Attorney-in-Fact
INDEX OF EXHIBITS
EXHIBIT NAME OF EXHIBIT
NUMBER
1.A.3.a. Amended and Restated Principal Underwriting Agreement
dated 1/1/2000
1.A.4. Amended and Restated Transfer Agency Agreement dated
3/15/99
1.A.6.a. Articles of Incorporation of Depositor
1.A.6.b. Bylaws of Depositor
1.A.8.a. Amended and Restated Participation Agreement between
AAL, the Accounts and the Fund as of January 1, 2000
ate
1.A.8.b. Amended and Restated Participation Agreement between
AAL, the Accounts, the AAL Savings Plan, CMC and the
Fund dated January 1, 2000
1.A.9. Second Amendment to the Trade Name/Service Mark
Licensing Agreement by and Between AAL and the Fund
dated 3/15/99
1.A.11. Code of Ethics
7 Consent of Independent Auditors
9. Transmittal Letter
AMENDED AND RESTATED
PRINCIPAL UNDERWRITING
AND
SERVICING AGREEMENT
BY AND BETWEEN
AAL CAPITAL MANAGEMENT CORPORATION
AND
AID ASSOCIATION FOR LUTHERANS
DATED
JANUARY 1, 2000
<PAGE>
TABLE OF CONTENTS
1. Appointment of DISTRIBUTOR
2. Underwriting Responsibilities of DISTRIBUTOR
3. Additional Services to be Provided by DISTRIBUTOR
3.1 Preparation of Sales Literature and Advertising Materials
3.2 Licensing of Field and Home Office Staff
3.3 Regulatory Compliance
3.4 Field Training
3.5 Confirmations
4. Responsibilities of AAL
4.1 Sales Commissions
4.2 Sales Credits and Field Expenses
4.3 Registrations of Securities and Investment Adviser
4.4 Books and Records
4.5 Duty to Keep Informed
4.6 Transfer Agent and Management
5 Joint Procedures for Communications with the Public and with registered
representatives
6. Fees to be Paid to DISTRIBUTOR by AAL
6.1 Services
6.2 Determination of Charge/Expense Formulas for Services
6.3 Preparation and Negotiation of Final Annual Budget for Services
6.4 Accounting Procedures
7. Independent Contractor
8. Indemnification
8.1 Indemnification of AAL
8.2 Indemnification of DISTRIBUTOR
9. Authorized Representations
10. Amendment or Assignment of Agreement
11. Termination of Agreement
12. Miscellaneous
13. Definition of Terms
14. Compliance with Securities Laws
15. Regulatory Examinations
16. Notices
17. Governing Law
Schedule A: Schedule of Sales Commissions
<PAGE>
PRINCIPAL UNDERWRITING AND SERVICING AGREEMENT
This PRINCIPAL UNDERWRITING AND SERVICING AGREEMENT (the "Agreement")
made and entered into this 1ST day of January, 2000, by and between AAL CAPITAL
MANAGEMENT CORPORATION, a corporation organized and existing under the laws of
the State of Delaware, ("DISTRIBUTOR" or "AAL CMC") and AID ASSOCIATION FOR
LUTHERANS ("AAL), a fraternal benefit society organized and existing under the
laws of the State of Wisconsin, on its own behalf and on behalf of AAL Variable
Annuity Accounts I & II and AAL Variable Life Account I, all collectively
referred to as "ACCOUNTS."
RECITALS
AAL and all its ACCOUNTS are registered as unit investment trusts under
the Investment Company Act of 1940 (the "1940 Act"), propose to offer for sale
certain flexible premium deferred variable annuity, single premium immediate
variable annuity and variable universal life certificates (the "Certificates"),
interests in the ACCOUNTS under the Certificates are registered with the
Securities and Exchange Commission (the "SEC") as securities under the
Securities Act of 1933 (the " 1933 Act").
Premiums received from owners of Certificates will be deposited at the
owner's designation in the respective ACCOUNTS and/or in the AAL General
Account. The ACCOUNTS will invest solely in portfolio shares of the AAL Variable
Product Series Fund, Inc. (the "FUND").
DISTRIBUTOR is a wholly-owned indirect subsidiary of AAL, is registered
as a broker-dealer with the SEC under the Securities Exchange Act of 1934 (the
"1934 Act") and with state securities authorities in all 50 states, is a member
of the National Association of Securities Dealers, Inc. ("NASD"), is authorized
to offer and sell mutual funds and variable insurance products, and acts as
DISTRIBUTOR of The AAL Mutual Funds, an investment company.
AAL and DISTRIBUTOR intend to enter into an agreement by which
DISTRIBUTOR will act as the principal underwriter in a continuous offering of
the Certificates for AAL, the offerings to begin no sooner than on the effective
date of the registration statements in connection with the Certificates under
the 1933 Act, and state securities and insurance registrations. This Agreement
pertains to the sale of Certificates by registered representatives licensed with
DISTRIBUTOR, and not to the sale of Certificates by any other party and/or
broker-dealer who may be authorized by AAL to sell Certificates or who may have
a separate Distribution or Selling Agreement with AAL or DISTRIBUTOR.
THEREFORE, in consideration of the covenants and mutual promises of the
parties and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, DISTRIBUTOR and AAL agree as
follows:
AGREEMENT
1. APPOINTMENT OF DISTRIBUTOR
AAL hereby appoints DISTRIBUTOR as the principal underwriter for the
Certificates during the term of this Agreement in each state or other
jurisdiction where the Certificates may legally be sold. Representatives of
other broker-dealer firms with which AAL CMC has executed a selling agreement
may also sell the Certificates. In addition, AAL may retain other firms to serve
as principal underwriters of the Certificates. Anything in this Agreement to the
contrary notwithstanding, AAL retains the ultimate right to suspend sales in any
jurisdiction or jurisdictions, or to refuse to sell a Certificate to any
applicant for any reason whatsoever.
2. UNDERWRITING RESPONSIBILITIES OF DISTRIBUTOR
DISTRIBUTOR agrees to offer and sell the Certificates, as agent for
AAL, from time to time during the term of this Agreement upon the terms
described in the Certificate Prospectuses. As used in this Agreement, the term
"Prospectuses" shall mean the Prospectus and the statement of additional
information included as part of the Registration Statement for AAL and the
ACCOUNTS, as such Prospectuses and statements of additional information may be
amended or supplemented from time to time. The term "Registration Statement"
shall mean the Registration Statement, as amended from time to time and filed by
AAL and the respective ACCOUNTS with the SEC, and effective under the 1933 Act
and/or the 1940 Act.
After the effective date of the Registration Statement for the
Certificates, DISTRIBUTOR will hold itself out to receive applications,
satisfactory to DISTRIBUTOR, for the purchase of the Certificates and will
promptly transmit applications and premiums received for the Certificates which
it accepts to AAL or to its designee.
All purchases shall be deemed effective at the time and in the manner
set forth in the Prospectuses. All applications, when accepted by DISTRIBUTOR
and by AAL, shall designate the allocation of premiums by the purchaser among
the separate investment options represented in the certificates, namely by the
subaccounts of the ACCOUNTS and the AAL General Account, as defined and
described in the Certificate Prospectuses. All premiums from purchasers shall be
deposited by AAL in either the ACCOUNTS, to be promptly allocated among the
subaccounts, or to the AAL General Account; as designated by the purchaser and
in accordance with the 1940 Act and rules thereunder. Premiums allocated to the
subaccounts of the ACCOUNTS shall be expressed as "accumulation units" of the
Certificate as that term is defined in the Prospectus. The above allocation
statements are subject to any specific allocation of premium requirements that
may be set forth in the Certificate.
DISTRIBUTOR agrees to be solely responsible for the operation of its
business as a registered broker-dealer in connection with all its underwriting
activities under this Agreement, and shall operate such business in accordance
with all applicable laws and regulations. All sales of the Certificates by
DISTRIBUTOR shall be made through registered representatives who are "Associated
Persons" ("Associated Persons" as defined by the 1934 Act) of DISTRIBUTOR, and
who are also agents or District Representatives of AAL. DISTRIBUTOR shall be
responsible for selling only through registered representatives who are properly
licensed to sell Certificates in jurisdictions where offers and sales take
place.
DISTRIBUTOR is responsible for certain services relating to the
distribution of all prospectus(es) of the ACCOUNTS and Fund used by its
registered representatives in the marketing of the Certificates. These services
include, but are not limited to design, layout, printing, mailing or other
delivery services.
3. ADDITIONAL SERVICES TO BE PROVIDED BY DISTRIBUTOR
3.1 PREPARATION OF SALES LITERATURE AND ADVERTISING MATERIALS
DISTRIBUTOR and AAL will cooperate in the initiation, preparation,
printing and distribution of all public sales literature and advertising
materials, as well as all training and marketing materials distributed to its
registered representatives as "broker-dealer only" materials under rules, which
are used by DISTRIBUTOR and its registered representatives in connection with
the sale of the Certificates. AAL will, in a timely manner, provide DISTRIBUTOR
with any and all materials and information necessary to enable DISTRIBUTOR to
fulfill its obligations set forth in this section regarding sales literature and
advertising materials. AAL will provide DISTRIBUTOR with the names of AAL
employees who will review and approve the materials described in this
subsection. DISTRIBUTOR will coordinate and provide copies of such materials to
designated employees of AAL during the development process and all advertising
and sales literature will be approved by both AAL and DISTRIBUTOR prior to use.
DISTRIBUTOR will complete all of the necessary filings and approvals with the
NASD and state securities authorities prior to the public use of such sales
material and advertising. DISTRIBUTOR will provide copies of all materials to
AAL. AAL will file and obtain approval of all such sales literature and
advertising with State Insurance Commissioners where such filing is required by
state laws. AAL will promptly advise DISTRIBUTOR when such filings and approvals
are completed. Materials will only be made available for public use or
registered representative use after all securities and insurance filings and
approvals are completed and AAL has given approval for materials to be used.
DISTRIBUTOR will be responsible for maintaining an inventory and approval
history of all of its sales literature, advertising and "broker-dealer only"
materials, and for the distribution of such materials to its registered
representatives and to the public.
3.2 LICENSING OF FIELD AND HOME OFFICE STAFF
DISTRIBUTOR will be responsible for managing the securities licensing
all of its registered representatives in connection with the sale of the
Certificates, and will directly handle all licensing by the NASD and state
securities authorities that is necessary for the sale of the Certificates. AAL
will be responsible for obtaining the necessary insurance licenses with state
insurance authorities for the offer and sale of the Certificates. AAL and
DISTRIBUTOR shall develop a joint electronic data base and reporting system to
consolidate securities and insurance licensing information for their District
Representatives and registered representatives, respectively. The system will
provide controls satisfactory to DISTRIBUTOR in the processing of Certificate
applications to ensure that all of its registered representatives are properly
licensed when offering and selling the Certificates. The system shall be kept
current by: (i) DISTRIBUTOR providing securities licensing data to AAL; and (ii)
AAL providing insurance licensing data to a database that shall be maintained by
AAL.
The system described herein shall be equally accessible to AAL and
DISTRIBUTOR. DISTRIBUTOR and AAL will cooperate to ensure the appropriate
licensing of AAL and DISTRIBUTOR's home office employees (including
DISTRIBUTOR's wholesalers) who require securities or insurance licenses in
connection with their work with the Certificates. DISTRIBUTOR will arrange for
pre-licensing study and training to assist such persons in obtaining their
securities licenses as requested by AAL. All AAL employees who are Associated
Persons of DISTRIBUTOR as a result of being licensed as registered
representatives will be subject to compliance procedures and supervision of
DISTRIBUTOR in connection with all work related to the Certificates in the same
manner as all other Associated Persons.
3.3 REGULATORY COMPLIANCE
DISTRIBUTOR will supervise all of its registered representatives who
are Associated Persons of DISTRIBUTOR (including employees of AAL) with respect
to all securities laws and regulations in connection with the offer and sale of
the Certificates. Supervision shall include, but not be limited to, the
following matters: acceptance of new business; suitability determinations (as
made in accordance with NASD rules, SEC or other regulatory authority's rules
and regulations); field training, supervision and sales practices; books and
records requirements; approval and use of all advertising, sales literature and
broker-dealer only materials; confirmation content and delivery; payment of
commissions; and compliance with the written supervisory procedures of
DISTRIBUTOR.
3.4 FIELD TRAINING
Immediately after the effective date of the Registration Statement for
the Certificates, DISTRIBUTOR shall be responsible for conducting field training
of all of its associated registered representatives authorized to sell the
Certificates in those states where the Certificates are approved for sale. The
training program shall be developed and conducted by DISTRIBUTOR, although AAL
may also participate in training activities. DISTRIBUTOR will coordinate with
AAL concerning those AAL employees who will be involved in the development of
the training program and in its execution. The training program shall be
approved by both AAL and DISTRIBUTOR prior to implementation.
3.5 CONFIRMATIONS
AAL shall be responsible to ensure that all purchases, sales or other
transactions occurring in the account of an owner of a Certificate sold by its
registered representatives shall be confirmed to the owner in writing in a form
and manner which complies with the requirements of the 1934 Act, blue sky laws,
and NASD rules. Such confirmations will be furnished by AAL to all owners of
Certificates in accordance with securities laws, will reflect the facts of the
transaction, and will show that they are being sent by AAL on behalf of
DISTRIBUTOR acting in the capacity of agent for DISTRIBUTOR. The parties agree
that the form and the manner of use of confirmations in connection with
transactions occurring in such accounts shall be supervised by DISTRIBUTOR. AAL
agrees AAL and its agent, if any, will prepare and distribute such confirmations
in accordance with DISTRIBUTOR's instructions. AAL represents that it will make
no changes or variations in either the form or the manner of distribution of
such confirmations without the written approval of DISTRIBUTOR and shall cause
such confirmations to be issued as directed by DISTRIBUTOR and on behalf of
DISTRIBUTOR.
4. RESPONSIBILITIES OF AAL
4.1 SALES COMMISSIONS
AAL will pay DISTRIBUTOR a sales commission on Certificate sales
pursuant to Schedule A attached hereto. DISTRIBUTOR intends to reallocate
commissions to its registered representatives (including General Agents) for the
sale of Certificates in accordance with a written fee schedule agreement between
DISTRIBUTOR and its registered representatives. DISTRIBUTOR, for its
convenience, authorizes AAL, as agent for DISTRIBUTOR, to make commission
payments due to DISTRIBUTOR directly to its registered representatives.
All commissions for the sale of the Certificates due to DISTRIBUTOR
from AAL shall be reflected on DISTRIBUTOR's financial records as a receipt from
AAL and a disbursement to DISTRIBUTOR'S registered representatives,
notwithstanding the direct payment of such commissions by AAL to such registered
representatives. AAL agrees to pay commissions directly to such registered
representatives as a convenience to DISTRIBUTOR and recognizes that this
agreement to pay is purely ministerial in nature and not discretionary.
Notwithstanding the foregoing, it is agreed that AAL shall have the
right in the payment of such commissions to treat such commissions as part of
AAL employee compensation to such registered representatives for the purpose of
calculation of AAL benefits programs and withholding taxes.
AAL will maintain and provide records and reports reflecting the
calculation of all commissions paid to, and any other cash and non-cash
compensation (collectively "Commissions"), received by DISTRIBUTOR'S registered
representatives and the details of the transactions upon which such Commissions
are based, and will respond to any inquiries about Commission payments, pursuant
to this section. DISTRIBUTOR shall designate to AAL the records required and
such records shall be maintained subject to the provisions of Section 4.3 below.
4.2 SALES CREDITS AND FIELD EXPENSES
Any AAL field charges or expenses for the Certificates will be paid
directly by AAL. Sales credits for sales of the Certificates will be based on
gross premiums received for the Certificates, subject to any exceptions that may
exist or be developed with respect to internal transfers of funds among AAL and
affiliated companies.
4.3 REGISTRATIONS OF SECURITIES
AAL shall be solely responsible, at its expense, for registration of
the Certificates and the ACCOUNTS with all required state and federal
authorities. AAL agrees to maintain such registrations in effect at all times
during the term of this Agreement, and to file such amendments, reports and
other documents as may be necessary to ensure that there will be no untrue
statement of material fact in any Registration Statement and that there shall be
no omission to state a material fact in the Registration Statement, which
omission would make the statements therein misleading. AAL may direct
DISTRIBUTOR, and DISTRIBUTOR shall perform, any or all of the services described
in this section.
4.4 BOOKS AND RECORDS
AAL agrees to maintain all books and records required and designated by
DISTRIBUTOR under the securities laws in connection with the offer and sale of
the Certificates by its registered representatives, as specifically required by
Section 17 of the 1934 Act, Rule 17a-3 and 17a-4 under the 1934 Act or as
required by the NASD, and such other or further books or records as may be
required by rule or regulation of any other federal or state regulatory
organization or self-regulatory organization, to the extent such requirements
are applicable to the variable product operations as mutually determined for
purposes of this Agreement by DISTRIBUTOR and AAL. AAL shall maintain such books
and records as agent on behalf of DISTRIBUTOR who shall be the owner thereof.
AAL agrees that such books and records will be open and available to DISTRIBUTOR
at all times, shall be surrendered promptly on request, without charge, to
DISTRIBUTOR, and shall be subject to inspection by the SEC in accordance with
Section 17 of the 1934 Act, and by the NASD or other regulatory authorities
having jurisdiction over the securities activities of the DISTRIBUTOR, at any
time. The parties represent and warrant that DISTRIBUTOR has provided a schedule
to AAL that describes the books and records to be maintained by AAL, on behalf
of DISTRIBUTOR.
4.5 DUTY TO KEEP INFORMED
AAL shall at its expense keep DISTRIBUTOR fully informed on a current
basis of any changes or other material matters affecting the Certificates or the
FUND. AAL will use its best efforts to provide advance notice to DISTRIBUTOR of
any proposed chances in the Certificates or the FUND and to discuss such matters
with DISTRIBUTOR prior to taking any action. AAL shall furnish DISTRIBUTOR
copies of all information, financial statements, books and records and other
papers that DISTRIBUTOR may reasonably request in connection with its due
diligence inquiry or for use in connection with the distribution of
Certificates.
4.6 TRANSFER AGENT AND MANAGEMENT
AAL shall be solely responsible for the selection and supervision of a
Transfer Agent for the Certificates; management of all Certificate accounts,
including the subaccounts, establishing and maintaining account records and
processing; and the receipt and disbursement of all monies related to the
Certificates. Notwithstanding its responsibility for these matters, AAL shall
keep DISTRIBUTOR currently informed, through reports requested by DISTRIBUTOR,
of all activities related to the Certificates and the FUND. AAL will also keep
DISTRIBUTOR informed and consult with DISTRIBUTOR in advance of any changes to
the procedures for the management or administration of the Certificates or to
any of the underlying records or documents related thereto. AAL recognizes that
any communications with Certificate owners, or prospective Certificate owners,
related to the Certificates sold by DISTRIBUTOR'S registered representatives are
subject to securities regulations and must be approved in advance by AAL and
DISTRIBUTOR and may require filing with and approval by the NASD and state
securities authorities. Such communications include but are not limited to:
correspondence statement stuffers, newspaper or magazine articles, confirmation
messages and other similar written materials.
5. JOINT PROCEDURES FOR COMMUNICATIONS WITH THE PUBLIC AND WITH REGISTERED
REPRESENTATIVES
The parties recognize that all written materials which are provided to
AAL members or prospective members in connection with the Certificates sold by
DISTRIBUTOR'S registered representatives are required to meet specific standards
established by securities and insurance regulatory authorities. Such materials
will include advertising and sales literature, correspondence, magazine
articles, newspaper articles, press releases and any other written public
communication. To ensure compliance with all applicable rules and laws, it is
agreed that DISTRIBUTOR will manage and coordinate the distribution of all
public written materials related to the Certificates sold by DISTRIBUTOR'S
registered representatives, including materials related to the FUND. No public
materials will be released without the prior written approval of both AAL and
DISTRIBUTOR, and both parties shall cooperate in the preparation and review of
such materials. AAL will provide DISTRIBUTOR with the names of its employees
designated to give approval for such written materials. All nonpublic written
communications with DISTRIBUTOR'S registered representatives and to employees of
AAL or DISTRIBUTOR, related to the Certificates shall be reviewed and approved
by both AAL and DISTRIBUTOR prior to use. Such materials include, without
limitation, field updates, "broker-dealer only" materials, training materials,
and compliance information. AAL and DISTRIBUTOR will establish internal policies
to insure that all such materials are appropriately and timely reviewed and
shall cooperate with each other in establishing such procedures.
6. FEES TO BE PAID TO DISTRIBUTOR BY AAL
6.1 SERVICES
DISTRIBUTOR shall perform certain services, as requested by AAL, in
connection with DISTRIBUTOR's role as principal underwriter in AAL's continuous
offering of the Certificates ("Services"). Services shall be initially
designated as "Marketing Services", "Broker-Dealer Administration", "Licensing",
"Regulatory Compliance", "Field Training", and "Consulting". The parties
represent and warrant that AAL and DISTRIBUTOR have mutually agreed to the
definition and composition of each of the foregoing Services. AAL and
DISTRIBUTOR agree that the definition and composition of each of the foregoing
Services, and additional services to be rendered in connection with the sale of
the Certificates, shall be reaffirmed or amended, as the case may be, on an
annual basis in connection with the preparation and negotiation of the "Final
Annual Budget" (as that term is defined in Section 6.3) for Services for such
year.
6.2 DETERMINATION OF CHARGE/EXPENSE FORMULAS FOR SERVICES
The parties represent and warrant that DISTRIBUTOR and AAL agree on the
methods to determine and calculate the amount of Services to be charged by
DISTRIBUTOR as an expense to AAL (the "Charge/Expense Formulas"). Charge/Expense
Formulas shall be initially determined and defined as "Sales Credit Charges",
"Direct Expenses", and "Per Hour Charges". AAL and DISTRIBUTOR covenant and
agree that: (i) Charge/Expense Formulas shall be reaffirmed or amended, as the
case may be, on an annual basis in connection with the preparation and
negotiation of the Final Annual Budget for Services for such year; and (ii)
Charge/Expense Formulas shall include a portion of DISTRIBUTOR's general
overhead expenses as specifically stated in the underlying detail schedules for
Charge/Expense Formulas ("Detail Schedules").
DISTRIBUTOR and AAL affirm and agree that the Detail Schedules were
reviewed by representatives of both AAL and DISTRIBUTOR in the due diligence
process. The parties represent and warrant that DISTRIBUTOR and AAL agree on the
allocation of dollar amounts of Services to the various categories of
Charge/Expense Formulas (" Services Allocation"). Services Allocation shall be
initially determined as set forth in the Final Annual Budget for the 1995
calendar year. AAL and DISTRIBUTOR covenant and agree that Services Allocation
shall be reaffirmed or amended, as the case may be, on an annual basis in
connection with the preparation and negotiation of the Final Annual Budget for
Services for such year.
6.3 PREPARATION AND NEGOTIATION OF FINAL ANNUAL BUDGET FOR SERVICES
Each successive year that this Agreement is in effect, DISTRIBUTOR
shall prepare a projected annual budget for the successive year (the " Projected
Annual Budget") and deliver the Projected Annual Budget to a designated
representative of AAL. Each successive year that this Agreement is in effect,
AAL shall provide comments to DISTRIBUTOR on the content of the Projected Annual
Budget. AAL and DISTRIBUTOR covenant and agree that: (i) a final, agreed form of
the Projected Annual Budget (the "Final Annual Budget") shall be determined on
or before the deadline date set forth for the submission of annual budgets
pursuant to AAL budget policies; and (ii) the policies, definitions and
operating procedures (including but not limited to "Billing Process", and
"Billable Items") set forth in P.O.P. 251 "Subsidiary and Affiliate Billing",
shall be followed in connection with the preparation and negotiation of the
Projected Annual Budget and the Final Annual Budget.
6.4 ACCOUNTING PROCEDURES
DISTRIBUTOR and AAL, covenant and agree that: (i) payroll & expense
records and procedures, (ii) invoicing procedures; and (iii) the time and manner
of charge/expense payment for the Services set forth in this Agreement shall be
determined by reference to certain AAL CMC accounting manuals and procedures.
Notwithstanding the foregoing, the parties covenant and agree that the
provisions of this Agreement pertaining to books and records (e.g. Section 4.4
hereof) shall apply to all transactions relating to Services and the offering
and sale of Certificates by DISTRIBUTOR. The parties agree that because of the
sensitive and confidential nature of these records and procedures, such records
and procedures shall not be disclosed nor disseminated except to authorized
accounting and management personnel of AAL and DISTRIBUTOR.
DISTRIBUTOR and AAL acknowledge that unanticipated conditions may
materially change the Final Annual Budget. DISTRIBUTOR and AAL agree that the
nature of these unanticipated conditions can be characterized as either a
"permanent change" or a "temporary change". For example, a permanent change is
the elimination of a Service that DISTRIBUTOR provides pursuant to this
Agreement and a temporary change is AAL's assumption of a Service, pursuant to
DISTRIBUTOR's request. DISTRIBUTOR and AAL covenant and agree that the
accounting treatment for permanent changes shall be redetermined on an annual
basis and the accounting treatment for a temporary change shall be as set forth
herein. In the event a temporary change occurs, DISTRIBUTOR and AAL covenant and
agree that AAL shall be permitted a payment credit towards any outstanding
charges/expenses for Services performed by DISTRIBUTOR, for certain services
rendered by AAL employees and agents in connection with the offering and sale of
the Certificates (e.g. legal or accounting services) ("Services Offset") The
relevant terms and conditions of this Agreement shall apply to the Services
Offset (e.g. determination for Final Annual Budget, accounting procedures). On a
monthly basis during the term of this Agreement: DISTRIBUTOR shall provide
written documentation to AAL for Services rendered, and AAL shall provide
written documentation to DISTRIBUTOR for Services Offset rendered (collectively,
the "Accounting Statements").
The Accounting Statements shall reasonably itemize and detail the
Services and Services Offset provided by each of the parties during the
preceding, month. The format for the Accounting Statements shall follow certain
CMC accounting procedures.
7. INDEPENDENT CONTRACTOR
In performing its duties hereunder, DISTRIBUTOR shall be an independent
contractor and neither DISTRIBUTOR, nor any of its officers, directors,
employees, or registered representatives is, or shall be, an employee of AAL in
the performance of DISTRIBUTOR's duties hereunder. DISTRIBUTOR shall be
responsible for the employment, control, and conduct of its officers, agents and
employees and for injury to such agents or employees or to others through its
agents or employees. DISTRIBUTOR assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all employee taxes
thereunder.
8. INDEMNIFICATION
8.1 INDEMNIFICATION OF AAL
DISTRIBUTOR agrees to indemnify and hold harmless AAL and each of its
present or former directors, officers, employees, representatives and each
person, if any, who controls or previously controlled AAL within the meaning of
Section 15 of the 1933 Act, against any and all losses, liabilities, damages,
claims or expenses (including the reasonable costs of investigating or defending
any alleged loss, liability, damage, claims or expense and reasonable legal
counsel fees incurred in connection therewith) to which AAL or any such person
who may become subject under the 1933 Act, under any other statute, at common
law, or otherwise, arising out of the acquisition of any Certificate by any
person which may be based upon any wrongful act by DISTRIBUTOR or any of
DISTRIBUTOR's directors, officers, employees or representatives, or may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement, prospectus, shareholder report or other
information covering the Certificates filed or made public by AAL or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was made in
reliance upon information furnished to AAL by DISTRIBUTOR.
In no case is DISTRIBUTOR's indemnity in favor of AAL, or any person
indemnified to be deemed to protect AAL or such indemnified person against any
liability to which AAL or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of his obligations and duties
under this Agreement, or is DISTRIBUTOR to be liable under its indemnity
agreement contained in this Section with respect to any claim made against AAL
or any person indemnified unless AAL or such person, as the case may be, shall
have notified DISTRIBUTOR in writing of the claim within a reasonable time after
the summons or other first written notification giving information of the nature
of the claim shall have been served upon AAL or upon such person (or after AAL
or such person shall have received notice to such service on any designated
agent). However, failure to notify DISTRIBUTOR of any such claim shall not
relieve DISTRIBUTOR from any liability which DISTRIBUTOR may have to AAL or any
person against whom such action is brought otherwise than on account of
DISTRIBUTOR's indemnity agreement contained in this Section. DISTRIBUTOR agrees
to promptly notify AAL of the commencement of any litigation or proceedings
against it or any of its officers, employees or representatives in connection
with the issue or sale of the Certificates.
8.2 INDEMNIFICATION OF DISTRIBUTOR
AAL agrees to indemnify and hold harmless DISTRIBUTOR and each of its
present or former directors, officers, employees, representatives and each
person, if any, who controls or previously controlled DISTRIBUTOR within the
meaning of Section 15 of the 1933 Act, under any other statute, at common law,
or otherwise, arising out of the acquisition, or with regard to the terms and
conditions, of any Certificates by any person that may be based upon any
wrongful act by AAL or any of AAL's directors, officers, employees or
representatives (other than DISTRIBUTOR) or any other broker/distributors who
are selling Certificates for AAL, may be based upon any untrue statement or
alleged untrue statement or a material fact contained in a registration
statement, prospectus, shareholder report or other information covering the
Certificates or FUND filed or made public by AAL or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading unless such statement or omission was made in reliance
upon information furnished to AAL by DISTRIBUTOR. In no case is AAL's indemnity
in favor of DISTRIBUTOR, or any person indemnified to be deemed to protect
DISTRIBUTOR or such indemnified person against any liability to which
DISTRIBUTOR or such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of his obligations and duties under this
Agreement, or is AAL to be liable under its indemnity agreement contained in
this Section with respect to any claim made against DISTRIBUTOR or person
indemnified unless DISTRIBUTOR, or such person, as the case may be, shall have
notified AAL in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon DISTRIBUTOR or upon such person (or after
DISTRIBUTOR or such person shall have received notice of such service on any
designated agent). However, failure to notify AAL of any such claim shall not
relieve AAL from any liability which AAL may have to DISTRIBUTOR or any person
against whom such action is brought otherwise than on account of AAL's indemnity
agreement contained in this Section. AAL shall be entitled to participate, at
its own expense, in the defense, or, if AAL so elects, to assume the defense of
any suit brought to enforce any such claim, but if AAL elects to assume the
defense, such defense shall be conducted by legal counsel chosen by AAL. AAL
agrees to promptly notify DISTRIBUTOR of the commencement of any litigation or
proceedings against it or any of its trustees, officers, employees, or
representatives in connection with the issue or sale of the Certificates.
9. AUTHORIZED REPRESENTATIONS
DISTRIBUTOR is not authorized by AAL to give on behalf of AAL any
information or to make any representations in connection with the sale of
Certificates other than the information and representations contained in a
Registration Statement filed with the SEC under the 1933 Act and/or the 1940
Act, covering the Certificates, the ACCOUNTS, or the FUND, as such Registration
Statements may be amended or supplemented from time to time, or contained in
shareholder reports or other material that may be prepared by or on behalf of
AAL for DISTRIBUTOR's use. This shall not be construed to prevent DISTRIBUTOR
from preparing and distributing advertising and sales literature or other
material as it may deem appropriate, subject to the requirements of Section 5
above.
10. AMENDMENT OR ASSIGNMENT OF AGREEMENT
This Agreement may not be amended or assigned except by written
agreement of both parties.
11. TERMINATION OF AGREEMENT
This Agreement may be terminated by either party hereto, without the
payment of any penalty, on 90 days prior notice in writing to the other party or
immediately if agreed upon by both parties.
12. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Nothing herein contained shall be deemed to require AAL to take any
action contrary to its Charter or by-laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Board of Directors of AAL of responsibility for and
control of the conduct of the affairs of AAL. .
13. DEFINITION OF TERMS
Any questions of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1933 Act, the 1934 Act, the Advisers Act or the 1940 Act shall be
resolved by reference to such term or provision and to interpretation thereof,
if any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the SEC validly
issued pursuant to such Act.
14. COMPLIANCE WITH SECURITIES LAWS
AAL CMC represents that it is registered as an investment adviser under
the Advisers Act and agrees that it will comply with all the provisions of the
Act and of the rules and regulations thereunder. AAL CMC ,as investment adviser
to the Fund and as DISTRIBUTOR, agrees to comply with all of the applicable
terms and provisions of the 1933 Act, the 1934 Act, the 1940 Act, the Advisers
Act, and all applicable state laws. Each party to the Agreement shall advise the
other promptly of (a) any action of the SEC or any authorities of any state or
territory, of which it has knowledge, affecting the registration or
qualification of the ACCOUNTS or the Certificates, or the right to offer the
Certificates for sale or (b) the happening of any event which makes untrue any
statement, or which requires the making of any change in any Registration
Statement or any current Prospectus or Statement of Additional Information, in
order to make the statements therein not materially misleading.
15. REGULATORY EXAMINATIONS
DISTRIBUTOR and AAL agree to cooperate fully in any insurance
regulatory examination, investigation, or proceeding or any judicial proceeding
arising in connection with the Certificates. DISTRIBUTOR and AAL further agree
to cooperate fully in any securities regulatory examination, investigation or
proceeding or any judicial proceeding with respect to AAL, DISTRIBUTOR, their
affiliates and their agents or representatives, to the extent that such
examination, investigation or proceeding is in connection with Certificates
distributed under this Agreement. DISTRIBUTOR shall furnish applicable federal
and state regulatory authorities with any information or reports in connection
with its services under this Agreement which such authorities may request in
order to ascertain whether AAL's operations are being conducted in a manner
consistent with any applicable laws or regulations.
16. NOTICES
Any notice required to be given pursuant to this Agreement shall be
deemed duly given if delivered or mailed by registered mail, postage prepaid, to
DISTRIBUTOR or to AAL at 222 West College Avenue, Appleton, Wisconsin,
54919-0007.
17. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives and their respective corporate
seals to be hereunto affixed, as of the dates first above written.
AID ASSOCIATION FOR LUTHERANS AAL CAPITAL MANAGEMENT CORPORATION
By: /s/John O. Gilbert By: /s/Robert G. Same
-------------------------- -----------------------------
John O. Gilbert Robert G. Same
President and President
Chief Executive Officer
By: /s/Woodrow E. Eno By: /s/Frederick D. Kelsven
-------------------------- -----------------------------
Woodrow E. Eno Frederick D. Kelsven
Senior Vice President, Secretary
Secretary and General Counsel
SCHEDULE A: SCHEDULE OF SALES COMMISSIONS
To the Principal Underwriting and Servicing Agreement
dated January 1, 2000
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CERTIFICATES
AND
SINGLE PREMIUM IMMEDIATE VARIABLE ANNUITY CERTIFICATES
AMOUNT OF PREMIUM DEPOSIT* COMMISSION
First $100,000 2.25%
Next $150,000 1.50%
Next $250,000 1.00%
Amounts in excess of $500,000 0.50%
AGE 80 AND ABOVE*
First $500,000 1.00%
Amounts in excess of $500,000 0.50%
- - Commission rate based on size of the individual premium applied. It is not
based on cumulative premiums.
- - An AUM service fee is payable quarterly.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CERTIFICATES
COMMISSIONS FOR: Initial issue with NO exchange of other AAL certificate.
ISSUE AGE 1ST AMOUNT EQUAL TO MFYP 2ND AMOUNT EQUAL TO MFYP
0-44 47.5% 20.5%
45. 43.5 18.5
46. 43.0 18.0
47. 42.0 17.5
48. 41.0 17.0
49. 40.0 16.5
50. 39.0 16.0
51. 38.0 15.5
52. 37.0 15.0
53. 36.0 14.5
54. 35.0 14.0
55. 34.5 13.5
56. 34.0 13.5
57. 33.5 13.5
58. 32.5 13.5
59. 31.5 13.5
60. 30.5 13.5
61. 29.5 13.5
62. 28.5 13.5
63. 27.5 13.5
64. 26.5 13.5
65. 25.5 13.5
66. 25.5 13.5
67. 25.5 13.5
68. 24.5 13.5
69. 24.5 13.5
70. 23.5 13.5
71. 23.5 13.5
72. 22.5 13.5
73. 22.5 13.5
74. 21.5 13.5
75. 21.5 13.5
76. 21.5 13.5
77. 21.5 13.5
78. 20.5 13.5
79. 20.5 13.5
80. 20.5 13.5
COMMISSIONS FOR: Special class rating for certificate issue, certificate or
benefit increase, or addition of benefits.
ISSUE AGE MFYP FOR RATING
All 70%
COMMISSIONS FOR: Disability Waiver, Accidental Death, Guaranteed Purchase
Option, or Applicant Waiver included at initial issue,
benefit increase or addition of benefit.
ISSUE AGE MFYP FOR BENEFIT/INCREASE
All 70%
SERVICE COMMISSIONS: The servicing registered representative, as determined by
AAL, will be paid service commissions at the rate of 2.5
percent on all premiums applied on the certificate.
AMENDMENT AND RESTATEMENT
OF
TRANSFER AGENCY AGREEMENT
BY AND AMONG
AAL VARIABLE PRODUCTS SERIES FUND, INC.
AND
AID ASSOCIATION FOR LUTHERANS
DATED SEPTEMBER 27, 1994, AND AS
AMENDED MARCH 15, 1999
TABLE OF CONTENTS
Page
1. Documents...........................................................3
2. Authorized Shares...................................................4
3. AAL to Issue and Register Shares....................................4
4. Notice of Distribution..............................................5
5. Distributions.......................................................5
6. Redemptions and Repurchases.........................................5
7. Processing Transactions.............................................5
8. Tax Returns.........................................................5
9. Book and Records....................................................6
10. Information to be Furnished.........................................7
11. Proxies.............................................................7
12. Compliance with Governmental Rules and Regulations..................7
13. Force Majeure.......................................................7
14. Standard of Care and Indemnification................................7
15. Further Actions.....................................................8
16. Additional Portfolios...............................................8
17. Assignment and Agents...............................................9
18. Maryland Law to Apply...............................................9
19. Amendment and Termination...........................................9
TRANSFER AGENCY AGREEMENT
The TRANSFER AGENCY AGREEMENT made and entered into as of September 27,
1994 by and among the AAL VARIABLE PRODUCT SERIES FUND, INC. (the "FUND"), a
Maryland corporation, and AID ASSOCIATION FOR LUTHERANS ("AAL"), a fraternal
benefit society founded under the laws of the State of Wisconsin, is hereby
amended and restated as of the ___ day of _______________, 1999.
WITNESSETH THAT:
WHEREAS, the Fund is a diversified, open-end management investment
company, registered under the Investment Company Act of 1940 as amended ("1940
Act"), and authorized to issue shares of common stock, $.001 par value ("Common
Stock"), in separate series, with each such series representing an interest in a
separate portfolio of securities and other assets; and
WHEREAS, AAL, a fraternal benefit society founded in Wisconsin in 1902
and owned by and operated for its members, is currently licensed to transact
life insurance business in all 50 states and the District of Columbia and
intends to offer variable annuity and variable universal life certificates (the
"Certificates") in states where it has authority to issue variable contracts;
and
WHEREAS, the Fund intends to offer shares of the AAL Variable Product
Large Company Stock Portfolio, the AAL Variable Product Small Company Stock
Portfolio, the AAL Variable Product Bond Portfolio, the AAL Variable Product
Balanced Portfolio, the AAL Variable Product Money Market Portfolio, the AAL
Variable Product International Stock Portfolio and the AAL Variable Product High
Yield Bond Portfolio (such portfolios, together with all other portfolios
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 16 hereof, the "Portfolios"), exclusively to
corresponding subaccounts of the AAL Variable Annuity Account I, AAL Variable
Annuity Account II, AAL Variable Life Account I (each of which funds certain
Certificates issued by AAL), the Aid Association for Lutherans Savings Plan, (a
qualified retirement plan under Section 401(k) of the Internal Revenue Code of
1986, as amended), and directly to AAL (the "Shareholders");
NOW THEREFORE, in consideration of the Fund making its shares available
for investment in connection with certain insurance products and qualified
retirement plans and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, but for no other fee or
reimbursement which is not specifically set forth herein, AAL is hereby
appointed Transfer Agent for the shares of the Fund and Dividend Disbursing
Agent for the Fund, and AAL accepts said appointment, subject to the following
terms and conditions:
1. DOCUMENTS
1.1 In connection with the appointment of AAL as Transfer Agent, the Fund
shall file with AAL the following documents:
a) A certified copy of the Articles of Incorporation of the Fund and
any amendments thereto;
b) A certified copy of the By-Laws of the Fund as amended to date;
c) A copy of the resolution of the Board of Directors of the Fund
authorizing this Agreement; and
d) An opinion of counsel for the Fund with respect to the validity
of the shares of the Fund, the number of shares authorized, the
number of shares allocated to each Portfolio, the status of
redeemed or repurchased shares and the number of shares of each
Portfolio with respect to which a registration statement under
the Securities Act of 1933, as amended ("1933 Act"), has been
filed and is in effect.
1.2 The Fund will also furnish to AAL from time to time the following
documents:
a) Each resolution of the Board of Directors of the Fund authorizing
the original issue of its shares or affecting the status of
redeemed or repurchased shares;
b) Each registration statement filed with the Securities and
Exchange Commission under the 1933 Act or under the 1940 Act and
amendments thereof, orders relating thereto and prospectuses and
statements of additional information (hereinafter collectively
referred to as "prospectus") in effect with respect to the sale
of shares of the Fund;
c) A certified copy of each amendment to the Articles of
Incorporation or the By-Laws of the Fund;
d) Certified copies of each resolution of the Board of Directors
authorizing officers to give instructions to the Transfer Agent;
and
e) Such other documents or opinions which AAL may, in its
discretion, reasonably deem necessary or appropriate in the
proper performance of its duties.
2. AUTHORIZED SHARES
The Fund certifies to AAL that as of the close of business on the date
of this Agreement, it has authorized a total of 2,000,000,000 (two billion)
shares of its Common Stock, of which 700,000,000 (seven hundred million) shares
are divided equally among the seven Portfolios, and certifies that by virtue of
its Articles of Incorporation and the provisions of the laws of the state of its
incorporation, shares of its Common Stock which are redeemed or re-purchased by
the Fund from the holder will be restored to the status of authorized and
unissued shares.
3. AAL TO ISSUE AND REGISTER SHARES
AAL shall issue and record the issuance of shares of the Common Stock of
the Fund. AAL shall notify the Fund and its "Custodian" (which term, whenever
used herein, shall mean each Custodian for the one or more Portfolios affected
by the transaction referred to) of every issuance, which notice shall include
the date, Portfolio, number of shares, and dollar amount of the transaction. AAL
shall compute the number of shares issuable in the case of an order for a dollar
amount of shares (or the purchase price in the case of an order for a specific
number of shares) at the net asset value per share for the Portfolio, as
described in the then-current prospectus of the Fund, unless the Board of
Directors of the Fund should otherwise direct.
4. NOTICE OF DISTRIBUTION
The Fund shall promptly inform AAL of the declaration of any dividend or
distribution on account of its shares, including the amount per share, record
date, date payable and the Portfolio.
5. DISTRIBUTIONS
AAL shall act as Dividend Disbursing Agent for the Fund, and, as such,
in accordance with the provisions of the Articles of Incorporation and the
then-current prospectus of the Fund, shall distribute or credit income and
capital gain payments to shareholders. The Fund will notify AAL of and cause the
Custodian to make available to AAL out of the assets of the Fund of the
appropriate Portfolio, the amount of any such payment to be paid out in cash.
AAL shall process the reinvestment of distributions in each Portfolio at the net
asset value per share for that Portfolio next computed after the payment, in
accordance with the then-current prospectus of the Fund. AAL shall notify the
Fund and the Custodian as to the number, Portfolio, dollar amount and date of
issue of shares by reinvestment of each distribution.
6. REDEMPTIONS AND REPURCHASES
AAL shall process each redemption or repurchase of shares at the net
asset value per share of that Portfolio, as described in the then-current
prospectus of the Fund, unless the Board of Directors of the Fund should
otherwise direct. Where redemption or repurchase of a dollar amount is required,
AAL shall calculate the number of shares to be redeemed or repurchased so as to
provide the shareholder with the dollar value required, and where a stated
number of shares is required, AAL shall compute the dollar amount of the
proceeds. In either case, AAL shall notify the Fund of the number of shares and
the Portfolio out of which the shares are to be redeemed or repurchased, and the
dollar amount and date of the redemption or repurchase, and shall direct the
Fund to make the required amount of proceeds available to the shareholder out of
the assets of that Portfolio. The Fund shall cause its Custodian to make such
proceeds available not more than seven calendar days after receipt of the
redemption or repurchase request.
7. PROCESSING TRANSACTIONS
In calculating the number of shares to be issued on purchase or
reinvestment, or redeemed or repurchased, or the amount of the purchase payment
or redemption or repurchase proceeds owed, AAL shall use the net asset value per
share computed by AAL in accordance with the investment advisory agreement
between the Fund and AAL.
The authority of AAL to process purchases, reinvestments, redemptions
and repurchases shall be suspended upon receipt of notification by AAL of the
suspension of the determination of the net asset value of the Portfolios of the
Fund, until such suspension has been lifted.
8. TAX RETURNS
AAL shall, if necessary, prepare, file with the Internal Revenue Service
and with the appropriate state agencies, and, if required, mail to shareholders
such returns for reporting dividends and distributions paid as are required to
be so filed and mailed under applicable federal and state income tax laws, rules
and regulations.
9. BOOK AND RECORDS
With respect to each Portfolio, AAL shall maintain records showing for
each shareholder's account the following:
a) Names, address and tax identifying numbers;
b) Number of shares of each Portfolio held;
c) Historical information regarding transactions with respect to
each Portfolio, including purchases, redemptions, dividends and
distributions, transfers, and any other transactions, with date
and price for all transactions;
d) Any stop or restraining order placed against the account;
e) Correspondence relating to the current maintenance of the
account;
f) Any information required in order for the AAL to perform the
calculations contemplated or required by this Agreement; and
g) Such other records as the Fund may from time to time reasonably
request, and any other document pertinent to the above, or to
functions that the parties to a transfer agent agreement may
assign to the transfer agent.
Any such records required to be maintained by Rule 31a-1 of the General
Rules and Regulations under the 1940 Act shall be preserved by AAL for the
periods prescribed in Rule 31a-2 of said rules. Such record retention shall be
at the expense of AAL and records may be inspected by the Fund or its designees
at reasonable times, and, upon reasonable request of the Fund, copies of records
shall be provided at AAL expense to the Fund or its designee. AAL may, at its
option at any time, and shall forthwith upon the demand of the Fund, turn over
to the Fund and cease to retain in AAL files, records and documents created and
maintained by AAL pursuant to this Agreement which are no longer needed by AAL
in performance of its services or for its protection. If not so turned over to
the Fund, such records and documents will be retained by AAL for six years from
the year of creation, during the first two of which such documents will be in
readily accessible form. At the end of the six year period, such records and
documents will either be turned over to the Fund, or destroyed in accordance
with the authorization of the Fund.
Any such records required to be maintained by Maryland General
Corporation Law shall be maintained by AAL upon the terms thereunder.
Any such records maintained by AAL pursuant to this Agreement are deemed
to be the property of the Fund and will be promptly surrendered or made
available to the Fund or its designee, without charge, except for reimbursement
of expenses for surrender of such documents, upon request by the Fund or upon
termination of this Agreement.
AAL and the Fund agree that all books, records, information and data
pertaining to the business of the other Party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.
10. INFORMATION TO BE FURNISHED
AAL shall furnish to the Fund such other information, including
statistical information, as needed to implement the provisions of this Agreement
and as may be agreed upon from time to time.
AAL shall report to the Fund regarding its performance under this
Agreement as may be reasonably requested by the Fund.
The Fund shall furnish to AAL such instructions and other information as
are needed to implement the provisions of this Agreement and as may be agreed
upon from time to time.
11. PROXIES
AAL shall mail or otherwise distribute such proxy cards and other
material supplied to it by the Fund in connection with shareholder meetings of
the Fund and shall receive, examine and tabulate returned proxies and voting
instructions and certify the vote of each Portfolio of the Fund.
12. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
As between the Fund and AAL in its capacity as Transfer Agent, the Fund
assumes full responsibility for the preparation, contents and distribution of
each prospectus of the Fund and for complying with all applicable requirements
of the 1933 Act, the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction over the Fund, except as may be
specifically provided herein.
13. FORCE MAJEURE
AAL shall not be liable for loss of data occurring by reason of
circumstances beyond its control, including but not limited to acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots, or failure of transportation, communication or
power supply. AAL shall use its best efforts to minimize the likelihood of such
damage, loss of data, delays or errors resulting from uncontrollable events, and
if such damage, loss of data, delays or errors occur, AAL shall use its best
efforts to mitigate the effects of such occurrence.
14. STANDARD OF CARE AND INDEMNIFICATION
AAL shall at all times act in good faith and use its best efforts within
reasonable limits to ensure the accuracy of all services performed under this
Agreement, but assumes no responsibility and shall not be liable for loss or
damage due to errors; provided, that AAL shall indemnify and hold the Fund
harmless from all loss, cost, damage, and expense, including reasonable
attorneys' fees, incurred by the Fund as a result of AAL's gross negligence, bad
faith, or willful misfeasance in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement, or
that of its officers, agents and employees, in the performance of this
Agreement.
The Fund shall indemnify and hold AAL harmless from all loss, cost,
damage and expense, including reasonable attorneys' fees incurred by it
resulting from any claim, demand, action or suit in connection with the
performance of its duties hereunder, or the functions of Transfer and Dividend
Disbursing Agent or as a result of acting upon any instruction reasonably
believed by it to have been properly executed by a duly authorized officer of
the Fund, or upon any information, data, records or documents provided AAL or
its agents by computer tape, telex, CRT data entry or other similar means
authorized by the Fund; provided, that this indemnification shall not apply to
actions or omissions of AAL in cases of its own gross negligence, bad faith or
willful misfeasance in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, or that
of its officers, agents and employees, in the performance of this agreement.
In order that the indemnification provisions contained in this Section
14 shall apply, however, it is understood that if in any case the one party (the
"Indemnitor") may be asked to indemnify or save the other party (the
"Indemnitee") harmless, the Indemnitor shall be fully and promptly advised of
all pertinent facts concerning the matters in question, and it is further
understood that the Indemnitee will use all reasonable care to identify and
notify the Indemnitor promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Indemnitor. The Indemnitor shall have the option to defend the
Indemnitee against any claim which may be the subject of this indemnification,
and in the event that the Indemnitor so elects, it will so notify the
Indemnitee, and thereupon the Indemnitor shall take over complete defense of the
claim, and the Indemnitee shall in such situations incur no further legal or
other expenses for which it shall seek or be entitled to indemnification under
this paragraph. The Indemnitee shall in no case confess any claim or make any
compromise in any case in which the Indemnitor will be asked to indemnify the
Indemnitee except with the Indemnitor's prior written consent.
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
15. FURTHER ACTIONS
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
16. ADDITIONAL PORTFOLIOS
In the event that the Fund establishes one or more Portfolios in
addition to the seven Portfolios with respect to which it desires to have AAL
render services as Transfer Agent and Dividend Disbursing Agent under the terms
hereof, it shall so notify AAL in writing, and if AAL agrees in writing to
provide such services, such Portfolio shall become a Portfolio hereunder. AAL
shall not unreasonably withhold approval of such new Portfolio.
17. ASSIGNMENT AND AGENTS
AAL may not assign this Agreement or delegate any of its
responsibilities hereunder without the express written consent of the Fund.
However, AAL may from time to time employ agents to act on its behalf to perform
and carry out its functions set forth as responsibilities of AAL in this
Agreement.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18. MARYLAND LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Maryland.
19. AMENDMENT AND TERMINATION
This Agreement may be modified or amended from time to time by written
agreement between the parties hereto. This Agreement may be terminated at any
time by not less than one hundred twenty (120) days' written notice given by one
party to the other.
EXECUTED under seal as of the day and year above written:
AID ASSOCIATION FOR LUTHERANS AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/John O. Gilbert By: /s/Walter S. Rugland
--------------------------------- ------------------------------
John O. Gilbert Walter S. Rugland
President and President
Chief Executive Officer
By: /s/Woodrow E. Eno By: /s/Steven J. Fredricks
--------------------------------- ------------------------------
Woodrow E. Eno Steven J. Fredricks
Senior Vice President, Secretary
Secretary and General Counsel
AID ASSOCIATION FOR LUTHERANS
PREFACE
THE AAL ARTICLES OF INCORPORATION AND BYLAWS, PRINTED IN THIS BROCHURE, ARE PART
OF YOUR FRATERNAL CONTRACT WITH AID ASSOCIATION FOR LUTHERANS. (SEE BYLAWS,
SECTION 4, PAGE TWO.) THEY SET THE FRAMEWORK WITHIN WHICH ALL AAL PROGRAMS,
OPERATIONS AND POLICIES MUST FALL. MEMBERS OF THE AAL BOARD OF DIRECTORS, AS
REPRESENTATIVES OF ALL AAL MEMBERS, USE THE BYLAWS AND ARTICLES TO MAKE
DECISIONS ABOUT CORPORATE OBJECTIVES, POLICIES AND STRATEGY. THESE DECISIONS, IN
TURN, DICTATE THE COURSE OF MANAGEMENT DECISIONS.
ARTICLES OF INCORPORATION
AS AMENDED JANUARY 28, 2000
I
NAME
The name of this fraternal benefit society shall be "Aid Association for
Lutherans."
II
PLACE OF BUSINESS
The principal office of this fraternal benefit society shall be at Appleton,
Wisconsin.
III
POWERS
For the purposes set forth in these articles, Aid Association for Lutherans, a
Wisconsin corporation organized and operating under the laws governing
Fraternals, shall have all the powers granted by law.
IV
PURPOSE
The purpose of Aid Association for Lutherans is to associate Lutherans and their
families and persons serving or associated with Lutherans or Lutheran
organizations, and their families, who support the mission of Aid Association
for Lutherans and thereby enable them through membership in this fraternal
benefit society to aid themselves and others with programs of:
1. Insurance and other benefits permissible under the laws governing
Fraternals; and
2. Fraternal and benevolent activities in local branches; and
3. Assistance to Lutheran congregations and their institutions; and
4. Assistance to such other lawful social, intellectual, educational,
charitable, benevolent, moral, fraternal, patriotic or religious
endeavors as the board of directors may determine.
V
SUPREME GOVERNING BODY
The supreme governing body shall be a board of directors made up of benefit
members of this fraternal benefit society. The board shall consist of 12
elective directors, such appointive directors as the board may appoint in a
manner prescribed in the bylaws, and not more than two principal officers of the
society designated by the board from time to time. The elective directors shall
be elected by the benefit members in a manner prescribed in the bylaws, and
shall constitute a majority of the board in number.
<PAGE>
VI
MEMBERSHIP
1. CLASSES OF MEMBERS. There shall be the following classes of members:
A. BENEFIT MEMBER. A benefit member is a person of age 16 or more who has
been accepted for membership in accordance with eligibility rules as
determined by resolution of the board of directors and who is the
applicant member on a certificate of membership and insurance pursuant
to rules determined by resolution of the board of directors, or who
receives a settlement agreement benefit by virtue of such insurance.
When more than one person in a family is covered in a single
certificate only the applicant is a benefit member. Benefit members
may participate in the affairs and activities of the local branch in
which they are members and may also hold office therein. Benefit
members shall also have the right to vote in the corporate and
insurance affairs of this fraternal benefit society according to the
articles and bylaws.
B. ASSOCIATE MEMBER. An associate member is a person age 16 or more who
has been accepted for membership in accordance with eligibility rules
as determined by resolution of the board of directors and who is
issued a certificate of membership. Associate members may participate
in the affairs and activities of the local branch in which they are
members, and may hold office therein, but shall not have the right to
vote in the corporate and insurance affairs of this fraternal benefit
society.
C. YOUTH MEMBER. A youth member is a person under age 16 who has been
accepted for membership in accordance with eligibility rules as
determined by resolution of the board of directors and who is issued a
certificate of membership or is issued a certificate of membership and
insurance pursuant to paragraph 2 of this Article VI. Youth members
may participate in the affairs and activities of the local branch in
which they are members that are offered to youth members, but shall
not have the right to hold office or vote in local branch affairs or
vote in the corporate and insurance affairs of this fraternal benefit
society.
2. JUVENILES. This fraternal benefit society may insure the lives or
disability of children younger than the minimum age for benefit membership
but otherwise eligible for benefit membership. Such insurance shall be
issued upon the application of some adult person who shall not by reason
thereof, nor by reason of any benefit providing waiver of premiums, become
a benefit member. At age 16 the insured juvenile shall become a benefit
member.
VII
BRANCHES
Local branches may be chartered by the board of directors in a manner prescribed
in the bylaws, and shall have such powers as the board of directors shall
determine.
VIII
BYLAWS
The board of directors shall have power to make bylaws, and to repeal or amend
them. Notice of changes to the bylaws shall be given to benefit members and
applicants for juvenile insurance in a manner prescribed in the bylaws.
IX
ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board of directors between
meetings may be taken by written action signed by two-thirds of the directors
then in office. A written consent under this provision has the same force and
effect as a vote of the board of directors taken at a meeting.
X
AMENDMENTS
These articles may be amended or repealed in whole or in part by a majority of
the votes cast by benefit members. Before submitting such changes to a vote of
the benefit members, the board of directors shall approve such changes by an
affirmative vote of a majority of the full board. Upon adoption by the benefit
members such changes shall be filed with the Commissioner of Insurance of the
state of Wisconsin and shall be published in the official publication in a
manner prescribed in the bylaws.
AID ASSOCIATION FOR LUTHERANS
BYLAWS
AS AMENDED DECEMBER 8, 1999
DEFINITIONS
SECTION 1. Wherever the term the "Association" appears in these bylaws, it means
"Aid Association for Lutherans." Wherever the term "board" appears in these
bylaws, it means "board of directors." Wherever the term "home office" appears
in these bylaws, it means "principal office."
APPLICATION FOR MEMBERSHIP
SECTION 2. Application for benefit membership shall be upon a form in use by the
Association. It shall be accompanied by evidence of insurability (if required)
which is acceptable to the Association under its rules and regulations.
Application for associate membership, if such be authorized by the board, shall
be upon a form in use by the Association.
JUVENILE INSURANCE
SECTION 3. Application for juvenile insurance shall be upon a form in use by the
Association and shall be accompanied by evidence of insurability (if required)
which is acceptable to the Association under its rules and regulations. Juvenile
certificates shall be under the control of the applicant for the period provided
in the certificate. If it be in the best interest of the juvenile as determined
by the Association, the applicant may be divested of control of a juvenile
certificate. If the applicant has been divested of control of the juvenile
certificate or if the applicant has died, control shall be vested in the legally
appointed guardian of the juvenile. If a guardian is not appointed, control
shall be vested in some person who shall appear to the Association to be
equitably entitled to it by reason of being responsible for the support and
maintenance of such juvenile, or by reason of relationship.
FRATERNAL CONTRACT
SECTION 4. The certificate of membership and insurance, together with any riders
or endorsements attached to it, the application, the declaration of insurability
(if any) signed by the applicant, the articles of incorporation and bylaws and
all amendments to them, constitute the entire contract when it is issued. Any
subsequent changes to the articles of incorporation or bylaws shall be binding
upon the member, beneficiaries or other persons affected, and shall govern and
control in all respects, except that no changes shall destroy or diminish
benefits promised in the certificate when it was issued.
BENEFICIARIES
SECTION 5. Any of the following persons may be designated as beneficiary: the
applicant benefit member, wife, husband, child, parent or other person related
to the benefit member by blood, marriage or legal adoption; foster parents of
the benefit member; betrothed of the benefit member; dependents of the benefit
member; or, where not prohibited by law, the estate of the benefit member. With
the consent of the Association, any of the following may also be designated as
beneficiary: a charitable institution; church or church organization;
educational institution; a nonprofit corporation; any corporation, community
chest, fund or foundation described in section 501(c)(3) of the Internal Revenue
Code of 1954 and its subsequent amendments and operated exclusively for
religious, charitable, scientific, literary or educational purposes; or a
person, corporation, partnership or other legal entity which has an interest in
the benefit member, provided that the proceeds are for the benefit, direct or
indirect, of the benefit member or the benefit member's family or dependents.
Wherever the applicable laws conflict with the above, only beneficiaries
permitted by such laws may be designated.
SECTION 6. Unless the beneficiary designation calls for some other method of
distribution, if some beneficiaries of the same class die before the insured,
the death benefit proceeds shall be paid in full to the surviving beneficiaries
of the same class. Each shall share equally the portion of the death benefit
proceeds not otherwise disposed of in the certificate. If all beneficiaries,
however designated, are dead when the insured dies, the death benefit
proceeds--where not otherwise required by law--shall be paid to the owner or to
the owner's estate. A beneficiary shall not have or acquire any claim against
the Association whatever until the insured dies unless otherwise provided by
law.
SECTION 7. No beneficiary change shall take effect unless received by the
Association at its home office. When it is received, any change shall take
effect as of the date the request for beneficiary change was signed, as long as
the request for change was mailed or actually delivered to the Association while
the insured was alive. Such beneficiary change shall be null and void where the
Association has made a good faith payment of the proceeds or has taken other
action before receiving the change.
SETTLEMENT OPTIONS
SECTION 8. In addition to the settlement options offered in the certificate, the
Association may offer any other manner of settlement made available by the
Association at the time certificate proceeds are to be paid.
MAINTENANCE OF SOLVENCY
SECTION 9. If the Association's reserves for any class of certificates, other
than those portions of any certificate that provide variable benefits based on
the experience of a separate account authorized under Section 10, become
impaired, the board may require that benefit members pay the Association an
equitable amount to eliminate the deficiency. If the amount is not paid, it
shall be charged as indebtedness against the certificate and shall draw interest
at the lower rate of either what is specified in the certificate for certificate
loans or what is specified in the certificate under the maintenance of solvency
provision. If the owner of the certificate agrees, an equivalent reduction in
benefits can be chosen instead of the payment or indebtedness charged against
the certificate.
SEPARATE ACCOUNTS AND VARIABLE CONTRACTS
SECTION 10. The hoard of directors may provide for the establishment and
operation of one or more separate accounts in accordance with applicable law.
AAL may issue contracts on a variable basis that provide for the dollar amount
of benefits or other contractual payments or values to vary so as to reflect the
investment results of such separate accounts. The board of directors may adopt
special procedures or create legal entities necessary or appropriate for the
conduct of the business and affairs of any variable contract and separate
account. Any provisions of the AAL Bylaws that are inconsistent with the
provisions of this bylaw shall not apply to any variable contract or separate
account.
TAXES
SECTION 11. If any jurisdiction requires the Association to pay any sum as a tax
on its operations, the board may determine an equitable apportionment of the
full amount of the taxes paid and make a levy of such amount upon the benefit
members and insureds residing in that jurisdiction. Notice of the levy,
including the manner in which it is to be paid, shall be given to those
affected. If the amount levied is not paid after 60 days from the date of the
notice, the amount shall be charged as an indebtedness against the certificate
and draw interest at 5 percent per annum compounded annually.
RESOLUTION OF DISPUTES
SECTION 12.
(A) PURPOSE. The purpose of this section is to prescribe the sole means to
present and resolve grievances, complaints or disputes brought by members,
certificate owners or beneficiaries, against the Association or its directors,
officers, agents and employees. Procedures set forth in this section are meant
to provide prompt, fair and efficient opportunities for dispute resolution,
consistent with the fraternal nature of the Association, without the delay and
expense of formal legal proceedings.
(B) SCOPE. This section applies to all past, current and future benefit
certificates, members, insureds,
<PAGE>
certificate owners, and beneficiaries. It applies to all claims, actions,
disputes and grievances of any kind or nature whatsoever. It includes, but is
not limited to, claims based on breach of benefit contract, as well as claims
based on fraud, misrepresentation, violation of statute, discrimination, denial
of civil rights, conspiracy, defamation, and infliction of distress, against the
Association or its directors, officers, agents or employees. This section does
not apply to claims or disputes made after the applicable statute of limitations
has expired. This section does not apply to actions brought by the Association,
including, but not limited to, actions for: declaratory judgment, determining
proper payees, recovering amounts due, and contesting insurance coverage or
membership eligibility.
(C) PROCEDURES. No lawsuits or any other actions may be brought for any claims
or disputes covered by this section. The following are the steps and procedures
for presenting and resolving disputes.
Step 1. Appeal. Appeal of the dispute to a designated reviewer within the
Association as appropriate to the dispute.
Step 2. Mediation. If step 1 does not result in a mutually satisfactory
resolution, either party has the right to have the matter mediated in accord
with the applicable mediation rules of the American Arbitration Association (or
other neutral organization as agreed upon by the parties).
Step 3. Arbitration. If there is still no mutually satisfactory resolution, the
matter will be resolved by binding arbitration in accord with rules of the
American Arbitration Association. The arbitrator(s) may award any actual damages
incurred for which there is liability, but may not award attorneys' fees, or
exemplary, extra-contractual or punitive damages. The decision of the
arbitrator(s) is binding and final. Additional procedural rules may be defined
in policies established by the Association and made available upon request. If a
claim or dispute is subject to law that prohibits parties from agreeing to
submit future disputes to binding arbitration, arbitration results shall be
non-binding, unless both the individual and the Association voluntarily agree to
binding arbitration after the claim or dispute has arisen.
(D) COSTS. Fees and expenses of the mediator and/or arbitrator shall be paid out
of a dispute resolution fund established by the Association. This does not
include attorneys' fees, experts' fees, or discovery costs, which each party
shall bear as its own responsibility.
(E) JOINDER OF DISPUTES. No claim or dispute may be brought against the
Association or its directors, officers, agents or employees, in a representative
capacity, or on behalf of any "class" of persons or members. Claims of multiple
persons may be joined and presented under this section provided all affected
members, certificate owners and beneficiaries consent in writing, or if the
Association determines that joinder is appropriate.
RECEIPT OF PAYMENTS NOT A WAIVER
SECTION 13. If the Association receives and temporarily holds a payment or
premium, this shall not constitute a waiver of any of its defenses. If a
certificate has lapsed or been forfeited, or if the Association has received a
notice of cancellation, the payment of any premium for the certificate shall not
revive or, continue the certificate, whether made on notice of premium due or
otherwise, and the payment shall be returned to the person making it.
BOARD OF DIRECTORS
SECTION 14. The affairs of the Association shall be managed under the direction
of the board. The board shall meet quarterly at dates to he set by the board.
All meetings shall be held at the home office of the Association unless some
other place is designated by the chief executive officer or board. Regular or
special meetings of the board of directors or its committees may also be
conducted by other means of communication, as prescribed by Wisconsin law, if so
designated by the board, the chairman of the board, the chief executive officer,
or the chairman of a committee of the board with respect to committee meetings.
Special meetings may be called by the chief executive officer or upon written
request to the secretary by at least five members of the board. The chief
executive officer or secretary shall notify board members, in writing or by
personal delivery, of the purpose, time and place of special meetings at least
seven calendar days before the date of the meetings. Except in the case of
removal of a director from office for cause, board members may waive their right
to receive notice individually and the board, by unanimous vote of the full
board, may suspend the requirement to given such notice.
SECTION 15. The board shall elect a chairman of the board and vice chairman of
the board from among its members for a term of up to one year. The chairman
shall preside at all meetings of the board and perform such other duties as may
be designated by the board. If the chairman of the board is a principal officer
of the Association, he or she shall be responsible only to the board. The vice
chairman shall preside at meetings of the board in the absence of the chairman.
SECTION 16. A majority of the members of the board shall constitute a quorum to
transact all business unless otherwise required in the articles of incorporation
or bylaws of the Association.
ELECTION OR APPOINTMENT OF DIRECTORS
SECTION 17. Twelve benefit members shall he elected to the board for terms of
office of four years each, three members being elected each year in the
following manner: The board, as well as each branch, shall have the right to
nominate benefit members as candidates for director. All nominations must be
reported to the secretary of the Association at the home office within the time
specified by the board. The secretary shall report the nominations to the board.
The board shall then direct the secretary to prepare the ballot and give notice
of the election, specifying the time and procedures for election. Each branch
shall conduct an election meeting within the time specified at which a vote
shall be taken on the candidates and shall be reported in the manner and within
the time specified in the notice of election. Those elective directors whose
terms do not expire with the current election shall constitute the Election
Committee. The tabulation of results of the election shall be done by an
independent certified public accounting firm selected by the board to report to
the Election Committee. The Election Committee shall declare the three
candidates receiving the highest number of valid votes to be duly elected for a
term beginning with the first quarterly meeting of the board in the year
following election.
SECTION 18. Vacancies in elective directorship positions shall be filled as soon
as possible by an affirmative vote of a majority of the remaining elective
directors. Such directors shall fill the unexpired terms and shall be considered
elective directors.
SECTION 19. Except as provided in Section 20, benefit members of the Association
shall not be eligible for election to the board unless they can serve the
duration of one full four-year term. No employee of the Association shall be
eligible for election to the board nor shall any former employee be eligible for
election to the board until the expiration of two years from the date of
termination of employment.
SECTION 20. The board may appoint up four benefit members of the Association to
serve as appointive directors for a term of office of one year. The board may
also appoint not more than two principal officers of the Association to serve as
directors as the board shall from time to time determine to be in the
Association's best interest. Any appointment or reappointment shall require the
affirmative vote of a majority of the elective directors. An appointive director
shall be eligible for election pursuant to Section 17 or appointment pursuant to
Section 18 if the date of initial appointment as an appointive director
proceeded such director's 67th birthday.
SECTION 21. No elective, appointive or principal officer director shall serve
beyond December 31 of the year in which age 70 is attained. A director may be
removed from office for cause by an affirmative vote of a majority of the full
board at a meeting of the board called for that purpose.
COMMITTEES OF DIRECTORS
SECTION 22. The board by resolution adopted by a majority of the full board may
designate a governance committee and one or more additional committees of
directors. Each committee shall consist of three or more directors who serve by
appointment of the board. Each committee shall have such authority as delegation
to it by the board. A majority of the members of each committee of directors
shall constitute a quorum for the transaction of all committee business.
Vacancies occurring on committees of directors shall be filled by the board as
soon as possible.
OFFICERS OF THE ASSOCIATION
SECTION 23. The principal officers of the Association shall be the chairman of
the board, chief executive officer, president, secretary, treasurer and all vice
presidents except second vice presidents and assistant vice presidents.
Principal officers shall be elected by the board and shall serve at the pleasure
of the board. Officers other than principal officers shall be appointed by the
chief executive officer.
SECTION 24. The board shall elect the person who shall serve as chief executive
officer of the Association. The chief executive officer shall be responsible
only to the board. All other officers and employees of the Association shall be
under the chief executive officers supervision and control. Subject to the
control and direction of the board, all activities and operations of the
Association shall be under the chief executive officer's supervision and
control.
SECTION 25. The board shall fix reasonable compensation for directors and
principal officers. The chief executive officer shall fix compensation for
officers other than principal officers, in accordance with policies established
by the board.
OFFICIAL PUBLICATION
SECTION 26. The official publication of the Association shall be called
Correspondent. Any notice, report or statement required by law, including notice
of election, may be published in Correspondent. If Association records show that
two or more benefit members or applicants for juvenile insurance have the same
mailing address, a Correspondent mailed to one of them is deemed mailed to all
of them at the same address unless a separate copy is requested.
All amendments to the Articles of Incorporation and Bylaws of the Association
shall be published in Correspondent not later than four months after the date of
filing such amendments with the Commissioner of Insurance of the state of
Wisconsin.
An affidavit by the secretary of the Association certifying that Correspondent
was mailed in accordance with this section shall be submitted to the board at
its next meeting after publication of any notice, report or statement required
by law. The affidavits shall be filed in the records of the secretary's office.
FISCAL YEAR
SECTION 27. The fiscal year of the Association shall begin on the first day of
January and end on the thirty-first day of December.
ANNUAL REPORT
SECTION 28. An annual statement of the transactions of each fiscal year shall be
prepared and published in Correspondent within six months following the close of
each fiscal year.
LOCAL BRANCHES
SECTION 29. Branches shall be created and maintained to foster voluntary
activity for aiding such lawful social, intellectual, educational, charitable,
benevolent, moral, fraternal, patriotic, or religious endeavors as the board
determines in accord with policies of the board; to provide members with the
opportunity to take part in benevolent and charitable activities of the
Association; and to provide benefit members with the opportunity to exercise
their right to vote in the corporate and insurance affairs of the Association.
SECTION 30. Branches shall be chartered by resolution of the board upon petition
to it by 10 benefit members who live in the same general locality. The petition
shall indicate acceptance of the Articles of Incorporation and Bylaws of the
Association and the constitution for local branches. Petitions for branch
charters by groups of less than 10 benefit members may be specially considered
by the board, and charters may be issued pursuant to such petitions when the
board finds that the circumstances are justified. Charters may be withdrawn when
the board determines it to be in the best interests of the Association. The form
of petition, charter and constitution for local branches shall be adopted lay
the board.
SECTION 31. Regular meetings of the branches shall be held at least monthly.
Meetings for election of directors and branch officers shall be held according
to procedures and during the time prescribed by the board.
SECTION 32. Branches may voluntarily join together to form regional groupings of
branches to assist each other in the performance of their fraternal and
benevolent activities, subject to the supervision and control of the board.
INDEMNIFICATION AND FIDELITY BONDS
SECTION 33. The Association shall indemnify any person who is or was a director,
officer or employee against liability for acts or omissions in the performance
of their duties. The Association shall also indemnify any person who is or was
serving at the request of the Association as a director, officer or trustee of
another corporation, partnership, joint venture, trust or other enterprise, or
any director, officer or employee who is or was serving in a fiduciary capacity
with regard to any employee benefit plan, against liability for acts or
omissions in the performance of their duties.
The Association may purchase and maintain insurance on behalf of an individual
who is an employee, agent, director or officer of the corporation against
liability asserted against and incurred by the individual in his or her capacity
as an employee, agent, director or officer, or arising from his or her status as
an employee, agent, director or officer, regardless of whether the Association
is required or authorized to indemnify or allow expenses to the individual
against the same liability. If such insurance is purchased, the amounts shall be
as determined by resolution of the board.
The Association shall maintain fidelity bonds on the officers and employees as
determined by resolution of the board.
AMENDMENTS
SECTION 34. These bylaws may be repealed or amended, or new bylaws may be
adopted, at any regular meeting of the board or at any special meeting called
for that purpose. Notice of the proposed change shall be mailed or personally
delivered to board members at least 30 calendar days before the date of the
meeting. Board members may waive their right to receive notice individually and
the board, by unanimous vote of the full board, may suspend the requirement to
give such notice. The number of votes required to repeal or amend these bylaws,
or adopt new bylaws, shall be an affirmative vote of a majority of the full
board. Such changes shall be effective from the date of passage or at such other
date as stipulated by the board and shall be filed promptly after adoption with
the Commissioner of Insurance of the state of Wisconsin. After filing, the
changes shall be published in the official publication as prescribed in these
bylaws.
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
BY AND AMONG
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE ANNUITY ACCOUNT I
AND
AAL VARIABLE ANNUITY ACCOUNT II
AND
AAL VARIABLE LIFE ACCOUNT I
AND
AAL CAPITAL MANAGEMENT CORPORATION
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.,
DATED JANUARY 1, 2000
<PAGE>
TABLE OF CONTENTS
Page
1. SALE OF FUND SHARES......................................................4
2. REPRESENTATIONS AND WARRANTIES...........................................5
3. PROSPECTUS AND PROXY STATEMENTS: VOTING..................................6
4. SALES MATERIAL AND INFORMATION...........................................6
5. FEES AND EXPENSES........................................................7
6. DIVERSIFICATION..........................................................8
7. MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.........................8
9. TERM AND TERMINATION OF THIS AGREEMENT..................................13
10. NOTICES.................................................................15
11. MISCELLANEOUS...........................................................16
<PAGE>
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT, is made and entered into as of this 1st day
of January, 2000, by and among AID ASSOCIATION FOR LUTHERANS ("AAL"), on its own
behalf and on behalf of AAL VARIABLE ANNUITY ACCOUNT I, AAL VARIABLE ANNUITY
ACCOUNT II, and AAL VARIABLE LIFE ACCOUNT I (the "ACCOUNTS"), AAL CAPITAL
MANAGEMENT CORPORATION ("AAL CMC"), and AAL VARIABLE PRODUCT SERIES FUND, INC.
(the "FUND"), (collectively the "Parties").
WITNESSETH:
WHEREAS, AAL is a fraternal benefit society organized under the laws of the
State of Wisconsin engaged in the writing of life insurance, annuity contracts,
and other insurance products, and serves as sponsor and depositor of the
ACCOUNTS;
WHEREAS, the ACCOUNTS are legally segregated asset accounts of AAL,
established pursuant to the laws of the State of Wisconsin, with several
subaccounts (the "Subaccounts"), for the purpose of funding certain variable
universal life insurance contracts and variable annuity contracts (collectively
the "Certificates");
WHEREAS, the FUND, is registered with the Securities and Exchange
Commission (the "SEC"), as a diversified, open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act"), and its shares are
registered with the SEC under the Securities Act of 1933 (the "1933 Act");
WHEREAS, the FUND is a series company, meaning its Board of Directors may
designate various series ("Portfolios") into which the FUND's authorized shares
are to be divided from time to time, with each such Portfolio consisting of a
specific number of the FUND's authorized shares, representing an interest in a
separate portfolio of securities and other assets, and having its own investment
objectives, policies and restrictions;
WHEREAS, to the extent permitted by applicable insurance, tax and other
laws and regulations, AAL intends to purchase shares in the FUND on behalf of
the ACCOUNTS to fund the Certificates or on its own behalf for related purposes,
and the FUND is authorized to sell such shares to the ACCOUNTS and to AAL at net
asset value;
WHEREAS, the FUND has entered into an Investment Advisory Agreement with
AAL CMC, dated the 1st day of January, 2000, as amended, wherein AAL CMC has
agreed to serve as investment adviser to the FUND, and to accept certain
obligations of the FUND as set forth herein, i.e., to compute the daily net
asset value and the net asset value per share for each Portfolio and to comply
with Subchapter M and Section 817(h) of the Internal Revenue Code of 1986 (the
"Code"), as amended;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
<PAGE>
1. SALE OF FUND SHARES
1.1 The Certificates funded through the ACCOUNTS will provide for the
allocation of net amounts among certain Subaccounts for investment
in such shares of the Portfolios as may be offered from time to
time in the prospectus of the ACCOUNTS for the Certificates. The
selection of the particular Subaccount is to be made by the
Certificate owner, and such selection may be changed in accordance
with the terms of the Certificates.
1.2 The FUND will sell to AAL those shares of each available Portfolio
that AAL orders based on transactions under Certificates,
effecting such orders on a daily basis at the Portfolio's net
asset value per share next computed as provided in the FUND
prospectus.
1.3 The Board of Directors of the FUND (the "Board") may refuse to
sell shares of any Portfolio to AAL, or suspend or terminate the
offering of shares of any Portfolio, if such action is required by
law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board, acting in good faith and in light of
their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of the
FUND.
1.4 The FUND agrees that its shares will be sold only to: (a) AAL, on
its own behalf and on behalf of separate accounts that it
establishes from time to time and maintains to fund variable
annuity contracts and variable life insurance contracts of AAL,
including the ACCOUNTS; (b) other life insurance companies,
whether affiliated or unaffiliated with AAL, on behalf of separate
accounts funding variable annuity contracts and variable life
insurance contracts of such other insurance companies; and (c)
qualified pension or retirement plans, whether for the benefit of
employees of AAL and/or its affiliates or for the benefit of
unaffiliated entities ("Qualified Plans"). AAL separate accounts
(including the ACCOUNTS) and separate accounts of other life
insurance companies eligible to purchase shares of the FUND are
referred to in this Agreement as "Separate Accounts." No shares of
any Portfolio will be sold to the general public or to any life
insurance company (on its own behalf, as opposed to a Separate
Account maintained by such other insurance company) other than
AAL.
1.5 The FUND will redeem for cash from AAL those full or fractional
shares of each Portfolio that AAL requests based on transactions
under Certificates, effecting such requests on a daily basis at
the Portfolio's net asset value per share next computed as
provided in the FUND prospectus.
1.6 Issuance and transfer of the FUND's shares will be by book entry
only. Stock certificates will not be issued to AAL. Shares ordered
from the FUND will be recorded in an appropriate title for AAL.
1.7 The FUND shall furnish notice promptly to AAL of any income,
dividends or capital gain distributions payable on the shares of
any Portfolio. AAL hereby elects to receive all such income,
dividends and capital gain distributions as are payable on FUND
shares in additional shares of that Portfolio. AAL reserves the
right to revoke this election and to receive all such income,
dividends and capital gain distributions in cash. The FUND shall
notify AAL of the number of shares so issued as payment of such
income, dividends and distributions.
1.8 The FUND shall make the net asset value per share for each
Portfolio available to AAL on a daily basis, as soon as reasonably
practical after the net asset value per share is calculated.
1.9 The FUND may establish additional Portfolios to provide additional
funding media for the Certificates, or delete, combine, or modify
existing Portfolios. The shares of any additional Portfolio may be
made available to the ACCOUNTS by the FUND, pursuant to the terms
of this Agreement, and any applicable reference to any Portfolio,
the FUND or its shares herein shall include a reference to any
such Portfolio.
2. REPRESENTATIONS AND WARRANTIES
2.1 AAL represents and warrants that interests in the ACCOUNTS under
the Certificates are or will be registered under the 1933 Act to
the extent required by the 1933 Act, that the Certificates will be
issued and sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the
Certificates will comply in all material respects with state
insurance and federal securities law suitability requirements. AAL
further represents and warrants that it is a fraternal benefit
society organized under the laws of the State of Wisconsin and
engaged in the writing of life insurance, annuity contracts, and
other insurance products; that it has legally and validly
established its ACCOUNTS as segregated asset accounts under
Wisconsin insurance law; and that it has registered or will
register the ACCOUNTS as unit investment trusts in accordance with
the provisions of the 1940 Act to serve as segregated investment
accounts for the Certificates, to the extent required by the 1940
Act.
2.2 AAL represents and warrants that any interests in the ACCOUNTS
being offered for sale under the Certificates are or will be
registered under the 1933 Act to the extent required by the 1933
Act, that the Certificates will be issued and sold in compliance
in all material respects with all applicable federal and state
laws, and that the sale of the Certificates will comply in all
material respects with state insurance law, and federal securities
laws, including the rules of the National Association of
Securities Dealers, Inc. ("NASD").
2.3 The FUND represents and warrants that its shares sold pursuant to
this Agreement are or will be registered under the 1933 Act to the
extent required by the 1933 Act, duly authorized for issuance and
sold in compliance with the laws of the state of Maryland and all
applicable federal securities laws and that the FUND is or will be
registered under the 1940 Act to the extent required by the 1940
Act. The FUND will amend the registration statement for its shares
under the 1933 Act, as well as its registration statement under
the 1940 Act, as required in order to effect the continuous
offering of its shares. The FUND will register or qualify the
shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the FUND.
2.4 AAL represents and warrants that its Certificates are currently
treated as annuity contracts and universal life insurance
contracts under applicable provisions of the Code and that it will
make every effort to maintain such treatment.
2.5 The FUND makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses)
complies with the insurance laws or regulations of the various
states. On the request of any state insurance department, the FUND
agrees to provide and furnish to the department any information or
reports in connection with the FUND's operations or services that
will allow the insurance department to determine if the variable
product operations of AAL are being conducted in a manner
consistent with state laws. The FUND intends to comply with the
insurance laws of any relevant state regarding any Portfolio's
investment objectives, policies and restrictions to the extent
that AAL CMC advises the FUND, in writing, of such laws or any
change in such laws, provided the FUND's Board of Directors and/or
shareholders approve such changes as required by the 1940 Act.
2.6 The FUND represents and warrants that each of its Portfolios will
qualify as a regulated investment company under Subchapter M of
the Code and that the investments of each of its Portfolios will
comply with the diversification requirements of Section 817(h) of
the Code and the regulations thereunder, and that it will notify
AAL immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the
future.
3. PROSPECTUS AND PROXY STATEMENTS: VOTING
3.1 The FUND will provide such documentation (including a final copy
of any new prospectus, statement of additional information
("SAI"), or supplement) and other assistance as is reasonably
necessary in order for AAL or its designee to timely distribute
the current FUND prospectus, SAI and any supplement thereto, or,
in the alternative, to have the prospectus of the ACCOUNTS for the
Certificates and the FUND's prospectus printed together in one
document once each year (or more frequently if the prospectus for
the FUND is amended) (such FUND prospectus printing to be at the
FUND's expense, as provided in Section 5.1).
3.2 The FUND will provide such documentation (including a final copy
of any proxy material, report to shareholders, and other
communication to shareholders) and other assistance as is
reasonably necessary for AAL or its designee to timely distribute
the proxy material, report to shareholders, and other
communication (such printing and distribution to be the FUND's
expense, as provided in Section 5.1).
3.3 If, and to the extent required by law, AAL shall, at AAL's
expense, as provided in Section 5.2:
(a) solicit voting instructions from Certificate owners;
(b) vote Portfolio shares in accordance with instructions
received from Certificate owners;
(c) vote Portfolio shares for which no instructions have been
received, as well as Portfolio shares attributable to AAL
other than under Certificates, in the same proportion as
shares of such Portfolio for which instructions have been
received, so long as and to the extent that the SEC continues
to interpret the 1940 Act to require pass-through voting
privileges. AAL reserves the right to vote Portfolio shares
held in any segregated asset accounts or in general accounts
in its own right, to the extent permitted by law.
3.4 The FUND reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the
FUND solely upon the authorization of its Board and/or
shareholders as required by the 1940 Act.
4. SALES MATERIAL AND INFORMATION
4.1 AAL or its designee will furnish, or will cause to be furnished,
to the FUND or its designee, each piece of sales literature or
other promotional material in which the FUND or AAL is named, at
least fifteen (15) days prior to its intended use. No such
material will be used if the FUND or its designee objects to such
intended use within fifteen (15) days after receipt of such
material.
4.2 AAL will not give any information or make any representation or
statement, or cause such information to be given or representation
to be made, on behalf of the FUND or concerning any Portfolio in
connection with the sale of the Certificates other than the
information or representations contained in the registration
statement, prospectus, and SAI for FUND shares, as such
registration statement, prospectus, and SAI may be amended or
supplemented from time to time, or in reports or proxy materials
for the FUND, or in sales literature or other promotional material
approved by the FUND or its designee, except with the permission
of the FUND or its designee.
4.3 The FUND or its designee will furnish, or will cause to be
furnished, to AAL or its designee, each piece of sales literature
or other promotional material of the FUND in which AAL and/or its
ACCOUNTS is named, at least fifteen (15) days prior to its
intended use. No such material will be used if AAL or its designee
objects to such intended use within fifteen (15) days after
receipt of such material.
4.4 The FUND will not give any information or make any representations
or statements, or cause such information to be given or
representations to be made, on behalf of AAL or concerning AAL,
its ACCOUNTS or its Certificates other than the information or
representations contained in a registration statement or
prospectus for such ACCOUNTS, as such registration statement and
prospectus may be amended or supplemented from time to time, or in
published reports for the ACCOUNTS that are in the public domain
or approved by AAL for distribution to owners, or in sales
literature or other promotional material approved by AAL or its
designee, except with the permission of AAL or its designee .
4.5 The FUND will provide to AAL one complete copy of all registration
statements, prospectuses, SAI's, reports, proxy material, sales
literature and other promotional material, applications for
exemptions, requests for no-action letters, and all amendments to
any of the above, that relate to the FUND or its shares,
contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.6 AAL will provide to the FUND one complete copy of all registration
statements, prospectuses, SAI's, reports, solicitations for voting
instructions, sales literature and other promotional material,
applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the ACCOUNTS or
its Certificates, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
5. FEES AND EXPENSES
5.1 The FUND will pay all expenses incident to the FUND's performance
under this Agreement. In addition to the investment advisory fee,
subject to the expense reimbursement arrangement discussed below,
each Portfolio will bear all of its operating expenses that are
not specifically assumed by AAL, including the following: (i)
interest and taxes (ii) brokerage commissions; (iii) insurance
premiums; (iv) compensation and expenses for those Directors who
are not "interested" persons under Section 2(a)(19) of the Act;
(v) independent legal and audit expenses; (vi) fees and expenses
of the FUND's custodian, shareholder servicing or transfer agent
and accounting services agent; (vii) expenses incident to the
issuance of its shares, including stock certificates and issuance
of shares on the payment of, or reinvestment of dividends; (viii)
fees and expenses incident to the registration under Federal or
state securities laws of the FUND or its shares; (ix) FUND or
portfolio organizational expenses; (x) FUND expenses of preparing,
printing and mailing reports and notices, proxy material and
prospectuses to shareholders of the FUND; (xi) all other expenses
incidental to holding meetings of the FUND's shareholders; (xii)
dues or assessments of or contributions to the Investment Company
Institute or any successor or other industry association; (xiii)
such non-recurring expenses as may arise, including litigation
affecting the FUND and the legal obligations which the FUND may
have to indemnify its officers and Directors with respect thereto;
and (xiv) cost of daily valuation of each of the Portfolio's
securities and net asset value per share.
5.2 AAL will pay all expenses incident to AAL's performance under this
Agreement. In addition, AAL will bear the expenses of printing and
distributing to its Certificate owners the FUND proxy materials,
proxy cards and voting instruction forms (collectively "proxy
information"), tabulating the results of proxy solicitations to
its Certificate owners, printing and distributing to its
Certificate owners the FUND prospectus, SAI, supplement, proxy
material, report to shareholders, and other communication to
shareholders, and any expenses associated with administration of
its Certificates.
6. DIVERSIFICATION
6.1 The Portfolios will be invested in such a manner as to ensure that
the Certificates will be treated as variable life insurance
contracts and variable annuity contracts under the Code and the
regulations thereunder insofar as such investment is required for
such treatment. Without limiting the scope of the foregoing, the
Portfolios will at all times comply with Section 817(h) of the
Code and Treasury Regulations Section 1.817-5 relating to the
diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other modifications
to such Section or Regulations.
6.2 The FUND shall furnish to AAL on a regular basis reports of all of
the investments of each Portfolio in a form sufficient to permit
AAL to determine whether each Portfolio is in compliance with the
diversification requirements of Section 817(h) of the Code and the
Regulations thereunder and shall take immediate action, on
learning through its own monitoring, or on advice from AAL, that
any Portfolio is not in compliance with such requirements, to
return to compliance with such requirements.
6.3 If any Portfolio is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace
period allowed under the Regulations, the FUND shall take all
appropriate efforts immediately to restore any such Portfolio to
compliance and shall fully cooperate with AAL in any effort to
correct such diversification failure under procedures established
by the Internal Revenue Service, including those set forth in
Revenue Procedure 92-25.
7. MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS
7.1 The FUND's Board of Directors will monitor the FUND for the
existence of any material irreconcilable conflict between and
among the interests of the certificateholders of the Separate
Accounts (including the ACCOUNTS) investing in the FUND and the
participants of any of the Qualified Plans investing in the FUND.
A material irreconcilable conflict may arise for a variety of
reasons, including: (a) action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance,
tax or securities laws or regulations, or a public ruling ,
private letter ruling, no-action or interpretive letter, or any
similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investment of the
FUND are being managed; (e) a difference in voting instructions
given by the Separate Accounts vis-a-vis voting instructions
provided by the trustees of the Qualified Plans; (f) a decision by
AAL or another life insurance company to disregard the voting
instructions of Certificate owners in one or more Separate
Accounts; or (g) if applicable, a decision by the trustee of a
Qualified Plan to disregard the voting instructions of the
participants of such Qualified Plan. A determination by the FUND's
Board that a material irreconcilable conflict exists will be a
final determination.
7.2 If it is determined by a majority of the FUND's Board, or by a
majority of its disinterested directors, that a material
irreconcilable conflict exists, AAL (on behalf of the ACCOUNTS)
shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested directors of the
FUND), take whatever steps are necessary to remedy or eliminate
the material irreconcilable conflict. Such steps could include:
(a) withdrawing the assets allocable to some or all of the
ACCOUNTS from the FUND or any Portfolio of the FUND and
reinvesting such assets in a different investment medium,
including another portfolio of the FUND; (b) submitting the
question as to whether such segregation should be implemented to a
vote of all affected Certificate owners and, as appropriate,
segregating the assets of any appropriate (i.e., variable annuity
Certificate owners or variable life insurance Certificate owners
of one or more of AAL and any other insurance companies with
Separate Accounts investing in the FUND) that votes in favor of
such segregation, or offering to the affected Certificate owners
the option of making such change; or (c) establishing a new
registered management investment company or managed separate
account. If a material irreconcilable conflict arises because of a
decision by AAL to disregard voting instructions of owners of
Certificates in one or more of the ACCOUNTS, and that decision
represents a minority position or would preclude a majority vote
with respect to the vote being taken by shareholders of the FUND,
then AAL shall, at the election and direction of the FUND's Board,
withdraw each affected ACCOUNT's investment in the FUND (but no
charge or penalty shall be imposed as a result of such
withdrawal).
7.3 AAL is responsible, to the extent permitted by applicable law, for
taking remedial action on behalf of the affected ACCOUNT(s) in the
event that the FUND's Board determines a material irreconcilable
conflict exists. AAL will take remedial action only as it pertains
to assets of the affected ACCOUNT(s) and in accordance with its
fiduciary responsibility to Certificate owners in such affected
ACCOUNT(s). AAL, as the sponsor of the affected ACCOUNT(s), will
be responsible for the cost of any such remedial action. For the
purpose of this Section, a majority of the disinterested members
of the FUND's Board will determine whether or not any proposed
action adequately remedies any material irreconcilable conflict.
In no event shall the FUND, or AAL in its capacity as advisor to
the FUND, be required to establish a Portfolio or new funding
medium for any Certificate or any ACCOUNT. Nor, in its capacity as
sponsor of any ACCOUNT, shall AAL be required to establish a new
funding medium for any Certificate or any ACCOUNT if any offer to
do so has been declined by a vote of a majority of the Certificate
owners materially and adversely affected by the material
irreconcilable conflict.
7.4 The FUND promptly shall notify AAL in writing of any determination
by the FUND's Board as to the existence of a material
irreconcilable conflict and its implications
7.5 All reports of potential or existing conflicts received by the
FUND's Board and all Board actions with regard to or determining
the existence of a conflict of interest, notifying AAL of a
conflict, and determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of
the FUND's Board or other appropriate records, and such minutes or
other records will be made available to the SEC upon request.
7.6 The FUND will disclose in its prospectus that (a) shares of the
FUND may be offered to Separate Accounts and Qualified Plans; (b)
material irreconcilable conflicts may arise between the interest
of various certificateholders investing in the Separate Accounts
and the interests of participants in the Qualified Plans investing
in the FUND; and (c) the FUND's Board will monitor events in order
to identify the existence of any material conflict and determine
what action, if any, should be taken in response to such material
irreconcilable conflict.
7.7 No less than annually, AAL will submit to the FUND's Board such
reports, materials and data as the Board may reasonably request so
that the Board may carry out fully its obligations under this
Section. Such reports, materials and data will be submitted more
frequently if deemed appropriate by the FUND's Board. In any
event, AAL will promptly notify the FUND's Board in writing if it
becomes aware of any facts or circumstances that could give rise
to a material irreconcilable conflict between the interests of
various Certificate owners in the ACCOUNTS and the interests of
Qualified Plan participants investing in the FUND. All reports
submitted to the FUND's Board under this Section 7.7 shall include
all information reasonably necessary for the Board to consider the
conflict issues raised. In this regard, AAL promptly shall notify
the FUND's Board whenever AAL has determined to disregard voting
instructions of the Certificate owners of any ACCOUNT(s) on any
matter submitted to a vote of shareholders of the FUND.
8. INDEMNIFICATION
8.1 Indemnification By AAL
(a) AAL will indemnify and hold harmless the FUND and each of its
Directors, officers, and employees and each person, if any,
who controls the FUND within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement
with the written consent of AAL) or litigation (including
legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common
law or otherwise, and which:
(i) arise out of or are based upon any failure by AAL to
perform the duties or assume the general business
responsibilities of AAL with respect to the design,
drafting, state approvals, issuance, servicing and
administration of the Certificates, or the establishment
and maintenance of the ACCOUNTS; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement, prospectus, or SAI for the
Certificates, or the ACCOUNTS, or contained in the
Certificates or sales literature for the Certificates (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this Agreement to indemnify
will not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to AAL by or on behalf of
the FUND for use in the registration statement,
prospectus, or SAI for the Certificates or the ACCOUNTS or
in the Certificates or sales literature (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Certificates or FUND shares; or
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by AAL, or
persons under its control) or wrongful conduct of AAL or
persons under its control, or failure to supervise persons
under AAL's control or entities or individuals with which
AAL contracts, with respect to the sale or distribution of
the Certificates or FUND shares; or
(iv)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to the FUND by or on behalf of AAL;
or
(v) arise out of or result from any failure by AAL to provide
the services and furnish the materials contemplated
by this Agreement; or
(vi)arise out of or result from any material breach of any
representation and/or warranty made by AAL in this
Agreement or arise out of or result from any other
material breach of this Agreement by AAL, as limited by
and in accordance with the provisions of Sections 8.1(b).
and 8.1(c) hereof.
(b) AAL will not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would be subject by
reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or to the FUND, whichever is applicable.
(c) AAL will not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified AAL in
writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify
AAL of any such claim will not relieve AAL from any liability
that it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, AAL shall be entitled to
participate, at its own expense, in the defense thereof. AAL
also will be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After
notice from AAL to such party of AAL's election to assume the
defense thereof, the Indemnified Party will bear the fees and
expenses of any additional counsel retained by it, and AAL
will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify AAL of the
commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
8.2 Indemnification By the FUND
(a) The FUND will indemnify and hold harmless AAL and each of its
directors, officers and employees and each person, if any, who
controls AAL within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of FUND) or litigation (including legal and
other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or
otherwise, which:
(i) arise out of or are based upon any failure by the FUND to
perform the duties or assume the general business
responsibilities required by this Agreement with respect
to the sale of shares of the FUND to AAL; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the sales literature for the FUND and/or the
Certificates, or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
the FUND by or on behalf of AAL for use in the
registration statement, prospectus, or SAI for use in the
sales literature or otherwise for use in connection with
the sale of Portfolio shares; or
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by the FUND,
or persons under its control) or wrongful conduct of the
FUND or persons under its control, or failure to supervise
persons under the FUND's control or entities or
individuals with which the FUND contracts, with respect to
the sale or distribution of the Certificates or FUND
shares; or
(iv)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to AAL by or on behalf of AAL; or
(v) arise out of or result from any failure by the FUND to
provide the services and furnish the materials
contemplated by this Agreement; or
(vi)arise out of or result from any material breach of any
representation and/or warranty made by the FUND in this
Agreement or arise out of or result from any other
material breach of this Agreement by the FUND, except to
the extent provided in Section 8.2(b) and 8.2(c) hereof.
(b) The FUND will not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the FUND, whichever is
applicable.
(c) The FUND will not be liable under this indemnification
provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have
notified the FUND in writing within a reasonable time after
the summons or other first legal process giving information of
the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but
failure to notify the FUND of any such claim will not relieve
the FUND from any liability that it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified
Parties, the FUND shall be entitled to participate, at its own
expense, in the defense thereof. The FUND also will be
entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice
from the FUND to such party of the FUND's election to assume
the defense thereof, the Indemnified Party will bear the fees
and expenses of any additional counsel retained by it, and the
FUND will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify the FUND of the
commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
9. TERM AND TERMINATION OF THIS AGREEMENT
9.1 This Agreement will terminate:
(a) as to any party hereto, at the option of that party, upon
prior written notice to the other party as provided in Section
9.3 herein; or
(b) at the option of the FUND in the event that formal
administrative proceedings are instituted against AAL by the
NASD, the SEC, any state securities or insurance commissioner
or any other regulatory body regarding AAL's duties under this
Agreement or related to the sale of the Certificates, the
operation of the ACCOUNTS, or the purchase of FUND shares,
provided, however, that the FUND determines, in its sole
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of AAL to perform its obligations under this
Agreement; or
(c) at the option of AAL in the event that formal administrative
proceedings are instituted against the FUND by the NASD, the
SEC, or any state securities or insurance commission or any
other regulatory body, regarding the FUND's duties under this
Agreement or related to the sale of FUND shares or the
operation of the FUND, provided, however, that AAL determines,
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect
upon the ability of the FUND to perform its obligations under
this Agreement; or
(d) at the option of AAL with respect to the ACCOUNTS, upon
requisite authority to substitute the shares of another
investment company for shares of the FUND in accordance with
the terms of the Certificates or in accordance with the
ACCOUNTS investment policy or standards of conduct; or
(e) at the option of AAL, in the event any of the FUND's shares
are not registered, issued, or sold in accordance with
applicable federal and any state law or such law precludes the
use of such shares as the underlying investment media of the
Certificates issued or to be issued by AAL; or
(f) at the option of AAL, if the FUND fails to meet the
requirements specified in Sections 2.3 or 2.6 hereof; or
(g) at the option of the FUND, if the investments of the ACCOUNTS
fail to satisfy the diversification requirements of the Code
and the regulations thereunder, or
(h) at the option of AAL, if the FUND dissolves or becomes
otherwise unable to sell shares to fund the ACCOUNTS.
9.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 9.1(a) may be
exercised for any reason or for no reason.
9.3 Notice Requirement for Termination
No termination of this Agreement will be effective unless and
until the party terminating this Agreement gives prior written
notice to the other party to this Agreement of its intent to
terminate, and such notice shall set forth the basis for such
termination. Furthermore,
(a) in the event that any termination is based upon the provisions
of Section 9.1(a) hereof, such prior written notice shall be
given at least one hundred eighty (180) days in advance of the
effective date of termination as required by such provision;
(b) in the event that any termination is based upon the provisions
of Section 9.1(b) or Section 9.1(c) hereof, such prior written
notice shall be given at least ninety (90) days in advance of
the effective date of termination;
(c) in the event that any termination is based upon the provisions
of Section 9.1(d) hereof, AAL will give at least sixty (60)
days prior written notice to the FUND of the date of any
proposed action to substitute FUND shares, including the
filing of any applicable exemptive application under the 1940
Act relating to the ACCOUNTS; and AAL will provide the FUND
with a copy of any such exemptive application; and
(d) in the event that any termination is based upon the provisions
of Section 9.1(e), Section 9.1(f), or Section 9.1(g) hereof,
such prior written notice shall be given as soon as possible
within twenty-four (24) hours after the terminating party
learns of the event causing termination to be required.
9.4 Partial Termination
It is also understood that this Agreement may be terminated with
regard to a specific Portfolio or Portfolios of the FUND, or the
entire FUND at the discretion of the terminating party.
Notwithstanding any termination of this Agreement, the FUND, or
any Portfolio, provided its shares are then available for sale to
any persons, shall at the option of AAL, continue to make
available additional shares of the FUND pursuant to the terms and
conditions of this Agreement, for all Certificates in effect on
the effective date of termination of this Agreement (hereinafter
referred to as "Existing Certificates"). Specifically, without
limitation, the owners of the Existing Certificates shall be
permitted to transfer or reallocate investments under the
Certificates, redeem investments in the FUND and/or invest in the
FUND upon the making of additional purchase payments under the
Existing Certificates.
10. NOTICES
Any notice will be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to AAL: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: Woodrow E. Eno, Secretary
If to AAL CMC 222 West College Avenue
Appleton, Wisconsin 54919-0007
Attention: Robert G. Same
If to the FUND: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: Frederick D. Kelsven, Secretary
<PAGE>
11. MISCELLANEOUS
11.1 This Agreement will be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Maryland, where the sale of any FUND share shall be deemed to have
been made; provided, however, that if such laws or any of the
provisions of this Agreement conflict with applicable Provisions
of the 1940 Act, the latter shall control.
11.2 If any provision of this Agreement will be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement will not be effected thereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the 1st day of January, 2000.
AID ASSOCIATION FOR LUTHERANS,
AAL VARIABLE ANNUITY ACCOUNT I,
AAL VARIABLE ANNUITY ACCOUNT II AAL VARIABLE PRODUCT SERIES FUND, INC.
AND
AAL VARIABLE LIFE ACCOUNT I
By: /s/John O. Gilbert By: /s/Robert G. Same
-------------------------- ---------------------------
John O. Gilbert Robert G. Same
President and President
Chief Executive Officer
By: /s/Woodrow E. Eno By: /s/Frederick D. Kelsven
-------------------------- ---------------------------
Woodrow E. Eno Frederick D. Kelsven
Senior Vice President, Secretary
Secretary and General Counsel
AAL CAPITAL MANAGEMENT CORPORATION
By: /s/Robert G. Same
--------------------------
Robert G. Same
President
By: /s/Frederick D. Kelsven
--------------------------
Frederick D. Kelsven
Secretary
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
BY AND AMONG
AID ASSOCIATION FOR LUTHERANS
AND
AID ASSOCIATION FOR LUTHERANS SAVINGS PLAN
AND
AAL CAPITAL MANAGEMENT CORPORATION
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.,
DATED JANUARY 1, 2000
<PAGE>
TABLE OF CONTENTS
Page
1. Sale of FUND Shares.....................................................3
2. Representations and Warranties..........................................4
3. Prospectus and Proxy Statements: Voting.................................5
4. Sales Material and Information..........................................5
5. Monitoring of Material Irreconcilable Conflicts.........................6
6. Fees and Expenses.......................................................7
7. Diversification.........................................................8
8. Indemnification.........................................................9
9. Term and Termination of This Agreement.................................12
10. Notices................................................................13
11. Miscellaneous..........................................................13
<PAGE>
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT, is made and entered into as of this 1st day
of January, 2000, by and among AID ASSOCIATION FOR LUTHERANS ("AAL"), on its own
behalf and as plan sponsor of the Aid Association for Lutherans Savings Plan and
AID ASSOCIATION FOR LUTHERANS SAVINGS PLAN (the "PLAN"), AAL CAPITAL MANAGEMENT
CORPORATION ("AAL CMC"), and AAL VARIABLE PRODUCT SERIES FUND, INC. (the
"FUND"), (collectively the "Parties").
WITNESSETH:
WHEREAS, AAL is a fraternal benefit society organized under the laws of the
State of Wisconsin engaged in the writing of life insurance, annuity contracts,
and other insurance products, and serves as plan sponsor of the;
WHEREAS, the PLAN is a qualified retirement plan established under Section
401(k) of the Internal Revenue Code by AAL for the benefit of its employees and
the employees of its subsidiaries and affiliates;
WHEREAS, the FUND, is registered with the Securities and Exchange
Commission (the "SEC"), as a diversified, open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act"), and its shares are
registered with the SEC under the Securities Act of 1933 (the "1933 Act");
WHEREAS, the FUND is a series company, meaning its Board of Directors may
designate various series ("Portfolios") into which the FUND's authorized shares
are to be divided from time to time, with each such Portfolio consisting of a
specific number of the FUND's authorized shares, representing an interest in a
separate portfolio of securities and other assets, and having its own investment
objectives, policies and restrictions;
WHEREAS, to the extent permitted by applicable insurance, tax, ERISA, and
other laws and regulations, the PLAN intends to purchase shares in the FUND on
behalf of the PLAN's participants, and the FUND is authorized to sell such
shares to the PLAN at net asset value;
WHEREAS, the FUND has entered into an Investment Advisory Agreement with
AAL CMC, dated the 1st day of January, 2000, as amended, wherein AAL CMC has
agreed to serve as investment adviser to the FUND, and to accept certain
obligations of the FUND as set forth herein, i.e., to compute the daily net
asset value and the net asset value per share for each Portfolio and to comply
with Subchapter M and Section 817(h) of the Internal Revenue Code of 1986 (the
"Code"), as amended;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
1. SALE OF FUND SHARES
1.1 The PLAN will provide for the allocation of net amounts among
certain Portfolios as may be offered from time to time in the
PLAN's document. The selection of the particular Portfolio is to
be made by the Plan Participant, and such selection may be changed
in accordance with the terms of the PLAN's document.
1.2 The FUND will sell to the PLAN those shares of each available
Portfolio that the PLAN administrator or its delegate orders based
on authorizations from its participants, effecting such orders on
a daily basis at the Portfolio's net asset value per share next
computed as provided in the FUND prospectus.
1.3 The Board of Directors of the FUND (the "Board") may refuse to
sell shares of any Portfolio to the PLAN, or suspend or terminate
the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board, acting in good faith
and in light of their fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the
shareholders of the FUND.
1.4 The FUND agrees that its shares will be sold only to: (a) AAL, on
its own behalf and on behalf of separate accounts that it
maintains to fund variable annuity contracts and variable life
insurance contracts of AAL; (b) other life insurance companies;
whether affiliated or unaffiliated with AAL, on behalf of separate
accounts funding variable annuity contracts and variable life
insurance contracts of such other insurance companies; (c) the
PLAN; and (d) other qualified pension or retirement plans. AAL
separate accounts and separate accounts of other life insurance
companies eligible to purchase shares of the FUND are referred to
in this Agreement as "Separate Accounts," and the PLAN and other
qualified pension and or retirement plans eligible to purchase
shares of the FUND are referred to together in this Agreement as
"Qualified Plans." No shares of any Portfolio will be sold to the
general public or to any life insurance company on its own behalf
(as opposed to a Separate Account it maintains) other than AAL.
1.5 The FUND will redeem for cash from the PLAN those full or
fractional shares of each Portfolio that the PLAN requests based
on transactions of the PLAN's participants, effecting such
requests on a daily basis at the Portfolio's net asset value per
share next computed as provided in the FUND prospectus.
1.6 Issuance and transfer of the FUND's shares will be by book entry
only. Stock certificates will not be issued to the PLAN. Shares
ordered from the FUND will be recorded in an appropriate title for
the PLAN.
1.7 The FUND shall furnish notice promptly to the PLAN administrator
or its delegate of any income, dividends or capital gain
distributions payable on the shares of any Portfolio. The PLAN
hereby elects to receive all such income, dividends and capital
gain distributions as are payable on FUND shares in additional
shares of that Portfolio. The PLAN reserves the right to revoke
this election and to receive all such income, dividends and
capital gain distributions in cash. The FUND shall notify the PLAN
administrator or its delegate of the number of shares so issued as
payment of such income, dividends and distributions.
1.8 The FUND shall make the net asset value per share for each
applicable Portfolio available to PLAN on a daily basis, as soon
as reasonably practical after the net asset value per share is
calculated.
1.9 The FUND may establish additional Portfolios to provide additional
funding media for the PLAN, or delete, combine, or modify existing
Portfolios. The shares of any additional Portfolio may be made
available to the PLAN by the FUND, pursuant to the terms of this
Agreement, and any applicable reference to any Portfolio, the FUND
or its shares herein shall include a reference to any such
Portfolio.
2. REPRESENTATIONS AND WARRANTIES
2.1 AAL represents and warrants that it is a fraternal benefit society
organized under the laws of the State of Wisconsin and engaged in
the writing of life insurance, annuity contracts, and other
insurance products; that it has legally and validly established
its PLAN as a qualified retirement plan under section 401(k) of
the Internal Revenue Code of 1986, as amended. AAL has applied for
and received a valid determination letter from the Internal
Revenue Service for the PLAN. The PLAN complies with the Employee
Retirement Income Security Act of 1974 and all relevant federal
and state statutory provisions.
2.2 The FUND represents and warrants that its shares sold pursuant to
this Agreement are or will be registered under the 1933 Act to the
extent required by the 1933 Act, duly authorized for issuance and
sold in compliance with the laws of the state of Maryland and all
applicable federal securities laws and that the FUND is or will be
registered under the 1940 Act to the extent required by the 1940
Act. The FUND will amend the registration statement for its shares
under the 1933 Act, as well as its registration statement under
the 1940 Act, as required in order to effect the continuous
offering of its shares. The FUND will register or qualify the
shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the FUND.
2.3 The FUND represents and warrants that each of its Portfolios will
qualify as a regulated investment company under Subchapter M of
the Code and that the investments of each of its Portfolios will
comply with the diversification requirements of Section 817(h) of
the Code and the regulations thereunder, and that it will notify
the PLAN immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so qualify
in the future.
3. PROSPECTUS AND PROXY STATEMENTS: VOTING
3.1 The FUND will provide the PLAN administrator or its delegate with
current FUND prospectus, statement of additional information and
any supplement thereto in a manner so as to allow the PLAN
administrator or its delegate to timely distribute the current
FUND prospectus, SAI and any supplement thereto, to each current
and prospective PLAN participant.
3.2 The FUND will provide a final copy of any proxy material, report
to shareholders, and other communication to shareholders to the
PLAN administrator or its delegate in a timely manner.
3.3 The FUND reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the
FUND solely upon the authorization of its Board and/or
shareholders as required by the 1940 Act.
3.4 The PLAN will vote Portfolio shares in accordance with the terms
of the PLAN documents.
4. SALES MATERIAL AND INFORMATION
4.1 The PLAN administrator or its delegate will furnish, or will cause
to be furnished, to the FUND or its designee, each piece of sales
literature or other promotional material in which the FUND, or the
PLAN is named, at least fifteen (15) days prior to its intended
use. No such material will be used if the FUND or its designee
objects to such intended use within fifteen (15) days after
receipt of such material.
4.2 The PLAN will not give any information or make any representation
or statement, or cause such information to be given or
representation to be made, on behalf of the FUND or concerning any
Portfolio in connection with the sale of FUND shares other than
the information or representations contained in the registration
statement, prospectus, and SAI for FUND shares, as such
registration statement, prospectus, and SAI may be amended or
supplemented from time to time, or in reports or proxy materials
for the FUND, or in sales literature or other promotional material
approved by the FUND or its designee, except with the permission
of the FUND or its designee.
4.3 The FUND or its designee will furnish, or will cause to be
furnished, to the PLAN administrator or its delegate, each piece
of sales literature or other promotional material of the FUND in
which the PLAN is named, at least fifteen (15) days prior to its
intended use. No such material will be used if the PLAN
administrator or its delegate objects to such intended use within
fifteen (15) days after receipt of such material.
4.4 The FUND will not give any information or make any representations
or statements, or cause such information to be given or
representations to be made, on behalf of or concerning the PLAN
other than the information or representations contained in a
registration statement or prospectus, as such registration
statement and prospectus may be amended or supplemented from time
to time, or in published reports for the PLAN that are in the
public domain or approved by the PLAN administrator or its
delegate for distribution to PLAN Participants, or in sales
literature or other promotional material approved by the PLAN
administrator or its delegate, except with the permission of the
PLAN administrator or its delegate.
4.5 The FUND will provide to the PLAN one complete copy of all
registration statements, prospectuses, SAI's, reports, proxy
material, sales literature and other promotional material,
applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the FUND or its
shares, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
4.6 The PLAN will provide to the FUND one complete copy of all
reports, sales literature and other promotional material,
applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the PLAN and
the FUND, contemporaneously with the filing of such document with
the SEC, IRS or other regulatory authorities.
5. MONITORING OF MATERIAL IRRECONCILABLE CONFLICTS
5.1 The FUND's Board of Directors will monitor the FUND for the
existence of any materials irreconcilable conflict between and
among the interests of the Certificateholders of the Separate
Accounts investing in the FUND and the participants of the PLAN,
and any other Qualified Plans investing in the FUND. A material
irreconcilable conflict may arise for a variety of reasons,
including: (a) action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretive letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investment of the FUND are being
managed; (e) a difference in voting instructions given by variable
annuity Certificateholders and variable universal life
Certificateholders of the Separate Accounts vis-a-vis voting
instructions provided by the trustees of the Qualified Plans; (f)
a decision by AAL or another life insurance company to disregard
the voting instructions of Certificateholders in one or more of
the Separate Accounts; or (g) if applicable, a decision by the
trustee of a Qualified Plan to disregard the voting instructions
of the participants of such Qualified Plan. A determination by the
FUND's Board that a material irreconcilable conflict exists will
be a final determination.
5.2 If it is determined by a majority of the FUND's Board, or by a
majority of its disinterested directors, that a material
irreconcilable conflict exists, the PLAN shall, at its expense and
to the extent reasonably practicable (as determined by a majority
of the disinterested directors of the FUND), take whatever steps
are necessary to remedy or eliminate the material irreconcilable
conflict. Such steps could include withdrawing the assets
allocable to the PLAN from the FUND or any Portfolio of the FUND
(but no charge or penalty shall be imposed as a result of
withdrawal) and reinvesting such assets in a different investment
medium, which could include another Portfolio of the FUND.
5.3 The PLAN is responsible, to the extent permitted by applicable
law, for taking remedial action in the event that the FUND's Board
determines a material irreconcilable conflict exists. The PLAN
will take remedial action only as it pertains to PLAN assets and
in accordance with its fiduciary responsibility to the PLAN
participants. The PLAN will be responsible for the cost of any
such remedial action. For the purposes of this Section, a majority
of the disinterested members of the FUND's Board will determine
whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event shall the FUND or
AAL be required to establish a new Portfolio or new funding medium
for any variable annuity or variable universal life contract. The
PLAN will not be required by this Section to establish a new
funding medium if (a) a majority of its participants materially
and adversely affected by the irreconcilable material conflict
vote to decline such offer or (b) pursuant to the PLAN's documents
and applicable law, the PLAN makes such decision without a vote of
its participants.
5.4 The FUND's Board determination of the existence of a material
irreconcilable conflict and its implications will be made known
promptly and in writing to the PLAN administrator.
5.5 All reports of potential or existing conflicts received by the
FUND's Board and all Board actions with regard to, or determining
the existence of, a conflict of interest, notifying the PLAN of a
conflict, and determining whether any proposed action adequately
remedies a conflict, will be properly recorded in the minutes of
the FUND's Board or other appropriate records, and such minutes or
other records will be made available to the SEC upon request.
5.6 The FUND will disclose in its prospectus that (a) shares of the
FUND may be offered to both Separate Accounts and to Qualified
Plans; (b) material irreconcilable conflicts may arise between the
interest of various Certificateholders investing in the Separate
Accounts and the interests of Qualified Plans participants
investing in the FUND; and (c) the FUND's Board will monitor
events in order to identify the existence of any material conflict
and determine what action, if any, should be taken in response to
such material irreconcilable conflict.
5.7 No less than annually, the PLAN will submit to the FUND's Board
such reports, materials and data as the Board may reasonably
request so that the Board may carry out fully its obligations
under this Section. Such reports, materials and data will be
submitted more frequently if deemed appropriate by the FUND's
Board. In any event, the PLAN promptly will notify the FUND's
Board in writing if it becomes aware of any facts or circumstances
that could give rise to a material irreconcilable conflict between
the interests of various Certificateholders in the Separate
Accounts and the interests of the Qualified Plan participants
investing in the FUND. All reports submitted to the FUND's Board
under this Section 5.7 shall include all information reasonably
necessary for the Board to consider the conflict issues raised. In
this regard, if the PLAN documents ever permit pass-through voting
to plan participants, the PLAN promptly shall notify the FUND's
Board whenever the PLAN trustee has determined to disregard PLAN
participant voting instructions on any matter submitted to a vote
of shareholders of the FUND.
6. FEES AND EXPENSES
6.1 The FUND will pay all expenses incident to the FUND's performance
under this Agreement. In addition to the investment advisory fee,
subject to the expense reimbursement arrangement discussed below,
each Portfolio will bear all of its operating expenses that are
not specifically assumed by AAL, including the following: (i)
interest and taxes (ii) brokerage commissions; (iii) insurance
premiums; (iv) compensation and expenses for those Directors who
are not "interested" persons under Section 2(a)(19) of the Act;
(v) independent legal and audit expenses; (vi) fees and expenses
of the FUND's custodian, shareholder servicing or transfer agent
and accounting services agent; (vii) expenses incident to the
issuance of its shares, including stock certificates and issuance
of shares on the payment of, or reinvestment of dividends; (viii)
fees and expenses incident to the registration under Federal or
state securities laws of the FUND or its shares; (ix) FUND or
portfolio organizational expenses; (x) FUND expenses of preparing,
printing and mailing reports and notices, proxy material and
prospectuses to shareholders of the FUND; (xi) all other expenses
incidental to holding meetings of the FUND's shareholders; (xii)
dues or assessments of or contributions to the Investment Company
Institute or any successor or other industry association; (xiii)
such non-recurring expenses as may arise, including litigation
affecting the FUND and the legal obligations which the FUND may
have to indemnify its officers and Directors with respect thereto;
and (xiv) cost of daily valuation of each of the Portfolio's
securities and net asset value per share.
6.2 AAL will pay all expenses incident to AAL's performance under this
Agreement. In addition, AAL will pay for all expenses for the
printing and distribution to the PLAN administrator or its
delegate the FUND proxy materials, proxy cards and voting
instructions forms (collectively "proxy information"), tabulating
the results of proxy solicitations, printing and distributing to
the PLAN administrator or its delegate the FUND prospectus, SAI,
supplements, proxy materials, report to shareholders and other
communication to shareholders.
6.3 The PLAN will pay all expenses incident to the PLAN's performance
under this Agreement. In addition, the PLAN will bear any expenses
associated with administration of the PLAN.
7. DIVERSIFICATION
7.1 The Portfolios will be invested in accordance with the terms of
the FUND's prospectus and the PLAN document. Without limiting the
scope of the foregoing, the Portfolios will at all times comply
with Section 817(h) of the Code and Treasury Regulations Section
1.817-5 relating to the diversification requirements for
segregated asset accounts and any amendments or other
modifications to such Section or Regulations.
7.2 The FUND shall furnish to the PLAN, on a regular basis, reports of
all of the investments of each Portfolio in a form sufficient to
permit the PLAN to determine whether each Portfolio is in
compliance with the diversification requirements of Section 817(h)
of the Code and the Regulations thereunder and shall take
immediate action, on learning through its own monitoring, or on
advice from AAL or the PLAN, that any Portfolio is not in
compliance with such requirements, to return to compliance with
such requirements.
7.3 If any Portfolio is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace
period allowed under the Regulations, the FUND shall take all
appropriate efforts immediately to restore any such Portfolio to
compliance and shall fully cooperate with the PLAN in any effort
to correct such diversification failure under procedures
established by the Internal Revenue Service, including those set
forth in Revenue Procedure 92-25.
8. INDEMNIFICATION
8.1 Indemnification by AAL, as PLAN Sponsor
(a) AAL, as PLAN sponsor, will indemnify and hold harmless the
FUND and each of its Directors, officers, and employees and
each person, if any, who controls the FUND (collectively, the
"Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent
of AAL and the PLAN), or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and
which:
(i) arise out of or are based upon any failure by the PLAN or
AAL to perform the duties or assume the general business
responsibilities of the PLAN with respect to the design,
drafting, federal approvals, issuance, servicing and
administration of the PLAN, or the establishment and
maintenance of the PLAN; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement, prospectus, or SAI
regarding the PLAN, or contained in the sales literature
for the PLAN (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
Agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
AAL or the PLAN by or on behalf of the FUND for use in the
registration statement, prospectus, or SAI for the PLAN or
in the PLAN or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the FUND shares to PLAN participants; or
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by the PLAN,
or persons under its control), or wrongful conduct of the
PLAN or persons under its control, or failure to supervise
persons under AAL's or the PLAN's control or entities or
individuals with which the PLAN contracts, with respect to
the sale or distribution of the FUND shares to PLAN
participants; or
(iv)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to the FUND by or on behalf of AAL;
or
(v) arise out of or result from any failure by AAL or the PLAN
to provide the services and furnish the materials
contemplated by this Agreement; or
(vi)arise out of or result from any material breach of any
representation and/or warranty made by AAL: in this
Agreement or arise out of or result from any other
material breach of this Agreement by AAL or the PLAN, as
limited by and in accordance with the provisions of
Sections 8.1(b). and 8.1(c) hereof.
(b) AAL will not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would be subject by
reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or to the FUND, whichever is applicable.
(c) AAL will not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the AAL in
writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify
AAL of any such claim will not relieve AAL from any liability
that it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the AAL and or the PLAN shall
be entitled to participate, at its own expense, in the defense
thereof. AAL also will be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from AAL to such party of the AAL's
election to assume the defense thereof, the Indemnified Party
will bear the fees and expenses of any additional counsel
retained by it, and AAL will not be liable to such party under
this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify the AAL of the
commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
8.2 Indemnification by the FUND
(a) The FUND will indemnify and hold harmless the PLAN and each of
its directors, officers and employees and each person, if any,
who controls the PLAN (collectively, the "Indemnified Parties"
for purposes of this Section 8.2) against any and all losses,
claims, damages, liabilities (including amounts paid in
settlement with the written consent of FUND) or litigation
(including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at
common law or otherwise, which:
(i) arise out of or are based upon any failure by the FUND to
perform the duties or assume the general business
responsibilities required by this Agreement with respect
to the sale of shares of the FUND to the PLAN; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the sales literature for the FUND and/or the
Certificates, or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
the FUND by or on behalf of the PLAN for use in the
registration statement, prospectus, or SAI for use in the
sales literature or otherwise for use in connection with
the sale of Portfolio shares; or
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by the FUND,
or persons under its control) or wrongful conduct of the
FUND or persons under its control, or failure to supervise
persons under the FUND's control or entities or
individuals with which the FUND contracts, with respect to
the sale or distribution of the Certificates or FUND
shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to the PLAN by or on behalf of the
PLAN; or
(v) arise out of or result from any failure by the FUND to
provide the services and furnish the materials
contemplated by this Agreement; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by the FUND in this
Agreement or arise out of or result from any other
material breach of this Agreement by the FUND, except to
the extent provided in Section 8.2(b) and 8.2(c) hereof.
(b) The FUND will not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the FUND, whichever is
applicable.
(c) The FUND will not be liable under this indemnification
provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have
notified the FUND in writing within a reasonable time after
the summons or other first legal process giving information of
the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but
failure to notify the FUND of any such claim will not relieve
the FUND from any liability that it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified
Parties, the FUND shall be entitled to participate, at its own
expense, in the defense thereof. The FUND also will be
entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice
from the FUND to such party of the FUND's election to assume
the defense thereof, the Indemnified Party will bear the fees
and expenses of any additional counsel retained by it, and the
FUND will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify the FUND of the
commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
9. TERM AND TERMINATION OF THIS AGREEMENT
9.1 This Agreement will terminate:
(a) as to any party hereto, at the option of that party, upon
prior written notice to the other party as provided in Section
9.3 herein; or
(b) at the option of the FUND in the event that formal
administrative proceedings are instituted against the PLAN by
the IRS, DOL or any other regulatory body regarding the PLAN's
duties under this Agreement or related to the sale of shares
to PLAN participants, the operation of the PLAN, provided,
however, that the FUND determines, in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the PLAN to perform its obligations under this
Agreement; or
(c) at the option of the PLAN in the event that formal
administrative proceedings are instituted against the FUND by
the NASD, the SEC, or any state securities or insurance
commission or any other regulatory body, regarding the FUND's
duties under this Agreement or related to the sale of FUND
shares or the operation of the FUND, provided, however, that
the PLAN determines, in its sole judgment exercised in good
faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the FUND to
perform its obligations under this Agreement; or
(d) at the option of the PLAN, upon requisite authority to
substitute the shares of another investment company for shares
of the FUND in accordance with the PLAN investment policy or
standards of conduct; or
(e) at the option of the PLAN, in the event any of the FUND's
shares are not registered, issued, or sold in accordance with
applicable federal and any state law or such law precludes the
use of such shares as an investment of the PLAN; or
(f) at the option of the PLAN, if the FUND fails to meet the
requirements specified in Section 2.2 or 2.3 hereof; or
(g) at the option of the FUND, if the investments of the PLAN
fail to satisfy the diversification requirements of the Code
and the regulations thereunder, or
(h) at the option of the PLAN, if the FUND dissolves or becomes
otherwise unable to sell shares to fund the PLAN.
9.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 9.1(a) may be
exercised for any reason or for no reason.
9.3 Notice Requirement for Termination. No termination of this
Agreement will be effective unless and until the party terminating
this Agreement gives prior written notice to the other party to
this Agreement of its intent to terminate, and such notice shall
set forth the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the provisions
of Section 9.1(a) hereof, such prior written notice shall be
given at least sixty (60) days in advance of the effective
date of termination as required by such provision;
(b) in the event that any termination is based upon the provisions
of Section 9.1(b) or Section 9.1(c) hereof, such prior written
notice shall be given at least sixty (60) days in advance of
the effective date of termination;
(c) in the event that any termination is based upon the provisions
of Section 9.1(d) hereof, the PLAN will give at least sixty
(60) days prior written notice to the FUND of the date of any
proposed action to substitute FUND shares, including the
filing of any applicable exemptive application under the 1940
Act relating to the PLAN; and the PLAN will provide the FUND
with a copy of any such exemptive application; and
(d) in the event that any termination is based upon the provisions
of Section 9.1(e), Section 9.1(f), or Section 9.1(g) hereof,
such prior written notice shall be given as soon as possible
within twenty-four (24) hours after the terminating party
learns of the event causing termination to be required.
9.4 Partial Termination. It is also understood that this Agreement may
be terminated with regard to a specific Portfolio or Portfolios of
the FUND, or the entire FUND at the discretion of the terminating
party. Notwithstanding any termination of this Agreement, the
FUND, or any Portfolio, provided its shares are then available for
sale to any persons, shall at the option of the PLAN, continue to
make available additional shares of the FUND pursuant to the terms
and conditions of this Agreement, for all PLAN participants who
own FUND shares on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Shares").
Specifically, without limitation, the owners of Existing Shares
shall be permitted to transfer or reallocate investments under
terms of the PLAN, redeem investments in the FUND and/or invest in
the FUND upon the making of additional purchase payments under the
Existing Shares.
10. NOTICES
Any notice will be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to AAL or the PLAN: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: Steven F. Mielke
If to AAL CMC: 222 West College Avenue
Appleton, Wisconsin 54919-0007
Attention: Robert G. Same
If to the FUND: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: Robert G. Same
11. MISCELLANEOUS
11.1 This Agreement will be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Wisconsin, where the sale of any FUND share shall be deemed to
have been made; provided, however, that if such laws or any of the
provisions of this Agreement conflict with applicable Provisions
of the 1940 Act, the latter shall control.
11.2 If any provision of this Agreement will be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement will not be effected thereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the 1st day of January, 2000.
AID ASSOCIATION FOR LUTHERANS AAL CAPITAL MANAGEMENT CORPORATION
By: /s/John O. Gilbert By: /s/Robert G. Same
------------------------- -----------------------------
John O. Gilbert Robert G. Same
President and President
Chief Executive Officer
By: /s/Woodow E. Eno By: /s/Frederick D. Kelsven
------------------------- -----------------------------
Woodrow E. Eno Frederick D. Kelsven
Senior Vice President, Secretary
Secretary and General Counsel
AID ASSOCIATION FOR LUTHERANS SAVINGS PLAN
By: /s/Steven F. Mielke
-------------------------
Steven F. Mielke
Benefit Plan Administrative Officer
By: /s/Woodrow E. Eno
-------------------------
Woodrow E. Eno
Senior Vice President,
Secretary and General Counsel
AMENDMENT
TO
TRADE NAME/SERVICE MARK LICENSING AGREEMENT
BY AND BETWEEN
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.
The Trade Name/Service Mark Licensing Agreement between Aid Association for
Lutherans and AAL Variable Product Series Fund, Inc. dated September 27, 1994,
amended, effective March 4, 1998, is hereby amended, effective March 15, 1999 as
follows:
The RECITALS section is hereby amended to read as follows:
RECITALS
LICENSOR has used the trade name/service mark "AAL" for the
marketing of insurance, mutual fund, fraternal and other related services
since 1917, and the name is associated with and represents LICENSOR and
the quality of services it provides, and all the goodwill associated with
it. LICENSOR has a valid federal service mark for said name, registered
with The United States Patent & Trademark Office, encompassing the
services offered by LICENSEE. LICENSOR will have the non-exclusive right
to use and license others to use such trade name/service mark for mutual
fund services marketed only to AAL Variable Annuity Account I, AAL
Variable Annuity Account II, AAL Variable Life Account I, any other
separate account(s) that AAL may establish in the future to fund variable
insurance products issued by AAL, the Aid Association for Lutherans
Savings Plan, AAL and/or AAL Benefit Members (or those eligible for
membership), and employees and their immediate families of AAL, its
subsidiaries and affiliates.
Consideration for this agreement shall be $1.00 in United States
currency, receipt of which by LICENSOR shall be acknowledged by the
signing of this agreement, and the mutual promises herein.
Nothing in this agreement shall be construed in any way to create a
partnership, agency or subsidiary relationship between the parties
involved herein.
LICENSEE desires to obtain a license, under the terms and
conditions provided herein, to utilize said trade name/service mark in
association with the marketing, servicing and provision of only the
services agreed to in this licensing agreement, only to AAL Variable
Annuity Account I, AAL Variable Annuity Account II, AAL Variable Life
Account I, any other separate account(s) that AAL may establish in the
future to fund variable insurance products issued by AAL, the Aid
Association for Lutherans Savings Plan, AAL and/or, AAL Benefit Members
(or those eligible for membership), and employees and their immediate
families of AAL, its subsidiaries and affiliates.
LICENSOR is willing to grant a limited license to LICENSEE to use
such trade name/service mark under the terms and conditions provided herein.
In WITNESS WHEREOF the parties hereto have caused this Amendment to be signed by
the respective Officers effective this 15th day of March, 1999.
ATTEST: AAL VARIABLE PRODUCT SERIES
FUND, INC.
By: /s/Steven J. Fredricks By: /s/Walter S. Rugland
------------------------------ --------------------
Steven J. Fredricks Walter S. Rugland
Secretary President
ATTEST: AID ASSOCIATION FOR LUTHERANS
By: /s/Woodrow E. Eno By: /s/John O. Gilbert
------------------------------ ------------------
Woodrow E. Eno John O. Gilbert
Senior Vice President, President and Chief
General Counsel and Secretary Executive Officer
CODE OF ETHICS WITH RESPECT TO
SECURITIES TRANSACTIONS OF ACCESS PERSONS
FOR
THE AAL MUTUAL FUNDS
AAL VARIABLE PRODUCT SERIES FUND, INC.
AID ASSOCIATION FOR LUTHERANS
AND
AAL CAPITAL MANAGEMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
I. INTRODUCTION.......................................................3
II. DEFINITIONS........................................................4
III. STATEMENT OF GENERAL PRINCIPLES....................................6
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES......................7
V. EXEMPT TRANSACTIONS................................................9
VI. REPORTING REQUIREMENTS OF ACCESS PERSONS.......................... 9
VII. COMPLIANCE MONITORING..............................................11
VIII. REVIEW BY BOARD OF DIRECTORSITRUSTEES..............................11
IX. RECORDS RETENTION..................................................12
X. CONFIDENTIAL TREATMENT.............................................12
XI. VIOLATIONS OF THIS CODE............................................13
XII. INTERPRETATION OF PROVISIONS.......................................13
XIII. AMENDMENTS TO THE CODE.............................................13
<PAGE>
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
THREE COMPLIANCE CATEGORIES
PERSONAL TRADING REQUEST AND AUTHORIZATION FORM
QUARTERLY SECURITIES TRANSACTIONS REPORT
INITIAL CERTIFICATION
ANNUAL CERTIFICATION
FINAL CERTIFICATION
<PAGE>
I. INTRODUCITON
Rule 17j-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act") requires investment companies, as well as their investment advisers and
principal underwriters, to adopt written codes of ethics containing provisions
reasonably necessary to prevent "Access Persons" from engaging in any act,
practice, or course of business prohibited under the anti-fraud provisions of
the Rule.(1) Pursuant to the requirements of the Rule, The AAL Mutual Funds and
the AAL Variable Product Series Fund, Inc. (together the "Funds") and AAL
Capital Management Corporation and Aid Association for Lutherans (together the
"Advisers") have adopted this Code of Ethics (the "Code") with respect to
securities transactions of the directors/trustees, officers, and certain
employees of the Funds and the Advisers that come within the term "Access
Person," as defined below. To the extent the Funds employ a sub-adviser to
manage any series of the Funds, the provisions of the Code shall apply to the
sub-adviser with respect to the series of the Funds for which it acts as
sub-adviser.
(1) Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of or principal underwriter for a registered investment
company, or any affiliated person of such company's investment adviser or
principal underwriter, in connection with any purchase or sale, directly or
indirectly, by such person of a "security held or to be acquired" by such
investment company, to engage in any of the following acts, practices or
courses of business:
A. employ any device, scheme, or artifice to defraud such investment
company,
B. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
C. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company;
and
D. engage in any manipulative practice with respect to such investment
company.
This Code reflects the principal recommendations in the May 9,1994 Report of the
Investment Company Institute Advisory Group on Personal Investing. It is
intended to provide guidance to access persons of the Funds and the Adviser in
the conduct of their personal investments to eliminate the possibility of
securities transactions occurring that
<PAGE>
place, or appear to place, such persons in conflict with the interests of the
Funds or their shareholders.(2)
(2) Consistent with Section 206 of the Investment Advisers Act of 1940 and
Rules 204-2(a)(12) and (13), and to the extent appropriate, the Access
Persons of the Advisers shall abide by the principles established by this
Code and the specific reporting and other requirements hereof when dealing
with other advisory clients of the Advisers.
Your receipt of this Code for your review and signature means that you
are a person to whom the Code applies. You are required to certify initially,
and annually thereafter, that you have read, understood and complied with this
Code. See Appendices D, E and F.
If you have any questions concerning this Code, please contact the
Compliance Officer ("Compliance Officer").
II. DEFINITIONS.
A. Access Person. "Access Person" means the following:
1. With respect to the Funds and AAL Capital Management Corporation,
any Director/Trustee, officer or "Advisory Person" (see
definition below) of the Funds or AAL Capital Management
Corporation.
2. With respect to Aid Association for Lutherans, any director,
officer, or Advisory Person (as defined below) of Aid Association
for Lutherans who, with respect to any of the Funds, makes any
recommendation, participates in the determination of which
recommendation shall be made, or whose principal function or
duties relate to the determination of which recommendation shall
be made to any of the Funds; or who, in connection with his/her
duties, obtains any information concerning securities
recommendations being made to any of the Funds.
B. Advisory Person. Advisory Person means (a) any employee of the Funds
or the Advisers who, in connection with his/her regular functions or
duties, makes, participates in, or obtains information regarding the
purchase or sale of a security (as defined in II.H. below) by or on
behalf of the Funds, or (b) any employee of the Funds or the Advisers
whose functions relate to the making of any recommendations with
respect to such purchases or sales.
<PAGE>
In the event that any individual or company is in a control
relationship with the Funds or the Advisers, the term "Advisory
Person" includes such individual company, or any employee of such a
company to the same extent as an employee of the Funds or the
Advisers.
THE DIFFERENCES BETWEEN ACCESS PERSONS, ADVISORY PERSONS AND PORTFOLIO
MANAGERS ARE OFTEN CONFUSING. IN AN EFFORT TO CLARIFY THIS SITUATION, PLEASE SEE
APPENDIX A.
C. Beneficial Ownership. Beneficial Ownership has the same meaning as
used in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934,
except that the term applies to both debt and equity securities.
"Beneficial ownership" under Rule 16a-1(a)(2) includes accounts of a
spouse, minor children who reside in an Access Person's home and any
other relatives (parents, adult children, brothers, sisters, etc.)
whose investments the Access Person directs or controls, whether the
person lives with the Access Person or not, as well as accounts of
another person (individual, partner, corporation, trust, custodian, or
other entity) if by reason of any contract, understanding,
relationship, agreement or other arrangement the Access Person obtains
or may obtain therefrom a direct or indirect pecuniary interest. A
person does not derive a direct or indirect pecuniary interest solely
by virtue of serving as a trustee or executor unless he/she or a
member of his/her immediate family has a vested interest in the income
or principal of the trust or estate. A copy of Release No. 34-18114
issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request from the
Compliance Officer, and should be reviewed carefully by any Access
Person before preparing any reports required by this Code.
D. Being Considered for Purchase or Sale. A security is Being Considered
for Purchase or Sale when a recommendation to purchase or sell such
security has been made and communicated by an Advisory Person of the
Funds or the Advisers, in the course of his/her duties and, with
respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
E. Control. Control means the power to exercise a controlling influence
over the management and policies of a company, unless such power is
solely the result of an official position with such company.
F. Independent Trustee. The term Independent Director/Trustee means a
director/trustee of the Funds who is not an "interested person" of the
Funds within the meaning of Section 2(a)(19) of the 1940 Act. These
Directors/Trustees have been designated by the Funds.
G. Portfolio Manager. A Portfolio Manager is a person who makes decisions
as to the purchase or sale of portfolio securities of the Funds.
H. Security. "Security" has the same meaning as in Section 2(a)(36) of
the 1940 Act, as well as futures and commodities. Included within the
definition are interests in self-directed retirement plans. Excluded
are interests in independently managed retirement plans. Also excluded
from this definition are shares of registered open-end investment
companies (mutual funds and variable annuities), securities issued
(irrespective of maturity) as direct obligations of the United States
Government, bankers' acceptances, bank certificates of deposit,
commercial paper, and various "money market instruments" (e.g.,
conventional repurchase agreements, U.S. Government agency
obligations, obligations issued or guaranteed by foreign governments)
maturing within 397 calendar days from the date of purchase.
I. Security Transaction. The term Security Transaction means the
execution, either directly or indirectly, of any purchase or sale of a
security.
J. Security Held or to be Acquired by the Funds. Security Held or to be
Acquired by the Funds means:
1. Any Security which, within the most recent 15 days:
a. Is or has been held by the Funds; or
b. Is Being Considered for Purchase or Sale by the Adviser for
the Funds; and
2. Any option to purchase or sell, and any Security convertible into
or exchangeable for, a Security.
III. STATEMENT OF GENERAL PRINCIPLES.
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the Funds before his/her personal
interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or any abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his/her position with or on
behalf of the Funds.
Access Persons should follow not only the letter of this Code, but also
its spirit and their transactions will be reviewed for this purpose.
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.
A. Preclearance Required for All Securities Transactions. Unless the
transaction is exempt under V. below, no Access Person (other than an
independent Director/Trustee of the Funds) may directly or indirectly,
initiate, recommend, or in any other way participate in the purchase
or sale of a security in which such Access Person has, or by reason of
the transaction may acquire, any direct or indirect beneficial
interest, without first obtaining prior written clearance for such
transaction from the Compliance Officer. When requesting preclearance,
each Access Person should be aware that:
1. all requests for preclearance must be set forth in writing on the
standard Personal Trading Request and Authorization Form, a copy
of which is attached as Appendix B.
2. preclearance of a securities transaction is effective for the day
of clearance and the next three business days.
B. Timing of Purchases and Sales (Blackout Periods). Unless the
transaction is exempt under V. below, no Access Person (other than an
independent Director/Trustee of the Funds) may (I) execute a
Securities Transaction on a day during which the Funds have a pending
"buy" or "sell" order in that same Security, until that order has been
executed or withdrawn, or (ii) purchase or sell any Security in which
he/she has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership, in a Security being considered for
purchase or sale by the Funds. Additionally, no Portfolio Manager may
purchase or sell as beneficial owner any Security within at least
seven calendar days before and after the Funds trade (or haves traded)
in that Security.
A Security is not deemed to be Being Recommended for Purchase or Sale
if it is (1) a component of an index or model which a portfolio of the AAL
Variable Product Series Fund is designed to reflect unless the determination as
to whether to add or delete the Security is within the discretion of an Advisory
Person of the Fund; and (2) the Security is not Being Recommended for Purchase
or Sale by any of the other Funds. In each case, a determination as to whether a
Security is or is not deemed to be Being Recommended for Purchase or Sale will
be made by the Compliance Officer.
The foregoing blackout periods shall not apply to a transaction
following written preclearance by the Compliance Officer as to a Security
purchased or sold by a Fund modeled on an index of Securities and which Fund
transaction is made for the purpose of maintaining existing index weightings
within the Fund.
C. Short-Term Trading Profits. Short term trading by Advisory Persons
shall be looked upon with disfavor. All sales and purchases (or
purchases and sales) of the same or equivalent securities within 60
calendar days by an Advisory Person shall be reported to the Funds'
Board of Directors/Trustees.
D. Initial Public Offerings. No Access Person may acquire any Beneficial
Ownership in any Securities in an initial public offering.
E. Gifts. No Advisory Person may receive any gift or anything else of
more than $100 value within any calendar year from any person, entity
or person affiliated with an entity that does business with or on
behalf of the Funds. Business related entertainment such as meals,
tickets to the theater or a sporting activity or event which are
infrequent and not unreasonable in nature are excepted from this
prohibition.
F. Private Placements. With regard to private placements, each Advisory
Person shall:
1. obtain express prior written approval from the Compliance Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved
for the Funds, and whether such opportunity is being offered to
such Advisory Person by virtue of his position with the Funds)
for any acquisition of Securities in a private placement; and,
2. if and after such authorization to acquire Securities in a
private placement has been obtained, disclose any personal
involvement any subsequent consideration by the Funds (or any
other investment company for which he acts in a capacity as an
Advisory Person) of investment in that issuer arises.
If the Funds decide to purchase Securities of an issuer the shares of
which have been previously obtained in a private placement for personal
investment by an Advisory Person, that decision shall be subject to an
independent review by the independent Directors/Trustees with no personal
interest in the issuer.
G. Service as a Director. No Advisory Person shall serve on a board of
directors of a publicly traded company, absent prior written
authorization by the Board of Directors/Trustees of the Funds, based
upon a determination that such service would be consistent with the
interests of the Funds.
If board service of an Advisory Person is authorized by the Board of
Directors/Trustees of the Funds, such Advisory Person shall be isolated from the
investment making decisions of the Funds with regard to Securities of the
company on whose board the advisory person serves.
H. Confidentiality. No Access Person shall reveal to any other person
(except in the normal course of his/her duties on behalf of the Funds
or the Advisers) any information regarding securities transactions
made, or being considered, by or on behalf of the Funds.
V. EXEMPT TRANSACTIONS.
The prohibitions described in IV.A and B above shall not apply to:
A. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control, or in any
account of the Access Person which is managed on a discretionary basis
by a person other than the Access Person and, with respect to which
the Access Person does not in fact influence or control purchase or
sale transactions;
B. purchases or sales that are non-volitional on the part of the Access
Person or the Funds, including mergers, recapitalization or similar
transactions;
C. purchases that are part of an issuer's or broker's automatic dividend
reinvestment plan;
D. purchases effected upon the exercise of rights issued by the issuer
pro rata to all holders of a class of its Securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired; and
E. purchases or sales that receive the prior approval of the Compliance
Officer on the basis that (a) the transaction is not potentially
harmful to the Funds, (b) the transaction would be unlikely to affect
the market in which the portfolio securities for the Funds are traded,
or (c) the transaction is not related economically to the Securities
to be purchased, sold, or held by the Funds and the decision to
purchase or sell the Security is not the result of material non-public
information. As noted above, prior approval must be set forth in
writing on the Personal Trading Request and Authorization Form
(APPENDIX B).
VI. REPORTING REQUIREMENTS OF ACCESS PERSONS.
A. Certification. All Access Persons shall, when they first become
subject to the Code, no less often than annually thereafter and when
they change status or terminate employment, certify, in writing, that
they understand that they are/have been subject to the Code, will/have
complied with the Code, and will cooperate with any inquiry regarding
their personal trading activities by the Funds, the Advisers or the
Compliance Officer.
B. Access Persons (other than Independent Director/Trustees of the
Funds). Every Access Person (except independent Directors/Trustees of
the Funds) shall complete and submit a Quarterly Report to the
Compliance Officer which discloses the information required by VI.D.
below with respect to transactions in any Security in which such
Access Person has, or by reason of such transaction, acquires any
direct or indirect Beneficial Ownership in the Security.
C. Independent Directors/Trustees. An independent Director/Trustee of the
Funds shall report a transaction in a Security if the
Director/Trustee, at the time of the transaction, knew or, in the
ordinary course of fulfilling his/her official duties as a
Director/Trustee of the Funds, should have known that, during the
15-day period immediately preceding or after the date of the
transaction by the Director/Trustee, the Security is or was purchased
or sold by the Funds or was Being Considered for Purchase or Sale.
The foregoing provision as to a Security Being Considered for Purchase
or Sale shall not apply with respect to a Security merely because it is a
component of an index or model which a series or portfolio of the Funds is
designed to reflect.
D. Time and Content of Quarterly Report. Every Quarterly Report shall be
provided to the Compliance Officer not later than ten days after the
end of each calendar quarter, whether or not there has been a
transaction for the quarter. If there has been a transaction for that
period, the Quarterly Report shall contain the following information:
1. the date of the transaction, the name of the issuer, and the
number of shares or the principal amount of the Security
involved;
2. the nature of the transaction, i.e., purchase, sale or any other
type of acquisition or disposition;
3. the price at which the transaction was effected; and
4. the name of the broker, dealer, or bank with or through whom the
transaction was effected.
All reports shall be made on the Quarterly Report form available from
the Compliance Officer, a copy of which is attached as APPENDIX C. In lieu of
the form provided as part of Appendix C, the reporting person may provide copies
of monthly or quarterly brokerage statements reflecting equivalent information.
E. Confirmations. All Access Persons (other than independent
Directors/Trustees of the Funds) shall supply to the Compliance
Officer, on a timely basis, duplicate copies of confirmations of all
personal Securities transactions. These confirms may be provided
directly by the Access Person or through the Brokers. However, it is
the responsibility of the Access Person to ensure that confirms of all
trades are provided to the Compliance Officer.
F. Disclosure of Personal Securities Holdings. All Advisory Persons shall
disclose all personal Securities holdings upon commencement of
employment and thereafter on an annual basis.
G. Disclaimer of Beneficial Ownership. No Quarterly Report shall be
construed as an admission by the person making such report that he/she
has any direct or indirect beneficial ownership in the Security to
which the report relates.
H. Potential Conflicts of Interest. Every Access Person shall immediately
report to the Compliance Officer any factors of which the Access
Person is aware that would be relevant to a conflict of interest
analysis, including the existence of any substantial economic
relationship between the Access Person's transactions and Securities
held or to be acquired by the Funds. These factors may include, for
example, officerships or directorships with issuers or beneficial
ownership of more than 1/2 of 1% of the total outstanding shares of
any issuer whose shares are publicly traded or that may be initially
offered to the public in the foreseeable future.
I. Notification of Reporting Obligation. All Access Persons having a duty
to file Quarterly Reports hereunder shall be informed of such duty by
the Compliance Officer and shall be provided with a copy of this Code.
Once informed of the duty to file a Quarterly Report, an Access Person
has a continuing obligation to file such report, in a timely manner,
whether or not the Access Person had any Securities transactions for
the quarter.
VII. COMPLIANCE MONITORING.
The Compliance Officer shall review all Quarterly Reports,
confirmations, and other materials provided to him/her regarding personal
Securities transactions by Access Persons to ascertain compliance with the
provisions of this Code. The Compliance Officer shall institute any procedures
necessary to monitor the adequacy of such reports and to otherwise prevent or
detect violations of this Code. Upon discovery of a violation of this Code, it
shall be the responsibility of the Compliance Officer to report such violation
to the management of the Advisers, as well as to the Board of Directors/Trustees
of the Funds.
VIII. REVIEW BY BOARD OF DIRECTORS/TRUSTEES.
The Compliance Officer shall regularly (but not less frequently than
annually) furnish to the Board of Directors/Trustees of the Funds a report
regarding the administration of this Code. If any such report indicates that any
change to this Code is advisable, the Compliance Officer shall make an
appropriate recommendation to the Board of Directors/Trustees. The Compliance
Officer also shall inquire into any apparent violation of this Code and shall
report any apparent violation requiring remedial action to the Board of
Directors/Trustees. Upon finding such a violation of this Code, including the
filing of any false, incomplete, or untimely Quarterly Report, or the failure to
obtain preclearance of any personal securities transaction, the Board of
Directors/Trustees may impose any sanction or take such remedial actions as it
deems appropriate. No Director/Trustee shall participate in a determination of
whether he/she has committed a violation of this Code or of the imposition of
any sanction against himself/herself.
IX. RECORDS RETENTION.
The Funds and the Advisers shall maintain records in the manner and to
the extent set forth below, which records may be maintained on an appropriate
electronic or film media under the conditions described in Rule 31a-2(f)(1)
under the 1940 Act:
A. Retention of Copy of Code. A copy of this Code shall be preserved in
an easily accessible place;
B. Record of Violations. A record of any violation of this Code and of
any action taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs;
C. Copy of Forms and Reports. A copy of each Personal Trading Request and
Authorization Form and each Quarterly Report prepared and filed by an
Access Person pursuant to this Code shall be preserved by the
Compliance Officer for a period of not less than five years from the
end of the fiscal year in which such report is made, the first two
years in an easily accessible place;
D. List of Access Persons. A list of all persons who are, or within the
past five years of business have been, required to file Personal
Trading Request and Authorization Forms and Quarterly Reports pursuant
to this Code shall be maintained in an easily accessible place; and
E. Sites of Records to be Kept. All such records and/or documents
required to be maintained pursuant to this Code shall be kept at the
offices of AAL Capital Management Corporation, to which each of the
Funds and Aid Association for Lutherans shall have access during
normal business hours.
X. CONFIDENTIAL TREATMENT.
All reports and other records required to be filed or maintained under
this Code shall be treated as confidential, except to the extent required by
law.
XI. VIOLATIONS OF THIS CODE.
Violations of this Code may result in the imposition of sanctions or
the taking of such remedial steps as the Funds and/or the Advisers may deem
appropriate, including, but not limited to, unwinding the transaction or, if
impractical, disgorgement of any profit from the transaction, a letter of
censure, reduction in salary, and suspension or termination of employment. No
Director/Trustee or officer of the Funds or the Advisers shall participate in a
determination of whether he/she has committed a violation of this Code or of the
imposition of any sanction against himself/herself.
In addition, the Funds or the Advisers may report any violations to the
appropriate regulatory authority, including the Securities and Exchange
Commission.
XII. INTERPRETATION OF PROVISIONS
The Board of Directors/Trustees of the Funds and management of the
Advisers may, from time to time, adopt such interpretations of this Code as such
Boards or management deems appropriate.
XIII. AMENDMENTS TO THE CODE.
Any amendment to the Code shall be effective 30 calendar days after
written notice of such amendment shall have been received by the Compliance
Officer, unless the Board of Directors/Trustees of the Funds or the management
of the Advisers, as appropriate, expressly determines that such amendment shall
become effective on another specific date or shall not be adopted.
CODE OF ETHICS
Three Compliance Categories
ACCESS PERSONS-obtain (have "access" to) information about a fund's purchase or
sale of securities in the course of their normal work. Everyone who is subject
to the Code of Ethics is an Access Person and every Access Person is subject to
the Code of Ethics.
ADVISORY PERSONS-are involved in the decision making process but do not make the
final decision (typically traders & investment analysts).
PORTFOLIO MANAGERS-make the investment decisions for the Funds.
<PAGE>
CODE OF ETHICS
Restrictions on Personal Investing
ACCESS PERSONS REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
(IV.A) (IV.B) (IV.D) (VI.E) (VI.B & D) (IV.H) (VI.H) (VI.A)
Preclearance of Blackout IPO prohibition Copies of B/D Quarterly Confidentiality Conflict of Initial, Annual
securities Periods confirms to Reports except in normal Interest and Final
transactions Compliance of securities course Situations Certification
Officer transactions of business
Compliance Officer
Request in writing Total Prohibition Officer
Access person can't Completed Quarterly
buy/sell a security Reports Due to
on any day that the Compliance Officer
Fund buys/sells it. by 10th day
following each
calendar quarter
Approval in writing
Clearance day plus 3
business day approval
period
</TABLE>
<PAGE>
CODE OF ETHICS
Restrictions on Personal Investing
ADDITIONAL ADVISORY PERSONS REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
(IV.C) (IV.E) (IV.F)
Short-term profits w/in 60 days Gift prohibition Private Placements
Report to Board $100 cap on gifts, etc. from any Requires prior written approval
person doing business with or on
behalf of the investment company
If prior approval given, disclosure
requirements for that issuer in
future considerations
Disinterested Trustee review
needed if Fund considers buying
above security
</TABLE>
(IV.G) (VI.E)
Director of publicly traded Annual Disclosure of securities
company holdings
Must have prior written approval
of Fund Trustees
<PAGE>
CODE OF ETHICS
Restrictions on Personal Investing
ADDITIONAL PORTFOLIO MANAGERS REQUIREMENTS
(VI.B)
Blackout
Periods
Portfolio Manager cannot buy/sell
within 7 days either side of a Fund
trade (15 day window)
<PAGE>
APPENDIX B
PERSONAL TRADING REQUEST AND AUTHORIZATION FORM FOR THE CODES OF ETHICS FOR THE
AAL MUTUAL FUNDS, THE AAL VARIABLE PRODUCT SERIES FUND, INC., AID ASSOCIATION
FOR LUTHERANS, AND AAL CAPITAL MANAGEMENT CORPORATION
PERSONAL TRADING REQUEST (TO BE COMPLETED PRIOR TO ANY PERSONAL TRADE):
1. Name:
2. Phone ext:
3. Position:
4. Date of proposed transaction:
5. Name of the issuer and dollar amount and number of Securities of the issuer
proposed to be purchased or sold:
6. Nature of transaction (i.e., purchase, sale): (1)
7. Are you or is a member of your immediate family an officer or director of
the issuer of the Securities or any affiliate (2) of the issuer? Yes No
If yes, please describe:
8. Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the Securities: (3)
(1) If other than a market order, please describe any proposed limits.
(2) For purposes of this question, "affiliate" includes (I) any entity that
directly or indirectly owns, controls, or holds with power to vote 5% or
more of the outstanding voting Securities of the issuer and (ii) any entity
under common control with the issuer.
(3) A "professional relationship" includes, for example, the provision of legal
counsel or accounting services. A "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
9. Are you aware of any material non-public information regarding the Security
or the issuer? Yes No
10. Does this transaction involve a Private Placement? Yes No
Note:If you marked "yes," and you are an Advisory Person or Portfolio
Manager, you must obtain written approval from the Compliance Officer
before executing the trade.
11. Is the Security being purchased part of an Initial Public Offering?
Yes No
Note:Advisory Persons and Portfolio Managers are prohibited from
participating in Initial Public Offerings.
12. Do you beneficially own more than 1/2 of 1% of the outstanding equity
Securities of the issuer? Yes No
If yes, please report the total number of shares "beneficially owned":
13. Are you aware of any facts regarding the proposed transaction, including
the existence of any substantial economic relationship between the proposed
transaction and any Securities Held or to be Acquired by the Funds or other
managed accounts or affiliates of the Advisers that may be relevant to a
determination as to the existence of a potential conflict of interest? (4)
Yes No
If yes, please describe:
(4) Facts that would be responsive to this question include, for example, the
receipt of "special favors" from a stock promoter, such as participation in
a private placement or initial public offering, as an inducement to
purchase other Securities for the Funds or the Advisers' clients. Another
example would be investment in Securities of a limited partnership that in
turn owned warrants of a company formed for the purpose of effecting a
leveraged buy-out in circumstances where the Funds' or the Advisers'
clients might invest in Securities related to the leveraged buyout. The
foregoing are only examples of pertinent facts and in no way limits the
types of facts that may be responsive to this question.
<PAGE>
14. Do you want to have an executed copy of this request for your files?
Yes No
To the best of my knowledge and belief, the answers provided above are true and
correct.
Signature:
Date:
APPROVAL OR DENIAL OF PERSONAL TRADING REQUEST
[to be completed by Compliance Officer or His/Her Designee]
______ APPROVED. The proposed transaction appears to be consistent with the
policies described in the Code. Preclearance is granted from and
including_______________ through____________.
______ DENIED. The proposed transaction does not appear to be consistent
with the policies described in the Code and/or the conditions
necessary for approval of the proposed transaction have not been
satisfied. Preclearance is denied.
Signed:
Title:
Date:
<PAGE>
APPENDIX C
QUARTERLY SECURITIES TRANSACTIONS REPORT
FOR THE QUARTER ENDED_________________
Reportable Securities Transactions are all Securities transactions of
Access Persons* of the AAL Mutual Funds, AAL Variable Product Series Fund, Inc.,
Aid Association for Lutherans and AAL Capital Management Corporation, regardless
of the size of the Securities transaction; except that it shall not include
shares of registered open-end investment companies (mutual funds and variable
annuities), securities issued as direct obligations of the United States
Government, bankers' acceptances, bank certificates of deposit, commercial
paper, and various money market instruments (e.g. conventional repurchase
agreements, U.S. government agency obligations, obligations issued or guaranteed
by foreign governments) maturing within 397 calendar days from the date of
purchase. In addition, exempt transactions, as described in the Code of Ethics
and interests in independently managed retirement plans need not be reported. A
report must be filed quarterly, by the tenth day after the end of each calendar
quarter, whether or not you have had any Securities Transactions for the prior
quarter. Each report must cover all accounts in which you have a direct or
indirect Beneficial Ownership* interest (unless you have no influence or control
over such accounts) and all non-Adviser accounts that you manage or with respect
to which you give investment or voting advice.
I [check one] had ______ had no ______ reportable securities
transactions during the above quarter. Please describe all reportable securities
transactions on the following page. Copies of individual confirmations or
monthly or quarterly broker statements may be attached to a signed report in
lieu of setting forth the information required on the following page. Use
additional copies of this form if necessary.
To the best of my knowledge and belief, the answers set out in this
Report are true and correct.
Printed Name:
Signature:
Date:
* The terms "Access Person" and "Beneficial Ownership" are defined in the
Code.
<PAGE>
REPORTABLE SECURITIES TRANSACTIONS**
1. Date of transaction:
2. Name of the issuer and dollar amount or number of securities of the issuer
purchased or sold:
3. Nature of transaction (i.e., purchase, sale, or other type of acquisition
or disposition):
4 Price at which the transaction was effected:
5. Name of broker, dealer, or bank with or through whom the transaction was
effected:
** This Report shall not be construed as an admission by the person making
such Report that he or she has any direct or indirect beneficial interest
in the security or securities to which the Report relates.
<PAGE>
APPENDIX D
INITIAL CERTIFICATION
I hereby certify that I (I) have read and understand the Code of Ethics
of The AAL Mutual Funds, AAL Variable Products Series Fund, Inc., Aid
Association for Lutherans, and AAL Capital Management Corporation, dated January
1,1997; (ii) recognize that I am subject to the Code of Ethics as of
_______________________; and (iii) will cooperate with any inquiry regarding my
personal trading activities by the Funds, the Advisers or the Compliance
Officer.
Signed:
Name:
Date:
<PAGE>
APPENDIX E
ANNUAL CERTIFICATION
I hereby certify that I (I) have read and understand the Code of Ethics
of The AAL Mutual Funds, AAL Variable Products Series Fund, Inc., Aid
Association for Lutherans and AAL Capital Management Corporation, dated January
1,1997 (ii) recognize that I am subject to the Code of Ethics, (iii) have
complied with the requirements of the Code of Ethics over the past year, (iv)
have disclosed all personal Securities transactions, over the past year,
required to disclosed by the Code of Ethics, and (v) will cooperate with any
inquiry regarding my personal trading activities by the Funds, the Advisers or
the Compliance Officer.
Signed:
Name:
Date:
<PAGE>
APPENDIX F
FINAL CERTIFICATION
I hereby certify that I (I) have read and understand the Code of Ethics
of The AAL Mutual Funds, the AAL Variable Products Series Fund, Inc., Aid
Association for Lutherans and AAL Capital Management Corporation, dated January
1,1997 (ii) recognize that I am subject to the Code of Ethics, (iii) have
complied with the requirements of the Code of Ethics over the past year, (iv)
have disclosed all personal Securities transactions, over the past year,
required to disclosed by the Code of Ethics, and (v) will no longer be subject
to the Code of Ethics after _______________________ (date of change of status or
termination of my employment).
I further certify and agree that I will assist the Compliance Officer,
if necessary, after said date, to ensure that my Personal Trading file is
complete and accurate.
Signed:
Name:
Date:
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 26, 2000, with respect to Aid Association for
Lutherans, and to the use of our report dated January 26, 2000, with respect to
AAL Variable Life Account I, in this Post-Effective Amendment No. 4 to Form S-6
Registration Statement under the Securities Act of 1933 (File No. 333-31011) and
related prospectus of AAL Variable Life Account I.
/s/ ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 18, 2000
