1933 Act Registration No. 333-71853
1940 Act Registration No. 811-09225
As filed with the
Securities and Exchange Commission on May 27, 1999.
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
AAL VARIABLE ANNUITY ACCOUNT II
(Exact name of registrant as specified in charter)
Aid Association for Lutherans
(Name of Depositor)
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Address of Principal Executive Offices)(Zip Code)
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)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
Title of Securities Being Registered: Individual Immediate Variable Annuity
Contracts
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] on ________, pursuant to paragraph (b)(1) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on ________, pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
shall determine.
<PAGE>
AAL VARIABLE ANNUITY ACCOUNT II
PROSPECTUS
_______, 1999
for the
SINGLE PREMIUM IMMEDIATE
VARIABLE ANNUITY CERTIFICATES
This prospectus describes the immediate variable annuity certificate (the
certificate) Aid Association for Lutherans (AAL, we, us, our) offers. We are a
fraternal benefit society organized under the laws of the State of Wisconsin. We
offer the certificates to people (you, your) who are eligible for membership in
AAL as well as employees of AAL and its affiliates.
The certificate may be sold to or issued in connection with retirement plans,
including plans that qualify for special federal income tax treatment under the
Internal Revenue Code.
You may allocate Premiums and transfer your investment to one or more of the
seven Subaccounts of AAL Variable Annuity Account II or the Fixed Account. The
assets of each Subaccount are invested solely in a corresponding Portfolio of
AAL Variable Product Series Fund, Inc. (the "Fund").
Under the certificate, we make periodic Annuity Payments to you (or other
designated Payees). The dollar amount of each Annuity Payment may vary according
to the investment performance of the portfolios in which the selected
Subaccounts invest and the interest we credit under the Fixed Account. The
certificate is not considered a deposit or other obligation of any bank, credit
union or any affiliated entity. The Federal Deposit Insurance Corporation (FDIC)
nor any other agency does not insure or protect the certificates. You bear the
investment risk of amounts invested in the Variable Account.
This prospectus sets forth concisely the information that you should know before
purchasing a certificate, and it should be read and kept for future reference.
We have filed a Statement of Additional Information, bearing the same date,
which contains further information, with the Securities and Exchange Commission
and incorporate by reference the Statement of Additional Information into this
prospectus. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding registrants
that file electronically with the Securities and Exchange Commission. A copy of
the Statement of Additional Information may be obtained without charge by
calling (800) 225-5225, or by writing AAL at its principal office at 4321 North
Ballard Road, Appleton, Wisconsin 54919-0001. The Telecommunications Device for
the Deaf (TDD) number is (800) 735-9644. A Table of Contents for the Statement
of Additional Information appears in this prospectus on page --.
This prospectus is not valid unless given with a current prospectus of the AAL
Variable Product Series Fund, Inc.
These certificates have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
You should read this prospectus carefully and keep it for future reference.
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. You should rely only on the information
contained in this document or that we have referred you to. We have not
authorized anyone to provide you with information that is different.
<PAGE>
TABLE OF CONTENTS
GLOSSARY........................................................................
SUMMARY.........................................................................
FEE AND EXPENSE TABLES..........................................................
CONDENSED FINANCIAL INFORMATION.................................................
PERFORMANCE INFORMATION.........................................................
AAL, THE VARIABLE ACCOUNT AND THE FUND .........................................
AAL....................................................................
The Variable Account...................................................
The Fixed Account......................................................
The Fund...............................................................
THE CERTIFICATE.................................................................
Application and Purchase...............................................
Crediting and Allocating Your Premium Payment..........................
Free Look Period.......................................................
Owners, Payees and Annuitants..........................................
Adult and Juvenile Certificates........................................
Beneficiaries..........................................................
Assignments of Ownership...............................................
Selecting an Annuity Payment Option....................................
ANNUITY OPTIONS.................................................................
Fixed Period Income....................................................
Life Income and Guaranteed Payment Period..............................
Joint and Survivor Life Income with Guaranteed Payment Period..........
Annuity Payment Dates..................................................
FIXED ACCOUNT ANNUITY PAYMENTS..................................................
VARIABLE ANNUITY PAYMENTS.......................................................
First Variable Annuity Payment.........................................
Subsequent Variable Annuity Payments...................................
Subaccount Investment Factor...........................................
Assumed Investment Return..............................................
TRANSFERS AMONG SUBACCOUNTS AND/OR FIXED ACCOUNT ....................
Telephone Transfer Requests............................................
SURRENDERS AND WITHDRAWALS......................................................
DEATH OF THE OWNER AND/OR ANNUITANT.............................................
CERTIFICATE FEES AND CHARGES....................................................
Sales Charge...........................................................
Premium Tax Charge.....................................................
Transfer Charge .......................................................
Mortality and Expense Risk Charge......................................
Miscellaneous Taxes ...................................................
GENERAL INFORMATION ABOUT THE CERTIFICATES....................................
The Entire Contract....................................................
Voting Rights..........................................................
Surplus Refunds........................................................
Reports to Owners......................................................
Date of Receipt........................................................
Payment by Check.......................................................
Postponement of Payments...............................................
Certificate Inquiries..................................................
FEDERAL TAX STATUS..............................................................
Variable Account Tax Status............................................
Diversification Requirements...........................................
Taxation of Annuities in General.......................................
Certificates Held by Natural Persons...................................
Distributions..........................................................
Distributions from Qualified Plans.....................................
Penalty Tax on Premature Distributions.................................
Federal Income Tax Withholding.........................................
Death Proceeds.........................................................
Additional Tax Considerations..........................................
Multiple Certificates..................................................
Tax Free Exchanges (1035 Exchanges)....................................
Transfers among Subaccounts............................................
Qualified Plans........................................................
Rollover into an IRA...................................................
Deferred Compensation Plans............................................
Other Tax Considerations...............................................
OTHER INFORMATION...............................................................
Rights Reserved by AAL.................................................
Maintenance of Solvency................................................
Distribution Arrangements..............................................
Year 2000 Disclosure...................................................
Legal Matters..........................................................
Financial Statements...................................................
<PAGE>
GLOSSARY
AAL, we, us, our: Aid Association for Lutherans, a fraternal benefit society
owned by and operated for its members.
Annuitant: The person on whose life or life expectancy the certificate is based.
Annuity Payment: One of a series of periodic distributions
Annuity Payment Date: The date of the month on which you elect to receive
Annuity Payments.
Annuity Payment Period: The period during which Annuity Payments are made.
Annuity Unit: The accounting unit of measurement used to calculate the amount of
the Annuity Payment.
Annuity Unit Value: The value of an Annuity Unit for a Subaccount for a given
Valuation Period.
Assumed Investment Return: The investment return upon which the variable Annuity
Payments are based.
Beneficiary: The person who you have chosen to receive the Death Proceeds upon
the Annuitant's death.
Certificate: The contract between you and us providing the single premium
immediate variable annuity.
Certificate Anniversary: The same date in each year as the Issue Date.
Certificate Year: A period beginning on a Certificate Anniversary and ending on
the day immediately preceding the next Certificate Anniversary.
Code: The Internal Revenue Code of 1986, as amended.
Commuted Value: The present value of any remaining future payments for the rest
of the guaranteed payment period. In calculating the Commuted Value for the
Fixed Account, we will use a maximum interest rate of 2% higher than the maximum
valuation interest rate for single premium immediate annuities for the year and
state in which the certificate was issued. The maximum valuation interest rate
for single premium immediate annuities is specified in your state's insurance
laws. For the variable subaccounts, the interest rate we currently use is 1%
greater than the Assumed Investment Return you selected.
Death Benefit or Death Proceeds: Upon the death of all Annuitant(s) within the
guaranteed payment period, the beneficiary can elect to continue receiving
payments for the remaining guaranteed payment period, or receive the Commuted
Value of those payments.
Fixed Account: Part of the general account of AAL, that includes all of AAL's
assets other than those in any separate account of AAL.
Free Look Period: The period of time during which you may cancel the
certificate.
Fund: AAL Variable Product Series Fund, Inc.
Home Office: Our principal executive office located at 4321 North Ballard Road,
Appleton, Wisconsin, 54919-0001. The toll-free number is 800-225-5225, locally
(920)734-5721.
Issue Date: The effective date of the certificate, generally the date on which
we apply your Premium.
Member: Generally, you must be Lutheran, profess to be Lutheran or be a spouse
or child of such person to be eligible for membership. You apply for membership
by completing a membership application at the time you complete an application
for the AAL Single Premium Immediate Variable Annuity or other AAL insurance
product. Associate Members do not have to buy an insurance product but the other
requirements apply.
Net Asset Value: Each Portfolio's share value at the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) for any Valuation
Date.
Owner, you, your, yours: The person or entity who owns the certificate.
Payee: The person you designate to receive payments under the certificate.
Portfolio: One of a series of the Fund currently available for investment
through a corresponding Subaccount.
Proof of Death: A certified copy of the death certificate or a certified decree
of a court of competent jurisdiction as to the finding of death or any other
proof satisfactory to AAL.
Premium: The payment you invest in the certificate.
Qualified Plan: A retirement plan which receives favorable tax treatment under
Section 401, 403(b), 408 or 408A of the Code.
Service Center: The AAL Variable Products Service Center located at 4321 North
Ballard Road, Appleton, Wisconsin, 54919-0001. The toll-free telephone number is
(800)225-5225, locally (920)734-5721.
Subaccount: A division of the Variable Account that invests exclusively in
shares of a single portfolio of the Fund.
Valuation Date: Any date we are open for business and the New York Stock
Exchange is open for regular trading.
Valuation Period: The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
Variable Account: AAL Variable Annuity Account II, which is a separate account
of AAL.
Written Request: A written request or notice signed by the Owner, received in
good order by AAL at its Service Center and satisfactory in form and content to
AAL.
SUMMARY
This summary only gives you a brief overview of the more significant aspects of
the certificate. Please refer to the remainder of this prospectus for more
detailed information. The certificate along with any riders or endorsements
constitute the entire agreement between you and us. Please retain them as part
of your permanent records.
The Certificate
The certificate is an individual single premium immediate variable annuity that
allows you to receive periodic payments whose amounts are adjusted up or down
according to the performance of various underlying Subaccounts you select.
Purchase of the Certificate
You may purchase the certificate for a minimum single premium of $5000.
Investment Options
The certificate offers a choice of seven variable investment options. The
certificate also offers a Fixed Account option under which we pay a fixed rate
of interest.
Each variable investment option or Subaccount invests in a corresponding
Portfolio of the Fund. The Portfolios include:
o AAL Variable Product Money Market Portfolio
o AAL Variable Product Small Company Stock Portfolio
o AAL Variable Product Bond Portfolio
o AAL Variable Product International Stock Portfolio
o AAL Variable Product Balanced Portfolio
o AAL Variable Product High Yield Bond Portfolio
o AAL Variable Product Large Company Stock Portfolio
Charges and Deductions
There are charges that occur on the Variable Account level and the Fund level.
If you invest in the Variable Account, you will incur a mortality and expense
risk charge computed at an aggregate annualized rate of 1.25% on the average
daily net asset value of the Variable Account. If you withdraw from or surrender
the certificate, we calculate the Commuted Value you receive for the Fixed
Account using a maximum interest rate of 2% higher than the maximum valuation
interest rate for single premium immediate annuities for the year and state in
which the certificate was issued. For variable subaccounts, we currently use an
interest rate of 1% greater than the Assumed Investment Return that you
selected. Since we use a higher interest rate in calculating the Commuted Value,
the certificate has an indirect withdrawal and surrender charge. Also, the
amount that you will receive upon a withdrawal or surrender of the certificate
will be less than you would receive had you chosen to continue receiving Annuity
Payments. A daily charge based on a percentage of each Portfolio's average daily
net asset value is payable by each Portfolio to its investment adviser. In
addition to the investment advisory fees, each Portfolio incurs other operating
expenses that may vary. See the accompanying Fund prospectus for more
information concerning the investment advisory fee.
Free Look Period
You may cancel your certificate within 10 days starting on the day you receive
it. This 10-day period is called the free look period. Some states require that
we provide you a longer free look period. In some states we restrict the initial
premium allocation to the AAL Variable Product Money Market Subaccount during
the free look period. For more information concerning our procedures see "Free
Look Period," page --.
Withdrawals and Surrenders
Unless your certificate is irrevocable, you may withdraw from or surrender the
certificate for its Commuted Value. If you take a withdrawal from or surrender
the certificate before attaining age 59-1/2, you may be subject to a 10%
premature distribution penalty tax in addition to ordinary income tax.
Transfers
You may transfer all or a part of your certificate's value among the Subaccounts
or from the Subaccounts to the Fixed Account subject to certain limitations. We
do not allow transfers from the Fixed Account. You may make up to twelve
transfers per Certificate Year. Certain other restrictions apply to transfers.
After the first two transfers from the Subaccounts in a Certificate Year, we
will impose a $25 transfer charge.
Annuity Payment Amount
We determine the amount of your Annuity Payment based upon your Premium, the
Annuity Payment Option you choose, and the investment allocation(s) that you
make.
Federal Tax Treatment
All or a portion of every distribution or Annuity Payment will generally be
taxable as ordinary income. The taxable portion of most distributions will be
subject to withholding unless the Payee elects otherwise. There may be tax
penalties if you take a distribution before reaching age 59 1/2. Current tax
laws may change at any time.
FEE AND EXPENSE TABLES
Certificate Owner Transaction Expense(s)
Sales Charge Imposed on Premium Payment None
Transfer Fee $25(1)
Contingent Deferred Sales Charge None(2)
Annual Certificate Fees: None
Variable Account Annual Expenses
(as a percentage of average Accumulated Value)
Mortality and Expense Risk Charges 1.25%
Administrative Charge None
Total Variable Account Annual Expenses 1.25%
AAL Variable Product Series Fund, Inc. Annual Expenses:
(as a percentage of average net assets of each Portfolio):
Total Annual Fund
Other Expenses Expenses After
Investment After Expense Expense
Portfolio Advisory Fees Reimbursement Reimbursement(3)
Money Market 0.35% 0% 0.35%
Bond 0.35 0 0.35
Balanced 0.33 0 0.33
Large Company Stock 0.33 0 0.33
Small Company Stock 0.35 0 0.35
International Stock 0.80 0 0.80
High Yield Bond 0.40 0 0.40
The above tables are intended to assist you in understanding the costs and
expenses that you will bear directly or indirectly and reflect the expenses of
the Variable Account and the Fund. The certificates are not currently subject to
state premium taxes. For a more complete description of the various costs and
expenses, see the prospectus for the AAL Variable Product Series Fund, Inc. that
accompanies this prospectus.
Notes to Fee and Expense Tables
1. You can make two free transfers from the Subaccounts in each Certificate
Year. We will charge a $25 fee for each subsequent transfer. See the
Transfers Among Subaccounts and/or the Fixed Account section in this
prospectus for more information on this charge and the restrictions on
transfers from the Fixed Account.
2. If you withdraw from or surrender the certificate, we will pay you the
Commuted Value of the future payments for the remaining guaranteed payment
period. We calculate the Commuted Value you receive for the Fixed Account
using a maximum interest rate of 2% higher than the maximum valuation
interest rate for single premium immediate annuities for the year and state
in which the certificate was issued. For variable subaccounts, we currently
use an interest rate that is 1% greater than the Assumed Investment Return
that you selected. Since we use a higher interest rate in calculating the
Commuted Value, the certificate has an indirect withdrawal and surrender
charge. Also, the amount that you will receive upon a withdrawal or
surrender of the certificate will be less than you would receive had you
chosen to continue receiving Annuity Payments.
3. We have agreed to pay on behalf of the Fund or to reimburse the Fund for
all expenses in excess of 0.33% for the Balanced and Large Company Stock
Portfolios, 0.35% for the Money Market, Bond, and Small Company Stock
Portfolios, 0.80% for the International Stock Portfolio and 0.40% for the
High Yield Bond Portfolio. We can reduce or terminate this voluntary
reimbursement upon 30-days' written notice to the Fund. Absent the expense
reimbursement, the total Portfolio expenses for the period ended December
31, 1998 would have been:
Other Total Annual
Portfolio Expenses Fund Expenses
Money Market Portfolio .09% 0.44%
Bond Portfolio .17 0.52
Balanced Portfolio .06 0.39
Large Company Stock Portfolio .05 0.38
Small Company Stock Portfolio .08 0.43
International Stock Portfolio* .50 1.30
High Yield Bond Portfolio* .14 0.54
* These figures are based on the period from March 2, 1998 to December 31,
1998 and are annualized.
Examples
The following examples illustrate the expenses incurred on a $1,000 investment
assuming a 5% annual return on assets and a female Annuitant age 40 with a 3%
Assumed Investment Return.
A. If you elect a Life Income payment option with a 10 year Guaranteed Payment
Period and you do not surrender your certificate at the end of the periods
shown:
1 Year 3 Year
Money Market $16 $48
Bond 16 48
Balanced 16 47
Large Company Stock 16 47
Small Company Stock 16 48
International Stock 20 61
High Yield Bond 17 49
B. If you elect a 10 Year Fixed Period payment option and you do not surrender
your certificate at the end of the periods shown:
1 Year 3 Year
Money Market $15 $40
Bond 15 40
Balanced 15 40
Large Company Stock 15 40
Small Company Stock 15 40
International Stock 19 51
High Yield Bond 15 41
C. If you elect a Life Income with a 10 year Guaranteed Payment Period and you
do surrender your certificate at the end of the periods shown:
1 Year 3 Year
Money Market $27 $55
Bond 27 55
Balanced 27 54
Large Company Stock 27 54
Small Company Stock 27 55
International Stock 32 68
High Yield Bond 28 56
D. If you elect a 10 Year Fixed Period payment option and you do surrender your
certificate at the end of the periods shown:
1 Year 3 Year
Money Market $48 $60
Bond 48 60
Balanced 47 60
Large Company Stock 47 60
Small Company Stock 48 60
International Stock 52 71
High Yield Bond 48 61
Note: The examples should not be considered representations of past or future
expenses for the Variable Account or for any Portfolio. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Variable Account may include in advertisements and other
sales materials several types of performance information for the Subaccounts.
This information may include "average annual total return." The Bond Subaccount,
the Balanced Subaccount, and the High Yield Bond Subaccount may also advertise
"yield." The Money Market Subaccount may advertise "yield" and "effective
yield."
The performance information that we may present is not an estimate or guarantee
of future investment performance and does not represent the actual investment
experience of amounts invested by a particular Owner. Additional information
concerning a Subaccount's performance appears in the Statement of Additional
Information.
Total Return and Yield Quotations. Average annual total return figures measure
the net income of a Subaccount and any realized or unrealized gains or losses of
the underlying investments in the Subaccount, over the period stated.
Yield is a measure of the net dividend and interest income earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Subaccount), expressed as a percentage of the value of the Subaccount's Annuity
Units. Yield is an annualized figure, which means that we assume that the
Subaccount generates the same level of net income over a one-year period and
compound that income on a semi-annual basis. We calculate the effective yield
for the Money Market Subaccount similarly, but include the increase due to
assumed compounding. The Money Market Subaccount's effective yield will be
slightly higher than its yield due to this compounding effect.
Expense and performance information for the Portfolios may be compared in
advertising, sales literature and other communications to that of other variable
products tracked by Lipper Analytical Services, Inc. (Lipper), Variable Annuity
Research Data Service (VARDS), Morningstar, Inc. (Morningstar) and other
services. In addition, we may compare the performance of the Portfolios to the
S&P 500 Index, the S&P SmallCap 600 Index, the Wilshire Small Cap Index, the
Lehman Bond Index, the Dow Jones Industrial Average, Merrill Lynch High Yield
Master Index and other widely recognized indices. Unmanaged indices assume the
reinvestment of dividends, if any, but do not reflect any deduction for fund
expenses. We periodically report performance ratings in financial publications
such as Forbes, Barron's, Fortune, Money Magazine, Business Week, Financial
Planning, The New York Times and The Wall Street Journal.
We may also report other information concerning the effect of tax-deferred
compounding on a Subaccount's returns that may be illustrated by tables, graphs
or charts. All income and capital gains derived from Subaccount investments are
reinvested and lead to substantial long-term accumulation of assets, provided
that the underlying Portfolio's investment experience is positive.
See the Fund prospectus and Statement of Additional Information for a more
complete description of the methods used to calculate a Portfolio's yield and
total return.
AAL, THE ACCOUNT AND THE FUND
AAL
AAL is a fraternal benefit society owned by and operated for its members. AAL's
mission is to bring Lutheran people together to pursue quality living through
financial security, volunteer action and help for others. AAL was founded in
1902 under the laws of the State of Wisconsin as a non-stock, non-profit
corporation. As of December 31, 1998, AAL has approximately 1.7 million members
and is one of the world's largest fraternal benefit society in terms of
statutory assets (over $20 billion) and life insurance in force ($85 billion),
ranking it in the top two percent of all life insurers in the United States in
terms of ordinary life insurance in force. AAL is currently licensed to transact
life insurance business in all 50 states and the District of Columbia and is
offering the certificates in all states except Connecticut, Illinois, Maryland,
Mississippi, Montana, New Hampshire, New Jersey, New York, Oregon, Pennsylvania,
South Carolina, Utah, Vermont and Washington.
The Variable Account
We established the Variable Account as a separate account under the laws of the
State of Wisconsin on February 4, 1999. The Variable Account is registered as a
unit investment trust with the Securities and Exchange Commission (the SEC)
under the Investment Company Act of 1940 (the 1940 Act). The Variable Account
meets the definition of a separate account under Federal securities laws. The
SEC does not supervise the management or investment practices or policies of the
Variable Account.
The Variable Account is divided into Subaccounts. A Premium flows through the
Certificate to either the Variable Account or the Fixed Account according to
your instructions. From the Variable Account, the Premium flows to the
Subaccounts in the amounts or percentages you allocate. In turn, the Subaccounts
invest in shares of one of the corresponding Portfolios of the Fund. The
Portfolios and their investment objectives are described below. We make no
assurance that the Portfolios will meet their investment objectives.
You bear all the investment risk for Premiums allocated to the Subaccounts.
Annuity Payments and Commuted Value will vary with the performance of the
Subaccounts.
Under Wisconsin law, the assets of the Variable Account that are equal to the
reserves and other contract liabilities of the Variable Account are not
chargeable with liabilities arising out of any other business we may conduct. We
will maintain an amount of assets in the Variable Account that always has a
value approximately equal to the reserves allocated to the Variable Account
under the certificates. This amount will always be greater than the Commuted
Values allocated to the Variable Account under the certificates. Income gains
and losses, whether or not realized, are, in accordance with the certificates,
credited to or charged against the Variable Account without regard to our other
income, gains or losses. Obligations arising under the certificates are our
obligations.
The Fixed Account
Amounts allocated to Fixed Account under the certificate are part of our general
account which supports our annuity and insurance obligations. Because of
exemptive and exclusionary provisions, we have not registered interests in the
Fixed Account under the Securities Act of 1933 nor the Fixed Account as an
investment company under the 1940 Act. The SEC has not reviewed the disclosure
relating to the Fixed Account. However, disclosures regarding the Fixed Account
may be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements in
prospectuses.
You have no voting rights with respect to Fixed Account values.
The Fund
You may allocate your Premium to one or more of the Subaccounts. The
Subaccounts, in turn, invest in shares of a corresponding Portfolio of the AAL
Variable Product Series Fund, Inc. (the Fund). The Fund 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.
The Fund currently offers its shares to three of our separate accounts: the AAL
Variable Annuity Account I and II , and the AAL Variable Life Account I as well
as retirement plans including the Aid Association for Lutherans Savings Plan. We
also purchase Fund shares directly.
We serve as investment adviser to the Fund and are registered as such under the
Investment Advisers Act of 1940.
The Variable Account will purchase and redeem shares from the Fund at Net Asset
Value without any sales or redemption charge. We will redeem shares to the
extent necessary to collect charges under the certificates, to make Annuity
Payments, withdrawals or surrenders, to provide benefits under the certificates
or to transfer assets from a Subaccount to another Subaccount and/or the Fixed
Account as you request.
We automatically reinvest any dividends or capital gain distribution amounts
that we receive on shares of the Portfolios held under the certificates. We
reinvest at the Portfolio's net asset value on the date payable. Dividends and
capital gain distribution amounts will reduce the net asset value of each share
of the corresponding Portfolio and increase the number of shares outstanding of
the Portfolio by an equivalent value. However, these dividends and capital gain
distribution amounts do not change your Account Value.
The chart below indicates the names of the Portfolios in which the Subaccounts
invest, as well as the investment objectives, investment adviser and sub-adviser
for each Portfolio.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
Investment Investment Investment
Portfolio Objectives Adviser Sub-Adviser
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
Money Market Portfolio Seeks maximum current income and a AAL Not Applicable
constant Net Asset Value of $1.00 per share
by investing in high-quality, short-term
money market instruments.
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
Bond Portfolio Strives for investment results AAL Not Applicable
similar to the Lehman Brothers Aggregate Bond
Index by investing primarily in bonds and
other debt securities included in the Index.
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
Balanced Portfolio Seeks capital growth and income by AAL Not Applicable
investing in a mix of common stocks, bonds
and money market instruments. Securities are
selected consistent with the policies of the
AAL Variable Product Large Company Stock
Portfolio, Bond Portfolio and Money Market
Portfolios.
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
Large Company Stock Portfolio Strives for
investment results that AAL Not Applicable
approximate the performance of the Standard &
Poor's 500* Composite Stock Price Index by
investing primarily in common stocks of the
index.
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
Small Company Stock Portfolio Strives for investment results that AAL Not Applicable
approximate the performance of the
S&P SmallCap 600* Index by
investing primarily in common
stocks of the Index.
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
International Stock Portfolio Seeks long-term capital growth by AAL Oechsle International
investing primarily in foreign Advisors, LLC
stocks.
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
High Yield Bond Portfolio Seeks high current income and AAL AAL Capital Management
secondarily capital growth by Corporation
investing primarily in high risk,
high yield bonds commonly referred
to as "junk bonds."
- - ---------------------------------- -------------------------------------------- ---------------- --------------------------
</TABLE>
Before selecting any Subaccount, you should carefully read the prospectus for
the Fund. The prospectus provides more complete information about the Portfolios
of the Fund in which the Subaccounts invest, including investment objectives and
policies, charges and expenses.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "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. (Please see the Statement of
Additional Information which sets forth certain additional disclaimers and
limitations of liabilities on behalf of Standard & Poor's.)
High yielding fixed-income securities, such as those in which the High Yield
Bond Portfolio invests, are subject to greater market fluctuations and risk of
loss of income and principal than investments in lower yielding fixed-income
securities. You should carefully read about this Portfolio in the prospectus and
related statement of additional information for the Fund and consider your
ability to assume the risks of making an investment in the corresponding
Subaccount.
THE CERTIFICATE
Application and Purchase
The certificate is an individual single premium immediate variable annuity. We
offer certificates to members, people who are eligible for membership and
employees of AAL who reside in Wisconsin (including employees of our
subsidiaries and affiliates).
We may issue the certificate as one of the following:
o a Non-qualified Annuity;
o an annuity for a Qualified Retirement Plan;
o a Traditional Individual Retirement Annuity (Traditional IRA);
o an annuity for a Simplified Employee Pension Plan (SEP-IRA);
o a Roth Individual Retirement Annuity (Roth IRA); or
o a Tax Sheltered Annuity (TSA).
You may purchase a certificate by completing and submitting an application. The
Annuitant must be younger than 100 years as of the Issue Date. Some states may
have additional limitations.
You may apply for a certificate by completing a traditional paper application or
an electronic application available through your AAL Representative. If you
submit an electronic application, you will be asked to certify the accuracy and
completeness of the information in your electronic application and sign a
electronic signature pad. The data will then be transmitted electronically to
us. We will attach a paper copy of your application to your certificate if the
certificate can be issued. The electronic application may not be available in
your state.
You must give us or arrange to have sent to us a single Premium Payment of at
least $5,000 along with your application. You can not make any additional
Premium Payments unless we agree. Single premium payments over $1,000,000
require our prior written approval.
Certain provisions of the certificates may vary from state to state in order to
conform with the law of the state in which you reside. This Prospectus describes
generally applicable provisions. You should refer to your certificate for any
variations required by state law.
Crediting and Allocating Your Premium Payment
You may allocate your Premium to any Subaccount of the Variable Account and/or
the Fixed Account. Your allocation must be in whole percentages and total 100%
of the Premium. You may not allocate less than $50 to any Subaccount or the
Fixed Account. We will allocate your Premium according to your allocation
instructions on your application. If you do not designate Premium allocation
percentages, we will treat your application as not in good order.
If your application is in good order, we will allocate the Premium to your
chosen Subaccount(s) and/or Fixed Account (or in certain states, to the Money
Market Subaccount, as discussed below) within two days of receipt of the
completed application and Premium. If we determine the application is not in
good order, we will attempt to complete the application within five business
days. If the application is not complete at the end of this period, we will
inform you of the reason for the delay and that the Premium will be returned
immediately unless you specifically consent to our keeping the Premium until the
application is complete.
Once each day that we are open for business, we determine the Net Asset Value
(NAV) per share of the underlying Portfolios at the close of regular trading on
the New York Stock Exchange, currently 4:00 p.m. Eastern Time. We also determine
the Annuity Unit Value (AUV) of each Subaccount at the end of each day also at
4:00 p.m. Eastern Time. We do not determine the NAV or AUV on holidays observed
by the Exchange or on holidays observed by AAL.
The Exchange is regularly closed on Saturdays and Sundays and on New Year's Day,
Martin Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. If one of these holidays falls on a
Saturday or Sunday, the Exchange will be closed on the preceding Friday or the
following Monday, respectively. During 1999, AAL will be closed for business on
the Friday following Thanksgiving and the Monday after Christmas. On those days,
we will not purchase or redeem any shares of the Fund notwithstanding the fact
that the New York Stock Exchange will be open. We will not purchase or redeem
any Annuity Units on any days that AAL is not open for business.
Free Look Period
Generally, you may return your certificate for cancellation within 10 days after
you initially receive it. However some states require a longer free look period.
Please review your certificate to determine your free look period.
In order to return your certificate, you must deliver or mail the certificate
along with a Written Request to your AAL Representative or to our Service
Center. Upon cancellation, the certificate will be void as of the Issue Date and
you will be entitled to receive an amount equal to the certificate's free look
value as of the date you notify us or the date we receive your cancellation
request in our Service Center, whichever is earlier. The certificate's free look
value is the total of the free look value for each of the variable subaccounts
and Fixed Account that you selected. The free look value for each of the
variable subaccounts is the Premium allocated to that Subaccount multiplied by
the Subaccount Investment Factor for each Valuation Period minus any payments
made attributable to that Subaccount. The free look value for the Fixed Account
is the amount of Premium allocated to the Fixed Account minus any payments made
from the fixed account. You will receive your money within seven days after we
receive your request for cancellation. However, if your certificate is an IRA,
and you decide to cancel it within seven days from the receipt of your IRA
disclosure, we will refund your Premium less any payments made.
Certain states require a full refund of Premium paid if a certificate is
returned during the free look period. In these situations we reserve the right
to place the Premium you allocated to the variable subaccounts to the Money
Market Subaccount until the free look period expires plus an additional five-day
period to allow for your receipt of the certificate by mail. After this period,
we will allocate the value of the Annuity Units of the Money Market Subaccount
to the Subaccount(s) according to your original instructions. In all such
states, we will refund the greater of the Premium paid minus any payment paid or
the certificate's free look value.
Owners, Payees and Annuitants
You, as Owner, are typically the recipient of all distributions under the
certificate. Unless the Owner is an entity, the Owner is also the Annuitant. As
Owner, you can name Beneficiaries, and transfer allocations between Subaccounts
and the Fixed Account. You will receive all Annuity Payments during the
Annuitant's lifetime, unless you designate another person or entity as the
Payee. Keep in mind that if you designate another person or entity as Payee, you
may still be responsible for any income tax payable on the payments.
In the event the Annuitant(s) dies during the Guaranteed Payment Period, the
Death Proceeds will be payable to the named Beneficiary. We use the Annuitant's
life to determine the amount and duration of any Annuity Payments. In the case
of a qualified retirement plan, the Annuitant is the plan participant and the
Owner is the retirement plan.
Under certain circumstances other entities, such as trusts, may purchase AAL
products but are not eligible for membership.
Adult and Juvenile Certificates
We issue Adult Certificates to applicants age 16 or older who become benefit
members of AAL. We issue Juvenile Certificates when the proposed Annuitant is
younger than age 16, but is otherwise eligible for benefit membership.
In the case of the Adult Certificate, the Annuitant must be 16 years of age or
older. Typically, the applicant of the certificate is the Owner and Annuitant of
the certificate. While the Annuitant is alive, the Owner of the certificate may
exercise every right and enjoy every benefit provided in the certificate. The
person who applies for the certificate becomes a benefit member of AAL upon our
approval of the membership application.
For the Juvenile Certificate, a Juvenile is named as the Annuitant and Owner of
the certificate. However, because of age, the Juvenile cannot exercise the
rights of ownership. Therefore, an adult must apply on behalf of the Juvenile
and retain control over the certificate. The adult applicant controller
exercises certain rights of ownership on behalf of the Juvenile Annuitant. These
rights are described in the certificate. The adult controller may transfer
control to another eligible person, but cannot transfer ownership of the
certificate.
Transfer of control to the Juvenile Annuitant will take place at the first
Certificate Anniversary Date following the earlier of:
o the Annuitant's 21st birthday; or
o the Annuitant's 16th birthday after the adult controller transfers
control to the Annuitant in writing; or
o the death of the adult controller after the Annuitant's 16th birthday.
If the person who has control of the certificate dies before the Annuitant gains
control, control will be vested in an eligible person according to our Bylaws.
If we determine that it is best for the Annuitant, we may transfer control of
the certificate to some other eligible person according to our Bylaws.
The Juvenile Annuitant will become a benefit member of AAL on the first
Certificate Anniversary Date on or following the Juvenile's 16th birthday.
Beneficiaries
You may name one or more Beneficiaries to receive the Death Proceeds payable
under the certificate, if any. If no Beneficiary has been named or the
Beneficiary does not survive the Annuitant, the Death Proceeds will be paid to
you, if living, otherwise to your estate. Our Bylaws list persons eligible to be
Beneficiaries. You may designate beneficiaries as either first, second or third
class. Unless otherwise specified, we will distribute Death Proceeds in the
following order to Beneficiaries:
o equally to the Beneficiaries in the first class. If none are living,
then;
o equally to the Beneficiaries in the second class. If none are living,
then;
o equally to the Beneficiaries in the third class.
If a Beneficiary dies within 15 days after the death of the Annuitant, we will
consider the Beneficiary to have died before the Annuitant for purposes of
paying the Death Proceeds.
You may change Beneficiaries by sending a Written Request to our Service Center.
We will give you a special form to make this request. We must approve any change
in Beneficiary. Any such change is effective on the date you designate on your
Written Request, or the date we receive your Written Request at our Service
Center if no date appears on the request. A change in Beneficiary is only
effective if the request was mailed or delivered to us while the Annuitant is
alive. We are not liable for any payments made or actions taken by us before we
receive and approve changes in Beneficiary designations.
If you elect not to have a Guaranteed Payment Period or all Annuitants live
beyond the Guaranteed Payment Period, no Death Proceeds will be payable.
Assignments of Ownership
The certificate can not be sold, assigned, discounted, or pledged as collateral
for a loan or as surety for performance of an obligation or for any other
purpose.
SELECTING AN ANNUITY PAYMENT OPTION
The Annuity Payment Option specifies the type of annuity to be paid and
determines how long the annuity will be paid, the frequency of payment, and the
amount of the first Annuity Payment. You must select the Annuity Payment Option
when applying for the certificate. This election is irrevocable once we issue
the certificate. You must also select the Subaccounts and/or the Fixed Account
to which we will apply your Premium. Except as discussed in the Free Look Period
section, the Annuity Unit Value for each Subaccount selected as of the Valuation
Date when we receive your Premium, will be used to calculate the number of
Annuity Units which determine your first Variable Annuity Payment. Your total
Annuity Payment will be the Fixed Account Annuity Payment, if any, plus the
Variable Account Annuity Payment.
You must elect at time of application whether the certificate and its Annuity
Payments will be either irrevocable or revocable. If you elect the irrevocable
option, you cannot later change the Annuity Payments, or receive a withdrawal or
surrender from the certificate. If you elect the revocable option, you can later
change the Annuity Payments, receive withdrawals, and surrender the certificate.
If you elect the revocable option, you can later change to the irrevocable
option. If you elect the irrevocable option, you cannot later change to the
revocable option once we issue the certificate.
If you do not have any other sources of funds for emergencies or other financial
needs which may arise, an irrevocable certificate may be inappropriate for you.
In addition, even though you can take withdrawals from or surrender a revocable
certificate, a revocable certificate may be inappropriate for you if you intend
on taking additional withdrawals from or surrendering the certificate,
particularly in the short term.
If you do not specify an Annuity Payment Option, we will treat your application
as not being in good order. If you do not specify whether or not the certificate
and its Annuity Payments will be irrevocable or revocable, we will issue the
certificate as revocable.
You must also tell us at time of application which financial institution and
account you would like your payments sent to. We will send your annuity payments
via electronic funds transfer to the financial institution that you request. If
you do not tell us which financial institution and account you would like your
annuity payments sent to, we will treat your application as not being in good
order.
ANNUITY PAYMENT OPTIONS
Fixed Period Income
We make Annuity Payments at regular intervals for a fixed number of payments,
not to exceed the greater of 30 years or the Annuitant's life expectancy. We
call this payment period the "Guaranteed Payment Period". At the end of the
Guaranteed Payment Period, all of the Annuity Payments will have been paid, the
Commuted Value of the certificate will be zero, and the certificate will
terminate.
Life Income with Guaranteed Payment Period
We make Annuity Payments at regular intervals for the lifetime of the Annuitant.
If the Annuitant dies during the Guaranteed Payment Period, we will continue
payments to the Beneficiary to the end of the Guaranteed Payment Period. You may
choose a Guaranteed Payment Period of 0 to 30 years at the time we issue the
certificate. The amount of the payments depends upon the sex and age of the
Annuitant, at the time we issue the certificate. If you select a shorter
Guaranteed Payment Period, you will receive larger Annuity Payments. Both the
Commuted Value and Death Proceeds, however, will be smaller if the Guaranteed
Payment Period is shorter. If you die after the end of the Guaranteed Payment
Period, no Death Proceeds will be payable. Also, no surrenders or withdrawals
are permitted after the end of the Guaranteed Payment Period. If you have poor
health or have a shortened life expectancy, you may want to consider selecting a
longer Guaranteed Payment Period.
Joint and Survivor Life Income with Guaranteed Payment Period
We make Annuity Payments at regular intervals for the lifetime of both
Annuitants. Unless an entity is the Owner, the Annuitants also own the
certificate as joint owners. Upon the death of one of the Annuitants, we will
continue payments for the lifetime of the surviving Annuitant. If both
Annuitants die during the Guaranteed Payment Period, we will continue payments
to the Beneficiary to the end of that period. You may choose a Guaranteed
Payment Period of 0 to 30 years at the time of issue. You may also choose to
have the Annuity Payment reduce after the death of the first Annuitant. The
Annuity Payment may reduce by a factor of 1/2, 1/3, or 1/4. We will reduce the
payments immediately after the later of the first death of one of the Annuitants
and the end of the Guaranteed Payment Period. A higher reduction amount will
result in a higher payment while both Annuitants are alive. The amount of the
payments depends upon the age and sex of the Annuitants at the time of issue.
Annuity Payment Dates
We compute and pay all Annuity Payments after the first Annuity Payment as of
three business days prior to the day on which you selected to receive Annuity
Payments. If you do not select a payment date, the Annuity Payment Date will be
three business days prior to the same day of the month as the Issue Date. The
date on which we compute and pay Annuity Payments is the Annuity Payment Date.
These dates are generally the same day of the month as the Annuity Start Date
based on the Annuity Payment frequency you select. Annuity Payments may be made
monthly, quarterly, semi-annually and annually. The annual Annuity Payment may
be divided into twelve (12) equal monthly payments. Under this option, the
annual Annuity Payment will be distributed from the variable subaccounts
annually, but will be placed in the fixed account to earn interest. We will then
make monthly payments from the fixed account for the remainder of the year. Once
you select the Annuity Payment frequency, it may not be changed.
In the event that you do not select a payment frequency, Annuity Payments will
be made monthly.
FIXED ACCOUNT ANNUITY PAYMENTS
You may choose to deposit some or none of your Premium in the Fixed Account
portion of the certificate.
Premiums deposited in the Fixed Account will fund guaranteed periodic payments.
We will determine the guaranteed Annuity Payment at the time we issue the
certificate. We may pay more than the guaranteed Annuity Payment if the
investment experience of the Fixed Account is more favorable than the guaranteed
interest rate shown in the certificate. We may also pay more than the guaranteed
payment if our mortality experience or administration expenses are favorable. We
may change the amount of the Fixed Account Annuity Payment at any time, but will
not pay an amount lower than the guaranteed payment.
Premiums placed in the Fixed Account may not be transferred to the Subaccounts.
VARIABLE ANNUITY PAYMENTS
First Variable Annuity Payment
Variable Annuity Payments are periodic payments we make, the amount of which
varies from one Annuity Payment Date to the next as a function of the net
investment performance of the Subaccounts you selected. The dollar amount of the
first Variable Annuity Payment depends on the Annuity Payment Option chosen, the
age of the Annuitant, the gender of the Annuitant (if applicable), the amount of
Premium applied to purchase the Variable Annuity Payments, and an Assumed
Investment Return that you select.
The dollar value of the first Variable Annuity Payment is the sum of the first
Variable Annuity Payments attributable to each Subaccount. The dollar amount of
the first total Annuity Payment is the sum of the first Variable Annuity Payment
and the Fixed Account Annuity Payment.
Annuity Units
We initially determine the number of Annuity Units for each Subaccount on the
Issue Date. We calculate the number of Annuity Units for each Subaccount by
dividing the amount of the first Variable Annuity Payment allocable to that
Subaccount by the Annuity Unit Value for that Subaccount on the Issue Date. The
number of Annuity Units attributable to each Subaccount under a Certificate
remains fixed unlessthere is a transfer of Annuity Units between Subaccounts.
Subsequent Variable Annuity Payments
We determine the dollar amount of each subsequent Variable Annuity Payment
attributable to each Subaccount by multiplying the number of Annuity Units of
that Subaccount by the Annuity Unit Value for that Subaccount for the Valuation
Period ending on the Annuity Payment Date, or during which the Annuity Payment
Date falls. We aggregate the subsequent Variable Annuity Payments for each
Subaccount to determine the Variable Annuity Payment. When an Annuity Payment
Date would fall on a day that is not a Valuation Date, we calculate the Variable
Annuity Payment as of the Valuation Date immediately preceding what would have
been the Annuity Payment Date.
The Annuity Unit Value of each Subaccount for any Valuation Period is equal to:
the Annuity Unit Value for the preceding Valuation Period; multiplied
bythe Subaccount Investment Factor for the current Valuation Period;
multiplied by
a daily discount factor which adjusts the Annuity Unit Value to
reflect the Assumed Investment Return. This factor is compounded to
reflect the number of days in the Valuation Period.
Subaccount Investment Factor
The Subaccount Investment Factor for any Valuation Period is equal to:
o the Net Asset Value of the corresponding Fund Portfolio at the end of
the Valuation Period;
o plus the amount of any dividend, capital gain or other distribution
paid by the Portfolio if the "ex-dividend" date occurs during the
Valuation Period;
o plus or minus any cumulative credit or charge for taxes reserved from
the operation of the Portfolio;
o minus the dollar amount of the mortality and expense risk charge we
deduct each day in the Valuation Period; and
o divided by the Net Asset Value of the corresponding Fund Portfolio at
the beginning of the Valuation Period.
Assumed Investment Return
The Annuity Unit Value for each Subaccount will increase or decrease from one
Annuity Payment Date to the next in direct proportion to the net investment
return of that Subaccount less an adjustment for Assumed Investment Return that
you selected. The purpose of the adjustment is to ensure the Annuity Unit Value
only changes when the Subaccount Investment Factor represents a rate of return
greater than or less than the Assumed Investment Return you selected.
The Certificate permits you to select one of three Assumed Investment Returns:
3%, 4% or 5%. A higher Assumed Investment Return will result in a higher initial
payment, a more slowly rising series of subsequent payments when actual
investment performance (minus any deductions and expenses) exceeds the Assumed
Investment Return, and a more rapid drop in subsequent payments when actual
investment performance (minus any deductions and expenses) is less than the
Assumed Investment Return.
For example, if you select a 5% Assumed Investment Return and if the net
investment return of the Subaccount is equal to 5% annualized , the Variable
Annuity Payment attributable to that Subaccount for that period will be the same
as the previous Variable Annuity Payment. To the extent that the Subaccount's
net investment return exceeds an annualized rate of return of 5% for a payment
period, the Variable Annuity Payment for that period will be more than the
previous Variable Annuity Payment. To the extent that the Subaccount's return is
less than an annualized rate of 5%, the Variable Annuity Payment for that period
will be less than the previous Variable Annuity Payment.
TRANSFERS AMONG SUBACCOUNTS AND/OR THE FIXED ACCOUNT
Except for certain restrictions mentioned below, you may transfer the Annuity
Units of one or more Subaccounts to one or more other Subaccounts and/or the
Fixed Account. We will process requests for transfer that we receive before 4:00
p.m. Eastern Time as of the close of business on that Valuation Date. We will
process requests we receive after that time as of the close of business on the
following Valuation Date.
To accomplish a transfer from a Subaccount, we will redeem the Annuity Units in
that Subaccount and reinvest that value in Annuity Units of the other
Subaccounts and/or the Fixed Account you specified. We impose the following
restrictions on transfers:
o You may make two free transfers in each Certificate Year. After that
we will charge you $25 for each subsequent transfer. We deduct the
transfer charge from your value in the Subaccount from which the
transfer was made. When you transfer from two or more Subaccounts, we
apply the $25 transfer charge among those Subaccounts in proportion to
the amounts you transfer.
o You may not transfer from the Fixed Account.
o You may make up to twelve transfers each Certificate Year.
Telephone Transfer Requests
If we receive a signed Telephone Transaction Authorization (found on the
certificate application and on the Variable Annuity Option Selection Form), you
may make withdrawals and transfers pursuant to your telephone instructions
("Telephone Request"). We employ reasonable security procedures to ensure the
authenticity of telephone instructions, including, among other things, requiring
identifying information, recording conversations, and providing written
confirmations of transactions. Nevertheless, we will honor telephone
instructions from anyone who provides the correct identifying information. We
may be liable for losses due to unauthorized or fraudulent instructions only if
we fail to observe reasonable procedures.
If several people want to make Telephone Requests at or about the same time, or
if our recording equipment malfunctions, we may not be able to allow any
Telephone Requests at that time. If this happens, you must submit a Written
Request to our Service Center. If there is a malfunction with the telephone
recording system or the quality of the recording itself is poor, we will not
process the transaction.
The phone number for telephone transactions is (800)225-5225 or (920)734-5721
locally. We reserve the right to suspend or limit telephone transactions.
SURRENDERS AND WITHDRAWALS
If you elected the revocable option, you may surrender the certificate at any
time while an Annuitant is alive. If you elected a Fixed Period Income, you may
withdraw up to the Commuted Value of the certificate. If you elected a Single or
Joint Life Income, you may withdraw up to the Commuted Value of the certificate
minus all previous withdrawals. To surrender your certificate and receive the
Commuted Value, you must submit a Written Request to our Service Center. We will
not accept Telephone Requests for surrender requests. We must receive a
withdrawal or surrender request by 4:00 p.m. Eastern Time on a Valuation Date in
order to process it on the same day. We will send your withdrawal or surrender
amount by electronic funds transfer to the financial institution that you
request.
We will pay you the requested withdrawal or surrender amount within seven days
of our receipt of your request. In certain cases we may postpone payment of your
withdrawal or surrender beyond the seven days. Please see "Postponement of
Payments" for more information. You may select the source of a withdrawal by
specifically indicating the Subaccount or Fixed Account. However, we must agree
to any selection. If you request a withdrawal and do not specify the source of
the withdrawal (the specific Subaccount(s) or Fixed Account), we will take the
withdrawal on a pro rata basis from each Subaccount and the Fixed Account. You
may not withdraw less than $1000 at one time. If you make a Telephone Request
for a withdrawal, we are required to withhold 10% for federal income taxes. If
you take a withdrawal, we will issue you a supplemental contract for the
remaining Annuity Payments.
If you elected the irrevocable option, you may not surrender or make a
withdrawal from the certificate.
You should consult your tax adviser regarding the tax consequences of a
withdrawal or surrender. A withdrawal or surrender made before you attain age
59-1/2 may result in adverse tax consequences, including the imposition of a 10%
federal income tax penalty. See "Federal Tax Status" for more details.
DEATH OF THE OWNER AND/OR ANNUITANT
If you are a joint Annuitant and joint Owner, and die during the Guaranteed
Payment Period, we will continue making payments to the surviving joint Owner,
if any. The surviving joint Owner, if any, will become the sole Annuitant and
Owner. If you are a joint Annuitant and joint Owner and die after the end of the
Guaranteed Payment Period, we will make payments to the surviving joint Owner,
if any, based upon the reduction factor you selected.
If you are the only Annuitant and Owner and die during the Guaranteed Payment
Period, we will continue making payments to your Beneficiary for the remainder
of the Guaranteed Payment Period, if any. Your Beneficiary will have the option
of receiving the Commuted Value as a single lump sum in lieu of continuing to
receive payments.
If you are the only Annuitant and Owner and die after the Guaranteed Payment
Period, no Death Proceeds would be payable.
If the Owner is an entity, upon the Annuitant's death, we will continue making
payments to the Beneficiary for the remainder of the Guaranteed Payment Period,
if any. Generally, the Owner will also be the Beneficiary. The Beneficiary will
have the option of receiving the Commuted Value as a single lump sum in lieu of
continuing to receive payments. If the Annuitant died after the Guaranteed
Payment Period, no Death Proceeds would be payable.
Upon your death, any remaining Annuity Payments will be distributed at least as
rapidly as under the method of distribution being used as of the date of your
death.
We will calculate the Death Proceeds payable as of the date of death when we
receive notice of the death.
We will recover from the payee or recipient any Annuity Payments made on or
after the date of death but before we receive notice of the death.
Before we can process any Death Proceeds, we must receive:
o proof that the Annuitant or Owner died;
o a completed claim form; and
o any other information that we reasonably require to process the claim.
Upon receipt of instructions in proper form from the Beneficiary or Owner to
resume Annuity Payments, we will make any Annuity Payments which had went unpaid
since we had received notice of the death. We will then resume making Annuity
Payments. If we receive instructions to pay the Death Proceeds in a lump sum, we
will pay the Commuted Value as of the date of death, plus interest, minus any
Annuity Payments made before we were notified of the death.
CERTIFICATE FEES AND CHARGES
Sales Charge
There is no sales charge deducted from your Premium Payment.
Premium Tax Charge
There is currently no premium tax applicable to the Certificates.
Withdrawal or Surrender Charge
There is no direct withdrawal or surrender charge applicable to the certificate,
but if you withdraw from or surrender the certificate, we will pay you the
Commuted Value of the certificate. We calculate the Commuted Value you receive
for the Fixed Account using a maximum interest rate of 2% higher than the
maximum valuation interest rate for single premium immediate annuities for the
year and state in which your certificate was issued. For variable subaccounts,
we currently use an interest rate that is 1% greater than the Assumed Investment
Return that you selected. Since we use a higher interest rate in calculating the
Commuted Value, the certificate has an indirect withdrawal and surrender charge.
Also, the amount that you will receive upon a withdrawal or surrender of the
certificate will be less than you would have received had you chosen to continue
receiving Annuity Payments.
Transfer Charge
You may make two free transfers in each Certificate Year. We will charge you $25
for each subsequent transfer.
Mortality and Expense Risk Charge
We deduct from Variable Account assets a daily charge at an annualized rate of
1.25% of the average daily net asset value of the Variable Account attributable
to the certificates. This charge compensates us for assuming mortality and
expense risks under the certificates.
We expect to earn a profit on the charge.
In assuming the mortality risk, we incur the risks that
o Our actuarial estimate of mortality rates may prove erroneous, and
o Annuitants will live longer than expected.
In assuming the expense risk, we incur the risk that the revenues from the
expense charges under the certificates (charges that we guarantee will not
increase) will not cover our expense of administering the certificates.
Miscellaneous
Each Portfolio pays charges and expenses out of its assets. The prospectus for
the Fund describes the charges and expenses.
We reserve the right to impose charges or establish reserves for any federal or
local taxes that we incur today or may incur in the future and that we deem
attributable to the certificates.
Taxes
Currently, we do not assess a charge against the Variable Account for federal
income taxes or state premium taxes. We may assess such a charge in the future
if income or gains within the Variable Account result in any federal income tax
liability to us or we become subject to state premium taxes. Charges for any
other taxes attributable to the Variable Account may also be made. See Federal
Tax Status.
GENERAL INFORMATION ABOUT THE CERTIFICATES
The Entire Contract
The entire contract between you and us consists of:
o the certificate;
o the application;
o attached endorsements or amendments, if any; and
o the AAL Articles of Incorporation and Bylaws in force as of the Issue
Date of your certificate.
We treat any statements you make in the application as representations and not
warranties. We will not use a statement to void the certificate or to deny a
claim unless it appears in the application. No representative of ours except the
president or the secretary may change any part of the certificate on our behalf.
We will not be able to contest the certificate after it has been in effect for
two years from its Issue Date, provided that the Annuitant is still living.
Voting Rights
There are certain voting rights attributable to the Portfolios underlying the
Variable Account portion of the certificates. As required by law, we will vote
the Portfolio shares held in a Subaccount. We will vote according to the
instructions of certificate Owners who have interests in any Subaccount involved
in the matter being voted upon. If the 1940 Act or any related regulation should
be amended or if the present interpretation of it should change and as a result
we determine that we are permitted to vote the Fund shares in our own right, we
may elect to do so.
We determine the number of votes you have the right to cast by applying your
percentage interest in a Subaccount to the total number of votes in the Variable
Account attributable to the entire Subaccount. We will count fractional shares.
We determine the number of votes of the Portfolio you have the right to cast as
of the record date. These votes are cast at the meeting of the Fund. We will
solicit voting instructions by writing you before the meeting in accordance with
procedures established by the Fund.
Any Portfolio shares held in a Subaccount for which we do not receive timely
voting instructions will be voted by us in proportion to the voting instructions
we receive for all Owners participating in that Subaccount. We will vote any
Portfolio shares held by us or our affiliates in proportion to the aggregate
votes of all shareholders in the Portfolio. We will send to everyone having a
voting interest in a Subaccount proxy materials, reports and other materials
relating to the appropriate Portfolio.
Surplus Refunds
If our Board of Directors declares any surplus refunds to certificate Owners, we
will pay you such surplus refunds on the portion that you have allocated to the
Fixed Account. Surplus refunds are paid in cash with that portion of each
payment attributable to the Fixed Account.
Reports to Owners
At least annually, we will mail you a report showing the Surrender Value, Death
Benefit and Annuity Payments for your certificate as of a date not more than two
months prior to the date of mailing and any further information required by any
applicable law. We will mail reports to you at your last known address of
record. We will also promptly mail a confirmation of each Premium, withdrawal,
surrender or transfer you make.
Date of Receipt
Unless we state otherwise, the Date of Receipt by us of any Premium made,
Written Request, Telephone Request or any other communication is the actual date
it is received at our Service Center in proper form. If we receive them after
the close of regular trading on the New York Stock Exchange, usually 4:00
Eastern Time or on a date which is not a Valuation Date, we will consider the
Date of Receipt to be the next Valuation Date.
Payment by Check
If you make a Premium by check and your check is returned to us for insufficient
funds, we do reserve the right to seek reimbursement for any payments we made to
you.
Postponement of Payments
We will normally make payments of your withdrawal or surrender value within
seven days after we receive your request at our Service Center. However, we may
delay this payment or any other type of payment from the Variable Account for
any period when:
o the New York Stock Exchange is closed for trading other than customary
weekend and holiday closings;
o trading on the New York Stock Exchange is restricted;
o an emergency exists, as a result of which it is not reasonably
practicable to dispose of securities or to fairly determine their
value; or
o the SEC by order permits the delay for the protection of Owners.
We may also postpone transfers and allocations among the Subaccounts and the
Fixed Account under these circumstances. We may delay payment of any withdrawal
or surrender value from the Fixed Account for up to six months after we receive
a request at our Service Center.
Certificate Inquiries
You may make inquiries regarding the certificate by writing or calling our
Service Center. The address for the Service Center is: AAL Variable Products
Service Center, 4321 North Ballard Road, Appleton, Wisconsin, 54919-0001. The
toll-free telephone number is (800)225-5225, locally (920)734-5721.
FEDERAL TAX STATUS
We do not intend these discussions of tax matters and those in the Statement of
Additional Information as tax advice. The ultimate effect of federal income
taxes on a certificate or the economic benefit to the Owner, Annuitant or
Beneficiary depends upon the tax status of such person and, if the certificate
is purchased under a qualified retirement plan, upon the tax and employment
status of the individual concerned. This discussion is based on our
understanding of federal income tax laws, as currently interpreted. We make no
representation regarding whether the Internal Revenue Service will continue its
current interpretations of these laws. We do not make any guarantee regarding
the tax status of any certificate. Please consult with a qualified tax adviser
for your particular tax situation.
Variable Account Tax Status
The Code, in effect, provides that the income, gains and losses from separate
account investments are not income to the insurer issuing the variable contracts
so long as the certificates and the Variable Account meet certain requirements
set forth in the Code. Because the certificates and the Variable Account meet
such requirements, we anticipate no tax liability resulting from the
certificates and, consequently, no reserve for income taxes is currently charged
against or maintained by us with respect to the certificates. We are currently
exempt from most types of state and local taxes. We may make charges for such
taxes if there is a material change in federal, state or local tax laws
attributable to the Variable Account.
Diversification Requirements
Under Section 817(h)(1) of the Code and related regulations, we are required to
ensure that the assets underlying the Variable Account portion of the
certificates are adequately diversified. This means that the underlying
Portfolios must have enough distinctly different holdings to satisfy the
requirements. If we would not meet the requirements, the certificate would not
be treated as an annuity contract, unless the failure to satisfy the regulations
was inadvertent, the failure is corrected and you or we pay an amount to the
Internal Revenue Service (IRS). If we would fail to diversify and not correct
the problem, you would be deemed the Owner of the underlying securities in the
Portfolio and would be taxed on the earnings of your account.
We believe that the assets underlying the certificates meet these
diversification standards. We will continually monitor the Fund and the
regulations of the Treasury Department to ensure that the certificate will
continue to qualify as a variable annuity contract under the Code.
Taxation of Annuities in General
Section 72 of the Code governs the federal income taxation of annuities in
general. We do not discuss the impact of estate, gift or state tax
considerations.
Certificates Held by Natural Persons
You are not taxed on increases in the value of your certificate until a
distribution occurs, either in the form of a withdrawal, surrender, or as
Annuity Payments.
Distributions
For Annuity Payments, the taxable portion is determined by dividing the cost
basis by the anticipated total number of payments payable under the certificate,
multiplying that amount by the number of payments payable that year, and
subtracting the result from each year's total payments. The nontaxable portion
of each year's payments equals the cost basis divided by the anticipated number
of payments. The balance of each year's payments are taxable. Your entire
payment will be taxable after you have recovered all of your cost basis. If your
Annuity Payments cease before you have recovered all of your cost basis, you or
your Beneficiary may take a deduction for the remaining unrecovered cost basis.
For non-qualified annuities, your cost basis is generally your Premium unless
you purchased the certificate through a 1035 exchange.
Payments from a withdrawal from or a surrender of a certificate are not
considered Annuity Payments. Therefore withdrawals and surrenders will generally
be taxed as ordinary income to the extent that the Commuted Value exceeds your
cost basis in the certificate.
The taxable portion of any Annuity Payment, withdrawal or surrender is taxed at
ordinary income tax rates.
Distributions from Qualified Plans
For certain Qualified Plans involving pre-tax contributions, there may be no
cost basis in the certificate. In such event, the total payments received may be
taxable. You, the Annuitant and any Beneficiaries for your certificate should
seek qualified tax and financial advice about the tax consequences of
distributions under the Qualified Plans in connection with which such
certificates are purchased.
Penalty Tax on Premature Distributions
Generally, withdrawals, and surrenders of a certificate before you attain age 59
1/2 will result in an additional federal income tax penalty of 10% of the amount
distributed that is included in your gross income. The penalty tax generally
will not apply to nonqualified Annuity Payments unless you purchased the
certificate with the proceeds exchanged from another annuity or life insurance
certificate.
The 10% federal income tax penalty also applies to Certificates which are issued
in connection with Qualified Plans. This penalty will not apply if distributions
are made over the life or life expectancies of the IRA owner or plan participant
(or the joint life or life expectancies of the IRA owner/plan participant and
the designated Beneficiary), or if you are over age 59-1/2. Additional
exemptions apply.
Federal Income Tax Withholding
The taxable portion of Annuity Payments, withdrawals or surrenders is subject to
federal income tax withholding. Except for certificates issued in connection
with certain Qualified Plans, you can elect not to have federal income tax
withheld, but only by Written Request.
Death Proceeds
Generally, distributions received from your certificate by your Beneficiary
because of your death are taxable in the year in which your Beneficiary receives
the distribution. Your Beneficiary will be taxed on the distributions in the
same manner that you would have been taxed. The 10% premature distribution
penalty does not apply to these distributions.
Multiple Certificates
All nonqualified annuity certificates we issue to you during any calendar year
shall be treated as one certificate for determining the amount includible in
gross income. Therefore, distributions from one certificate will be taxable to
the extent there is a gain in any certificate issued in the same year. The total
impact of this rule to immediate annuities is not clear. You will most likely
have a larger amount of taxable gain per distribution if you own multiple
certificates with one insurer. If you are subject to the 10% premature
distribution penalty, the amount subject to that tax would also increase.
Tax-Free Exchanges (1035 Exchanges)
Section 1035 of the Code permits the exchange of certain life insurance,
endowment and annuity contracts for an annuity contract without a taxable event
occurring. If you already own an annuity or life insurance contract issued by
another insurer, you are generally able to exchange that contract for a
certificate issued by us tax-free. There are certain restrictions that apply to
such exchanges, including that the contract surrendered must truly be exchanged
for the certificate and not merely surrendered in exchange for cash. Further,
the owner of the new certificate must be the same as the Owner of the exchanged
certificate. Careful consideration must be given to compliance with Code
provisions and regulations and rulings relating to exchange requirements. If you
are contemplating an exchange, please be sure that you understand any surrender
charges or loss of benefits which might arise in the exchange of the existing
certificate. If you are considering such an exchange, you should consult with
your tax adviser to ensure that the requirements of Section 1035 are met.
Transfers among Subaccounts
Transfers among Subaccounts and between Subaccounts and the Fixed Account are
tax-free.
Qualified Plans
You may use the certificate to fund one of several types of Qualified Plans,
although the uses may be limited because of the requirement to elect immediate
payments. The tax rules that apply to participants in such Qualified Plans vary
according to the type of plan and the terms and conditions of the plan.
Therefore, no attempt is made to provide more than general information about the
use of the certificates with the various types of Qualified Plans. We caution
Qualified Plan participants, plan administrators and Beneficiaries that the
rights of any person to any benefits under such Qualified Plan may be subject to
the terms and conditions of the plan itself, regardless of the terms and
conditions of the certificate issued in connection with the plan. What follows
are brief descriptions of the various types of Qualified Plans.
Tax-Sheltered Annuities
Section 403(b) of the Code permits certain types of employers (organizations
specified under section 501(c)(3) of the Code such as schools, churches, etc.)
to purchase annuity contracts on behalf of their employees. These annuity
contracts are commonly referred to as tax-sheltered annuities. Section
403(b)(11) of the Code requires that distributions from a tax-sheltered annuity
that are attributable to employee salary reduction contributions may be paid
only when the employee reaches age 59 1/2, separates from service, dies, becomes
disabled or in the case of hardship. (Hardship, for this purpose, is generally
defined as an immediate and heavy financial need, such as for paying for medical
expenses, for the purchase of a principal residence or for paying certain
tuition expenses.) Because of these restrictions on distributions, you may only
purchase the certificate as a tax-sheltered annuity if you are eligible to take
distributions from your 403(b) funds.
H.R. 10 (Keogh) Plans
The Self-Employed Individuals Tax Retirement Act of 1962, which is commonly
referred to as H.R. 10, permits self-employed individuals to establish Qualified
Plans for themselves and their employees. Such retirement plans may permit the
purchase of the certificates to provide annuity benefits under the plans.
Individuals intending to use the certificates in connection with such plans
should seek qualified advice in connection with such use.
Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of the certificates to provide annuity benefits under the
plans. Corporate employers intending to use the certificates in connection with
such plans should seek qualified advice in connection with such use.
Traditional Individual Retirement Annuities (Traditional IRAs)
If you are under age 70 1/2 and have earned income, you are eligible to
contribute to a traditional Individual Retirement Annuity or traditional IRA. If
you are eligible for a distribution from certain other Qualified Plans, you can
rollover on a tax deferred basis your Qualified Plan distribution into a
traditional IRA.
Unless you made nondeductible contributions to a traditional IRA, you will
generally be taxed on any distributions from a traditional IRA. If you are under
age 59-1/2 when you take the distribution, you may be subject to a 10% federal
premature distribution penalty on the taxable amount. If you elect a Joint or
Single Life Income or elect to have a Guaranteed Payment Period over 10 years,
you are generally exempt from this penalty tax. You are required to begin
distributions from traditional IRAs by April 1st of the year following the year
in which you attain age 70 1/2.
Because of the limitations on contributions under the certificate, you can only
purchase this certificate as a traditional IRA certificate if you are at least
partially funding the certificate with proceeds from an existing Qualified Plan.
In addition, you should only purchase this certificate as a traditional IRA if
you do not intend on making additional contributions and wish to begin the
immediate periodic distribution of your IRA.
Simplified Employee Pension Plans (SEP-IRAs)
Section 408(k) of the Code permits employers to make deductible contributions
directly into IRAs established for their employees. Distribution limits and
restrictions similar to those of traditional IRAs apply to these certificates.
Employers who use the certificates in connection with a SEP-IRA plan should seek
qualified tax advice. In addition, you should only purchase this certificate as
a SEP-IRA if you do not intend on making additional contributions to the
certificate and you wish to begin the immediate periodic distribution of your
SEP-IRA.
Roth Individual Retirement Annuity (Roth IRA)
If your adjusted gross income is under $160,000, you may be eligible to
contribute to a Roth IRA. If you own a traditional IRA and your adjusted gross
income is under $100,000, you may convert some or all of the traditional IRA
into a Roth IRA. Generally, unless the traditional IRA contained non-deductible
contributions, you will be taxed on the entire conversion amount.
If you take a distribution after five years of establishing a Roth IRA and you
have incurred one of the following triggering events, the distribution will be
tax-free. The triggering events are: attaining age 59 1/2, death, disability or
qualifying as a first time home buyer ($10,000 lifetime limit). If you take a
distribution from a Roth IRA before five years have elapsed and you have
incurred a triggering event, the distribution will be tax free to the extent you
have cost basis. If you take a distribution in an amount over your cost basis,
the amount over and above your cost basis will be taxable. If you take a taxable
distribution before you attain age 59 1/2, you may also be subject to a 10%
premature distribution penalty tax on the taxable amount. The 10% premature
distribution penalty does not apply upon a conversion to a Roth IRA, but may
apply if you take a distribution from a conversion IRA within five years of the
conversion.
Because of the limitations on contributions under the certificate, a Roth IRA
certificate can only be purchased with traditional or Roth IRA proceeds which
have been converted, rolled or transferred to the new IRA certificate. In
addition, you should only purchase the certificate if you do not intend on
making additional contributions to the certificate, you wish to begin the
immediate periodic distribution of your IRA proceeds, and have incurred both the
five year holding period and a triggering event.
Rollover into an IRA
You may rollover assets from a Qualified Plan into a traditional IRA in two
ways. First, you may directly rollover an eligible rollover distribution to a
traditional IRA. The Qualified Plan administrator sends the funds directly to
the traditional IRA as a direct rollover. Second, the employee may receive the
distribution from the Qualified Plan and rollover the same amount the employee
received within 60 days. However, any amount that was not distributed as a
direct rollover will be subject to mandatory 20% federal income tax withholding.
Deferred Compensation Plans
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. In general, all amounts received
under a Section 457 plan are taxable and are subject to federal income tax
withholding as wages. Such retirement plans may permit the purchase of the
certificates to provide annuity benefits under the plans. Employers intending to
use the certificates in connection with such plans should seek qualified advice
in connection with such use.
Other Tax Considerations
Because of the complexity of the law and its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
certificate or the exercise of elections under a certificate. The above comments
concerning federal income tax consequences are not exhaustive and special rules
are provided with respect to situations not discussed in this Prospectus. The
above discussion is based upon our understanding of current federal income tax
law. Statutory changes in the Code with varying effective dates, and regulations
adopted thereunder may also alter the tax consequences of specific factual
situations. We have not taken 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, you should consult a
qualified tax adviser.
OTHER INFORMATION
Rights Reserved by AAL
Subject to applicable law, we reserve the right to make certain changes if we
determine they would serve your interests or if it would be appropriate in
carrying out the purposes of the certificate. When it is required, we will
obtain your approval or regulatory approval. Some examples of such changes we
may make include:
o To operate the Variable Account in any form allowed under the 1940 Act
or in any other form allowed by law;
o To create new separate accounts;
o To add, delete, combine or modify Subaccounts in the Variable Account;
o To restrict or eliminate any voting rights of certificate Owners or
other persons who have voting rights as to the Variable Account;
o 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 fund or any other investment allowed by law;
o To make any amendments to the certificates necessary for the
certificates to comply with the provisions of the Code or any other
applicable federal or state law; and
o To substitute the shares of any registered investment company for
shares of any other registered investment company already purchased or
to be purchased in the future by the Variable Account provided that
the substitution has been approved by the Securities and Exchange
Commission.
Maintenance of Solvency
The certificate contains a maintenance of solvency provision that applies only
to values in the Fixed Account. If our reserves for any class of certificates
become impaired, you may be required to make an extra payment. Our Board of
Directors will determine the amount of any extra payment based on each member's
fair share of the deficiency. If you do not make the payment, we will charge it
as an indebtedness against your certificate with interest at a rate of 5% per
year, compounded annually. You may choose an equivalent reduction in benefits
instead of or in combination with the payment or indebtedness.
Distribution Arrangements
AALCMC serves as the principal underwriter of the certificates. AALCMC is a
wholly owned, indirect subsidiary of AAL. Principal offices of AALCMC are
located at 222 West College Avenue, Appleton, Wisconsin, 54919. AALCMC is a
member of the National Association of Securities Dealers, Inc. (NASD) and a
broker-dealer registered with the SEC under the Securities Exchange Act of 1934.
The certificates are sold by duly licensed registered representatives of AALCMC
who are also employees of AAL and licensed by state insurance departments to
sell variable insurance products (AAL Representatives). The certificates may
also be sold by representatives of other broker-dealer firms with which AALCMC
has executed a selling agreement. In addition, AAL may retain other firms to
serve as principal underwriters of the certificates. AAL offers the certificates
in all states where AAL is authorized to sell the certificates.
AALCMC will pay the AAL Representatives commissions and other distribution
compensation on the sale of certificates. This will not result in any charge to
you in addition to the charges already described in this Prospectus. AALCMC pays
AAL Representatives a commission of not more than 4% of the Premiums paid on the
certificates. In addition to direct compensation, AAL Representatives may be
eligible to receive certain employee benefits from AAL based on the amount of
earned commissions.
Year 2000 Disclosure
Year 2000 is approaching and we are addressing potential problems that could
affect our systems and the systems of AAL's other service providers, such as
custodians, telephone companies, etc. If systems are not year-2000 compliant,
systems cannot distinguish the year 2000 from the year 1900 because of the way
the software encodes and calculates dates. In 1995, we formed a project team to
review our systems as well as those of AAL's other service providers to address
the year 2000 problem. We believe that we have devoted and will continue to
devote the appropriate amount of resources necessary to prepare our systems so
that services provided to AAL will continue without material disruption across
the pending change in the millennium. Despite our best efforts, we cannot assure
that this will be sufficient to avoid any adverse impact on AAL.
Legal Matters
We know of no material legal proceedings pending to which we are or the Variable
Account is a party or which would materially affect the Variable Account.
Financial Statements
Audited financial statements of AAL as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998 are included in
the Statement of Additional Information.
The Variable Account has not yet commenced operations so no financial statements
for the Variable Account are available.
ILLUSTRATIONS OF ANNUITY PAYMENTS
ASSUMING HYPOTHETICAL RATES OF RETURN
Illustrations of Variable Annuity Payments
Assuming Hypothetical Rates of Return
The following illustrations have been prepared to show how investment
performance could affect Variable Annuity payments over time. The illustrations
show the Variable Annuity Payments of a non-qualified annuity certificate under
three rate of return scenarios. Of course, the illustrations merely represent
what Variable Annuity Payments might be paid under a hypothetical non-qualified
certificate.
Each amount illustrates the annual payments you would receive under a
hypothetical non-qualified certificate (described in more detail below) assuming
a different hypothetical rate of return for a single Subaccount supporting the
certificate for each certificate year. Each such annual amount represents an
annual Variable Annuity Payment made for that certificate year under the
hypothetical certificate. Each illustration assumes that the initial Variable
Annuity Payment under the hypothetical certificate is $1,000 (discussed in more
detail below).
The Variable Annuity Payments reflect three different assumptions for a constant
investment return before fees and expenses: 0%, 8% and 10%. Net of all expenses,
the returns will vary by Subaccount chosen. Each annual Variable Annuity Payment
reflects the assumed investment return net of all expenses of the illustrated
Subaccount (and the underlying portfolio) over the periods shown in each
illustration. The mortality and expense risk charge is assumed to be at an
annual rate of 1.25% of the illustrated Subaccount's average daily net assets.
The expenses for the underlying Portfolios vary between annual rates of .33% and
.80% of the average daily net assets. Because of the variances between the
portfolio's expenses, the subaccounts have different expenses. Therefore, we
have illustrated payments on the subaccount level. These illustrations reflect
the differences in expenses between the subaccounts.
The annual variable annuity payments shown in the illustrations are based on
hypothetical certificates and hypothetical investment results and are not
projections or indications of future results. AAL does not guarantee or ever
suggest that any Subaccount or certificate issued by it would generate these or
similar annual Variable Annuity Payments for any period of time. The
illustrations are for illustrative purposes only and do not represent Variable
Annuity Payments or future investment returns. Variable Annuity Payments under
an actual certificate may be more or less than those forming the basis for the
Variable Annuity Payments shown in these illustrations if the actual returns of
the Subaccounts you select are different from the hypothetical returns. Because
it is very likely that a Subaccount's investment return will fluctuate over
time, you can expect Variable Annuity Payments under your certificate to
fluctuate. Moreover, under an actual certificate, the total amount of Variable
Annuity Payments ultimately received by you or your beneficiary depends upon
which Annuity Payment Option you select and, for life contingent annuity payment
options, how long the Annuitant lives. See "Selecting An Annuity Payment
Option," page ---.
In order to illustrate a hypothetical certificate, we had to make several
assumptions about the certificate. We assumed that: (1) the hypothetical
certificate is a non-qualified annuity certificate, (2) the entire Premium of
the hypothetical certificate is allocated to the Subaccount shown and that the
Subaccount shown had a constant investment return before fees and expenses of
0%, 8%, or 10%, (3) the Owner selected an Assumed Investment Return of 5%, (4)
the Owner elected to receive annual Variable Annuity Payments, and (5) the
Premium applied to the purchase of Annuity Units on the Issue Date under the
Annuity Payment Option selected results in an initial Variable Annuity Payment
of $1,000.
Among the most important factors that determine that amount of Variable Annuity
Payments is the Assumed Investment Return you select. The hypothetical
certificate has an Assumed Investment Return of 5%. Subject to state approval,
you may select a 3%, 4% or 5% Assumed Investment Return under an actual
certificate. Generally, Variable Annuity Payments will increase in size from one
Annuity Payment Date to the next if the annualized net rate of return during
that time is greater than the Assumed Investment Return, and will decrease if
the annualized net rate of return over this period is less than the Assumed
Investment Return. (The Assumed Investment Return is an important component of
the Payment Factor.) For a discussion of Assumed Investment Returns, see "
Variable Annuity Payments," page --.
The hypothetical certificate has an initial Variable Annuity Payment of $1,000.
The dollar amount of the first Variable Annuity Payment under an actual
certificate generally depends upon the Annuity Payment Option you select, the
amount of Premium applied to the variable Subaccount, the Assumed Investment
Return you select, and the age and sex of the Annuitant. For each of the
illustrations, the entire Premium under the hypothetical certificate is
allocated to a Subaccount having a constant investment return before fees and
expenses of 0%, 8%, or 10%. However, for a real certificate, the Premium is
often allocated among several Subaccounts. The dollar value of each Variable
Annuity Payment is the sum of the Variable Annuity Payments attributable to each
Subaccount. For a detailed discussion of how the first Variable Annuity Payment
is determined, see "Variable Annuity Payments," page --.
HYPOTHETICAL ILLUSTRATIONS
Money Market, Bond, Small Company Subaccounts
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hypothetical 0% Gross Hypothetical 8% Gross Hypothetical 10% Gross
Rate (-1.60% Net Rate) Rate (6.40% Net Rate) Rate (8.40% Net Rate)
Annual Payment for Annual Payment for Annual Payment for
Each Year Shown Each Year Shown Each Year Shown
$1000 Initial Payment $1000 Initial Payment $1000 Initial Payment
5% AIR 5% AIR 5% AIR
- - -----------------------------------------------------------------------------------------
Contract Annual Contract Annual Contract Annual
Year Payment Year Payment Year Payment
1 1,000 1 1,000 1 1,000
2 937 2 1,013 2 1,032
3 878 3 1,027 3 1,066
4 823 4 1,041 4 1,100
5 771 5 1,054 5 1,136
6 723 6 1,068 6 1,173
7 677 7 1,083 7 1,211
8 635 8 1,097 8 1,250
9 595 9 1,112 9 1,290
10 558 10 1,127 10 1,332
11 522 11 1,142 11 1,375
12 490 12 1,157 12 1,420
13 459 13 1,172 13 1,466
14 430 14 1,188 14 1,513
15 403 15 1,204 15 1,562
16 378 16 1,220 16 1,613
17 354 17 1,236 17 1,665
18 332 18 1,253 18 1,719
19 311 19 1,269 19 1,775
20 291 20 1,286 20 1,832
<PAGE>
Balanced and Large Company Subaccounts
Hypothetical 0% Gross Hypothetical 8% Gross Hypothetical 10% Gross
Rate (-1.58% Net Rate) Rate (6.42% Net Rate) Rate (8.42% Net Rate)
Annual Payment for Annual Payment for Annual Payment for
Each Year Shown Each Year Shown Each Year Shown
$1000 Initial Payment $1000 Initial Payment $1000 Initial Payment
5% AIR 5% AIR 5% AIR
- - ----------------------------------------------------------------------------------------------
Contract Annual Contract Annual Contract Annual
Year Payment Year Payment Year Payment
1 1,000 1 1,000 1 1,000
2 937 2 1,014 2 1,033
3 879 3 1,027 3 1,066
4 824 4 1,041 4 1,101
5 772 5 1,055 5 1,137
6 724 6 1,069 6 1,174
7 678 7 1,084 7 1,212
8 636 8 1,099 8 1,252
9 596 9 1,112 9 1,292
10 559 10 1,129 10 1,334
11 524 11 1,144 11 1,378
12 491 12 1,159 12 1,423
13 460 13 1,175 13 1,469
14 431 14 1,191 14 1,517
15 404 15 1,207 15 1,566
16 379 16 1,223 16 1,617
17 355 17 1,240 17 1,670
18 333 18 1,257 18 1,724
19 312 19 1,274 19 1,781
20 292 20 1,291 20 1,839
<PAGE>
High Yield Bond Subaccount
Hypothetical 0% Gross Hypothetical 8% Gross Hypothetical 10% Gross
Rate (-1.65% Net Rate) Rate (6.35% Net Rate) Rate (8.35% Net Rate)
Annual Payment for Annual Payment for Annual Payment for
Each Year Shown Each Year Shown Each Year Shown
$1000 Initial Payment $1000 Initial Payment $1000 Initial Payment
5% AIR 5% AIR 5% AIR
- - ----------------------------------------------------------------------------------------------
Contract Annual Contract Annual Contract Annual
Year Payment Year Payment Year Payment
1 1,000 1 1,000 1 1,000
2 937 2 1,013 2 1,032
3 877 3 1,026 3 1,066
4 822 4 1,039 4 1,099
5 770 5 1,052 5 1,134
6 721 6 1,066 6 1,170
7 675 7 1,080 7 1,207
8 633 8 1,094 8 1,246
9 592 9 1,108 9 1,286
10 555 10 1,122 10 1,327
11 520 11 1,138 11 1,369
12 487 12 1,151 12 1,413
13 456 13 1,166 13 1,458
14 427 14 1,181 14 1,504
15 400 15 1,196 15 1,552
16 375 16 1,211 16 1,602
17 351 17 1,227 17 1,653
18 329 18 1,243 18 1,706
19 308 19 1,259 19 1,760
20 288 20 1,275 20 1,816
<PAGE>
International Stock Subaccount
Hypothetical 0% Gross Hypothetical 8% Gross Hypothetical 10% Gross
Rate (-2.05% Net Rate) Rate (5.95% Net Rate) Rate (7.95% Net Rate)
Annual Payment for Annual Payment for Annual Payment for
Each Year Shown Each Year Shown Each Year Shown
$1000 Initial Payment $1000 Initial Payment $1000 Initial Payment
5% AIR 5% AIR 5% AIR
- - ----------------------------------------------------------------------------------------------
Contract Annual Contract Annual Contract Annual
Year Payment Year Payment Year Payment
1 1,000 1 1,000 1 1,000
2 933 2 1,009 2 1,028
3 870 3 1,018 3 1,057
4 812 4 1,027 4 1,087
5 757 5 1,037 5 1,117
6 706 6 1,046 6 1,149
7 659 7 1,056 7 1,131
8 615 8 1,065 8 1,214
8 573 9 1,075 9 1,248
10 535 10 1,084 10 1,283
11 499 11 1,094 11 1,319
12 466 12 1,104 12 1,356
13 434 13 1,114 13 1,394
14 405 14 1,124 14 1,434
15 378 15 1,134 15 1,474
16 353 16 1,145 16 1,515
17 329 17 1,155 17 1,558
18 307 18 1,165 18 1,602
19 286 19 1,176 19 1,647
20 267 20 1,187 20 1,693
</TABLE>
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information.........................................................SAI-
Regulation and Reserves.....................................................SAI-
Principal Underwriter.......................................................SAI-
Gender Neutral Benefits.....................................................SAI-
Performance Information.....................................................SAI-
Money Market Subaccount............................................SAI-
Other Subaccounts..................................................SAI-
Performance Comparisons............................................SAI-
Standards & Poor's Disclaimer...............................................SAI-
Financial Statements........................................................SAI-
- - --------------------------------------------------------------------------------
Order Form
Please send me a copy of the most recent Statement of Additional Information for
the Individual Single Premium Immediate Variable Annuity Certificate.
- - ------------------------------- --------------------------------
(Date) (Name)
- - ----------------------------------------------------------------------------
(Street Address)
- - -------------------------------- ----------- ---------------------
(City) (State) (Zip Code)
Send to:
AAL Variable Products Service Center
4321 N. Ballard Road
Appleton, WI 54919-0001
<PAGE>
SINGLE PREMIUM IMMEDIATE
VARIABLE ANNUITY CERTIFICATE
Offered By:
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, Wisconsin 54919
STATEMENT OF ADDITIONAL
INFORMATION
Dated _______, 1999
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the Prospectus dated July 1, 1999, for AAL Variable
Annuity Account II (the "Variable Account") describing the individual single
premium immediate variable annuity certificates ("certificates") that Aid
Association for Lutherans ("AAL") offers to persons eligible for membership in
AAL. Capitalized terms used in this SAI that are not otherwise defined herein
have the same meanings given to them in the prospectus. A copy of the prospectus
may be obtained at no charge by writing AAL (attention: Variable Products
Service Center) at the above address.
TABLE OF CONTENTS
Caption Page
GENERAL INFORMATION.........................................................SAI-
REGULATION AND RESERVES.....................................................SAI-
PRINCIPAL UNDERWRITER.......................................................SAI-
GENDER NEUTRAL BENEFITS.....................................................SAI-
PERFORMANCE INFORMATION.....................................................SAI-
Money Market Subaccount.....................................................SAI-
Other Subaccounts...........................................................SAI-
Performance Comparisons.....................................................SAI-
STANDARD & POOR'S DISCLAIMER................................................SAI-
FINANCIAL STATEMENTS........................................................SAI-
<PAGE>
GENERAL INFORMATION
AAL is a fraternal benefit society organized under Internal Revenue Code section
501(c)(8) and established on November 24, 1902, under the laws of the State of
Wisconsin. Membership is open to Lutherans and their families. AAL offers life
insurance, disability income insurance and annuities to its members. All members
are part of one of almost 9,800 local AAL branches throughout the United States.
AAL is currently licensed to transact life insurance business in all 50 states
and the District of Columbia.
REGULATION AND RESERVES
AAL is subject to regulation by the Office of the Commissioner of Insurance of
the State of Wisconsin and by insurance departments of other states and
jurisdictions in which it is licensed to do business. This regulation covers a
variety of areas, including benefit reserve requirements, adequacy of insurance
company capital and surplus, various operational standards and accounting and
financial reporting procedures. AAL's operations and accounts are subject to
periodic examination by insurance regulatory authorities. The forms of
certificates described in the Prospectus are filed with and (where required)
approved by insurance officials in each state and jurisdiction in which
certificates are sold.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the insurance
business in a variety of ways. Federal measures that may adversely affect the
insurance business include employee benefit regulation, tax law changes
affecting the taxation of insurance companies or of insurance products, changes
in the relative desirability of various personal investment vehicles and removal
of impediments on the entry of banking institutions into the insurance business.
Also, both the executive and legislative branches of the federal government
periodically have under consideration various insurance regulatory matters,
which could ultimately result in direct federal regulation of some aspects of
the insurance business. It is not possible to predict whether this will occur
or, if so, what the effect on AAL would be.
Pursuant to state insurance laws and regulations, AAL is obligated to carry on
its books, as liabilities, reserves to meet its obligations under outstanding
insurance contracts. These reserves are based on assumptions about, among other
things, future claims experience and investment returns. Neither the reserve
requirements nor the other aspects of state insurance regulation provide
absolute protection to holders of insurance contracts, including the
certificates, if AAL were to incur claims or expenses at rates significantly
higher than expected or significant unexpected losses on its investments.
PRINCIPAL UNDERWRITER
AAL Capital Management Corporation ("AALCMC"), a wholly-owned, indirect
subsidiary of AAL, serves as the principal underwriter of the certificates
pursuant to a Principal Underwriting and Servicing Agreement to which AALCMC and
AAL, on behalf of itself and the Variable Account, are parties. The certificates
are sold through AAL Representatives who are licensed by state insurance
officials to sell the certificates and who are duly licensed registered
representatives of AALCMC. The certificates may also be sold by representatives
of other broker-dealer firms with which AALCMC has executed a selling agreement.
In addition, AAL may retain other firms to serve as principal underwriters of
the certificates. The certificates are continuously offered in all states where
AAL is authorized to sell the certificates. AAL paid underwriting commissions of
$5,059,274.35 to AALCMC for the year ended December 31, 1996, $7,756,917.58 for
the year ended December 31, 1997, and $8,411,562.45 for the year ended December
31, 1998 for other products. Of these amounts, AALCMC retained $0.
GENDER NEUTRAL BENEFITS
We distinguish between men and women because of their different life
expectancies. However, we do not make any such distinctions for certificates
that we issue in the state of Montana. This is because Montana enacted
legislation that requires that annuity benefits (i.e., the Annuity Payments) not
vary based on a person's sex. In Arizona Governing Committee v. Norris, the U.S
Supreme Court let stand a U.S. Court of Appeals decision which held that
optional annuity benefits provided under an employer's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. Because of this decision, the Fixed Account
Annuity Payment rates applicable to certificates purchased under an
employment-related insurance or benefit program may not, in some cases, vary on
the basis of sex. We will apply unisex rates to Qualified Plans and those plans
where an employer believes that the Norris decision applies. Employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris and Title VII generally and any comparable state laws that may
be applicable, on any employment-related insurance or benefit plan for which a
certificate may be purchased.
PERFORMANCE INFORMATION
The Variable Account may, from time to time, advertise information relating to
the performance of its Subaccounts. The performance information that may be
presented is not a prediction or guarantee of future investment performance and
does not represent the actual experience of amounts invested by a particular
Owner.
Money Market Subaccount - Yield and Effective Yield
Advertisements for the certificates may include yield and effective yield
quotations for the Money Market Subaccount, which are computed in accordance
with standard methods prescribed by the SEC. Under these methods, the Money
Market Subaccount's yield is calculated based on a hypothetical pre-existing
account at the beginning of a specified seven-day period. Yield is computed by
dividing the net change, exclusive of capital changes, in the account during the
seven-day period, subtracting a hypothetical charge reflecting deductions from
Owner accounts, dividing the difference by the account at the beginning of the
period to obtain the base period return and multiplying the base period return
by the fraction 365/7. The Money Market Subaccount's effective yield is
calculated by compounding the base period return (computed as described above)
for such period by adding 1 and raising the sum to a power equal to 365/7 and
subtracting 1 from the result. Yield and effective yield do not reflect the
deduction of withdrawal or surrender charges. The certificates currently are not
subject to charges for state premium taxes.
Other Subaccounts
30-Day Yield: Advertisements for the certificates may include 30-day (or
one-month) yield quotations for each Subaccount other than the Money Market
Subaccount, which are computed in accordance with a standard method prescribed
by the SEC. These 30-day yield quotations are computed by dividing the net
investment income per a hypothetical account earned during the period (the net
investment income earned by the Fund Portfolio attributable to shares owned by
the Subaccount less expenses incurred during the period) by the offering price
per Annuity Unit on the last day of the period, according to the following
formula that assumes a semi-annual reinvestment of income:
Yield = 2[(((a-b)/cd)+1)^6-1]
Where:
a = Net dividends and interest earned during the period by the Portfolio
attributable to the Subaccount
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of Annuity Units outstanding during the
period
d = The Annuity Unit Value per Unit on the last day of the period
Standardized and Non-Standardized Average Annual Total Return: Advertisements
for the certificates may also include standardized and non-standardized average
annual total return quotations for each Subaccount for 1, 5 and 10-year periods
(or the life of the Subaccount, if less). Standardized average annual total
return quotations are computed in accordance with a standard method prescribed
by the SEC. The average annual total return for a Subaccount for a specific
period is computed by finding the average annual compounded rates of return over
the applicable period that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1 + T)^n = ERV
Where:
P = A hypothetical initial payment of $1,000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5- or 10-year periods
(or fractional portion thereof)
Non-standardized average annual total returns are calculated in the same manner
and for the same time periods as the standardized average annual total returns
described immediately above, except that the value of the non-standardized total
returns do not reflect the effect of the withdrawal or surrender.
Cumulative Total Return: Advertisements for the certificates may also include
cumulative total return quotations for each Subaccount, for which the SEC has
not prescribed a standard method of calculation. Cumulative total return is the
non-annualized cumulative rate of return on a hypothetical initial investment of
$1,000 in a Subaccount for a specified period ("Hypothetical Initial
Investment"). Cumulative total return is calculated by finding the cumulative
rates of return of the Hypothetical Initial Investment over various periods,
according to the following formula and then expressing that as a percentage:
C = (ERV/P) - 1
Where:
P = A hypothetical initial payment of $1,000
C = Cumulative total return
ERV = Ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the applicable period
Performance quotations for each Subaccount reflect the deduction of all
recurring fees and charges applicable to each Subaccount, such as the mortality
and expense risk charge, and Fund operating expenses (net of reimbursements),
except that yield quotations and non-standardized average annual total return
calculations do not reflect any deduction for withdrawal or surrender charges.
The certificates are not currently subject to a charge for state premium taxes.
Performance Comparisons
The performance of each of the Subaccounts may be compared in advertisements and
sales literature to the performance of other variable annuity issuers in general
or to the performance of particular types of variable annuities investing in
mutual funds or series of mutual funds, with investment objectives similar to
each of the Portfolios in which the Subaccounts invest. Such comparisons may be
made by use of independent services that monitor and rank the performance of
variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis, ranking such issuers on the basis of total
return, assuming reinvestment of dividends and distributions, but excluding
sales charges, redemption fees or certain expense deductions at the separate
account level. Some rankings are based on total returns adjusted for withdrawal
or surrender charges or may consider the effects of market risk on total return
performance.
Companies providing rankings that may be used in advertisements and sales
literature include Lipper Analytical Services, Inc., Morningstar, Inc. and the
Variable Annuity Research and Data Service.
In addition, each Subaccount's performance may be compared in advertisements and
sales literature to various benchmarks including the Standard & Poor's 500
Composite Stock Price Index, Morgan Stanley Capital International Europe,
Australasia and Far East (MSCI EAFE) Index, S&P SmallCap 600 Index, Merrill
Lynch High Yield Master Index, the Wilshire Small Cap Index and the Lehman
Brothers Aggregate Bond Index.
The Portfolios may also, from time to time, illustrate the concepts of asset
allocation by use of hypothetical case studies representing various life cycles
and/or risk levels of a certificate Owner.
STANDARD AND POOR'S DISCLAIMER
The certificates are 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
certificates or any member of the public regarding the advisability of investing
in securities generally or in the certificates particularly or the ability of
the S&P 500 and S&P 600 SmallCap Indexes 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 and S&P 600 SmallCap
Indexes which is determined composed and calculated by the S&P without regard to
the Licensee or the certificates. S&P is not responsible for, and has not
participated in, the determination of the prices and amount of the certificate
or the timing of the issuance or sale of the certificates or in the
determination or calculation of the equation by which the certificate is to be
converted into cash. S&P has no obligation or liability in connection with
administration, marketing or trading of the certificates.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 AND
S&P 600 SMALLCAP INDEXES 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 CERTIFICATES, OR ANY OTHER PERSON/ENTITY FROM THE USE OF THE S&P 500 AND
S&P 600 SMALLCAP INDEXES 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 AND S&P 600
SMALLCAP INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBLITY OF SUCH DAMAGES.
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 the Variable Account.
The most current financial statements of AAL are those as of the end of the most
recent fiscal year ended December 31, 1998. AAL does not prepare financial
statements more often than annually 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.
The consolidated financial statements of AAL as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 are
included herein and have been audited by Ernst & Young LLP, Independent
Auditors, as set forth in their report thereon appearing and incorporated by
reference, elsewhere herein. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
The Variable Account has not yet commenced operations and therefore there are no
financial statements for the Variable Account.
The financial statements for AAL are as follows:
Aid Association for Lutherans
Consolidated Financial Statements
December 31, 1998
Contents
Report of Independent Auditors.................................................1
Consolidated Balance Sheets....................................................2
Consolidated Statements of Income..............................................3
Consolidated Statements of Changes in Certificateholders' Surplus..............4
Consolidated Statements of Cash Flows..........................................5
Notes to Consolidated Financial Statements.....................................6
Report of Independent Auditors
The Board of Directors
Aid Association for Lutherans
We have audited the accompanying consolidated balance sheets of Aid Association
for Lutherans (AAL) as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in certificateholders' surplus and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of AAL's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AAL at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years ended December 31, 1998, in conformity with generally
accepted accounting principles.
January 27, 1999
Aid Association for Lutherans
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------------- -------------------
(In Thousands)
<S> <C> <C>
Assets
Investments:
Securities available for sale, at fair value
Fixed maturities $9,067,041 $7,717,917
Equity securities 823,519 681,216
Fixed maturities held to maturity, at amortized cost 3,905,705 4,365,805
Mortgage loans 3,149,509 3,218,193
Real estate 74,529 113,793
Certificate loans 499,509 501,327
Other invested assets 10,425 9,441
------------------- -------------------
Total investments 17,530,237 16,607,692
Cash and cash equivalents 231,761 291,302
Premiums and fees receivable 18,904 13,999
Accrued investment income 198,226 190,776
Deferred acquisition costs 666,837 659,815
Property and equipment 95,057 95,453
Assets held in separate accounts 1,406,402 824,995
Other assets 6,434 7,473
------------------- -------------------
Total Assets $20,153,858 $18,691,505
=================== ===================
Liabilities and Certificateholders' Surplus Certificate liabilities and
accruals:
Future certificate benefits $2,800,287 $2,640,172
Unpaid claims and claim expenses 97,942 97,670
------------------- -------------------
Total certificate liabilities and accruals 2,898,229 2,737,842
Certificateholder funds 13,111,702 12,783,985
Liabilities related to separate accounts 1,406,402 824,995
Other liabilities 189,086 126,616
------------------- -------------------
Total Liabilities 17,605,419 16,473,438
Certificateholders' Surplus
Accumulated surplus 2,137,075 1,890,394
Accumulated other comprehensive income 411,364 327,673
------------------- -------------------
Total Certificateholders' Surplus 2,548,439 2,218,067
------------------- -------------------
Total Liabilities and Certificateholders' Surplus $20,153,858 $18,691,505
=================== ===================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------------- ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
Revenue
Insurance premiums $ 406,153 $ 390,881 $ 364,078
Insurance charges 309,326 297,171 278,774
Net investment income 1,231,684 1,210,481 1,171,590
Net realized investment gains 117,615 107,445 62,959
Other revenue 82,798 68,401 63,141
----------------- ------------------ ------------------
Total revenue 2,147,576 2,074,379 1,940,542
Benefits and expenses
Certificate claims and other benefits 369,443 356,943 345,786
Increase in certificate reserves 172,673 150,754 134,900
Interest credited 800,093 775,196 748,350
Surplus refunds 112,264 109,491 105,997
----------------- ------------------ ------------------
Total benefits 1,454,473 1,392,384 1,335,033
Underwriting, acquisition and insurance
expenses 331,352 329,448 303,162
Fraternal benefits and expenses 115,070 104,279 104,306
----------------- ------------------ ------------------
Total expenses 446,422 433,727 407,468
----------------- ------------------ ------------------
Total benefits and expenses 1,900,895 1,826,111 1,742,501
----------------- ------------------ ------------------
Net income $ 246,681 $ 248,268 $ 198,041
================= ================== ==================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Changes in Certificateholders' Surplus
<TABLE>
<CAPTION>
Accumulated
other Total
Accumulated comprehensive certificateholders'
surplus income surplus
------------------- ----------------------- --------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1,444,085 $ 238,680 $ 1,682,765
Comprehensive income
Net income 198,041 - 198,041
Net increase in unrealized
appreciation of securities
available for sale * - (89,977) (89,977)
------------------- ----------------------- --------------------------
Total comprehensive income 198,041 (89,977) 108,064
Balance at December 31, 1996 1,642,126 148,703 1,790,829
Comprehensive income
Net income 248,268 - 248,268
Net increase in unrealized
appreciation of securities
available for sale * - 178,970 178,970
------------------- ----------------------- --------------------------
Total comprehensive income 248,268 178,970 427,238
Balance at December 31, 1997 1,890,394 327,673 2,218,067
Comprehensive income
Net income 246,681 - 246,681
Net increase in unrealized
appreciation of securities
available for sale * - 83,691 83,691
------------------- ----------------------- --------------------------
Total comprehensive income 246,681 83,691 330,372
Balance at December 31, 1998 $ 2,137,075 $ 411,364 $ 2,548,439
=================== ======================= ==========================
* Net increase in unrealized appreciation of securities available for sale is
reported net of reclassification adjustment calculated as follows:
1998 1997 1996
------------------- ----------------------- --------------------------
Unrealized appreciation of securities
available for sale $ 211,369 $ 247,980 $ (11,170)
Less: reclassification adjustment for
realized gains included in net income 127,678 69,010 78,807
------------------- ----------------------- --------------------------
Net increase (decrease) in appreciation
of securities available for sale $ 83,691 $ 178,970 $ (89,977)
=================== ======================= ==========================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income $246,681 $248,268 $198,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in certificate liabilities and accruals 160,387 131,364 135,911
Increase in certificateholder funds 435,667 424,048 449,570
(Increase) decrease in deferred acquisition costs (8,323) 14,818 (17,547)
Realized gains on investments (105,957) (104,418) (63,219)
Provisions for amortization and depreciation 19,843 17,902 20,309
Changes in other assets and liabilities 50,563 (682) 3,914
----------------- ----------------- -----------------
Net cash provided by operating activities 798,861 731,300 726,979
Investing Activities:
Securities available for sale:
Purchases - fixed maturities (6,269,175) (2,708,407) (2,311,534)
Sales - fixed maturities 4,119,193 1,599,720 1,606,098
Maturities - fixed maturities 847,842 513,605 476,592
Purchases - equities (428,246) (419,487) (203,720)
Sales - equities 402,485 406,714 201,119
Securities held to maturity:
Purchases (294,364) (530,430) (785,732)
Maturities 752,177 576,810 435,374
Mortgage loans funded (244,184) (212,634) (559,005)
Mortgage loans repaid 318,378 308,598 207,904
Certificate loans, net 1,818 (64) (957)
Other 43,623 (6,377) 1,351
----------------- ----------------- -----------------
Net cash used in investing activities (750,453) (471,952) (932,510)
Financing Activities:
Universal life and investment contract receipts 1,029,287 1,051,931 1,086,856
Universal life and investment contract withdrawals (1,137,236) (1,126,545) (940,777)
----------------- ----------------- -----------------
Net cash (used in) provided by financing activities (107,949) (74,614) 146,079
----------------- ----------------- -----------------
Net (decrease) increase in cash and cash equivalents (59,541) 184,734 (59,452)
Cash and cash equivalents, beginning of year 291,302 106,568 166,020
----------------- ----------------- -----------------
Cash and cash equivalents, end of year $231,761 $291,302 $106,568
================= ================= =================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Notes to Consolidated Financial Statements
December 31, 1998
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Aid Association for Lutherans (AAL) is the nation's largest fraternal benefit
society in terms of assets and individual life insurance in force. It provides
its 1.7 million members with life insurance and retirement products (both fixed
and variable), as well as disability income and long-term care insurance, in
most states. Mutual funds are offered to members by AAL Capital Management
Corporation (CMC). AAL Trust Company, FSB (AALTC), which commenced operations in
November of 1998, provides personal asset management, administrative and other
trust services to members. CMC and AALTC are wholly-owned by AAL Holdings Inc.,
AAL's wholly-owned subsidiary. Credit union services are available to members
from the AAL Member Credit Union, an affiliate of AAL. AAL members are served by
nearly 1,700 district representatives across the country.
Basis of Presentation
The accompanying consolidated financial statements of AAL and its wholly-owned
subsidiary have been prepared in accordance with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of AAL, its
wholly-owned subsidiary, AAL Holdings Inc., and its wholly-owned subsidiaries,
including CMC, AALTC and North Meadows Investment Ltd. All significant
intercompany transactions have been eliminated.
The significant accounting practices used in preparation of the financial
statements are summarized as follows:
Investments
Investments in fixed maturities are classified as available for sale or held to
maturity according to the holder's intent. Securities classified in the
available for sale category are carried at fair value and consist of those
securities which AAL intends to hold for an indefinite period of time but not
necessarily to maturity. Securities in the held to maturity category are carried
at amortized cost and consist of those which AAL has both the ability and the
positive intent to hold to maturity.
Changes in fair values of available for sale securities, after adjustment of
deferred acquisition costs (DAC), are reported as unrealized appreciation or
depreciation directly in certificateholders' surplus as other comprehensive
income and, accordingly, have no effect on net income. The DAC offsets to the
unrealized appreciation or depreciation represent valuation adjustments of DAC
that would have been required as a charge or credit to operations had such
unrealized amounts been realized.
The cost of fixed maturity investments classified as available for sale and as
held to maturity is adjusted for amortization of premiums and accretion of
discounts calculated using the effective interest method. That amortization or
accretion is included in net investment income.
Mortgage loans generally are stated at their outstanding unpaid principal
balances. Interest income is accrued on the unpaid principal balance. Discounts
and premiums are amortized to income using the effective interest method.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Investments (Continued)
Investment real estate is valued at original cost plus capital expenditures less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of the property. Real estate expected to
be disposed of is carried at the lower of cost or fair value, less cost to sell.
Certificate loans are generally valued at the aggregate unpaid balances. Other
investments, consisting of limited partnerships, are valued on the equity basis.
All investments are carried net of allowances for declines in value that are
other than temporary; the changes in those reserves are reported as realized
gains or losses on investments.
Realized gains and losses on the sale of investments and declines in value
considered to be other than temporary are recognized in the Consolidated
Statements of Income on the specific identification basis.
Securities loaned under AAL's securities lending agreement are stated in the
Consolidated Balance Sheets at amortized cost or fair market value, consistent
with AAL's classifications of such securities as held to maturity or available
for sale. AAL measures the fair value of securities loaned against the
collateral received on a daily basis. Additional collateral is obtained as
necessary to ensure such transactions are adequately collateralized.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and include all highly liquid
investments purchased with an original maturity of three months or less.
Deferred Acquisition Costs
Costs which vary with and are primarily attributable to the production of new
business have been deferred to the extent such costs are deemed recoverable from
future profits. Such costs include commissions, selling, selection and
certificate issue expenses. For interest sensitive life, participating life and
investment products, these costs are amortized in proportion to estimated
margins from interest, mortality and other factors under the contracts.
Amortization of acquisition costs for other certificates is charged to expense
in proportion to premium revenue recognized.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. The
cost of property and equipment is being depreciated by the straight-line method
over the estimated useful lives. Accumulated depreciation was $94,297,000 and
$113,453,000 at December 31, 1998 and 1997, respectively.
Certificate Liabilities and Accruals
Reserves for future certificate benefits for participating life insurance are
net level reserves computed using the same interest and mortality assumptions as
used to compute cash values. Reserves for future certificate benefits for
non-participating life insurance are also net level reserves, computed using
assumptions as to mortality, interest and withdrawal, with a provision for
adverse deviation. Interest assumptions generally range from 2.5% to 4.0% for
participating life insurance and from 7.8% to 9.6% for non-participating life
insurance.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Certificate Liabilities and Accruals (Continued)
Reserves for future certificate benefits for universal life insurance and
deferred annuities consist of certificate account balances before applicable
surrender charges. The average interest rate credited to account balances in
1998 was 7.4% for universal life, 6.0% for portfolio-average deferred annuities,
and ranged from 4.4% to 7.2% for investment generation deferred annuities (IGA).
Reserves for health certificates are generally computed using current pricing
assumptions. For Medicare supplement, disability income and long term care
certificates, reserves are computed on a net level basis using realistic
assumptions, with provision for adverse deviation.
Claim reserves are established for future payments not yet due on claims already
incurred, relating primarily to health certificates. These reserves are based on
past experience and applicable morbidity tables. Reserves are continuously
reviewed and updated, with any resulting adjustments reflected in current
operations.
Separate Accounts
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable annuity and
variable universal life contracts, and for which the certificateholder, rather
than AAL, bears the investment risk. Fees charged on separate account
certificateholder deposits are included in insurance charges. Separate account
assets, which are stated at fair value based on quoted market prices, and
separate account liabilities are shown separately in the Consolidated Balance
Sheets. Operating results of the separate accounts are not included in the
Consolidated Statements of Income.
Insurance Premiums and Charges
For life and some annuity contracts other than universal life or investment
contracts, premiums are recognized as revenues over the premium paying period,
with reserves for future benefits established on a prorated basis from such
premiums.
Revenues for universal life and investment contracts consist of policy charges
for the cost of insurance, policy administration and surrender charges assessed
during the period. Expenses include interest credited to certificate account
balances and benefits incurred in excess of certificate account balances.
Certain profits on limited payment certificates are deferred and recognized over
the certificate term.
For health certificates, gross premiums are prorated over the contract term of
the certificates with the unearned premium included in the certificate reserves.
Surplus Refunds
Surplus refunds are recognized over the certificate year and are reflected in
the Consolidated Statements of Income. The majority of life insurance
certificates, except for universal life and term certificates, begin to receive
surplus refunds at the end of the second certificate year. Surplus refunds are
not currently being paid on interest-sensitive and health insurance
certificates. Surplus refund scales are approved annually by AAL's Board of
Directors.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Fraternal Benefits
Fraternal benefits and expenses include all fraternal activities as well as
expenses incurred to provide or administer fraternal benefits, and expenses
related to AAL's fraternal character. This would include items such as
benevolences to help meet the needs of people, educational benefits to raise
community and family awareness of an issue, as well as various programs and
church grants. Expenses, such as those necessary to maintain the branch system,
are also included.
Other Revenue
Other revenue consists primarily of concessions and investment advisory fees of
CMC.
Income Taxes
AAL, a fraternal benefit society, qualifies as a tax-exempt organization under
the Internal Revenue Code. Accordingly, income earned by AAL is generally exempt
from taxation. AAL's wholly-owned subsidiary and its subsidiaries are subject to
federal and state taxation; however, the resulting income taxes are not material
to AAL's financial statements.
Recent Pronouncements
As of January 1, 1998, AAL adopted Financial Accounting Standards Board (FASB)
Statement 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on AAL's net income or
certificateholders' surplus. Statement 130 requires unrealized appreciation or
depreciation on AAL's securities available for sale, which prior to adoption
were reported separately in certificateholders' surplus, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.
In June 1998, the FASB issued Statement 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. Because of AAL's minimal involvement with
derivative instruments and hedging activities, management does not anticipate
that the adoption of the new statement will have a significant effect on
earnings or the financial position of AAL.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments
AAL's investments in available for sale securities and held to maturity
securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities at December 31, 1998:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $1,741,661 $17,854 $ (2,203) $1,757,312
Obligations of other
governments, states and
political subdivisions 18,528 996 19,524
-
Corporate bonds 5,862,020 147,705 (28,691) 5,981,034
Mortgage & asset-backed securities 1,292,057 18,926 (1,812) 1,309,171
------------------ --------------- --------------- -----------------
Total fixed maturity securities 8,914,266 185,481 (32,706) 9,067,041
Equity securities 531,061 292,458 823,519
-
------------------ --------------- --------------- -----------------
Total $9,445,327 $477,939 $ (32,706) $9,890,560
================== =============== =============== =================
Held to maturity securities at December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 30,845 $ 1,387 $ (420) $ 31,812
Loan-backed obligations of U.S.
Government corporations
and agencies 320,156 32,406 352,562
-
Obligations of other
governments, states and
political subdivisions 53,983 834 (623) 54,194
Corporate bonds 2,929,495 124,565 (7,503) 3,046,557
Mortgage & asset-backed securities 571,226 14,637 (48) 585,815
------------------ --------------- --------------- -----------------
Total $3,905,705 $173,829 $ (8,594) $4,070,940
================== =============== =============== =================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities at December 31, 1997:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $ 331,935 $ 5,319 $ (297) $ 336,957
Obligations of other
governments, states and
political subdivisions 129,229 3,894 (34) 133,089
Corporate bonds 4,985,444 120,781 (10,917) 5,095,308
Mortgage & asset-backed securities 2,124,120 33,787 (5,344) 2,152,563
------------------ --------------- --------------- -----------------
Total fixed maturity securities 7,570,728 163,781 (16,592) 7,717,917
Equity securities 468,164 213,052 681,216
-
------------------ --------------- --------------- -----------------
Total $8,038,892 $376,833 $ (16,592) $8,399,133
================== =============== =============== =================
Held to maturity securities at December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 38,598 $ 1,729 $ (470) $ 39,857
Loan-backed obligations of U.S.
Government corporations
and agencies 383,182 26,792 (360) 409,614
Obligations of other
governments, states and
political subdivisions 59,550 926 (474) 60,002
Corporate bonds 3,051,373 134,047 (5,725) 3,179,695
Mortgage & asset-backed securities 833,102 17,760 (1,386) 849,477
------------------ --------------- --------------- -----------------
Total $4,365,805 $181,254 $ (8,415) $4,538,645
================== =============== =============== =================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- ----------------- ----------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 256,545 $ 258,984 $ 206,753 $ 210,971
Due after one year through five years 3,411,546 3,478,956 1,272,248 1,317,236
Due after five years through ten years 1,976,689 2,014,414 998,402 1,033,607
Due after ten years 235,768 248,204 536,920 570,749
----------------- ----------------- ----------------- ------------------
Total fixed maturity securities
excluding mortgage and
asset-backed bonds 5,880,548 6,000,558 3,014,323 3,132,563
Loan-backed obligations of U.S.
Government corporations and
agencies 1,741,661 1,757,312 320,156 352,562
Mortgage and asset-backed securities 1,292,057 1,309,171 571,226 585,815
----------------- ----------------- ----------------- ------------------
Total fixed maturity securities $8,914,266 $9,067,041 $3,905,705 $4,070,940
================= ================= ================= ==================
Major categories of AAL's investment income are summarized as follows:
Years Ended December 31
1998 1997 1996
----------------- ----------------- ------------------
(In Thousands)
Fixed maturity securities $ 884,754 $ 854,080 $ 828,565
Equity securities 23,375 20,257 11,030
Mortgage loans 279,025 294,285 284,534
Investment real estate 17,988 19,570 21,998
Certificate loans 35,184 34,993 34,882
Other invested assets 4,628 4,594 6,666
----------------- ----------------- ------------------
Gross investment income 1,244,954 1,227,779 1,187,675
Investment expenses 13,270 17,298 16,085
----------------- ----------------- ------------------
Net investment income $1,231,684 $1,210,481 $1,171,590
================= ================= ==================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
AAL's realized gains and losses on investments are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
--------------- -------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Securities available for sale:
Fixed maturity securities:
Gross realized gains $69,246 $47,366 $41,313
Gross realized losses (16,316) (11,350) (9,058)
Equity securities:
Gross realized gains 76,231 66,140 37,001
Gross realized losses (37,398) (5,537) (7,546)
Other investments, net 25,852 10,826 1,249
--------------- -------------- ---------------
Net realized investment gains $117,615 $107,445 $62,959
=============== ============== ===============
Net unrealized appreciation of securities available for sale credited directly
to certificateholders' surplus as other comprehensive income was as follows:
December 31
1998 1997 1996
--------------- -------------- ---------------
(In Thousands)
Fair value adjustment to available for sale securities $445,233 $360,241 $151,389
Decrease in deferred acquisition costs (33,869) (32,568) (2,686)
--------------- -------------- ---------------
Net unrealized gains on available for sale securities $411,364 $327,673 $148,703
=============== ============== ===============
The net increase (decrease) in accumulated other comprehensive income due to
unrealized appreciation of securities available for sale is as follows:
Years Ended December 31
1998 1997 1996
--------------- -------------- ----------------
(In Thousands)
Fixed maturity securities available for sale $ 5,586 $138,125 $(187,064)
Equity securities available for sale 79,406 70,727 53,659
Deferred acquisition costs (1,301) (29,882) 43,428
--------------- -------------- ----------------
$83,691 $178,970 $(89,977)
=============== ============== ================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
AAL invests in mortgage loans, principally involving commercial real estate.
Such investments consist of first mortgage liens on completed income producing
properties. AAL manages its investments in mortgage loans to limit credit risk
by diversifying among various geographic regions and property types as follows
as of December 31, 1998:
<TABLE>
<CAPTION>
Principal Percent
------------------ ----------
(In Thousands)
<S> <C> <C>
Geographic Region:
Pacific $ 1,034,925 31.7
South Atlantic 1,108,708 33.9
Midwest 612,823 18.8
Other 511,423 15.6
------------------ ----------
Total Mortgage Loans $ 3,267,879 100.0
================== ==========
Property Type:
Office $ 828,505 25.4
Industrial 890,291 27.2
Retail 418,166 12.8
Residential 392,198 12.0
Church 222,635 6.8
Other 516,084 15.8
------------------ ----------
Total Mortgage Loans $ 3,267,879 100.0
================== ==========
The following table presents changes in the allowance for credit losses:
Years Ended December 31
1998 1997 1996
----------------- ----------------- -----------------
(In Thousands)
Balance at January 1 $123,880 $139,702 $134,402
Provisions for credit losses (3,219) (13,264) 9,066
Charge offs (2,291) (2,558) (3,766)
----------------- ----------------- -----------------
Balance at December 31 $118,370 $123,880 $139,702
================= ================= =================
</TABLE>
AAL's investment in mortgage loans includes $198,314,000 and $233,938,000 of
loans that are considered to be impaired at December 31, 1998 and 1997,
respectively, for which the related allowance for credit losses are $38,167,000
and $43,484,000 at December 31, 1998 and 1997, respectively. The average
recorded investment in impaired loans during the years ended December 31, 1998
and 1997, was $216,126,000 and $257,907,000, respectively. AAL recorded interest
income, using the accrual method, on impaired loans of $16,460,000, $18,804,000
and $19,366,000 for 1998, 1997 and 1996, respectively.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 3. Deferred Acquisition Costs
The changes in deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $659,815 $704,515 $643,540
Acquisition costs deferred:
Commissions, net of certificate charges 73,891 76,265 78,627
Other costs 29,072 27,039 27,499
---------------- ---------------- ----------------
Total deferred 102,963 103,304 106,126
Acquisition costs amortized (94,640) (118,122) (88,579)
---------------- ---------------- ----------------
Increase (decrease) in deferred acquisition costs 8,323 (14,818) 17,547
(Decrease) increase related to unrealized
appreciation of fixed maturity investments
recorded directly to certificateholders'
as comprehensive income (1,301) (29,882) 43,428
---------------- ---------------- ----------------
Total increase (decrease) 7,022 (44,700) 60,975
---------------- ---------------- ----------------
Balance at end of year $666,837 $659,815 $704,515
================ ================ ================
</TABLE>
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions
AAL offers a noncontributory defined retirement plan and a contributory savings
plan to substantially all home office and field employees. The savings plan is
defined under the Internal Revenue Code section 401(k) as a profit sharing plan
that allows participant contributions on a before-tax basis as well as an
after-tax basis. AAL also provides postretirement benefits in the form of health
and life insurance for substantially all retired home office and field
personnel.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions (continued)
The following tables set forth the amounts recognized in AAL's financial
statements and the plans' funding status.
<TABLE>
<CAPTION>
Retirement Plans Other Benefits
December 31
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Projected benefit obligation for
services rendered to date $268,685 $236,887 $ 41,527 $ 38,993
Plan assets at fair value 320,987 286,314
- -
----------------- ----------------- ----------------- -----------------
Funded (unfunded) status of
the plan $ 52,302 $ 49,427 $ (41,527) $ (38,993)
================= ================= ================= =================
Accrued liability included in
consolidated balance sheet $ (5,651) $ (1,080) $ (42,987) $ (41,456)
</TABLE>
The following summarizes certain assumptions included in the preceding schedule:
<TABLE>
<CAPTION>
Retirement Plans Other Benefits
Years Ended December 31
1998 1997 1996 1998 1997 1996
------------ ----------- ------------ ----------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 8.0% 7.0% 7.5% 8.0%
Expected return
on plan assets 9.0% 9.0% 8.5% - - -
Rate of compensation
increase 5.0% 5.0% 5.0% - - -
Health care trend rate - - - 6.0% 6.0% 6.0%
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions (continued)
Years Ended December 31
1998 1997 1996
----------- ------------ -----------
(In Thousands)
Savings Plan
Benefit cost $ $ - $
- -
Employer contributions 3,833 3,729 3,609
Employee contributions 14,014 13,360 12,570
Benefits paid 21,804 18,027 12,608
Retirement Plans
Benefit cost $4,571 $4,643 $5,045
Employer contributions 4,771 6,993
-
Employee contributions
- - -
Benefits paid 10,595 9,307 8,729
Other Benefits
Benefit cost $3,669 $3,947 $4,156
Employer contributions
- - -
Employee contributions
- - -
Benefits paid 2,137 2,531 2,159
Note 5. Synopsis of Statutory Financial Results
The accompanying financial statements differ from those prepared in accordance
with statutory accounting practices prescribed or permitted by regulatory
authorities. The more significant differences are as follows: (a) investments in
bonds are reported at amortized cost or at fair value with unrealized holding
gains and losses reported as a separate component of certificateholders'
surplus, depending on their designation at purchase as held to maturity or
available for sale, respectively, rather than being valued based on the bond's
NAIC rating; (b) certain acquisition costs of new business are deferred and
amortized rather than being charged to operations as incurred; (c) the
liabilities for future certificate benefits and expenses are based on reasonably
conservative estimates of expected mortality, interest, withdrawals and future
maintenance and settlement expenses rather than using statutory rates for
mortality and interest; (d) certain assets, principally costs in excess of net
assets acquired, furniture, equipment and agents' debit balances are reported as
assets rather than being charged to certificateholders' surplus and excluded
from the balance sheet; (e) the interest maintenance reserve and asset valuation
reserve are reported as part of certificateholders' surplus rather than as a
liability; and (f) revenues for universal life and investment-type contracts
include mortality, expense and surrender charges levied against the
certificateholders' accounts rather than including as revenues the premiums
received on these certificates. Expenses include interest added to the
certificateholders' accounts rather than reserve changes related to the
investment portion of these policies. Summarized statutory-basis financial
information for AAL on an unconsolidated basis is as follows:
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 5. Synopsis of Statutory Financial Results (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31
1998 1997
------------------ -------------------
(In Thousands)
Assets $19,417,667 $17,974,813
================== ===================
Liabilities $17,899,692 $16,594,333
Unassigned funds 1,517,975 1,380,480
------------------ -------------------
Total liabilities and unassigned funds $19,417,667 $17,974,813
================== ===================
Years ended December 31
1998 1997 1996
---------------- ------------------ -------------------
(In Thousands)
Premium income and certificate proceeds $1,806,096 $1,785,172 $1,663,403
Net investment income 1,218,981 1,205,622 1,162,629
Other income 35,977 27,411 23,647
---------------- ------------------ -------------------
Total income 3,061,054 3,018,205 2,849,679
Reserve increase 569,233 518,656 741,518
Certificateholders' benefits 1,543,577 1,489,662 1,285,702
Surplus refunds 114,728 111,981 107,472
Commissions and operating costs 377,368 362,912 367,155
Other 367,301 365,518 226,097
---------------- ------------------ -------------------
Total benefits and expenses 2,972,207 2,848,729 2,727,944
---------------- ------------------ -------------------
Net gain from operations 88,847 169,476 121,735
Net realized capital gains 44,835 40,281 7,967
---------------- ------------------ -------------------
Net income $ 133,682 $ 209,757 $ 129,702
================ ================== ===================
</TABLE>
AAL is in compliance with the statutory surplus requirements of all states.
Note 6. Fair Value of Financial Instruments
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the accompanying balance sheets for these
instruments approximate their fair values.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 6. Fair Value of Financial Instruments (Continued)
Investment Securities
Fair values for fixed maturity securities are based on quoted market prices
where available, or are estimated using values obtained from independent pricing
services. All fixed maturity issues are individually priced based on year-end
market conditions, the credit quality of the issuing company, the interest rate
and the maturity of the issue. The fair values for investments in equity
securities are based on quoted market prices.
Mortgage Loans
The fair values for mortgage loans are estimated using discounted cash flow
analyses, based on interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations.
Certificate Loans
The carrying amounts reported in the accompanying balance sheets for these loans
are considered to be reasonable estimates of their fair value.
Financial Liabilities
The fair values for AAL's liabilities under investment-type contracts, such as
deferred annuities and other liabilities, including supplementary contracts
without life contingencies, deferred income settlement options and refunds on
deposit, are estimated to be the cash surrender value payable upon immediate
withdrawal. These amounts are included in certificateholder funds in the
accompanying balance sheets.
The cost and estimated fair value of AAL's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- ----------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
------------------ ------------------- ------------------- -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities $12,819,971 $13,137,981 $11,936,533 $12,256,562
Equity securities 531,061 823,519 468,164 681,216
Mortgage loans 3,149,509 3,628,252 3,218,193 3,625,645
Cash and cash equivalents 231,761 231,761 291,302 291,302
Certificate loans 499,509 499,509 501,327 501,327
Financial Liabilities:
Deferred annuities 7,309,453 7,238,292 7,354,135 7,256,623
Variable annuities 1,433,221 1,356,276 842,301 795,052
Other 680,637 677,814 600,588 598,264
</TABLE>
Note 7. Contingent Liabilities
AAL is involved in various lawsuits and contingencies that have arisen from the
normal conduct of business. Contingent liabilities arising from litigation, tax
and other matters are not considered material in relation to the financial
position of AAL. AAL has not made any provision in the financial statements for
liabilities, if any, that might ultimately result from these contingencies.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 8. Year 2000 Issue (Unaudited)
AAL is proceeding with its plan to modify internal information technology to be
ready for the year 2000. AAL has completed its assessment of all systems that
could be significantly affected by the year 2000. Programming to convert
critical mainframe systems and corporate testing is substantially complete. The
project also includes determining whether third-party service providers have
reasonable plans in place to become year 2000 compliant. To date this project
has not had a material effect on operations, nor does AAL expect the project to
have a material effect on future operations.
Management of AAL believes it has an effective plan in place to resolve the year
2000 issue in a timely manner. AAL is currently developing contingency plans in
the event it does not complete all phases of its year 2000 plan. Utilization of
such contingency plans is not expected as the project is substantially complete
and no significant issues have been identified.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
No statements are filed because the Variable Account has not commenced
operations.
Aid Association for Lutherans
The following audited financial statements of Aid Association for Lutherans
("Depositor") as of December 31, 1998 are included in Part B of this
Registration Statement:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Income for the years ended December 31,
1996, 1997 and 1998
Consolidated Statements of Changes in Certificateholders' Surplus
for the years ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998
Notes to Consolidated Financial Statements for the year ended
December 31, 1998
(b) Exhibits:
Except as noted below, all required exhibits have been previously filed and are
incorporated by reference from Registrant's prior Registration Statement (File
#333-71853).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit Name of Exhibit Incorporated by Reference Filed
Number Herewith
1 Resolution of the Board of Directors of the Depositor Pre-Effective Amendment #1
authorizing the establishment of AAL Variable Annuity dated February 5, 1999
Account II
2 Not applicable
3 First Amendment to the Amended and Restated Principal Post Effective Amendment #7
Underwriting and Servicing Agreement between Aid dated April 24, 1999*
Association for Lutherans (AAL) and AAL Capital
Management Corporation (AAL CMC) dated March 15, 1999
4(a) Variable Annuity Certificate X
4(b) Omnibus IRA Endorsements Post Effective Amendments #5
dated February 27, 1998* and
#7 dated April 24, 1999*
4(c) 403(b) Endorsement and SIMPLE-IRA Endorsement Post Effective Amendment #5
dated February 27, 1998*
4(d) Variation pages applicable to Certificates used in
various states X
5(a) Standard Computer Certificate Application Form X
5(c) Section 1035 Exchange Form
Post-Effective Amendment #7
dated April 24, 1999*
5(d) Omnibus IRA Disclosures and Financial Disclosures
Post Effective Amendment #5
dated February 27, 1998* and
#7 dated April 24, 1999*
6(a) Articles of Incorporation of Depositor Post
Effective Amendment #3 dated
April 18, 1997*
6(b) Bylaws of Depositor Post Effective Amendment #7
dated April 24, 1999*
7 Not applicable
8(a) Amended and Restated Participation Agreement between
AAL and the AAL Variable Product Series Fund, Inc.
(the "Fund) as of March 15, 1999 Post-Effective Amendment #7
dated April 24, 1999*
8(b) Amendment to the Trade Name/Service Mark Licensing Post Effective Amendment #7
Agreement between AAL and the Fund dated March 15, 1999 dated April 24, 1999*
9 Opinion of Counsel as to the legality of the
securities being registered (including written consent) X
10 Consent of Independent Auditors X
11 Not applicable
12 Not applicable
13 Not applicable
* Incorporated herein by reference from the Registrant's Post-Effective
Amendment listed above to the Registration Statement filed with the Securities
and Exchange Commission via EDGAR on the date listed (File Nos. 33-82054 and
811-8660).
</TABLE>
Item 25. Directors and Officers of the Depositor
The directors, executive officers and, to the extent responsible for variable
annuity operations, other officers of Depositor, are listed below:
Name and Principal Positions and Offices
Business Address With Depositor
Richard L. Gunderson
10801 E. Happy Valley Road #67 Chairman of the Board
Scottsdale, AZ 85255
John O. Gilbert
4321 North Ballard Road Director, President and
Appleton, WI 54919 Chief Executive Officer
Herbert J. Arkebauer
Professor
Speech and Hearing Science
Southwest State University
Springfield, MO 65802 Director
Raymond G. Avischious
Formerly President & General Manager
Shurfine-Central
4200 Oaksbury Lane Director
Rolling Meadows, IL 60008
Richard E. Beumer
President
Sverdrup Corporation
2545 Trevor Lane
Colorado Springs, CO 80919 Director
Kenneth Daly
Partner
KPMG Peat Marwick
1600 Market Street
Philadelphia, PA 19103-7201 Director
Elizabeth A. Duda
2450 Mikler Road
Oviedo, FL 32765 Director
Edward A. Engel
President
Edward A. Engel & Associates
P.O. Box 2039
Birmingham, MI 48012 Director
Gary J. Greenfield
President
Wisconsin Lutheran College
8830 West Bluemound Road
Milwaukee, WI 53226 Director
<PAGE>
Robert H. Hoffman
Vice President
Taylor Corporation
1725 Roe Crest Drive
P.O. Box 3728 Director
North Mankato, MN 56002-3728
Robert E. Long
Senior Vice President Administration
Park Bank
7540 West Capitol Drive
Milwaukee, WI 53216 Director
Robert B. Peregrine
President
Peregrine Law Offices, S.C.
633 West Wisconsin Avenue
Milwaukee, WI 53203 Director
Paul D. Schrage
formerly Sr. Exec. Vice President &
Chief Marketing Officer
McDonald's Corporation
1405 Midwest Club Director
Oak Brook, IL 60523
James H. Scott
Principal
Miller Anderson & Shernerd
West Conshohocken, PA 19428 Director
Kathi P. Seifert
Group President
Kimberly Clark Corporation
Neenah, WI 54956 Director
Roger G. Wheeler
President
Wheel-Air Charter, Inc.
8891 Airport Road
Minneapolis, MN 55449 Director
<PAGE>
E. Marlene Wilson
President
Volunteer Management Associates
1113 Spruce Street, Suite 406
Boulder, CO 80302 Director
Rev. Thomas R. Zehnder
President Lutheran Ministry Center
Lutheran Church Missouri Synod
7207 Monetary Drive
Orlando, FL 32809-5724 Director
Walter S. Rugland
4321 North Ballard Road Executive Vice President
Appleton, WI 54919 And Chief Operating Officer
Woodrow E. Eno, Esq.
4321 North Ballard Road Senior Vice President,
Appleton, WI 54919 Secretary and General Counsel
Russell A. Evenson
4321 N. Ballard Road Senior Vice President
Appleton, WI 54919
Ronald G. Anderson
222 W. College Avenue Senior Vice President
Appleton, WI 54919 and Chief Investment Officer
Steven A. Weber
4321 North Ballard Road
Appleton, WI 54919 Senior Vice President
Fred Ohlde
4321 North Ballard Road
Appleton, WI 54919 Senior Vice President
Carl Rudolph
4321 North Ballard Road
Appleton, WI 54919 Vice President, Controller,
Chief Financial Officer and
Treasurer
<PAGE>
James H. Abitz
222 West College Avenue
Appleton, WI 54919 Vice President
Jon. M. Stellmacher
4321 North Ballard Road
Appleton, WI 54919 Senior Vice President
James Jawort
4321 North Ballard Road
Appleton, WI 54919 Vice President
Gary Mounce
4321 North Ballard Road
Appleton, WI 54919 Assistant Vice President
Michael J. Mevis
222 College Avenue Assistant Vice President
Appleton, WI 54919
Robert G. Same
222 W. College Avenue Chief Compliance Officer and
Appleton, WI 54919 Deputy General Counsel
Dan Shinnick
4321 North Ballard Road
Appleton, WI 54919 Vice President
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant
Registrant is a separate account of Depositor, established by the Board of
Directors of Depositor in 1999, pursuant to the laws of the State of Wisconsin.
Depositor is a fraternal benefit society organized under the laws of the State
of Wisconsin and is owned by and operated for its members. It has no
stockholders and is not subject to the control of any affiliated persons.
Depositor controls the following wholly-owned, direct and indirect subsidiaries:
(a) AAL Holdings, Inc., a Delaware corporation that is a holding company that
has no independent operations; (b) AAL Capital Management Corporation (AALCMC),
a Delaware corporation that is a registered broker-dealer; and (c) North Meadows
Investment, Ltd., a Wisconsin corporation organized for the purpose of holding
and investing in real estate; (d) The AAL Trust Company FSB, and (e) AAL
Variable Product Series Fund, Inc. ("Fund"), a Maryland corporation organized as
an open-end management investment company. Financial statements of AAL are filed
on a consolidated basis with regard to each of the foregoing entities, other
than the Fund, which files separate financial statements.
Item 27. Number of Certificate Owners
The Account has not begun operations.
Item 28. Indemnification
Section 32 of Depositor's Bylaws, filed as an Exhibit to this Registration
Statement, Section E, subsection (viii) of Article Seventh of the Fund's
Articles of Incorporation and Article X of the Fund's Bylaws, and Section Eight
of AALCMC's Articles of Incorporation, contain provisions requiring the
indemnification by Depositor, the Fund, and AALCMC of their respective
directors, officers and certain other individuals for any liability arising
based on their duties as directors, officers or agents of the Depositor, Fund or
AALCMC, unless, in the case of the Fund, such liability arises due to the
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such office.
In addition, Section 3 of the Investment Advisory Agreement between the Fund and
AAL contains a provision in which the Fund and AAL mutually agree to indemnify
and hold the other party (including its officers, agents, and employees)
harmless for any and all loss, cost damage and expense, including reasonable
attorney's fees, incurred by the other party arising out of their performance
under the Agreement, unless such liability is incurred as a result of the
party's gross negligence, bad faith, or willful misfeasance or reckless
disregard of its obligations and duties under the Agreement.
Sections 15 and 16 of the Transfer Agency Agreement between the Fund and AAL
provide that each party shall indemnify the other for certain liability. Section
15 states that AAL shall act in good faith and use best efforts within
reasonable limits to ensure the accuracy of the services performed for the Fund,
but assumes no responsibility for loss or damage due to errors. However, AAL
will hold the Fund harmless from all loss, cost damage and expense, including
reasonable attorney's fees, incurred by the Fund as a result of AAL's gross
negligence, bad faith, or willful misfeasance or by reason of its reckless
disregard of its obligations and duties under the Agreement, or that of its
officers, agents and employees. The Fund shall indemnify and hold AAL harmless
for all loss, cost damage and expense resulting from the performance of its
duties, unless due to the gross negligence, bad faith, willful misfeasance or
reckless disregard of its obligations on the part of AAL, its officers,
employees and agents.
Section 7 of the Participation Agreement between AAL and the Fund contains a
provision in which the Fund and AAL mutually agree to indemnify and hold the
other party (including its Officers, agents, and employees) harmless for any and
all loss, cost damage and expense, including reasonable attorney's fees,
incurred by the other party arising out of their performance under the
Agreement, unless such liability is incurred as a result of the party's gross
negligence, bad faith, or willful misfeasance or reckless disregard of its
obligations and duties under the Agreement.
Section 8 of the Principal Underwriting and Servicing Agreement between AAL and
AALCMC contains a provision in which AAL and AALCMC mutually agree to indemnify
and hold the other party (including its officers, agents, and employees)
harmless for any and all loss, cost damage and expense, including reasonable
attorney's fees, incurred by the other party arising out of their performance
under the Agreement, unless such liability is incurred as a result of the
party's gross negligence, bad faith, or willful misfeasance or reckless
disregard of its obligations and duties under the Agreement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Registrant, pursuant to the foregoing provisions or otherwise, 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 Depositor, the Fund or AALCMC of
expenses incurred or paid by a director or officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person of Registrant in
connection with the securities being registered, Depositor, the Fund or AALCMC
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether or not such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
An insurance company blanket bond is maintained, providing $10,000,000 coverage
for officers and employees of Aid Association for Lutherans (the Depositor) the
Fund and AALCMC, and $750,000 coverage for their general agents and Depositor's
Representatives, both subject to a $100,000 deductible.
Item 29. Principal Underwriter
(a) AALCMC, the principal underwriter of the Certificates, is also the
distributor of the shares of The AAL Mutual Funds, a Massachusetts
Business Trust offering a series of individual funds, including The AAL
Small Cap Stock, Mid Cap Stock, International, Capital Growth, Equity
Income, Balanced, High Yield Bond, Municipal Bond, Bond, Money Market
Funds (Class A and Class B) and The AAL U.S. Government Zero Coupon
Target Fund Series 2001 and The AAL U.S. Government Zero Coupon Target
Fund Series 2006, all of which are open-end management investment
companies.
(b) The directors and principal officers of AALCMC are set out below.
Unless otherwise indicated, the principal business address of each
person named below is 222 West College Avenue, Appleton, Wisconsin,
54911.
Name and Principal Positions and Offices
Business Address With Underwriter
Ronald G. Anderson Chairman of the Board and President
Steven A. Weber Director
Walter S. Rugland Director
Carl J. Rudolph Director and Treasurer
Woodrow E. Eno Director, Vice President, General Counsel and
Secretary
James H. Abitz Director and Senior Vice President
Thomas R. Mischka Director and Vice President
Stanley H. Herman Director and Vice President
Jon M. Stellmacher Director and Vice President
Jeffrey L. Verhagen Vice President
Robert G. Same Assistant Secretary
Lori T. Richardson Vice President
Krien VerBerkmoes III Vice President and Chief Compliance Officer
Paul M. Stadler Vice President
Michael J. Mevis Vice President
Cindy L. Haas Assistant Vice President
Charles D. Gariboldi Assistant Vice President
Charles A. Friedman Assistant Vice President
Wendy S. Schmidt Assistant Vice President
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of Registrant are located at the offices of the
Depositor at 4321 North Ballard Road, Appleton, Wisconsin, 54919, and 222 West
College Avenue, Appleton, Wisconsin, 54911, and 125 North Superior Street,
Appleton, Wisconsin, 54911.
Item 31. Services
Not Applicable.
Item 32. Undertakings
(a) Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in this Registration Statement are never more
than 16 months old for so long as payments under the Certificates may be
accepted.
(b) Registrant undertakes to include either: (1) as part of any application to
purchase a Certificate offered by the Prospectus, a space that an applicant
can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information or
financial statements required to be made available under this Form
promptly, upon either written or oral request.
(d) The Depository insurance company represents that the fees and charges
deducted under the contract, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Depositor.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, Aid Association for Lutherans, on behalf of its AAL Variable
Annuity Account II has caused this amended Registration Statement to be signed
on its behalf in the City of Appleton and State of Wisconsin on this 27th day of
May, 1999.
AAL VARIABLE ANNUITY ACCOUNT II
(Registrant)
By: Aid Association for Lutherans
(Depositor, on behalf of itself and
Registrant)
By: /s/ John O. Gilbert
---------------------------------------
John O. Gilbert
President and
Chief Executive Officer
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
/s/ John O. Gilbert President and
- - ------------------------------- Chief Executive Officer
John O. Gilbert (Principal Executive Officer) May 27, 1999
/s/ Carl J. Rudolph Vice President, Controller,
- - ------------------------------- Treasurer, and Chief Financial Officer
Carl J. Rudolph (Principal Financial Officer,
Principal Accounting Officer) May 27, 1999
All of the Board of Directors:
Herbert J. Arkebauer John O. Gilbert Paul D. Schrage
Raymond G. Avischious Gary J. Greenfield James H. Scott
Richard E. Beumer Richard L. Gunderson Kathi P. Seifert
Kenneth Daly Robert H. Hoffman Roger B. Wheeler
Elizabeth A. Duda Robert E. Long E. Marlene Wilson
Edward A. Engel Robert B. Peregrine Rev. Thomas R. Zehnder
John O. Gilbert, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named Directors of Aid Association for
Lutherans pursuant to powers of attorney duty executed by such persons.
/s/ John O. Gilbert May 27, 1999
- - --------------------------------
John O. Gilbert
Attorney-in-Fact
<PAGE>
AAL VARIABLE ANNUITY ACCOUNT II
INDEX TO EXHIBITS
The exhibits below represent only those exhibits which are newly filed
with this Registration Statement. See Item 24(b) of Part C for exhibits not
listed below.
4(a) Variable Annuity Certificate
4(d) Variation pages applicable to Certificates used in various states
5(a) Standard Computer Certificate Application Form
9 Opinion of Counsel
10 Consent of Independent Auditors
JOHN E. DOE
JANUARY 6, 1999
1234567
AID ASSOCIATION FOR LUTHERANS
A FRATERNAL BENEFIT SOCIETY
SINGLE PREMIUM
IMMEDIATE VARIABLE ANNUITY
ANNUITY PAYMENTS AND DEATH PROCEEDS UNDER THIS CERTIFICATE, WHEN BASED ON THE
PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE DAILY. THEY ARE
NOT GUARANTEED AS TO DOLLAR AMOUNT.
CERTIFICATE BENEFITS ARE VARIABLE. SEE SECTION 3 PAYMENT OF CERTIFICATE PROCEEDS
AND SECTION 5 FIXED AND VARIABLE ACCOUNTS.
- - - Single premium
- - - Periodic payments
- - - Participating
This is Your certificate of membership and single premium immediate variable
annuity with Aid Association for Lutherans (AAL). It is a legal contract between
You and AAL.
This certificate is issued in consideration of the application and the payment
of the first premium.
NOTICE OF 10 DAY
RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 10 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AALs
service center. Within 7 days after AAL receives Your request for cancellation,
AAL will refund the free look value of this certificate. Any annuity payments
that have been made will be deducted from this refund. If returned, this
certificate will be void from the beginning.
Signed for Aid Association for Lutherans at the home office, 4321 N. Ballard
Road, Appleton, WI 54919. AAL's telephone number is: (800) 225- 5225.
Secretary President
AID ASSOCIATION FOR LUTHERANS
<PAGE>
TABLE OF CERTIFICATE PROVISIONS
1. General Provisions
1.1 Definitions
1.2 Entire Contract
1.3 Change of Contract
1.4 Incontestability
1.5 Age and Sex
1.6 Maintenance of Solvency
1.7 Report
2. Membership, Ownership and Assignment
2.1 Membership
2.2 Ownership
2.3 Assignment
2.4 Protection from Creditors
3. Payment of Certificate Proceeds
3.1 Annuity Payment
3.2 Calculation of Variable Annuity Payments
3.3 Number of Annuity Units
3.4 Annuity Unit Value
3.5 Change in Annuity Unit Allocation
3.6 Death Proceeds
3.7 Evidence of Age or Survival
3.8 Filing a Death Claim
4. Surplus Refunds
4.1 Surplus Refunds
5. Fixed and Variable Accounts
5.1 Fixed Account
5.2 Variable Account
5.3 Change of Portfolio or Investment Policy
6. Withdrawals and Surrender
6.1 Withdrawals
6.2 Surrender
6.3 Delay of Payment
7. Beneficiary
7.1 Beneficiary Designation
7.2 Order of Payment
7.3 Change of Beneficiary Designation
A copy of the application follows Section 7.
<PAGE>
1. GENERAL PROVISIONS
1.1 DEFINITIONS As used in this certificate:
"AAL" means Aid Association for Lutherans.
"AAL's service center" is the location where administration
of this certificate will occur.
"Annuitant" means the person(s) on whose life the annuity
payments are based. The annuitant(s) is shown on page 3.
"Annuity payment period" is the period during which annuity
payments are made.
"Annuity unit" is an accounting unit of measure. It is used
to calculate the amount of the annuity payment.
"Assumed investment return" is the investment return upon
which the variable annuity payments in this certificate are
based.
"Commuted Value" means the present value of future payments
for the remaining guaranteed payment period. The interest
rate used to discount the remaining payments will be equal
to the maximum valuation interest rate for Single Premium
Immediate Annuities, as prescribed by the standard valuation
law, for the year the contract was issued, plus 2%.
"Fixed account" is part of AAL's general account which
includes all of AAL's assets other than those in any
separate account of AAL.
"Free look value" is the value of the annuity units, that
were purchased by the single premium, on the day AAL is
notified of Your desire to cancel this certificate.
"Fund" means the AAL Variable Product Series Fund, Inc. The
fund has portfolios that correspond to each of the
subaccounts of the variable account. The current portfolios
are shown on page 3.
"Net asset value" means the value of any fund portfolio as
computed for any valuation period as described in the fund
prospectus.
<PAGE>
"Payee" means the person(s) who receives periodic payments
under the certificate. The payee is shown on page 3.
"Proof of Death" means a certified copy of the death
certificate, a certified decree of a court of competent
jurisdiction as to the finding of death, a written statement
by a medical doctor who attended the deceased, or any other
proof satisfactory to AAL.
"Subaccount" means a subdivision of the variable account.
Each subaccount invests exclusively in the shares of a
corresponding portfolio of the fund. The current subaccounts
are shown on page 3.
"Valuation date" means every day the New York Stock Exchange
is open for regular trading and AAL is open for business.
"Valuation period" means the period of time from the end of
one valuation date to the end of the next valuation date.
"Variable account" means the AAL Variable Annuity Account
II. It is a separate account of AAL.
"Written Request" means a written request signed by You that
is satisfactory in form and content to AAL.
"You" or "Your" means the owner(s) of this certificate.
1.2 ENTIRE CONTRACT
The entire contract is made up of:
This certificate, including any attached endorsements or
amendments;
The attached application; and
The AAL Articles of Incorporation and Bylaws.
1.3 CHANGE OF CONTRACT
Any changes to the Articles of Incorporation and Bylaws made
after this certificate is issued will not reduce the
benefits AAL promises to pay.
No representative of AAL, except the president or the
secretary, may change any part of this certificate on behalf
of AAL.
<PAGE>
To continue treatment of this certificate as an annuity, AAL reserves the right
to amend this certificate at any time without Your consent if AAL determines
that such amendment is necessary for the certificate to comply with the
provisions of the Internal Revenue Code or any regulation or ruling thereunder,
or with any other applicable federal or state law, rule or regulation.
1.4 INCONTESTABILITY
This certificate will be incontestable from its issue date.
1.5 AGE AND SEX The issue age(s) is the age nearest the birthday of the
annuitant(s) on the issue date. This is based on the date of
birth given in the application. The issue age(s) is shown on
page 3.
The values of this certificate are based on the age and sex
of the annuitant(s) on the date of issue. If the date of
birth or sex of the annuitant(s) is incorrect as shown in
the application, AAL will adjust any amount payable to
conform to the correct date of birth or sex on the date of
issue
1.6 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 an
indebtedness against this certificate with interest at a
rate of 5% per year, compounded annually. You may choose an
equivalent reduction in benefits instead of, or in
combination with, the payment or indebtedness.
Any indebtedness and interest charged against this
certificate, or any agreement for a reduction in benefits,
shall have priority over the interest of any owner or
beneficiary under this certificate.
1.7 REPORT AAL will send a report to You at least once each certificate
year or upon request. The report will show the values of
this certificate and any additional information required by
law.
<PAGE>
2. MEMBERSHIP, OWNERSHIP AND ASSIGNMENT
2.1 MEMBERSHIP If this certificate was issued as an adult certificate, the
person(s) who applied for this certificate and is listed as
the member(s) on the application is a benefit member(s) of
AAL.
If this certificate was issued as a juvenile certificate,
the annuitant will become a benefit member of AAL on the
anniversary of the issue date of this certificate on or
following the annuitant's 16th birthday.
This membership cannot be transferred. The privileges of
membership are stated in the AAL Articles of Incorporation
and Bylaws.
2.2 OWNERSHIP
The owner of this certificate may exercise every right and
enjoy every benefit provided in this certificate.
If this certificate was issued as an adult certificate, the
owner of this certificate is the person or entity listed as
owner on the application. The owner is shown on page 3.
If this certificate was issued as a juvenile certificate,
the annuitant shown on page 3 is the owner of this
certificate. However, because of age, the annuitant cannot
exercise the rights of ownership in this certificate.
Therefore, the person who applied for this certificate as
applicant/controller will have control of it. Control means
having the ability to exercise the rights of ownership on
behalf of the annuitant. The person who has control may
transfer control to another eligible person as determined by
AAL, but cannot transfer ownership.
The annuitant will obtain control of this certificate on the
earliest of the following dates:
On the date of death of the person who has control if that
person dies after the anniversary of the issue date of this
certificate on or following the annuitant's 16th birthday;
or
On the date the person who has control transfers it in
writing to the annuitant, after the anniversary of the issue
date of this certificate on or following the annuitant's
16th birthday; or
<PAGE>
On the anniversary of the issue date of this certificate on
or following the annuitant's 21st birthday.
If the person who has control of this certificate dies
before the annuitant reaches annuity age 16. control will be
vested in an eligible person according to the Bylaws of AAL.
If AAL determines that it is best for the annuitant, control
of this certificate may be transferred to some other
eligible person according to the Bylaws of AAL.
<PAGE>
2.3 ASSIGNMENT This certificate or its periodic payments may not be
assigned.
2.4 PROTECTION FROM CREDITORS
The initial amount and all payments made under this
certificate will be exempt from creditors' claims and from
legal process to the extent permitted by law.
3. PAYMENT OF CERTIFICATE PROCEEDS
3.1 ANNUITY PAYMENTS
AAL will make payments to the payee while at least one
annuitant is alive as shown on page 3. The first payment
will be made on the first payment date. Payments will
continue to be made as shown. The amount of each payment is
the guaranteed periodic payment plus any surplus refund
payable according to Section 4. The first payment date and
the guaranteed periodic payment are as shown.
3.2 CALCULATION OF VARIABLE ANNUITY PAYMENTS
If a variable settlement option is selected, each payment is
defined in terms of annuity units. The total amount payable
is the sum of the payments attributable to each subaccount.
This amount is determined by multiplying the number of
annuity units attributable to each subaccount by the annuity
unit value of the subaccount. The first payment is based on
the annuity unit value as of the issue date.
For the second and subsequent payments, the payment is based
on the annuity unit value as of the annuity payment date.
The net performance of the underlying subaccounts will be
compared to the assumed investment return and the payment
will be adjusted accordingly. If the net performance is
greater than the assumed investment return, the payment will
increase; if it is the same, the payment will not change; if
it is less, the payment will decrease.
3.3 NUMBER OF ANNUITY UNITS
The number of annuity units payable from any subaccount is
determined on the issue date. The number of annuity units remains
unchanged during the annuity payment period, unless you make a
change in annuity unit allocation or a reduction factor is
indicated on page 3. The "reduction factor" only applies when a
joint life income is elected. The reduction factor states how
much the annuity units and fixed account payment will be reduced
upon the death of one of the annuitants after the guaranteed
payment period has elapsed.
3.4 ANNUITY UNIT VALUE
For each subaccount, the annuity unit value is set when the
subaccount was established. The annuity unit value may
increase or decrease from one valuation period to the next.
On any valuation date, the annuity unit value for a
subaccount is equal to:
The annuity unit value for the subaccount at the end of the
prior valuation date; multiplied by The subaccount
investment factor; multiplied by
A discount factor which adjusts the annuity unit value to
reflect the assumed investment return.
The subaccount investment factor 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 charge or credit for taxes
reserved which is determined by AAL to have resulted from
the operation of the portfolio;
Minus the mortality and expense risk charge AAL deducts for
each day in the valuation period. This mortality and expense
risk charge is guaranteed not to exceed, on an annual basis,
1.25% of the daily value of the subaccount;
Divided by the net asset value of the corresponding fund
portfolio at the beginning of the valuation period.
<PAGE>
3.5 CHANGE IN ANNUITY UNIT ALLOCATION
The allocation of annuity units among the variable
subaccounts and fixed account may be changed during the
annuity payment period. A written request must be sent to
AAL's service center. The selected payment option will stay
the same. Reallocation of annuity units is allowed between
the variable subaccounts and from variable subaccounts to
the fixed account. However, annuity units in the fixed
account cannot be reallocated to the variable subaccounts.
Any change in annuity unit allocation will affect future
annuity payments. The change will be effective and amounts
will be reallocated at the end of the valuation period
during which Your written request is received at AAL's
service center.
If the reallocation is between variable subaccounts, the
change will be made on the basis of annuity unit values. The
number of annuity units from the existing subaccount will be
changed to a number of annuity units in the new subaccount.
At the time of reallocation, the number of annuity units
will be set equal to the number of units which are needed to
pay the same amount from the new subaccount. After
reallocation, annuity payments will reflect the annuity unit
value of the newly selected subaccount.
If the reallocation is from a variable subaccount(s) to the
fixed account, the amounts held by AAL as a reserve for the
portion being reallocated will be used to fund a fixed
income. The appropriate annuity payment rate will be applied
to the reserve amount to determine the annuity payment. The
annuity payment rate will be based on the nearest attained
age of the annuitant(s) at the time of reallocation, and
will reflect the current payment rates at that time.
You may make up to 12 changes in annuity unit allocation in
each certificate year. The first two changes in each
certificate year will be without charge. Thereafter, each
change in a certificate year will be subject to a $25
charge.
3.6 DEATH PROCEEDS
AAL will make payments to the beneficiary upon the death of
the last surviving annuitant if the annuitant dies within
the guaranteed payment period. The guaranteed payment
period, as shown on page 3, is measured from the issue date.
AAL will pay the guaranteed periodic payment plus any
surplus refund payable. Surplus refunds are described in
Section 4.1. Payments will be made at the payment frequency
then in effect until the end of the guaranteed payment
period, at which time this certificate shall terminate.
Instead of receiving these payments, the beneficiary may
take the commuted value as a single payment.
<PAGE>
3.7 EVIDENCE OF AGE OR SURVIVAL
AAL may require satisfactory proof of correct age or sex at
any time. If any payment under this contract depends on the
annuitant being alive, AAL may require satisfactory proof of
survival. If such proof is not furnished, AAL may suspend
payments.
3.8 FILING A DEATH CLAIM
Written notice of death must be given to AAL at AAL's
service center. Notice should include the annuitant's name
and the certificate number. Help may be obtained through an
AAL district representative.
A claim form will be sent upon receiving the death claim
notice. Complete the claim form and send it to AAL's service
center along with a certified copy of the death certificate
or other legal proof of death. Processing of the claim will
begin as soon as these items are received.
4. SURPLUS REFUNDS
4.1 SURPLUS REFUNDS
This is a participating certificate. Premiums allocated to
the fixed account will share in any surplus refunds declared
annually by the AAL Board of Directors. Surplus refunds, if
any, are payable in cash with each guaranteed periodic
payment as shown on page 3.
5. FIXED AND VARIABLE ACCOUNTS
5.1 FIXED ACCOUNT
Premiums allocated to the fixed account and transfers from a
subaccount to the fixed account become part of the general
account assets of AAL. The general account includes all of
AAL's assets, except those assets segregated in the variable
account or any other separate account of AAL.
<PAGE>
5.2 VARIABLE ACCOUNT
The AAL Variable Annuity Account II is a separate investment
account established by AAL under Wisconsin law. The variable
account is registered with the Securities and Exchange
Commission as a unit investment trust under the Investment
Company Act of 1940.
AAL uses the assets of the variable account to buy shares in
the AAL Variable Product Series Fund, Inc. The fund is
registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 as a diversified open-end
management investment company. The variable account has
subaccounts which are invested in corresponding specific
portfolios of the fund. These subaccounts and portfolios are
shown on page 3.
AAL, consistent with then applicable law, may:
Create new separate accounts;
Combine with another separate account, operate as a
management investment company, deregister as an investment
company or modify the variable account;
Restrict or eliminate any voting rights of contract owners
or other persons who have voting rights as to the variable
account;
Add, delete, combine or modify subaccounts;
Invest the assets of any new subaccount in a new portfolio
of the fund, a different investment company or in any other
investment; and
Make any new subaccount available to you on a basis to be
determined by AAL.
AAL reserves the right to substitute the shares of any
registered investment company already purchased or to be
purchased in the future by the variable account provided
that the substitution has been approved by the Securities
and Exchange Commission.
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, and 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.
<PAGE>
Income, 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.
<PAGE>
5.3 CHANGE OF PORTFOLIO OR INVESTMENT POLICY
AAL may determine that a portfolio of a fund is no longer
desirable for investment by a subaccount or the shares of a
portfolio are no longer available for investment. If that
occurs, AAL has the right to substitute another portfolio of
the fund, or to invest in another investment company. This
change would be subject to any required prior approval by
the Securities and Exchange Commission and the insurance
supervisory officials in the state where this certificate is
delivered. Any change in the investment policy of the
variable account will be subject to any required prior
approval by the insurance supervisory officials of the state
of Wisconsin. AAL will notify You of any material change in
investment policy.
6. WITHDRAWALS AND SURRENDER
6.1 WITHDRAWALS
Unless this certificate and its payments are shown as
irrevocable on page 3, You may make withdrawals not
exceeding the commuted value while the annuitant(s) is alive
and during the guaranteed payment period. The withdrawal
will be effective on the date Your request is received at
AAL's service center. You may select the source of a
withdrawal by specifically indicating the subaccount or
fixed account. However, we must agree to any selection. If
You request a withdrawal and do not specify the source of
the withdrawal, we will take the withdrawal on a pro rata
basis from each subaccount and the fixed account. You may
not withdraw less than $1000. If you take a withdrawal, we
will issue You a supplemental contract for the remaining
annuity payments.
6.2 SURRENDER
Unless this certificate and its payments are shown as
irrevocable on page 3, You may surrender this certificate at
any time while the annuitant(s) is alive. A written request
must be sent to AAL's service center. The surrender will be
effective on the date Your request is received at AAL's
service center. AAL will pay You the commuted value. Upon
payment of the commuted value, this certificate will
terminate.
6.3 DELAY OF PAYMENT
Payment of any withdrawal value or commuted value will
normally be made within 7 days after Your written request is
received at AAL's service center. However, AAL may delay
this payment or any other type of payment from the variable
account for any period when:
The New York Stock Exchange is closed for trading other than
customary weekend and holiday closings;
Trading on the New York Stock Exchange is restricted;
An emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in the
variable account or to fairly determine their value; or
The Securities and Exchange Commission by order permits the
delay for the protection of security holders.
AAL may delay payment of any withdrawal value or commuted
value from the fixed account for up to 6 months after Your
written request is received at AAL's service center.
7. BENEFICIARY
7.1 BENEFICIARY DESIGNATION
You may designate one or more beneficiaries to receive the
death proceeds as defined in Section 3.6. The beneficiary
designation is made at the time of application. The Bylaws
of AAL list those eligible to be beneficiaries.
Beneficiaries are designated as first, second or third
class.
<PAGE>
7.2 ORDER OF PAYMENT
Unless You indicate otherwise in the beneficiary
designation, AAL will pay the death proceeds as follows:
Equally to the beneficiaries in the first class who survive
the annuitant(s). If none in the first class survive the
annuitant(s), then;
Equally to the beneficiaries in the second class who survive
the annuitant(s). If none in the second class survive the
annuitant(s), then;
Equally to the beneficiaries in the third class who survive
the annuitant(s), however;
If any beneficiary dies at the same time as the
annuitant(s), or within 15 days after the annuitant(s) dies
but before the death proceeds are paid, AAL will pay the
death proceeds as though that beneficiary had died before
the annuitant(s).
If no beneficiary has been designated or survives the
annuitant(s), AAL will pay the death proceeds to You or Your
estate.
<PAGE>
7.3 CHANGE OF BENEFICIARY DESIGNATION
You may change the beneficiary designation by sending a
written request to AAL's service center. AAL will provide a
form for You to use to make this request. Your written
request must be received and approved at the AAL's service
center before it is effective. Once approved, the change
will take effect as of the date You signed the request. If
no date appears on the request, the change will take effect
on the date it was received at the AAL's service center,
provided the request was mailed or actually delivered to
AAL's service center while the annuitant was alive. AAL is
not liable for any payment made or action taken by AAL
before receiving and approving the change at AAL's service
center.
SINGLE PREMIUM
IMMEDIATE VARIABLE ANNUITY
- - - Single premium
- - - Periodic payments
- - - Participating
AID ASSOCIATION FOR LUTHERANS
4321 N. Ballard Road, Appleton, WI 54919-0001
STATE VARIATIONS TO ANNUITY CONTRACT PROVISIONS
State Variations to the Free Look Provision on the Front Cover
The following provisions replace the existing free look provision located on the
front cover:
20 DAY RETURN OF VALUE - NO REPLACEMENT
NOTICE OF 20 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 20 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center. Within 7 days after AAL receives Your request for cancellation,
AAL will refund the free look value of this certificate. Any annuity payments
made will be deducted from this refund. If returned, this certificate will be
void from the beginning.
10 DAY RETURN OF PREMIUM - NO REPLACEMENT
NOTICE OF 10 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 10 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center. Within 7 days after AAL receives Your request for cancellation,
AAL will refund the greater of any premium paid or the free look value of this
certificate. Any annuity payments made will be deducted from this refund. AAL
reserves the right to allocate that portion of the single premium amount which
would otherwise be allocated to the variable subaccounts to the money market
subaccount until the expiration of 15 days from the issue date shown on page 3.
At the end of this period, the annuity units of the money market subaccount will
be allocated according to the premium allocation percentages You specified in
the application.
If returned, this certificate will be void from the beginning.
20 DAY RETURN OF PREMIUM - NO REPLACEMENT
NOTICE OF 20 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 20 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center. Within 7 days after AAL receives Your request for cancellation,
AAL will refund the greater of any premium paid or the free look value of this
certificate. Any annuity payments made will be deducted from this refund. If
returned, your certificate will be void from the beginning.
AAL reserves the right to allocate that portion of the single premium amount
which would otherwise be allocated to the variable subaccounts to the money
market subaccount until the expiration of 25 days from the issue date shown on
page 3. At the end of this period, the annuity units of the money market
subaccount will be allocated according to the premium allocation percentages You
specified in the application.
10 DAY RETURN OF VALUE - 20 DAY RETURN 0F PREMIUM FOR REPLACEMENTS
NOTICE OF 10 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 10 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center. AAL will refund the free look value of this certificate within 7
days after AAL receives Your request for cancellation. Any annuity payments made
will be deducted from this refund. If returned, this certificate will be void
from the beginning.
However, if this certificate is replacing another annuity or life insurance
policy, You may cancel this certificate by returning it within 20 days after You
receive it. In such event, the certificate will be cancelled and any premium
paid less any annuity payment(s) made will be refunded. AAL will refund the
greater of any premium paid or the free look value of this certificate. Any
annuity payments that have been made will be deducted from this refund. AAL
reserves the right to allocate that portion of the single premium amount which
would otherwise be allocated to the variable subaccounts to the money market
subaccount until the expiration of 25 days from the issue date shown on page 3.
At the end of this period, the annuity units of the money market subaccount will
be allocated according to the premium allocation percentages You specified in
the application.
10 DAY RETURN OF VALUE - 20 DAY RETURN 0F VALUE FOR REPLACEMENTS
NOTICE OF 10 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 10 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center. AAL will refund the free look value of this certificate within 7
days after AAL receives Your request for cancellation. Any annuity payments made
will be deducted from this refund. If returned, this certificate will be void
from the beginning.
However, if this certificate is replacing another annuity or life insurance
policy, You may cancel this certificate by returning it within 20 days after You
receive it. In such event, the certificate will be cancelled and the free look
value of this certificate will be refunded. Any annuity payments made will be
deducted from this refund.
10 DAY RETURN OF VALUE - 30 DAY RETURN 0F VALUE FOR REPLACEMENTS
NOTICE OF 10 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 10 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center. AAL will refund the free look value of this certificate plus any
certificate fees within 7 days after AAL receives Your request for cancellation.
Any annuity payments made will be deducted from this refund. If returned, this
certificate will be void from the beginning.
However, if this certificate is replacing another annuity or life insurance
policy, You may cancel this certificate by returning it within 30 days after You
receive it. In such event, the certificate will be cancelled and the free look
value of this certificate plus any certificate fees will be refunded. Any
annuity payments made will be deducted from this refund.
10 DAY RETURN OF PREMIUM - 20 DAY RETURN 0F PREMIUM FOR REPLACEMENTS
NOTICE OF 10 DAY RIGHT TO CANCEL
READ THIS CERTIFICATE CAREFULLY. Within 10 days after You receive this
certificate, You may cancel it for any reason. The certificate must be delivered
or mailed with a written request to Your AAL district representative or AAL's
service center.
However, if this certificate is replacing another annuity or life insurance
policy, You may cancel this certificate by returning it within 20 days after You
receive it. In such event, the certificate will be cancelled and any premium
paid less any annuity payment(s) made will be refunded. AAL reserves the right
to allocate that portion of the single premium amount which would otherwise be
allocated to the variable subaccounts to the money market subaccount until the
expiration of 15 days (25 days when replacing another annuity or life insurance
policy) from the issue date shown on page 3. At the end of this period, the
annuity units of the money market subaccount will be allocated according to the
premium allocation percentages You specified in the application.
In either event, within 7 days after AAL receives your request for cancellation,
AAL will refund the greater of any premium paid or the free look value of this
certificate. Any annuity payments made will be deducted from this refund. If
returned, this certificate will be void from the beginning.
10 DAY RETURN OF VALUE
UPON WRITTEN REQUEST, AAL WILL PROVIDE YOU WITHIN A REASONABLE TIME FACTUAL
INFORMATION REGARDING THE BENEFITS AND PROVISIONS OF YOUR ANNUITY CONTRACT. IF
FOR ANY REASON YOU ARE NOT SATISFIED WITH YOUR ANNUITY CONTRACT, YOU MAY RETURN
THE ANNUITY CONTRACT WITHIN TEN DAYS AFTER THE CONTRACT IS DELIVERED AND RECEIVE
A REFUND OF THE FREE LOOK VALUE OF THE CERTIFICATE.
30 DAY RETURN OF VALUE
IMPORTANT
YOU HAVE PURCHASED A VARIABLE ANNUITY CONTRACT. CAREFULLY REVIEW IT FOR
LIMITATIONS.
THIS CERTIFICATE MAY BE RETURNED WITHIN 30 DAYS FROM THE DATE YOU RECEIVED IT
FOR A REFUND OF THE FREE LOOK VALUE OF THE CERTIFICATE PLUS ANY CERTIFICATE FEES
ON THE DAY THE CERTIFICATE IS RECEIVED BY AAL'S SERVICE CENTER OR THE DISTRICT
REPRESENTATIVE WHO SOLD YOU THIS CERTIFICATE. IF RETURNED, THIS CERTIFICATE WILL
BE VOID FROM THE BEGINNING.
Other State Variations to the Front Cover
Added: WARNING: Any person who knowingly, and with intent to injure, defraud or
deceive any insurer, makes any claim for the proceeds of an insurance policy
containing any false, incomplete or misleading information is guilty of a
felony.
Added: Accumulated values allocated to the variable account under this contract
are not covered by an insurance guaranty fund or other solvency protection
arrangement because this contract is a contract under which the risk is borne by
the certificateholder.
Added: Accumulated values allocated to the variable account under this contract
are not covered by an insurance guaranty fund or other solvency protection
arrangement because this contract is a contract under which the risk is borne by
the certificateholder.
State Variation to section 6.2 Surrender
Added: Your request must include all of but not more than the following: A clear
request for surrender; The certificate number of the certificate to be
surrendered; The name of the annuitant on the certificate to be surrendered; The
signature of the owner of the certificate and, if applicable, the signature of
any collateral assignee, irrevocable beneficiary, or other person having an
interest in the certificate through a legally binding document; and The
certificate itself. If the certificate has been lost or destroyed, You must
provide us with a signed statement attesting that the certificate is lost or
destroyed.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Application For Variable Immediate Annuity With AID ASSOCIATION FOR LUTHERANS
Association For Lutherans, (AAL),
A Fraternal Benefit Society, Appleton, WI 54919 4321 N Ballard Road. AppIeton, WI 549I9-0001
Section 1 - Replacement
- - -----------------
Yes No
__ __ Is this certificate intended to replace any part of, or all of, another insurance company's life or annuity contract?
__ __ Is this certificate intended to replace any part of, or all of, an AAL certificate?
__ __ Is a 1035 exchange desired?
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Section 2 - Proposed Annuitant
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------ -----------------------------------------------------------------------------------------
Social Security number Date of birth (mo/day/yr) Sex Residence state
- - ------------------------------------------ -----------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Section 3 - Proposed Joint Annuitant (Joint Life Income Only)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Social Security number Date of birth (mo/day/yr) Sex Residence state
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Section 4 - Proposed Owner / Applicant (If different than Annuitant)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Name of entity / trust (print name / title, as applicable)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Tax ID Type of owners:
____ Trust ______________________________
- - ------------------------------------------------------------------------------------------------------------------------------------
Authorized person(s) / trustee(s) who can sign on behalf of entity / trust:
1.
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
2.
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Section 5-Immediate Annuity Product Information
- - ------------------------------------------------------------------------------------------------------------------------------------
- - --------------------------- --------------------------------------------------------------------------------------------------------
Single premium Single Premium Allocation: Must total 100% and be in whole numbers.
- - ---------------------------
- - --------------------------- Small Company Stock %
$____________ Money Market % Fixed Account % International %
Stock % High Yield Bond %
Balanced % Large Company Stock %
Bond %
- - --------------------------- --------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Income frequency __Monthly __Quarterly __Semi-annually __ Annually __Annual Paid Monthly
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Payment method __ EFT - Direct deposit
Assumed Investment Return __ 3% __ 4% __ 5% Payment date: ___ Day of month payment is distributed.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contract Option
__ Irrevocable - I have selected an irrevocable income, and understand that
this option provides an income of periodic payments for the terms I have
elected. Once the irrevocable income is accepted, it cannot be surrendered
for cash, amended, revoked, or changed in any manner. In addition, the cash
value cannot be transferred to any other settlement option. I understand
that AAL cannot reverse or reissue the income after I have accepted it.
__ Revocable - I have selected a revocable income, and understand that this
option provides an income of periodic payments for the term I have elected.
This income can be surrendered for cash if surrendered in the guaranteed
payment period. In addition, if I elect a partial withdrawal the remaining
value will be placed into a new income at the then current rates.
VM8026 N11-98 Page 1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Income Options
- - ------------------------------------------------------------------------------------------------------------------------------------
__ Life Income
__ Single __ Joint Joint income reduction factor __ 1/2 __ 1/3 __1/4 __ 0
Guaranteed payment period: ___Year(s) ___ Month(s)
__ Fixed Period __ Year(s) ___ Month(s)
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Plan Type:
__ Regular Annuity - Not Pension __ Roth IRA - Contributory __ Self Employed - Money Purchase
__ IRA __ Roth IRA Rollover/Transfer - Contributory __ Self Employed - Profit Sharing
__ IRA - Spousal __ Roth IRA Rollover/Transfer - Conversion __ Corporate - Money Purchase
__ IRA - Regular Rollover __ Roth IRA - Conversion __ Corporate - Profit Sharing
__ IRA - Direct Rollover __ TSA __ SEP
__ IRA - Transfer __ TSA - Transfer __ __________________
__ Other - __________________________
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Telephone Authorization: ___ Yes ___ No
By checking "Yes" above, the owner agrees and understands as follows:
1. AAL is authorized to accept and act upon telephone instructions from me for
the following purposes: reallocation of annuity units, address changes, and
any other transaction made available by AAL for telephone transfer. Any
transfers shall be made on the annuity unit values determined following
AAL's receipt of instructions in proper order.
2. AAL may refuse telephone instructions if the caller cannot provide proper
identification of person or account. Without prior disclosure, AAL may
record any telephone conversation containing such instructions. If AAL acts
in good faith upon the telephone instructions, AAL (and any affiliate or
agent) will not be liable for any loss, expense or cost arising out of any
telephone instructions.
3. AAL may modify, suspend, or discontinue this privilege at any time without
prior notice. The privilege is subject to terms of the certificate, the
current prospectus, and any other rules enacted by AAL. This authorization
is valid until written cancellation notice, signed by me, is received by
AAL. All terms are binding on my agents, heirs, and assigns.
Section 6 - Premium Information
Single Premium paid by:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- - --------------------------------------------------------------------- --------------------------------------------------------------
Type Amount
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Check/Money Order $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Internal Rollover / Transfer / 1035 Exchange $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
External Rollover / Transfer / 1035 Exchange $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Loan $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Complete Withdrawal / Surrender $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Surplus Refunds $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Partial Withdrawal $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
CD Transfer or Non-IRA/Pension Asset Transfer $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Other - $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
Total Single Premium Amount $
- - --------------------------------------------------------------------- --------------------------------------------------------------
- - --------------------------------------------------------------------- --------------------------------------------------------------
First tax year Second tax year
Amount Tax year
Amount Tax year $
$
--------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Section 7 - Special Requests
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
VM8026 N11-98 Page 2
<PAGE>
Section 8 - Beneficiary Designation
If you are completing the application on paper, complete a Beneficiary
designation form printed from the Forms System.
VM8026 N11-98 Page 3
<PAGE>
Section 9- Agreement And Authorization I understand and agree that:
1. I have personally read (or had read to me) and verified all statements and
answers provided to the AAL representative as part of this application.
2. This application will become part of the variable immediate annuity
contract.
3. No change in this application shall be made without the owner's written
consent.
4. No representative of AAL is authorized to change or waive any terms of this
agreement or to make any promises or representations other than those
contained in this agreement.
5. AAL reserves the right to allocate any of the single payment amount
allocated to the variable subaccounts to the money market subaccount until
the expiration of the free look period in those states that require a full
refund of premium paid during the free look period. More detailed
information on the allocation of the single payment during the free look
period is contained in the prospectus.
6. Under the immediate annuity contract applied for, the Annuity Payments,
when based on the performance of the Variable Account, are not guaranteed
as to dollar amount (except for the first payment).
7. I have received and reviewed the current prospectus for the AAL Variable
Immediate Annuity and underlying mutual funds. I understand the provisions
of the prospectus and agree to its terms.
8. The proposed annuitant / member will be the owner unless someone else is
designated in Section 4.
I have read (or have had read to me) the statements and answers made on this
application. The signature below applies to all sections and statements on this
application.
Signed at ________________________________________ ____________________
City State
- - --------------------------------------------------------------------------------
Signature of proposed annuitant / member
Date signed (mo/day/yr)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Signature of proposed joint annuitant / member
Date signed (mo/day/yr)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Signature of owner / applicant
Date signed (mo/day/yr)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Signature of owner / applicant
Date signed (mo/day/yr)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Caution: If your answers on this application are incorrect or untrue, AAL may
have the right to deny benefits or rescind your certificate.
- - --------------------------------------------------------------------------------
I certify that I have asked all questions and recorded all answers as they were
given to me and reviewed these with the proposed annuitant / owner.
To the best of my knowledge, the certificate applied for __ is ___ is not
intended to replace any part of, or all of, another life insurance or annuity
contract.
Signature of AAL representative Date signed (mo/day/yr)
DR name / Code number / ID
VM8026 N11-98 Page 4
<PAGE>
Section 10 - Representative's Information
Yes No
1. (a) Do you claim production credit on an assigned congregation basis?
If no, explain -
Complete only if you are the servicing representative but not
the DR of the branch listed.
---------------------------------------------------------------------
Service override number Reason for override
---------------------------------------------------------------------
(b) Should the application credit be split? If yes, list split
below and give reason.
- - ---------------------------------------------------- ----------------------- ---
Agent Identification Number Split Percent * * Note:
- - --------------------------------------------------------------------------------
The total split percent
must equal 100%.
- - ---------------------------------------------------- ----------------------- ---
(c) Reason for credit split - _______________________________________
2. (a) Does the proposed annuitant have any other applications
pending or being submitted other than this application? If
yes, list below.
(b) Does any other family member have applications
pending with AAL? If yes, list below.
- - -------------------------------- --------------- -------------------------------
Name Date Applied Plan
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
- - -------------------------------- --------------- -------------------------------
3. Will this application be electronically transmitted?
Additional Details
- - --------------------------------------------------------------------------------
To the best of my knowledge and belief:
Required disclosures, Buyer's Guide, and Receipt Of Payment were left with the
owner.
- - --------------------------------------------------------------------------------
Signature of AAL representative / Date signed (mo/day/yr)
- - --------------------------------------------------------------------------------
VM8026 N11-98 Page 5
Board of Directors
Aid Association for Lutherans
4321 North Ballard Road
Appleton, WI 54919
Subject: Opinion of counsel - Variable Annuity registration of Certificates
Board Members:
This opinion is furnished in connection with the filling of a registration
statement Form N-4 ("Registration Statement") under the Securities Act of 1933,
as amended, (the `1933 Act") and the Investment Company Act of 1940, by Aid
Association for Lutherans ("AAL") and AAL Variable Annuity Account II (the
"Variable Account"). The securities being registered under the Registration
Statement are units of interest ("Units") to be issued by the Variable Account
pursuant to certain individual flexible premium immediate variable annuity
contracts ("Certificates") described in the Registration Statement.
I am Supervisory Attorney of AAL, and in such capacity, I am familiar with AAL's
Articles of Incorporation and Bylaws and have reviewed all statements, records,
instruments and documents which I have deemed it necessary to examine for the
purpose of this opinion. I have examined the form of the Registration Statement
to be filed with the Securities and Exchange Commission in connection with the
registration under the 1933 Act, of an indefinite number of Units to be issued
by the Variable Account in connection with the Certificates. I am familiar with
the proceedings taken and proposed to be taken in connection with the
authorization, issuance and sale of the Units. Based upon a review of those
documents and such laws that I consider appropriate, I am of the opinion that:
1. AAL is a fraternal benefit society organized under the laws of the
State of Wisconsin;
2. the Variable Account is duly organized under the provisions of the
Wisconsin Insurance Code, under which income, gains, or losses,
whether realized or unrealized, from assets allocated to the Variable
Account, are, in accordance with the terms of the Certificates,
credited to or charged against the Variable Account without regard to
the income, gains or losses to AAL;
3. the portion of the assets to be held in the Variable Account equal to
reserves and other liabilities under the Certificates will not be
chargeable with liabilities arising out of any other business AAL may
conduct; and
Board of Directors
May 25, 1999
Page 2
4. the Certificates have been duly authorized by AAL and, when issued in
the manner contemplated by the Registration Statement, the Units
thereunder will constitute legal, validly issued and binding
obligations of AAL in accordance with the terms of the Certificates.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and the reference to me under the caption "Legal Matters" in the
Statement of Additional Information contained in the Registration Statement. In
giving this consent, I do not thereby admit that I come within the category of
persons whose consent is required under section 7 of the 1933 Act or the rules
and regulations of the Securities and Exchange Commission.
Respectfully submitted,
/s/ Kathleen A. Brost
Kathleen A. Brost
Supervisory Attorney
Law and Compliance
May 25, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements"
and to the use of our report dated January 27, 1999, with respect to Aid
Association for Lutherans, in this Pre-Effective Amendment No. 1 to Form N-4
Registration Statement under the Securities Act of 1933 (File No. 333-71853) and
this Amendment No. 1 to the Registration Statement under the Investment Company
Act of 1940 (File No. 811-09225) and related Prospectus of AAL Variable Annuity
Account II.
/s/ Ernst and Young, LLP
Milwaukee, Wisconsin
May 27, 1999
