AAL VARIABLE ANNUITY ACCOUNT II
PROSPECTUS
DATED MAY 1, 2000 AS REVISED JULY 1, 2000
FOR THE
SINGLE PREMIUM IMMEDIATE VARIABLE ANNUITY CERTIFICATES
This prospectus describes the single premium 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. NEITHER THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC) NOR ANY OTHER AGENCY INSURES OR PROTECTS THE CERTIFICATES.
YOU BEAR THE INVESTMENT RISK OF AMOUNTS INVESTED IN THE VARIABLE ACCOUNT.
This prospectus sets forth the information about the variable account and the
certificate you should know before you purchase a certificate. You can get more
information about AAL, the variable account and the certificate in the Statement
of Additional Information. We filed the Statement of Additional Information,
bearing the same date, 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 at the end of this prospectus.
A prospectus for the Fund accompanies this prospectus. Please read both
prospectuses carefully and keep them for future reference.
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.
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.
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TABLE OF CONTENTS
DEFINITIONS
SUMMARY
FEES AND EXPENSE TABLES
PERFORMANCE INFORMATION
AAL, THE ACCOUNTS AND 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
ANNUITY PAYMENTS
Selecting an Annuity Payment Option
Annuity Payment Options
Annuity Payment Dates
Fixed Account Annuity Payments
Variable Annuity Payments
TRANSFERS AMONG SUBACCOUNTS AND/OR THE FIXED ACCOUNT
SURRENDERS AND WITHDRAWALS
DEATH OF THE OWNER AND/OR ANNUITANT
CERTIFICATE FEES AND CHARGES
GENERAL INFORMATION ABOUT THE CERTIFICATES
FEDERAL TAX MATTERS
OTHER INFORMATION
ILLUSTRATIONS OF ANNUITY PAYMENTS ASSUMING HYPOTHETICAL RATES OF RETURNCONDENSED
FINANCIAL INFORMATION
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DEFINITIONS
AAL, we, us, our: Aid Association for Lutherans, a fraternal benefit society
owned by and operated for its members.
AAL CMC: AAL Capital Management Corporation.
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 an interest rate that is currently 0.5% higher than
the rate used to determine the annuity payments. 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 0.5% greater than the assumed investment return you selected.
death proceeds: The amount payable from your certificate to your beneficiary in
the event of the annuitant's death (during the guaranteed payment period).
fixed account: Part of the general account of AAL, which 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, Lutherans and their families and persons serving or
associated with Lutherans or Lutheran organizations and their families. 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 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.
preferred class: The class of owners whose premium originates from an annuity or
life insurance product issued by AAL or The AAL Mutual Funds (except The AAL
Money Market Fund). The owner of a preferred class certificate may receive
slightly higher annuity payments than applicable to an owner of a non-preferred
class certificate.
premium: The payment you invest in the certificate.
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.
qualified plan: A retirement plan that receives favorable tax treatment under
Section , 403(b) or 408 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.
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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
constitutes 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. You bear
the investment risk as to the performance of the variable investment options.
The certificate also offers a fixed account option under which we pay a fixed
rate of interest at an annual rate of at least 3.5%. You bear the risk that we
do not pay a higher rate of interest.
Each variable investment option or subaccount invests in a corresponding
portfolio of the Fund. The portfolios include:
o AAL Variable Product Small Company Stock Portfolio
o AAL Variable Product International Stock Portfolio
o AAL Variable Product Large Company Stock Portfolio
o AAL Variable Product Balanced Portfolio
o AAL Variable Product High Yield Bond Portfolio
o AAL Variable Product Bond Portfolio
o AAL Variable Product Money Market 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 an interest rate that is currently
0.5% higher than the rate used to determine the annuity payments. For variable
subaccounts, we currently use an interest rate of 0.5% 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. While there is no direct surrender
charge, the computation of the commuted value assumes an indirect charge that
varies with each situation. However, this indirect charge will never exceed 6%.
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 Money Market Subaccount during the free look period.
For more information concerning our procedures see Free Look Period.
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 to the variable or fixed account.
PREFERRED CLASS
For purposes of calculating your annuity payments, you may be part of a
preferred class of individuals. You are part of the preferred class if your
premium comes from proceeds from an annuity or life insurance product issued by
AAL or The AAL Mutual Funds (except The AAL Money Market Fund). We calculate
annuity payments for the preferred class using a higher assumed investment
return (for the initial annuity payment from the variable account) and a higher
interest rate (for all annuity payments from the fixed account). Lower expenses
in issuing these certificates allow us to provide slightly higher annuity
payments to these owners.
The preferred class is not available in all states.
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.
REPLACEMENTS
It may not be advantageous to replace your existing annuity, life insurance, or
mutual fund with the certificate. You should consult your AAL representative if
you are considering such a replacement, and should carefully consider whether or
not this certificate is the best product for you. You should also consult your
tax adviser regarding the tax implications of replacing an existing investment
with the certificate.
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FEES AND EXPENSE TABLES
These expense tables describe all of the expenses that you would incur
as a certificate owner. These tables are intended to help you in understanding
the various costs and expenses under the certificate. The certificates are not
currently subject to state premium taxes. No sales charge (load) is paid upon
the purchase of the certificate. The tables reflect all expenses for both the
variable account and the underlying Fund. For a complete discussion of
certificate costs and expenses see Certificate Fees and Charges. For more
information regarding the expenses of the Fund, see the attached Fund
prospectus.
CERTIFICATE OWNER TRANSACTION EXPENSES:
Sales Charge Imposed on Premium Payment NONE
Transfer Fee $25(1)
Maximum Indirect Surrender Charge 6%(2)
ANNUAL CERTIFICATE FEES: NONE
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of net assets of each
subaccount):
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):
(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 Transfers
Among Subaccounts and/or the Fixed Account 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 an interest rate that is currently 0.5% higher than the rate used to
determine the annuity payments. For variable subaccounts, we currently use
an interest rate that is 0.5% 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL ANNUAL FUND
PORTFOLIO OTHER EXPENSES EXPENSES AFTER
INVESTMENT ADVISORY AFTER EXPENSE EXPENSE
FEES REIMBURSEMENT REIMBURSEMENT(3)
Small Company Stock 0.35% 0% 0.35%
International Stock 0.80 0 0.80
Large Company Stock 0.32 0 0.32
Balanced 0.32 0 0.32
High Yield Bond 0.40 0 0.40
Bond 0.35 0 0.35
Money Market 0.35 0 0.35
</TABLE>
(3) AAL CMC has agreed to pay on behalf of the Fund or to reimburse the Fund
for all expenses in excess of 0.32% for the Large Company Stock and
Balanced Portfolios, 0.35% for the Small Company Stock, Bond and Money
Market 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, 1999 would have been:
PORTFOLIO OTHER EXPENSES TOTAL ANNUAL FUND EXPENSES
Small Company Stock Portfolio 0.06% 0.41%
International Stock Portfolio 0.50 1.13
Large Company Stock Portfolio 0.03 0.35
Balanced Portfolio 0.04 0.36
High Yield Bond Portfolio 0.10 0.50
Bond Portfolio 0.09 0.44
Money Market Portfolio 0.06 0.41
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 Years
Small Company Stock $16 $48
International Stock 20 61
Large Company Stock 16 47
Balanced 16 47
High Yield Bond 17 49
Bond 16 48
Money Market 16 48
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 Years
Small Company Stock $15 $40
International Stock 19 51
Large Company Stock 15 40
Balanced 15 40
High Yield Bond 15 41
Bond 15 40
Money Market 15 40
C. If you elect a life income payment option with a 10-year guaranteed payment
period and you do surrender your certificate at the end of the periods
shown:
1 Year 3 Years
Small Company Stock $22 $51
International Stock 26 64
Large Company Stock 22 51
Balanced 22 51
High Yield Bond 22 53
Bond 22 51
Money Market 22 51
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 Years
Small Company Stock $31 $50
International Stock 35 61
Large Company Stock 31 50
Balanced 31 50
High Yield Bond 32 51
Bond 31 50
Money Market 31 50
NOTE: THESE 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.
Condensed financial information containing the annuity unit value history
appears at the end of this prospectus.
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 , Balanced
, and High Yield Bond subaccounts may also advertise "yield." The Money Market
Subaccount may advertise "yield" and "effective yield." Advertised yields and
total returns include all charges and expenses attributable to the certificate.
Therefore, a portfolio's performance will not be directly comparable to that of
a mutual fund or an unmanaged index used as a benchmark.
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 ACCOUNTS 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, 1999, 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 ($87 billion).
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 New York.
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.
Although the investment objectives and policies of certain portfolios are
similar to the investment objectives and policies of other portfolios that may
be managed or sponsored by the same investment adviser, manager, or sponsor,
nevertheless, we do not represent or assure that the investment results will be
comparable to any other portfolio, even where the investment advisers or manager
is the same. Differences in portfolio size, actual investments held, fund
expenses, and other factors all contribute to differences in portfolio
performance. For all of these reasons, you should expect investment results to
differ. In particular, certain portfolios available only through the certificate
have names similar to portfolios not available through the certificate. The
performance of a portfolio not available through the certificate does not
indicate performance of the similarly named portfolio available through the
certificate.
AAL CMC serves as investment adviser to the Fund and is registered as such under
the Investment Advisers Act of 1940. Oechsle International Advisors LLC is the
sub-adviser to the International Stock Portfolio.
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 make transfers from a subaccount to another subaccount and/or to 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 number of annuity units.
The following chart indicates the names of the portfolios in which the
subaccounts invest, as well as the investment objectives, for each portfolio.
INVESTMENT
PORTFOLIO OBJECTIVES
Small Company Stock Portfolio Strives for capital
growth that approximates the performance of
the S&P SmallCap 600* Index, by investing
primarily in common stocks of the index.
International Stock Portfolio Strives for long-term capital
growth by investing primarily in foreign
stocks.
Large Company Stock Portfolio Strives for
investment results that approximate the
performance of the S&P 500* Index by
investing primarily in common stocks of the
index.
Balanced Portfolio Seeks capital growth and income by
investing in a mix of common
stocks, bonds and money market
instruments. Securities are
selected consistent with the
policies of the Large Company
Stock, Bond and Money Market
Portfolios.
High Yield Bond Portfolio Strives for high current
income and secondarily capital growth by
investing primarily in high risk, high yield
bonds commonly referred to as "junk bonds."
Bond Portfolio Strives for investment results
similar to the total return of the
Lehman Brothers Aggregate Bond
Index by investing primarily in
bonds and other debt securities
included in the index.
Money Market Portfolio Strives for maximum current income
while maintaining liquidity and a
constant net asset value of $1.00
per share by investing in
high-quality, short-term money
market instruments.
* "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 product is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing in
the product. (Please see the Statement of Additional Information which sets
forth certain additional disclaimers and limitations of liabilities on
behalf of S&P.)
BEFORE SELECTING ANY SUBACCOUNT, YOU SHOULD CAREFULLY READ THE ACCOMPANYING
PROSPECTUS FOR THE FUND. YOU SHOULD PERIODICALLY CONSIDER YOUR ALLOCATION AMONG
SUBACCOUNTS IN LIGHT OF CURRENT MARKET CONDITIONS AND YOUR INVESTMENT GOALS,
RISK TOLERANCE AND FINANCIAL CIRCUMSTANCES. THE PROSPECTUS PROVIDES MORE
COMPLETE INFORMATION ABOUT THE PORTFOLIOS OF THE FUND IN WHICH THE SUBACCOUNTS
INVEST, INCLUDING INVESTMENT OBJECTIVES AND POLICIES, RISKS, CHARGES, AND
EXPENSES.
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:
a Non-qualified annuity, a Traditional Individual Retirment Annuity, or a
Tax-Sheltered Annuity or in circumstances where the annuity may qualify for
special treatment under the Code.
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. Any part of a premium that qualifies for the preferred
class will be issued as a separate certificate.
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 business 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 Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. If one of these
holidays falls on a Saturday or Sunday, the Exchange will be closed on the
preceding Friday or the following Monday, respectively. During 2000, AAL will be
closed for business on the Friday following Thanksgiving. On that day, 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, see Subaccount Investment Factor. 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 generally
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 make transfers between subaccounts and to
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 who are 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 (in accordance with applicable state
law). 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.
ANNUITY PAYMENTS
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. You may not change the type of annuity
payment option once we issue the certificate.
If you choose a life income payment option, you must elect to characterize your
certificate and its annuity payments as either revocable or irrevocable. For all
other payment options, your certificate will be revocable. (However, some states
do not allow the characterization of a certificate as 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 irrevocable
option, you cannot later change to the revocable option once we issue the
certificate. If yourcertificate is revocable you can:
o change the duration of the guaranteed payment period (to a shorter period):
o receive withdrawals; and
o surrender the certificate.
If your certificate is revocable and you have chosen a life income payment
option, you can later characterize your certificate as irrevocable. However,
once you characterize your certificate as irrevocable, you cannot later change
it to a revocable certificate once the change is made.
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. Withdrawals or surrenders from revocable
certificates result in the assessment of indirect withdrawal or surrender
charges, and the calculation of new commuted values . See Certificate Fees and
Charges for more information regarding the calculation of commuted values and
the assessment of indirect withdrawal or surrender charges.
You must also select the subaccounts and/or the fixed account to which we will
apply your premium. Except as discussed in Free Look Period , 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.
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 reduced after the death of the first annuitant. The
annuity payment may be reduced 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
Annuity payments may be made monthly, quarterly, semi-annually and annually. In
addition, payments may be made annually but paid monthly. Under this payment
option, the 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.
You may select the annuity payment date. This is the date you should generally
expect to receive your annuity payment. If you do not select a payment date, the
annuity payment date will be the same day of the month as the issue date. In the
event that you do not select a payment frequency, annuity payments will be made
monthly. Once you select the annuity payment frequency or the annuity payment
date, neither may be changed.
After the first annuity payment, we compute subsequent payments three business
days prior to the day you selected to receive annuity payments.
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.
The first payment is made at the time of issue. The second payment is made on
the next annuity payment date. However, if this results in the second payment
being received in the same month as the issue date, the second payment will be
made on the requested date of the next annuity payment thereafter.
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 unless there 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:
o the annuity unit value for the preceding valuation period; multiplied
by the subaccount investment factor for the current valuation period;
multiplied by
o 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 (annualized, less deductions and expenses) exceeds the
assumed investment return, and a more rapid drop in subsequent payments when
actual investment performance (annualized, less 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.
PREFERRED CLASS ANNUITY PAYMENTS
If the premium for your certificate comes from proceeds from an annuity or life
insurance product issued by AAL or the AAL Mutual Funds (except The AAL Money
Market Fund), we will issue your certificate as a preferred class certificate.
As part of this class, your annuity payments may be slightly higher. AAL incurs
lower issue expenses for preferred class certificates, which allows us to pass
on these savings in the form of slightly higher annuity payments.
We calculate annuity payments for the preferred class using a higher assumed
investment return (for the initial annuity payment from the variable account)
and a higher interest rate (for all annuity payments from the fixed account). In
the case of annuity payments from the variable account, we use an assumed
investment return that is at least 0.25% higher than the assumed investment
return you select. We calculate subsequent annuity payments from the variable
account in the same manner as for the non-preferred class based on the assumed
investment return you select and subaccount performance. In the case of annuity
payments from the fixed account, we use an interest rate that is at least 0.25%
higher than the interest rates credited on non-preferred class certificates.
Fixed account annuity payments for members of the preferred class will always be
higher than for members of the non-preferred class.
The preferred class is not available in all states.
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
less all previous withdrawals. Withdrawals will decrease subsequent annuity
payments. 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.
Generally, 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 elect 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 may result in adverse tax
consequences, including the imposition of a 10% federal income tax penalty. See
Federal Tax Matters 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 an interest rate that is 0.5% higher than the rate
used to determine the annuity payments. For variable subaccounts, we currently
use an interest rate that is 0.5% 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. While there is no direct surrender charge, the
computation of the commuted value assumes an indirect charge that varies with
each situation. However, this indirect charge will never exceed 6%.
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
To compensate us for assuming these mortality and expense risks, we deduct a
daily mortality and expense risk charge from the net assets of each subaccount
in the variable account. We impose a mortality and expense risk charge at an
annual rate of 1.25% of the average daily net assets of such subaccount in the
variable account for the mortality and expense risks it assumes under the
certificates.
In assuming the mortality risk, we incur the risks that our actuarial estimate
of mortality rates may prove erroneous, and annuitants will live longer than
expected.
If the mortality and expense risk charge and other charges under a certificate
are insufficient to cover the actual mortality costs and administrative expenses
incurred by us, we will bear the loss. Conversely, if the mortality and expense
risk charge proves more than sufficient, we will keep the excess for any proper
corporate purpose including, among other things, payment of sales expenses. We
expect to make a profit from this charge.
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 Matters.
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.
GENDER NEUTRAL BENEFITS
Under our annuity payment options, 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 optional annuity benefits
(i.e., the annuity payments under our annuity payment options) not vary based on
a person's sex. In Arizona Governing Committee v. Norris, the U.S. Supreme Court
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
annuity payment option 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.
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 we will vote in proportion to the voting instructions we
receive for all owners participating in that subaccount. We will vote any
portfolio shares our affiliates or we hold 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 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 MATTERS
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 (IRS) 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.
TAX STATUS OF AID ASSOCIATION FOR LUTHERANS
We are currently exempt from Federal income taxes under section 501(c)(8) of the
Code, and from most types of state and local taxes pursuant to the operation of
local law. As a result, no reserve for income taxes is currently charged against
or maintained by us with respect to the certificates. We may make charges for
such taxes if there is a material change in federal, state or local tax laws
attributable to either us or 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 . 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.
In certain circumstances, owners of variable contracts have been considered for
Federal income tax purposes to be the owners of the assets of the separate
account supporting their certificates due to their ability to exercise control
over those assets. Where this is the case, the certificate owners have been
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features of the certificates,
such as the flexibility to allocate premiums and certificate annuity values,
have not been explicitly addressed in published rulings. While we believe that
the certificate does not give you investment control over the separate account
assets, we reserve the right to modify the certificate as necessary to prevent
you from being treated as the owner of the separate account assets supporting
the certificate.
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.
DISTRIBUTION REQUIREMENTS
The Code requires that nonqualified certificates contain specific provisions for
distribution of proceeds upon the death of any owner. In order to be treated as
an annuity contract for federal income tax purposes, the Code requires that such
certificates provide that if any owner dies on or after the annuity commencement
date and before the entire interest in the certificate has been distributed, the
remaining portion must be distributed at least as rapidly as under the method in
effect on such owner's death. Under the certificate, the beneficiary is the
designated beneficiary of an owner/annuitant and the successor owner is the
designated beneficiary of an owner who is not the annuitant. If any owner is not
a natural person, then for purposes of these distribution requirements, the
primary annuitant shall be treated as an owner and any death or change of such
primary annuitant shall be treated as the death of an owner. The nonqualified
policies contain provisions intended to comply with these requirements of the
Code. No regulations interpreting these requirements of the Code have yet been
issued and thus no assurance can be given that the provisions contained in the
certificate satisfy all such Code requirements. The provisions contained in the
certificate will be reviewed and modified if necessary to assure that they
comply with the Code requirements when clarified by regulation or otherwise.
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 variable annuity payments, the taxable portion is determined by dividing the
proportionate 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. For fixed annuity payments, the taxable portion
is determined by applying a formula that establishes the ratio that the cost
basis of the certificate bears to the total value of annuity payments for the
term of the annuity. The nontaxable portion of each payment equals the amount of
the payment times that ratio. The balance of each year's payments is taxable.
Your entire payment will be taxable after you have recovered your entire 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 equal to your premium payments.
Payments from a withdrawal or 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
In the case of a withdrawal from a certificate issued in connection with a
qualified plan, a ratable portion of the amount you receive is taxable,
generally based on the ratio of the "investment in the contract" to your total
accrued benefit under the retirement plan. The "investment in the contract"
generally equals the amount of any non-deductible purchase payments that you pay
or that are paid on your behalf.
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 non-qualified 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 that 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.
CHANGE IN PAYEE
The designation of a payee other than yourself may result in certain tax
consequences to you that are not discussed herein. If you are considering any
such change, you should consult a tax adviser as to the tax consequences.
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 that 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 as a means to make distributions in conjunction with
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. 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.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (TRADITIONAL IRAS)
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 Individual Retirement Annuity or Traditional IRA.
You may roll over assets from a qualified plan into a Traditional IRA in two
ways. First, you may directly roll over 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 roll over 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.
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.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the certificate could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the certificate.
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 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
AAL CMC serves as the principal underwriter of the certificates. AAL CMC is a
wholly owned, indirect subsidiary of AAL. Principal offices of AAL CMC are
located at 222 West College Avenue, Appleton, Wisconsin, 54919. AAL CMC 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.
Duly licensed registered representatives of AAL CMC, who are also employees of
AAL, are licensed to sell the certificates by state insurance departments to
sell variable insurance products (AAL representatives). Representatives of other
broker-dealer firms, with which AAL CMC has executed a selling agreement, may
also sell the certificates. In addition, AAL may retain other firms to serve as
principal underwriters of the certificates. AAL offers the certificates in all
states where AAL is authorized to sell the certificates.
AAL CMC 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. AAL CMC
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.
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 are included in the Statement of Additional
Information, and the audited financial statements of the variable account are
incorporated by reference in the Statement of Additional Information. The
consolidated financial statements of AAL at December 31, 1999 and 1998, and for
each of the three years in the period ended December 31, 1999 and the audited
financial statements of the variable account at December 31, 1999, appearing,
and incorporated by reference, in this Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing, and incorporated by reference, elsewhere herein. The
financial statements referred to above are included, and incorporated by
reference, in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
ILLUSTRATIONS OF 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 annuity payments of a non-qualified annuity certificate under three
rates of return scenarios for both preferred and non-preferred classes. Of
course, the illustrations merely represent what 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. The first illustration assumes that the
entire premium is allocated to a single subaccount. The second illustration
assumes that half the premium is allocated to a subaccount and the remaining
half was allocated to the fixed account. The fixed account annuity payment is
assumed to be only a guaranteed periodic payment based on the minimum guaranteed
interest rate we credit under the fixed account. For the preferred class, fixed
account annuity payments are based on an interest rate that is 0.25% higher than
the guaranteed interest rate. In an actual certificate, the fixed account
annuity payment would reflect current payment rates and may be more than the
guaranteed payment amount. Amounts allocated to a subaccount generate variable
annuity payments. The amounts allocated to the fixed account generate fixed
account annuity payments. The total payment shown in the second illustration is
a total of both the variable annuity payment and the fixed account annuity
payment.
The variable annuity payments reflect three different assumptions for a constant
investment return before fees and expenses: 0%, 8% and 10%. Actual 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. For the
preferred class, the initial variable annuity payment reflects a 0.25% higher
assumed investment return. Subsequent variable annuity payments for the
preferred class are based on the assumed investment return shown. 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. Total expenses for the
underlying portfolios vary between annual rates of 0.32% and 0.80% of the
average daily net assets. Because of the variances between the portfolios'
expenses, the subaccounts will have different expenses. We have illustrated
payments using an arithmetic average of the expenses for all subaccounts
(1.67%). This figure includes the mortality and expense risk charge and the
expenses for the underlying portfolios. The expenses for the portfolios reflect
AAL's agreement to voluntarily reimburse portfolio expenses above certain
specified levels as discussed in Fees and Expense Tables. In the absence of such
expense reimbursement arrangements, portfolio and correspondingly subaccount
expenses would be higher.
THE ANNUAL 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 ACTUAL 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.
Among the most important factors that determine the 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
Assumed Investment Returns.
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 $50,000 premium of the hypothetical certificate is allocated as
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 annuity payments,
(5) the annuitant is a 65-year old male, and
(6) a single life income with a 10-year guaranteed payment period was
selected.
(7) both preferred an non-preferred classes are shown
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Annuitant: Male, Age 65
Single Life Income with a 10 year Guaranteed Payment Period
Hypothetical illustration assumes that $50,000 premium allocated to a variable
subaccount with fees and expenses of 1.67%
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HYPOTHETICAL 0% GROSS RATE HYPOTHETICAL 8% GROSS RATE HYPOTHETICAL 10% GROSS RATE
(-1.67% NET RATE) ANNUAL (6.33% NET RATE) ANNUAL (8.33% NET RATE) ANNUAL
PAYMENT PAYMENT PAYMENT
FOR EACH YEAR SHOWN FOR EACH YEAR SHOWN FOR EACH YEAR SHOWN
$50,000 PREMIUM $50,000 PREMIUM $50,000 PREMIUM
5% AIR 5% AIR 5% AIR
AGE ANNUAL PAYMENT ANNUAL PAYMENT ANNUAL PAYMENT
65 $3836 $3836 $3836
66 3592 3885 3958
67 3364 3934 4083
68 3151 3984 4213
69 2951 4035 4347
70 2763 4086 4485
71 2588 4138 4627
72 2424 4191 4774
73 2270 4244 4926
74 2126 4298 5082
75 1991 4352 5244
76 1864 4408 5410
77 1746 4464 5582
78 1635 4520 5759
79 1531 4578 5942
80 1434 4636 6131
85 1033 4938 7168
90 744 5260 8381
95 536 5603 9799
100 386 5968 11,457
</TABLE>
<PAGE>
Annuitant: Male, age 65
Single Life Income with a 10 year Guaranteed Payment Period
Hypothetical illustration assumes that $25,000 of the premium allocated to a
variable subaccount with fees and expenses of 1.67%; and $25,000 of the premium
allocated to the fixed account. For allocations to the fixed account,
illustration assumes a guaranteed payment of $1,787 (based on the annuity 2000
Mortality Table payment rates).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HYPOTHETICAL 0% GROSS RATE HYPOTHETICAL 8% GROSS RATE HYPOTHETICAL 10% GROSS RATE
(-1.67% NET RATE) ANNUAL (6.33% NET RATE) ANNUAL (8.33% NET RATE) ANNUAL
PAYMENT PAYMENT PAYMENT
FOR EACH YEAR SHOWN FOR EACH YEAR SHOWN FOR EACH YEAR SHOWN
$50,000 PREMIUM $50,000 PREMIUM $50,000 PREMIUM
5% AIR 5% AIR 5% AIR
AGE ANNUAL PAYMENT ANNUAL PAYMENT ANNUAL PAYMENT
81 $3621 $3621 $3621
82 3499 3145 3682
83 3385 3670 3745
84 3278 3695 3810
85 3178 3720 3876
86 3085 3746 3945
87 2997 3772 4017
88 2915 3798 4090
89 2838 3825 4166
90 2766 3852 4244
91 2698 3879 4325
92 2635 3907 4408
93 2576 3935 4494
94 2571 3963 4583
95 2469 3992 4674
96 2420 4021 4768
85 2220 4172 5287
90 2075 4333 5893
95 1971 4504 6602
100 1896 4687 7431
</TABLE>
<PAGE>
Male, age 65 for perferred class, $50,000 premium, life income w/10 year certain
Initial Variable Annual Payment 1,999 per 25K
Initial Fixed Annual Payment 1,764 per 25K (guaranteed payment only)
(2000 used 7.7% load)
Assumed Investment Return 5.00%
Average IA Fee 0.42% must be arithematic average
Subaccount Earned Rates
Gross Net Gross Net Gross Net
Arithimatic Average 0.00% -1.67% 8.00% 6.33% 10.00% 8.33%
<TABLE>
<CAPTION>
<S> <C> <C> <C>
100% VARIABLE SUBACCOUNT Hypothetical 0% Gross Hypothetical 8% Gross Hypothetical 10% Gross
Rate Rate Rate
Annual Payment for Annual Payment for Annual Payment for
each year shown each year shown each year shown
100% Variable Subaccount 100% Variable Subaccount 100% Variable Subaccount
5% AIR 5% AIR 5% AIR
Annual Annual Annual
Age Payment Age Payment Age Payment
65 3,998 65 3,998 65 3,998
66 3,744 66 4,049 66 4,125
67 3,507 67 4,100 67 4,256
68 3,284 68 4,152 68 4,391
69 3,075 69 4,205 69 4,531
70 2,880 70 4,259 70 4,674
71 2,697 71 4,313 71 4,823
72 2,526 72 4,367 72 4,976
73 2,366 73 4,423 73 5,134
74 2,216 74 4,479 74 5,297
75 2,075 75 4,536 75 5,465
76 1,943 76 4,594 76 5,639
77 1,820 77 4,652 77 5,818
78 1,704 78 4,711 78 6,003
79 1,596 79 4,771 79 6,193
80 1,495 80 4,832 80 6,390
85 1,077 85 5,147 85 7,471
90 776 90 5,482 90 8,735
95 559 95 5,839 95 10,213
100 403 100 6,220 100 11,941
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
50% FIXED ACCOUNT Hypothetical 0% Gross Hypothetical 8% Gross Hypothetical 10% Gross
50% VARIABLE SUBACCOUNT Rate Rate Rate
Annual Payment for Annual Payment for Annual Payment for
each year shown each year shown each year shown
100% Variable Subaccount 100% Variable Subaccount 100% Variable Subaccount
5% AIR 5% AIR 5% AIR
Annual Annual Annual
Age Payment Age Payment Age Payment
--- ------- --- ------- --- -------
65 3,763 65 3,763 65 3,763
66 3,636 66 3,788 66 3,826
67 3,517 67 3,814 67 3,892
68 3,406 68 3,840 68 3,960
69 3,302 69 3,867 69 4,029
70 3,204 70 3,893 70 4,101
71 3,113 71 3,920 71 4,175
72 3,027 72 3,948 72 4,252
73 2,947 73 3,975 73 4,331
74 2,872 74 4,004 74 4,413
75 2,801 75 4,032 75 4,497
76 2,736 76 4,061 76 4,583
77 2,674 77 4,090 77 4,673
78 2,616 78 4,120 78 4,765
79 2,562 79 4,150 79 4,861
80 2,511 80 4,180 80 4,959
85 2,302 85 4,337 85 5,499
90 2,152 90 4,505 90 6,131
95 2,043 95 4,684 95 6,870
100 1,965 100 4,874 100 7,734
</TABLE>
CONDENSED FINANCIAL INFORMATION
The table below shows the historical performance of annuity unit values and
numbers of annuity units for each of the 10 years (or shorter period for which
the relevant subaccount has been in existence) in the period ended December 31,
1999. You should read this information along with the variable account and AAL's
financial statements and notes which are included in the Statement of Additional
Information.
Note that the unit value of each subaccount of the variable account will not be
the same on any given day as the net asset value per share of the underlying
portfolio of the Fund in which that subaccount invests. One reason for this
deviation is that each unit value consists of the underlying portfolio's net
asset value minus charges to the variable account. In addition, dividends
declared by the underlying portfolio are reinvested by the subaccount in
additional shares of that portfolio. These distributions have the effect of
reducing the value of each share of the Fund and increasing the number of Fund
shares outstanding. However, the total cash value in the variable account does
not change as a result of such distributions.
ANNUITY UNIT VALUES:
SUBACCOUNT AUGUST 2, 1994(4) DECEMBER 31, 1999
---------- --------------- -----------------
Small Company Stock $16.10 $17.34
International Stock 11.85 15.27
Large Company Stock 24.93 27.54
Balanced 18.16 19.26
High Yield Bond 9.46 9.04
Bond 12.06 12.10
Money Market 1.17 1.19
(4) The date the subaccounts commenced operations.
NUMBER OF ANNUITY UNITS OUTSTANDING AT THE END OF THE PERIOD:
SUBACCOUNT DECEMBER 31, 1999
---------- -----------------
Small Company Stock 36,036
International Stock 25,778
Large Company Stock 149,769
Balanced 164,845
High Yield Bond 22,046
Bond 12,956
Money Market 1,507,483
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information.....................................................
Regulation and Reserves.................................................
Principal Underwriter...................................................
Gender Neutral Benefits.................................................
Performance Information.................................................
Standard & Poor's Disclaimer............................................
Financial Statements....................................................
ORDER FORM
Please send me a copy of the most recent Statement of Additional Information for
the AAL 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
