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1933 Act Registration No. 333-71853
1940 Act Registration No. 811-09225
As filed with the Securities and Exchange Commission on December 21, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 4
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
AAL VARIABLE ANNUITY ACCOUNT II
(Exact name of registrant as specified in charter)
Aid Association for Lutherans
(Name of Depositor)
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Address of Principal Executive Offices)(Zip Code)
Depositor's Telephone Number, including Area Code: (920) 734-5721
WOODROW E. ENO, ESQ.
Senior Vice President, Secretary and General Counsel of
AID ASSOCIATION FOR LUTHERANS
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485. [ ] on May 1, 2000 pursuant to paragraph (b)(1)(v) of Rule 485. [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485. [ X ] on March 1, 2001 pursuant to paragraph (a)(1) of Rule 485. [ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485. [ ] on _________, pursuant to paragraph (a)(2) of Rule 485.
Title of securities being registered: Units of interest in 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 14 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. 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.
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 RETURN CONDENSED FINANCIAL INFORMATION
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 states 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 AALs 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 Annuity Customer 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.
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 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.
The certificate offers a choice of 14 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(1). The portfolios include:
o AAL Technology Stock Portfolio o AAL Capital Growth Portfolio o AAL Aggressive Growth Portfolio o AAL Large Company Index Portfolio (formerly known as AAL Variable Product Large Company Stock Portfolio) o AAL Small Cap Stock Portfolio o AAL Equity Income Portfolio o AAL Small Cap Index Portfolio (formerly known as o AAL Balanced Portfolio (formerly known as AAL AAL Variable Product Small Company Stock Portfolio) Variable Product Balanced Portfolio) o AAL Mid Cap Stock Portfolio o AAL High Yield Bond Portfolio (formerly known as AAL Variable Product High Yield Bond Portfolio) o AAL Mid Cap Index Portfolio o AAL Bond Index Portfolio (formerly known as AAL Variable Product Bond Portfolio o AAL International Portfolio (formerly known as o AAL Money Market Portfolio (formerly known as AAL Variable Product International Stock Portfolio) AAL Variable Product Money Market Portfolio)
(1) As of March 1, 2001, the pre-existing portfolios and their corresponding subaccount names were abbreviated.
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 portfolios 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.
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.
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 59½, you may be subject to a 10% premature distribution penalty tax in addition to ordinary income tax.
You may transfer all or a part of your certificates 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.
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.
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.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 59½. Current tax laws may change at any time.
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.
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%
(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.
AAL Variable Product Series Fund, Inc. Annual Expenses
(as a percentage of average net assets of each portfolio):
Total Annual Fund Other Expenses Expenses After Investment Advisory After Expense Expense Portfolio Fees Reimbursement Reimbursement(1) AAL Technology Stock Portfolio 0.75 0 0.75 AAL Aggressive Growth Portfolio 0.80 0 0.80 AAL Small Cap Stock Portfolio 0.70 0 0.70 AAL Small Cap Index Portfolio 0.35 0 0.35 AAL Mid Cap Stock Portfolio 0.70 0 0.70 AAL Mid Cap Index Portfolio 0.35 0 0.35 AAL International Portfolio 0.80 0 0.80 AAL Capital Growth Portfolio 0.65 0 0.65 AAL Large Company Index Portfolio 0.32 0 0.32 AAL Equity Income Portfolio 0.45 0 0.45 AAL Balanced Portfolio 0.32 0 0.32 AAL High Yield Bond Portfolio 0.40 0 0.40 AAL Bond Index Portfolio 0.35 0 0.35 AAL Money Market Portfolio 0.35 0 0.35(1) The adviser, 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 Index and Money Market Portfolios, 0.80% for the International Stock Portfolio and 0.40% for the High Yield Bond Portfolio. The Technology Stock, Aggressive Growth, Small Cap Stock, Mid Cap Stock, Mid Cap Index, Capital Growth and Equity Income Portfolios have not incurred any expenses for the period ended December 31, 2000. AAL CMC 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, 2000 would have been:
Portfolio Other Expenses Total Annual Fund Expenses AAL Technology Stock AAL Aggressive Growth AAL Small Cap Stock 0.06 0.41 AAL Small Cap Index AAL Mid Cap Stock AAL Mid Cap Index AAL International 0.50 1.13 AAL Capital Growth AAL Large Company Index 0.03 0.35 AAL Equity Income AAL Balanced 0.04 0.36 AAL High Yield Bond 0.10 0.50 AAL Bond Index 0.09 0.44 AAL Money Market 0.06 0.41
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:
Subaccount 1 Year 3 Years AAL Technology Stock 20 59 AAL Aggressive Growth 20 61 AAL Small Cap Stock 19 58 AAL Small Cap Index 16 48 AAL Mid Cap Stock 19 58 AAL Mid Cap Index 16 48 International Stock 20 61 AAL Capital Growth 19 56 Large Company Stock 16 47 AAL Equity Income 17 51 Balanced 16 47 High Yield Bond 17 49 Bond Index 16 48 Money Market 16 48
B. If you elect a 10-year fixed period income payment option and you do not surrender your certificate at the end of the periods shown:
Subaccount 1 Year 3 Years AAL Technology Stock 18 50 AAL Aggressive Growth 19 51 AAL Small Cap Stock 18 49 AAL Small Cap Index 15 40 AAL Mid Cap Stock 18 49 AAL Mid Cap Index 15 40 AAL International 19 51 AAL Capital Growth 18 47 AAL Large Company Index 15 40 AAL Equity Income 16 42 AAL Balanced 15 40 AAL High Yield Bond 15 41 AAL Bond Index 15 40 AAL 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:
Subaccount 1 Year 3 Years AAL Technology Stock 26 63 AAL Aggressive Growth 26 64 AAL Small Cap Stock 25 61 AAL Small Cap Index 22 51 AAL Mid Cap Stock 25 61 AAL Mid Cap Index 22 51 AAL International 26 64 AAL Capital Growth 25 60 AAL Large Company Index 22 50 AAL Equity Income 23 54 AAL Balanced 22 50 AAL High Yield Bond 22 53 AAL Bond Index 22 51 AAL Money Market 22 51
D. If you elect a 10-year fixed period income payment option and you do surrender your certificate at the end of the periods shown:
Subaccount 1 Year 3 Years AAL Technology Stock 35 60 AAL Aggressive Growth 35 61 AAL Small Cap Stock 35 59 AAL Small Cap Index 31 50 AAL Mid Cap Stock 35 59 AAL Mid Cap Index 31 50 AAL International 35 61 AAL Capital Growth 34 57 AAL Large Company Index 31 50 AAL Equity Income 32 53 AAL Balanced 31 50 AAL High Yield Bond 32 51 AAL Bond Index 31 50 AAL 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.
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 Index, 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 portfolios 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 subaccounts 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 subaccounts 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 Subaccounts 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 MidCap 400 Index, S&P 500 Index, the S&P SmallCap 600 Index, the Wilshire Small Cap Index, the Lehman Aggregate 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, Barrons, 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 subaccounts 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 portfolios 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 is a fraternal benefit society owned by and operated for its members. AALs 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, 2000, AAL has approximately 1.8 million members and is one of the worlds largest fraternal benefit society in terms of statutory assets (over $22 billion) and life insurance in force ($90 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.
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.
Amounts allocated to fixed account under the certificate are part of our general account that 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.
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. Janus Capital Corporation serves as the sub-adviser to the AAL Aggressive Growth Portfolio. Pacific Investment Management Company (PIMCO) serves as sub-adviser to the AAL High Yield Bond 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 portfolios 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 AAL Technology Stock Portfolio Seeks long-term capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks. AAL Aggressive Growth Portfolio Seeks long-term capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks. AAL Small Cap Stock Portfolio Seeks long-term capital growth by investing primarily in small company common stocks and securities convertible into small company common stocks. AAL Small Cap Index Portfolio Strives for capital growth that approximates the performance of the S&P (formerly known as AAL Variable SmallCap 600* Index, by investing primarily in common stocks of the index. Product Small Company Stock Portfolio) AAL Mid Cap Stock Portfolio Seeks long-term capital growth by investing primarily in common stocks and securities convertible into common stocks of mid-sized companies. AAL Mid Cap Index Portfolio Seeks total returns that track the performance of the S&P MidCap 400 Index by investing in common stocks comprising the Index. AAL International Portfolio Strives for long-term capital growth by investing primarily in foreign (formerly known as AAL Variable stocks. Product International Stock Portfolio) AAL Capital Growth Portfolio Seeks long-term capital growth by investing primarily in a diversified portfolio of stocks and securities convertible into common stocks. AAL Large Company Index Strives for investment results that approximate the performance of the S&P Portfolio (formerly known as 500* Index by investing primarily in common stocks of the index. (AAL Variable Product Large Company Stock Portfolio) AAL Equity Income Portfolio Seeks current income, long-term income growth and capital growth by investing primarily in a diversified portfolio of income-producing equity securities. AAL Balanced Portfolio (formerly Seeks capital growth and income by investing in a mix of common stocks, known as AAL Variable Product bonds and money market instruments. Securities are selected consistent Balanced Portfolio) with the policies of the Large Company Index, Bond Index and Money Market Portfolios. AAL High Yield Bond Portfolio Strives for high current income and secondarily capital growth by investing (formerly known as AAL Variable primarily in high risk, high yield bonds commonly referred to as "junk Product High Yield Bond bonds." Portfolio) AAL Bond Index Portfolio Strives for investment results similar to the total return of the Lehman (formerly known as AAL Variable Aggregate Bond Index by investing primarily in bonds and other debt Product Bond Portfolio) securities included in the index. AAL Money Market Portfolio Strives for maximum current income while maintaining liquidity and a (formerly known as AAL Variable constant net asset value of $1.00 per share by investing in high-quality, Product Money Market Portfolio) short-term money market instruments.* Standard & Poors®", S&P®", S&P 500®", 500", Standard & Poors SmallCap 600 Index and S&P SmallCap 600 Index, Standard & Poors MidCap 400 Index and S&P MidCap 400 Index 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 & Poors and Standard & Poors 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 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 Retirement 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.
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 AAL 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. If after 15 days, the application still is not complete, we will return your premium and application to you. 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 Years 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. AAL will also 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.
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 certificates 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 certificates 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 certificates free look value.
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 annuitants 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 annuitants 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.
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:
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.
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:
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.
The certificate cannot be sold, assigned, discounted, or pledged as collateral for a loan or as surety for performance of an obligation or for any other purpose.
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 your certificate is revocable you can:
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.
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 annuitants 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 ½, 1/3, or ¼. 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 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.
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.
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:
Subaccount Investment Factor
The subaccount investment factor for any valuation period is equal to:
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 subaccounts 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 subaccounts 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.
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:
If we receive a signed Telephone Transaction Authorization (found on the certificate application and on the Variable Products Service Request 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.
If you elected the revocable life income payment 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 life income payment 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.
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 annuitants 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:
Upon receipt of instructions in proper form from the beneficiary or owner to resume annuity payments, we will make any annuity payments that had gone unpaid since we 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.
There is no sales charge deducted from your premium payment.
There is currently no premium tax applicable to the certificates.
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%.
You may make two free transfers in each certificate year. We will charge you $25 for each subsequent transfer.
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.
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.
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.
The entire contract between you and us consists of:
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.
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 persons sex. In Arizona Governing Committee v. Norris, the U.S. Supreme Court held that optional annuity benefits provided under an employers 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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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 owners 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 certificates 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.
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.
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 years total payments. The nontaxable portion of each years 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 years 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.
In the case of a withdrawal from a certificate issued in connection with a qualified plan, a ratable portion of the amount the participant receives is taxable, generally based on the ratio of the investment in the contract to the participants total accrued benefit under the retirement plan. The investment in the contract generally equals the amount of any non-deductible purchase payments that the participant pays or that are paid on the participants 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 (the participant) 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.
Generally, withdrawals, and surrenders of a certificate before you attain age 59½ 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 59½. Additional exemptions may apply.
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.
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.
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.
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.
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 and between subaccounts and the fixed account are tax-free.
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.
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 59½, 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. You are required to begin distribution from tax-sheltered annuities by April 1st of the year following the year in which you attain age 70 ½ or retire, which ever is later.
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 59½ 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 70½.
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.
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.
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.
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.
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:
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 members 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.
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, 54911. 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.
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, 2000 and 1999, and for each of the three years in the period ended December 31, 2000 and the audited financial statements of the variable account at December 31, 2000, 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.
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 one set of illustrations shows 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 hypothetical 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 hypothetical investment return. Subsequent variable annuity payments for the preferred class are based on the hypothetical investment return shown. The mortality and expense risk charge is assumed to be at an annual rate of 1.25% of the illustrated subaccounts 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 (1.77%). This figure includes the mortality and expense risk charge and the expenses for the underlying portfolios. The expenses for the portfolios reflect AALs 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 subaccounts 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:
[Revised Hypothetical illustrations to be provided in the 485(b) filing anticipated for February in 2001]
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, 2000. You should read this information along with the variable account and AALs 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 portfolios 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: Commencement Subaccount 2000 1999 Date* AAL Technology Stock N/A N/A AAL Aggressive Growth N/A N/A AAL Small Cap Stock N/A N/A AAL Small Cap Index 17.34 16.10 AAL Mid Cap Stock N/A N/A AAL Mid Cap Index N/A N/A AAL International 15.27 11.85 AAL Capital Growth N/A N/A AAL Large Company Index 27.54 24.93 AAL Equity Income N/A N/A AAL Balanced 19.26 18.16 AAL High Yield Bond 9.04 9.46 AAL Bond Index 12.10 12.06 AAL Money Market 1.19 1.17
* The Small Cap Index, Large Company Index, the International AAL Balanced, High Yield Bond, Bond Index and Money Market Subaccounts commenced operations on August 2, 1999. The Technology Stock, Aggressive Growth, Small Cap Stock, Mid Cap Stock, Mid Cap Index, Capital Growth and Equity Income Subaccounts will commence operations on March 2, 2000.
Number of Annuity Units Outstanding at the End of the Period:
Subaccount 2000 1999 AAL Technology Stock N/A N/A AAL Aggressive Growth N/A N/A AAL Small Cap Stock N/A N/A AAL Small Cap Index 36,036 AAL Mid Cap Stock N/A N/A AAL Mid Cap Index N/A N/A AAL International 25,778 AAL Capital Growth N/A N/A AAL Large Company Index 149,769 AAL Equity Income N/A N/A AAL Balanced 164,845 AAL High Yield Bond 22,046 AAL Bond Index 12,956 AAL Money Market 1,507,483
General Information........................................................
Regulation and Reserves....................................................
Principal Underwriter......................................................
Gender Neutral Benefits....................................................
Performance Information....................................................
Standard & Poor's Disclaimer...............................................SAI-
Financial Statements.......................................................
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 Annuity Customer Service Center
4321 N. Ballard Road
Appleton, WI 54919-0001
AAL VARIABLE
ANNUITY ACCOUNT II
STATEMENT OF ADDITIONAL
INFORMATION
Dated
March 1, 2001
SINGLE
PREMIUM IMMEDIATE
VARIABLE
ANNUITY CERTIFICATE
Offered By:
AID
ASSOCIATION FOR LUTHERANS
4321 North
Ballard Road
Appleton,
Wisconsin 54919
This Statement of Additional Information (SAI) is not a prospectus, but should be read in conjunction with the prospectus dated March 1, 2001, for AAL Variable Annuity Account II (the variable account) describing the individual single premium immediate variable annuity certificates (certificates) that Aid Association for Lutherans (AAL) offers to persons eligible for membership in AAL. Terms used in this SAI that are not otherwise defined herein have the same meanings given to them in the prospectus. A copy of the prospectus may be obtained at no charge by writing AAL (attention: AAL Annuity Customer Service Center) at the above address.
Caption Page GENERAL INFORMATION........................................................SAI-2 REGULATION AND RESERVES....................................................SAI-2 PRINCIPAL UNDERWRITER......................................................SAI-2 PERFORMANCE INFORMATION....................................................SAI-3 STANDARD & POOR'S DISCLAIMER...............................................SAI-5 FINANCIAL STATEMENTS.......................................................SAI-5
AAL is a fraternal benefit society organized under Internal Revenue Code section 501(c)(8) and established on November 24, 1902, under the laws of the State of Wisconsin. Membership is open generally to Lutherans and their families, and persons serving or associated with Lutherans or Lutheran organizations and their families. AAL offers life insurance, disability income insurance and annuities to its members. AAL Capital Management Corporation, a subsidiary of AAL, offers mutual funds, variable annuities and variable life insurance. Members are part of one of approximately 10,000 local AAL branches throughout the United States. AAL is currently licensed to transact life insurance business in all 50 states and the District of Columbia.
AAL is subject to regulation by the Office of the Commissioner of Insurance of the State of Wisconsin and by insurance departments of other states and jurisdictions in which it is licensed to do business. This regulation covers a variety of areas, including benefit reserve requirements, adequacy of insurance company capital and surplus, various operational standards and accounting and financial reporting procedures. AALs operations and accounts are subject to periodic examination by insurance regulatory authorities. The forms of certificates described in the prospectus are filed with and (where required) approved by insurance officials in each state and jurisdiction in which certificates are sold.
Although the federal government generally has not directly regulated the business of insurance, federal initiatives often have an impact on the insurance business in a variety of ways. Federal measures that may adversely affect the insurance business include employee benefit regulation, tax law changes affecting the taxation of insurance companies or of insurance products, changes in the relative desirability of various personal investment vehicles and removal of impediments on the entry of banking institutions into the insurance business. Also, both the executive and legislative branches of the federal government periodically have under consideration various insurance regulatory matters, which could ultimately result in direct federal regulation of some aspects of the insurance business. It is not possible to predict whether this will occur or, if so, what the effect on AAL would be.
Pursuant to state insurance laws and regulations, AAL is obligated to carry on its books, as liabilities, reserves to meet its obligations under outstanding insurance contracts. These reserves are based on assumptions about, among other things, future claims experience and investment returns. Neither the reserve requirements nor the other aspects of state insurance regulation provide absolute protection to holders of insurance contracts, including the certificates, if AAL were to incur claims or expenses at rates significantly higher than expected or significant unexpected losses on its investments.
AAL Capital Management Corporation (AAL CMC), a wholly-owned, indirect subsidiary of AAL, serves as the principal underwriter of the certificates pursuant to a Principal Underwriting and Servicing Agreement to which AAL CMC and AAL, on behalf of itself and the variable account, are parties. The certificates are sold through AAL representatives who are licensed by state insurance officials to sell the certificates and who are duly licensed registered representatives of AAL CMC. 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. The certificates are continuously offered in all states where AAL is authorized to sell the certificates. AAL paid underwriting commissions of $___________ for the year ended December 31, 2000 and $273,381 for the year ended December 31, 1999. Of these amounts, AAL CMC retained $0.
On November 8, 2000, the AAL Variable Product Series Fund, Inc. Board of Directors approved seven new portfolios to be introduced on or about March 1, 2001. These new portfolios will underlie seven new corresponding subaccounts. In conjunction with the new portfolios, the Board of Directors also approved a name change for the portfolios and corresponding subaccounts. In line with this, AAL CMC will be renaming some of the existing portfolios and subaccounts.
New Portfolio and Subaccounts: AAL Technology Stock AAL Mid Cap Index AAL Aggressive Growth AAL Capital Growth AAL Small Cap Stock AAL Equity Income AAL Mid Cap Stock Old Portfolio and Subaccount Names: New Portfolio and Subaccount Names: AAL Variable Product Small Company Stock AAL Small Cap Index AAL Variable Product International Stock AAL International AAL Variable Product Large Company Stock AAL Large Company Index AAL Variable Product Balanced AAL Balanced AAL Variable Product High Yield Bond AAL High Yield Bond AAL Variable Product Bond AAL Bond Index AAL Variable Product Money Market AAL Money Market
Any references in the prospectus or SAI referring to the new portfolio and subaccount names is referring to the portfolios or subaccounts that were already in existence under their former names.
The variable account may, from time to time, advertise information relating to the performance of its subaccounts. The performance information that may be presented is not a prediction or guarantee of future investment performance and does not represent the actual experience of amounts invested by a particular owner. There is no performance information for the following subaccounts which will commence operations on March 2, 2001:
AAL Technology Stock
AAL Aggressive Growth
AAL Small Cap Stock
AAL Mid Cap Stock
AAL Mid Cap Index
AAL Capital Growth
AAL Equity Income
Advertisements for the certificates may include yield and effective yield quotations for the Money Market Subaccount, which are computed in accordance with standard methods prescribed by the SEC. Under these methods, the Money Market Subaccounts yield is calculated based on a hypothetical pre-existing account at the beginning of a specified seven-day period. Yield is computed by dividing the net change, exclusive of capital changes, in the account during the seven-day period, subtracting a hypothetical charge reflecting deductions from owner accounts, dividing the difference by the account at the beginning of the period to obtain the base period return and multiplying the base period return by the fraction 365/7. The Money Market Subaccounts effective yield is calculated by compounding the base period return (computed as described above) for such period by adding 1 and raising the sum to a power equal to 365/7 and subtracting 1 from the result. Yield and effective yield do not reflect the deduction of withdrawal or surrender charges. The certificates currently are not subject to charges for state premium taxes.
The yield and effective yield for the Money Market Subaccount for the seven-day period ended December 31, 2000, were % and %, respectively.30-Day Yield: Advertisements for the certificates may include 30-day (or one-month) yield quotations for each subaccount other than the Money Market Subaccount, which are computed in accordance with a standard method prescribed by the SEC. These 30-day yield quotations are computed by dividing the net investment income per a hypothetical account earned during the period (the net investment income earned by the Fund portfolio attributable to shares owned by the subaccount less expenses incurred during the period) by the offering price per annuity unit on the last day of the period, according to the following formula that assumes a semi-annual reinvestment of income:
Yield = 2[(((a-b)/cd)+1)^6-1]
Where:
a = Net dividends and interest earned during the period by the portfolio attributable to the subaccount b = Expenses accrued for the period (net of reimbursements) c = The average daily number of annuity units outstanding during the period d = The annuity unit Value per unit on the last day of the period
For the 30-day period ended December 31, 2000, the 30-day yield for the Bond Subaccount was --%, the Balanced Subaccount was --% and the High Yield Bond Subaccount was --%.
Standardized and Non-Standardized Average Annual Total Return: Advertisements for the certificates may also include standardized and non-standardized average annual total return quotations for each subaccount for 1, 5 and 10-year periods (or the life of the subaccount, if less). Standardized average annual total return quotations are computed in accordance with a standard method prescribed by the SEC. The average annual total return for a subaccount for a specific period is computed by finding the average annual compounded rates of return over the applicable period that would equate the initial amount invested to the ending redeemable value, according to the following formula:
P(1 + T)^n = ERV
Where:
P = A hypothetical initial payment of $1,000 T = Average annual total return n = Number of years ERV = Ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10-year periods (or fractional portion thereof)Standardized Average Annual Total Returns through December 31, 2000:
Name of Subaccount Since Inception(1) 1 Year AAL Small Cap Index AAL International AAL Large Company Index AAL Balanced High Yield Bond AAL Bond Index AAL Money Market
(1) Date of inception for each subaccount was August 2, 1999:
Non-standardized average annual total returns are calculated in the same manner and for the same time periods as the standardized average annual total returns described immediately above, except that the value of the non-standardized total returns do not reflect the effect of surrender charges.
Non-Standardized Average Annual Total Returns through December 31, 2000:Name of Subaccount Since Inception(1) 1 Year AAL Small Cap Index AAL International AAL Large Company Index AAL Balanced AAL High Yield Bond AAL Bond Index AAL Money Market
(1) Date of inception for each subaccount was August 2, 1999:
Cumulative Total Return: Advertisements for the certificates may also include cumulative total return quotations for each subaccount, for which the SEC has not prescribed a standard method of calculation. Cumulative total return is the non-annualized cumulative rate of return on a hypothetical initial investment of $1,000 in a subaccount for a specified period (hypothetical initial investment). Cumulative total return is calculated by finding the cumulative rates of return of the hypothetical initial investment over various periods, according to the following formula and then expressing that as a percentage:
C = (ERV/P) - 1
Where:
P = A hypothetical initial payment of $1,000 C = Cumulative total return ERV = Ending redeemable value of a hypothetical $1,000 payment made at the beginning of the applicable period
Performance quotations for each subaccount reflect the deduction of all recurring fees and charges applicable to each subaccount, such as the mortality and expense risk charge, and Fund operating expenses (net of reimbursements), except that yield quotations and non-standardized average annual total return calculations do not reflect any deduction of surrender charges. The certificates are not currently subject to a charge for state premium taxes.
Standardized cumulative total returns for each subaccount were:Name of Subaccount Since Inception(1) 1 Year AAL Small Cap Index AAL International AAL Large Company Index AAL Balanced AAL High Yield Bond AAL Bond Index AAL Money Market
(1) Date of inception for each subaccount was August 2, 1999:
The performance of each of the subaccounts may be compared in advertisements and sales literature to the performance of other variable annuity issuers in general or to the performance of particular types of variable annuities investing in mutual funds or series of mutual funds, with investment objectives similar to each of the portfolios in which the subaccounts invest. Such comparisons may be made by use of independent services that monitor and rank the performance of variable annuity issuers in each of the major categories of investment objectives on an industry-wide basis, ranking such issuers on the basis of total return, assuming reinvestment of dividends and distributions, but excluding sales charges, redemption fees or certain expense deductions at the separate account level. Some rankings are based on total returns adjusted for withdrawal or surrender charges or may consider the effects of market risk on total return performance.
Companies providing rankings that may be used in advertisements and sales literature include Lipper Analytical Services, Inc., Morningstar, Inc. and the Variable Annuity Research and Data Service.
In addition, each subaccounts performance may be compared in advertisements and sales literature to various benchmarks including, but not limited to, the S&P MidCap 400 Index, Standard & Poors 500 Composite Stock Price Index, Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index, S&P SmallCap 600 Index, Merrill Lynch High Yield Master Index, the Wilshire Small Cap Index and the Lehman Aggregate Bond Index.
The portfolios may also, from time to time, illustrate the concepts of asset allocation by use of hypothetical case studies representing various life cycles and/or risk levels of a certificate owner.
The certificates are not sponsored, endorsed, sold or promoted by Standard & Poors, a division of The McGraw-Hill Companies, Inc. (S&P). S&P makes no representation or warranty, express or implied, to the owners of the certificates or any member of the public regarding the advisability of investing in securities generally or in the certificates particularly or the ability of the S&P MidCap 400 Index, S&P 500 or the S&P SmallCap 600 Indexes to track general stock market performance. S&Ps only relationship to AAL is the licensing of certain trademarks and trade names of S&P and of the S&P MidCap 400 Index, S&P 500 and S&P 600 SmallCap Indexes which are determined composed and calculated by the S&P without regard to the Licensee or the certificates. S&P is not responsible for, and has not participated in, the determination of the prices and amount of the certificate or the timing of the issuance or sale of the certificates or in the determination or calculation of the equation by which the certificate is to be converted into cash. S&P has no obligation or liability in connection with administration, marketing or trading of the certificates.
S&P does not guarantee the accuracy and/or the completeness of the S&P MidCap 400 Index, S&P 500 or the S&P 600 SmallCap indexes or any data included therein and S&P shall have no liability for any errors, omissions, or interruptions therein. S&P makes no warranty, express or implied, as to results to be obtained by AAL, owners of the certificates, or any other person/entity from the use of the S&P MidCap 400 Index, S&P 500 or the S&P 600 SmallCap indexes or any data included therein. S&P makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P MidCap 400 Index, S&P 500 or the S&P 600 SmallCap indexes or any data included therein. Without limiting any of the foregoing, in no event shall S&P have liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.
The financial statements of AAL should be considered only as bearing upon the ability of AAL to meet its obligations under the certificates. The financial statements of AAL should not be considered as bearing on the investment experience of the assets held in the variable account.
The most current financial statements of AAL are those as of the end of the most recent fiscal year ended December 31, 2000. AAL does not prepare financial statements more often than annually and believes that any incremental benefit to prospective certificate owners that may result from preparing and delivering more current financial statements, though unaudited, does not justify the additional cost that would be incurred.
The consolidated financial statements of AAL as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 are included herein and have been audited by Ernst & Young LLP, Independent Auditors, as set forth in their report thereon appearing elsewhere herein. The financial statements referred to above are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing.
[Audited consolidated statements for the period ended December 31, 2000 will be provided in the 485(b) filing anticipated in February of 2001.]
PART C. OTHER INFORMATION
(a) Financial Statements: Part B: Audited financial statements for the AAL Variable Annuity Account II are not yet available. They will be filed in a 485(b) filing intended to be made in February 2001. The financial statements of AAL Variable Annuity Account II to be included in Part B of this Registration Statement will be: Report of Independent Auditors Statement of Net Assets as of December 31, 2000 Statement of Operations for the year ended December 31, 2000 Statement of Changes in Net Assets for the year ended December 31, 2000, and 1999 Notes to Financial Statements dated December 31, 2000 Aid Association for Lutherans The following audited financial statements of Aid Association for Lutherans ("Depositor") as of December 31, 2000, December 31, 1999, and December 31, 1998, will be included in Part B: Report of Independent Auditors Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Changes in Certificate Holders' Surplus Consolidated Statements of Cash Flow Notes to Financial Statements (b) Exhibits:
Except as noted below, all required exhibits have been previously filed and are incorporated by reference from Registrant's prior Registration Statement.
Exhibit Name of Exhibit Incorporated by Reference Filed Number Herewith 1 Resolution of the Board of Directors of the Depositor authorizing the establishment of AAL Variable Annuity Pre-Effective Amendment #1 dated Account II February 5, 1999 2 Not applicable 3 Amended and Restated Principal Underwriting and Servicing Agreement between Aid Association for Lutherans (AAL), the Accounts and AAL Capital Management Corporation (AAL CMC) dated January 1, 2000 Post Effective Amendment #4 dated April 20, 2000 4(a) Variable Annuity Certificate Post Effective Amendment #1 dated May 27, 1999 4(b) Omnibus IRA Endorsements Post Effective Amendments #5 dated February 27, 1998 and #7 dated April 24, 1999(1) 4(c) 403(b) Endorsement and SIMPLE-IRA Endorsement Post Effective Amendment #5 dated February 27, 19981 4(d) Variation pages applicable to Certificates used in Post Effective Amendment #1 various states dated May 27, 1999 5(a) Standard Computer Certificate Application Form Post Effective Amendment #1 dated May 27, 1999 5(b) Immediate Variable Annuity Option Selection Form Post Effective Amendment #1 dated May 27, 19991 6(a) Articles of Incorporation of Depositor Post Effective Amendment #4 dated April 20, 2000 6(b) Bylaws of Depositor Post Effective Amendment #4 dated April 20, 2000 7 Not applicable 8(a) Amended and Restated Participation Agreement between Post Effective Amendment #4 AAL, the Accounts and the Fund as of January 1, 2000 dated April 20, 2000 8(b) Amended and Restated Participation Agreement between Post Effective Amendment #4 AAL, the AAL Savings Plan, AAL CMC and the Fund dated dated April 20, 2000 January 1, 2000 9 Opinion of Counsel as to the legality of the Post Effective Amendment #1 securities being registered (including written dated May 27, 1999 consent) 10 Consent of Independent Auditors Post Effective Amendment #4 dated April 20, 2000 11 Not applicable 12 Not applicable 13 Schedules for computation of each performance Post Effective Amendment #4 quotation in the Registration Statement dated April 20, 2000 15 Powers of Attorney X
(1) Incorporated by reference from previously filed registration statement for the AAL Variable Annuity Account I file Nos. 33-82054, 811-8660.
Name and Principal Positions and Offices Business Address with Depositor John O. Gilbert Chairman of the Board, President and 4321 North Ballard Road Chief Executive Officer Appleton, WI 54919 Raymond G. Avischious formerly President & General Manager Shurfine-Central 4200 Oaksbury Lane Rolling Meadows, IL 60008 Director Richard E. Beumer Vice Chairman Jacobs Engineering Group, Inc. 13723 Riverport Drive Maryland Heights, MO 63043 Director Kenneth Daly, CPA Partner KPMG LLP 1600 Market Street Philadelphia, PA 19103-7201 Director Elizabeth A. Duda 2450 Mikler Road Oviedo, FL 32765 Director Karen P. Goebel Professor & Extension Specialist School of Human Ecology University or Wisconsin - Madison Madison, WI 53706 Director Gary J. Greenfield President Wisconsin Lutheran College 8830 West Bluemound Road Milwaukee, WI 53226 Director Robert H. Hoffman Vice President, Communication Division Taylor Corporation 1725 Roe Crest Drive P.O. Box 3728 Director North Mankato, MN 56002-3728 Robert E. Long Senior Vice President Park Bank 15850 West Bluemound Road Brookfield, WI 53005 Director Robert B. Peregrine President Peregrine & Roth, S.C. 633 West Wisconsin Avenue Milwaukee, WI 53203-1960 Director Paul D. Schrage Formerly Sr. Exec. Vice President & Chief Marketing Officer McDonald's Corporation 42237 N. 112th Place Scottsdale, AZ 85262 Director James H. Scott Principal Miller Anderson & Sherrerd, LLP One Tower Bridge West Conshohocken, PA 19428-2899 Director Kathi P. Seifert Executive Vice President Kimberly Clark Corporation 2100 Winchester Road Neenah, WI 54956 Director Roger G. Wheeler Formerly President Wheel-Air Charter, Inc. 6109 West 104th Street Director Bloomington, MN 55438 E. Marlene Wilson President Volunteer Management Associates 320 South Cedar Brook Road Boulder, CO 80304 Director Rev. Thomas R. Zehnder Pastor King of Glory Lutheran Church 4897 Longhill Road Williamsburg, VA 23188 Director Walter S. Rugland Executive Vice President and 4321 North Ballard Road Chief Operating Officer Appleton, WI 54919 Woodrow E. Eno, Esq. 4321 North Ballard Road Senior Vice President, Appleton, WI 54919 Secretary and General Counsel Steven A. Weber 4321 North Ballard Road Appleton, WI 54919 Senior Vice President Fred Ohlde 4321 North Ballard Road Appleton, WI 54919 Senior Vice President Jon M. Stellmacher 4321 North Ballard Road Appleton, WI 54919 Senior Vice President Carl Rudolph 4321 North Ballard Road Senior Vice President, Chief Financial Officer, Controller Appleton, WI 54919 and Treasurer James H. Abitz Senior Vice President and 222 West College Avenue Chief Investment Officer Appleton, WI 54919 Russell H. Evenson 4321 North Ballard Road Senior Vice President Appleton, WI 54919 Robert G. Same 222 W. College Avenue Vice President, Chief Compliance Officer and Appleton, WI 54919 Deputy General Counsel
Item 26. Persons Controlled by or Under Common Control with Depositor or Registrant
Registrant is a separate account of Depositor (AAL), established by the Board of Directors of the Depositor in 1999, pursuant to the laws of the State of Wisconsin. Depositor is a fraternal benefit society organized under the laws of the State of Wisconsin and is owned by and operated for its members. It has no stockholders and is not subject to the control of any affiliated persons. Depositor controls the following wholly-owned, direct and indirect subsidiaries: (a) AAL Holdings, Inc., a Delaware corporation that is a holding company that has no independent operations; (b) AAL Capital Management Corporation (AALCMC), a Delaware corporation that is a registered broker-dealer and investment adviser; and (c) North Meadows Investment, Ltd., a Wisconsin corporation organized for the purpose of holding and investing in real estate; (d) The AAL Trust Company FSB, and (e) AAL Variable Product Series Fund, Inc. (Fund), a Maryland corporation organized as an open-end management investment company. Financial statements of AAL are filed on a consolidated basis with regard to each of the foregoing entities, other than the Fund, which files separate financial statements. The Depositor has established two other separate accounts that use the same underlying Fund.
------------------------------- Parent Company AAL (Wisconsin corp.) ------------------------------- Holding Company AAL Holdings, Inc. (Delaware corp.) ------------------------------- ------------------------------ ---------------------------- Wholly-owned AAL Capital Management North Meadows Investment subsidiaries of Corporation AAL Trust Co., FSB Ltd. AAL Holdings, Inc. (Delaware corp.) (Federal charter) (Wisconsin corp.) ------------------------------ ------------------------------- ----------------------------
As of November 30, 2000, there were approximately 347 qualified and 327 non-qualified certificate owners.
Section 33 of Depositors Bylaws, filed as an Exhibit to this Registration Statement, Section E, subsection (viii) of Article Seventh of the Funds Articles of Incorporation and Article X of the Funds Bylaws, and Section Eight of AAL CMCs Articles of Incorporation, contain provisions requiring the indemnification by Depositor, the Fund, and AAL CMC of their respective directors, officers and certain other individuals for any liability arising based on their duties as directors, officers or agents of the Depositor, Fund or AAL CMC, unless, in the case of the Fund, such liability arises due to the willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such office.
In addition, Section 3 of the Investment Advisory Agreement between the Fund and AAL CMC contains a provision in which the Fund and AAL CMC mutually agree to indemnify and hold the other party (including its officers, agents, and employees) harmless for any and all loss, cost damage and expense, including reasonable attorneys fees, incurred by the other party arising out of their performance under the Agreement, unless such liability is incurred as a result of the partys gross negligence, bad faith, or willful misfeasance or reckless disregard of its obligations and duties under the Agreement.
Sections 14 of the Transfer Agency Agreement between the Fund and AAL provide that each party shall indemnify the other for certain liability. Section 14 states that AAL shall act in good faith and use best efforts within reasonable limits to ensure the accuracy of the services performed for the Fund, but assumes no responsibility for loss or damage due to errors. However, AAL will hold the Fund harmless from all loss, cost damage and expense, including reasonable attorneys fees, incurred by the Fund as a result of AALs gross negligence, bad faith, or willful misfeasance or by reason of its reckless disregard of its obligations and duties under the Agreement, or that of its officers, agents and employees. The Fund shall indemnify and hold AAL harmless for all loss, cost damage and expense resulting from the performance of its duties, unless due to the gross negligence, bad faith, willful misfeasance or reckless disregard of its obligations on the part of AAL, its officers, employees and agents.
Section 8 of the Participation Agreement between AAL, the Accounts and the Fund contains a provision in which the Fund and AAL mutually agree to indemnify and hold the other party (including its Officers, agents, and employees) harmless for any and all loss, cost damage and expense, including reasonable attorneys fees, incurred by the other party arising out of their performance under the Agreement, unless such liability is incurred as a result of the partys gross negligence, bad faith, or willful misfeasance or reckless disregard of its obligations and duties under the Agreement.
Section 8 of the Participation Agreement between AAL, the AAL Savings Plan, AAL CMC and the Fund contains a provision in which the Fund and AAL mutually agree to indemnify and hold the other party (including its Officers, agents, and employees) harmless for any and all loss, cost damage and expense, including reasonable attorneys fees, incurred by the other party arising out of their performance under the Agreement, unless such liability is incurred as a result of the partys gross negligence, bad faith, or willful misfeasance or reckless disregard of its obligations and duties under the Agreement.
Section 8 of the Principal Underwriting and Servicing Agreement between AAL and AAL CMC contains a provision in which AAL and AAL CMC mutually agree to indemnify and hold the other party (including its officers, agents, and employees) harmless for any and all loss, cost damage and expense, including reasonable attorneys fees, incurred by the other party arising out of their performance under the Agreement, unless such liability is incurred as a result of the partys gross negligence, bad faith, or willful misfeasance or reckless disregard of its obligations and duties under the Agreement.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Registrant, pursuant to the foregoing provisions or otherwise, Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Depositor, the Fund or AAL CMC of expenses incurred or paid by a director or officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person of Registrant in connection with the securities being registered, Depositor, the Fund or AAL CMC will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(a) AAL CMC, the principal underwriter of the Certificates, is also the distributor of the shares of The AAL Mutual Funds, a Massachusetts Business Trust offering a series of individual funds. The AAL Mutual Funds is an open-end management investment company. AAL CMC is also the investment adviser to the underlying Fund of the Registrant. (b) The directors and principal officers of AAL CMC are set out below. Unless otherwise indicated, the principal business address of each person named below is 222 West College Avenue, Appleton, Wisconsin, 54911. Name and Principal Positions and Offices Business Address with Underwriter Woodrow E. Eno Chairman of the Board Director, Senior Vice President and James H. Abitz Chief Investment Officer Robert G. Same Director and President Russell A. Evenson 4321 North Ballard Road Appleton, WI 54919 Director James H. Krueger 4321 North Ballard Road Appleton, WI 54919 Director and Vice President Jon M. Stellmacher 4321 North Ballard Road Appleton, WI 54919 Director and Vice President Carl J. Rudolph 4321 North Ballard Road Appleton, WI 54919 Director Jeffrey L. Verhagen 4321 North Ballard Road Appleton, WI 54919 Vice President Frederick D. Kelsven Vice President and Secretary Steven R. Wendt Vice President and Chief Financial Officer Jeffery R. Kargus Treasurer Thomas R. Mischka 4321 North Ballard Road Appleton, WI 54919 Vice President Lori Richardson 125 North Superior Street Appleton, WI 54911 Vice President Michael Mevis Vice President Marnie Loomans-Thuecks 4321 North Ballard Road Appleton, WI 54919 Vice President Krien VerBerkmoes III Vice President and Chief Compliance Officer Paul Stadler Vice President Charles D. Gariboldi Vice President Charles A. Friedman Vice President Gordon Beckler Vice President (c) Not Applicable.
The accounts and records of Registrant are located at the offices of the Depositor at 4321 North Ballard Road, Appleton, Wisconsin, 54919, and 222 West College Avenue, Appleton, Wisconsin, 54911.
(a) | Registrant undertakes to file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in this Registration Statement are never more than 16 months old for so long as payments under the certificates may be accepted. |
(b) | Registrant undertakes to include either: (1) as part of any application to purchase a certificate offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information. |
(c) | Registrant undertakes to deliver any Statement of Additional Information or financial statements required to be made available under this Form promptly, upon either written or oral request. |
(d) | The Depository insurance company represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Depositor. |
As required by the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant has caused this amended Registration Statement to be signed on its behalf in the City of Appleton and State of Wisconsin on this 21 day of December 2000.
AAL VARIABLE ANNUITY ACCOUNT II (Registrant) By: Aid Association for Lutherans (Depositor, on behalf of itself and Registrant) By: /s/John O. Gilbert John O. Gilbert President and Chief Executive Officer
As required by the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
/s/ John O. Gilbert President and December 21, 2000 John O. Gilbert Chief Executive Officer (Principal Executive Officer) /s/ Carl J. Rudolph Senior Vice President, Controller, December 21, 2000 Carl J. Rudolph Treasurer, and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer)All of the Board of Directors:
Raymond G. Avischious Gary J. Greenfield James H. Scott Richard E. Beumer Robert H. Hoffman Kathi P. Seifert Kenneth Daly Robert E. Long Roger B. Wheeler Elizabeth A. Duda Robert B. Peregrine E. Marlene Wilson Karen P. Goebel Paul D. Schrage Rev. Thomas R. Zehnder
John O. Gilbert, by signing his name hereto, does hereby sign this document on behalf of himself and each of the above-named Directors of Aid Association for Lutherans pursuant to powers of attorney duty executed by such persons.
/s/ John O. Gilbert December 21, 2000 John O. Gilbert Attorney-in-Fact
The exhibits below represent only those exhibits which are newly filed with this Registration Statement. See Item 24(b) of Part C for exhibits not listed below.
Exhibit Number Name of Exhibit 15 Power of Attorney for Karen P. Goebel
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