1933 Act Registration No. 33-82056
1940 Act Registration No. 811-8662
As filed with the Securities and Exchange Commission on
April 18, 1997.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 4 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 X
AAL VARIABLE PRODUCT SERIES FUND, INC.
(Exact name of registrant as specified in charter)
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (414) 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 Offerings: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b):
X on May 1, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of its securities of
each of its five series under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant filed a Rule 24f-2 Notice
on February 28, 1997.
<PAGE>
THE AAL VARIABLE PRODUCT SERIES FUND, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495 under the Securities Act of 1933 indicating the location of
the information called for by the Items of Parts A and B of Form N-1A.
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Item No. Caption Location
Part A
1. Cover Page Cover Page
2. Synopsis Introduction
3. Condensed Financial Information Financial Highlights; Introduction
4. General Description of Registrant, Cover Page; Introduction; Investment
Depositor, and Portfolio Companies Objectives and Policies; Other Investment
and Risk Factors Regarding the Portfolios
5. Management of the Fund Management of the Fund
5A. Management's Discussion of Fund Annual Report
Performance
6. Capital Stock and Other Securities Description of Shares; Shareholder
Inquiries; Dividends, Distributions and
Taxes
7. Purchase of Securities Being Offered Purchase and Redemption of Shares;
Net Asset Value
8. Redemption or Repurchase Purchase and Redemption of Shares;
Other Investment and Risk Factors
Regarding The PortfoliosCRepurchase
Agreements and Borrowing
9. Pending Legal Proceedings Not applicable
Part B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Introduction; Investment Techniques;
Options and Futures; Investment
Restrictions
14. Management of the Fund Management of the FundCBoard of
Directors and Executive Officers
15. Control Persons and Principal Management of the FundCPrincipal
Holders of Securities Holders of Securities
16. Investment Advisory and Other Services Management of the FundCThe
Investment Adviser; Management of the
FundCCustodian, Transfer Agent and
Independent Auditors for the Fund
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Not applicable
19. Purchase, Redemption and Pricing of Purchases and Redemptions; Pricing
Securities Being Offered Considerations
20. Tax Status Dividends and Distributions
21. Underwriters Not applicable
22. Calculation of Performance Data Calculation of Yield and Total
Return
23. Financial Statements Financial Statements
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Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
4321 North Ballard Road
Appleton Wisconsin, 54919
(414) 734-5721
Prospectus
May 1, 1997
The AAL Variable Product Series Fund, Inc. (the "Fund") is a corporation
organized on June 14, 1994, under the laws of the State of Maryland. It is a
registered, diversified, open-end investment company.
The Fund presently consists of five separate investment portfolios
("Portfolios"). The Portfolios' names and objectives are as follows:
The AAL Variable Product Money Market Portfolio seeks to provide maximum current
income to the extent consistent with liquidity and a stable net asset value of
$1.00 per share by investing in a diversified portfolio of high-quality,
short-term money market instruments. An investment is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the portfolio
will be able to maintain a stable net asset value of $1.00 per share.
The AAL Variable Product Bond Portfolio seeks to achieve investment results that
approximate the total return of the Lehman Brothers Aggregate Bond Index by
investing primarily in bonds and other debt securities included in the index.
The AAL Variable Product Balanced Portfolio seeks to achieve investment results
that reflect investment in common stocks, bonds and money market instruments,
each of which will be selected consistent with the investment policies of the
AAL Variable Product Large Company Stock, Bond and Money Market Portfolios,
respectively.
The AAL Variable Product Large Company Stock Portfolio seeks to achieve
investment results that approximate the performance of the Standard & Poor's 500
Composite Stock Price Index by investing primarily in common stocks included in
the Index.
The AAL Variable Product Small Company Stock Portfolio seeks to achieve
investment results that approximate the performance of the Wilshire Small Cap
Index by investing primarily in common stocks included in the index.
This prospectus provides purchasers of variable annuity certificates with basic
information they should know before allocating premium payments to the Fund. The
purchaser should read it and keep it for future reference. A Statement of
Additional Information, dated May 1, 1997 ("SAI"), containing additional
information about the Fund has been filed with the Securities and Exchange
Commission and is incorporated by reference into this prospectus in its
entirety. A copy of the SAI may be obtained without charge by calling or writing
the Fund at the AAL Variable Annuity Service Center, P.O. Box 419108, Kansas
City, Missouri 64141-6108 or telephone number 800-778-1762.
THESE SECURITIES 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.
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION...................................................................
FINANCIAL HIGHLIGHTS...........................................................
INVESTMENT OBJECTIVES AND POLICIES.............................................
The AAL Variable Product Money Market Portfolio.......................
The AAL Variable Product Bond Portfolio...............................
The AAL Variable Product Balanced Portfolio...........................
The AAL Variable Product Large Company Stock Portfolio...............
The AAL Variable Product Small Company Stock Portfolio................
OTHER INVESTMENT AND RISK FACTORS REGARDING THE PORTFOLIOS.....................
MANAGEMENT OF THE FUND.........................................................
PURCHASE AND REDEMPTION OF SHARES..............................................
NET ASSET VALUE................................................................
DIVIDENDS, DISTRIBUTIONS AND TAXES.............................................
PERFORMANCE INFORMATION........................................................
DESCRIPTION OF SHARES..........................................................
CUSTODIAN, TRANSFER AGENT AND INDEPENDENT AUDITORS.............................
SHAREHOLDER INQUIRIES..........................................................
<PAGE>
INTRODUCTION
Shares of the Fund are currently sold only to the AAL Variable Annuity Account I
(the "Variable Account") to fund benefits under certificates of membership and
flexible premium deferred variable annuity (the "Certificates") issued by Aid
Association for Lutherans ("AAL") and the Variable Account. The rights of the
Variable Account as shareholder of the Fund should be distinguished from the
rights of the Certificate Owners, which are described in the Certificates. A
prospectus with respect to the variable annuity Certificates accompanies this
prospectus and describes those rights in detail.
Certificates are available as a benefit to those eligible for membership in AAL
and to employees of AAL and its subsidiaries and affiliated companies who reside
in Wisconsin. AAL is a fraternal benefit society incorporated under the laws of
the state of Wisconsin.
Each Certificate Owner allocates variable annuity premiums relating to his or
her Certificate among five Subaccounts of the Variable Account or to a Fixed
Account. Fixed Account premiums will be invested by AAL as part of the general
account assets of AAL. The premiums allocated to the Subaccounts will be
invested in corresponding Portfolios of the Fund. The prospectus for the
Certificate describes the relationship between changes in the value of shares of
each Fund Portfolio and changes in the value or benefits payable under the
Certificate.
Performance results and financial statements of the Fund are included in the
Fund's SAI. Performance information is also provided in this prospectus for the
Standard & Poor's 500 Composite Stock Price Index, the Wilshire Small Cap Index
and the Lehman Brothers Aggregate Bond Index, since certain of the Portfolios
seek to achieve investment results that approximate the performance of these
indices. See "Performance Information." While this information may be helpful in
evaluating a Portfolio and its investment objectives, past performance should
not be regarded as a representation of future results of the Portfolios.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table covers the Fund Portfolios for the
periods shown. This information has been audited by Ernst & Young LLP, the
Fund's independent auditors, whose unqualified report thereon is contained in
the Fund's SAI. The Financial Highlights should be read in conjunction with the
Fund's audited financial statements, and notes thereto, which are contained in
the Fund's SAI. The SAI may be obtained without charge, as indicated on page 1
of this prospectus. Additional information about the performance of the Fund and
its Portfolios has been included in the Fund's annual report to shareholders,
which may also be obtained upon request, without charge. The Financial
Highlights presented herein are not necessarily indicative of future results.
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MONEY MARKET BOND BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
Periods Ended: 1995 1996 1995 1996 1995 1996
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NET ASSET VALUE: BEGINNING OF $1.00 $1.00 $10.00 $10.23 $10.00 $10.92
PERIOD...........................
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.05 0.34 0.63 0.22 0.41
Net realized and unrealized gains 0.00 0.00 0.23 (0.33) 0.92 1.05
(losses) on investments
Total From Investment Opertations 0.03 0.05 0.57 0.30 1.14 1.46
LESS DISTRIBUTIONS:
From net investment income (0.03) (0.05) (0.34) (0.63) (0.21) (0.41)
From net realized capital gains 0.00 0.00 0.00 0.00 (0.01) (0.01)
TOTAL DISTRIBUTIONS (0.03) (0.05) (0.34) (0.63) (0.22) (0.42)
Net increase (decrease) in net 0.00 0.00 0.23 (0.33) 0.92 1.04
asset value......................
Net Asset Value End of Period 1.00 1.00 10.23 9.90 10.92 11.96
TOTAL RETURN (a) 3.02% 5.23% 5.80% 3.10% 11.46% 13.65%
NET ASSETS: END OF PERIOD........ $7,044,642 $17,125,033 $9,362,832 $17,666,369 $28,758,722 $126,517,669
RATIOS/SUPPLEMENTAL DATA:
0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
Ratio of expenses to average net
assets (b) (c)
Ratio of net investment income to 5.71% 5.10% 6.54% 6.51% 4.07% 3.89%
average net assets (b) (c)
Portfolio turnover rate N/A N/A 6.51% 11.65% 2.29% 5.43%
Average commission rate paid (d) N/A N/A N/A N/A $0.0400 $0.0400
<PAGE>
LARGE SMALL
COMPANY COMPANY
STOCK STOCK
PORTFOLIO PORTFOLIO
Periods Ended: 1995 1996 1995 1996
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NET ASSET VALUE: BEGINNING OF $10.00 $11.51 $10.00 $10.00
PERIOD...........................
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11 0.23 0.08 0.12
Net realized and unrealized gains 1.52 2.34 0.99 1.86
(losses) on investments
Total From Investment Operations 1.63 2.57 1.07 1.98
LESS DISTRIBUTIONS:
From net investment income (0.11) (0.23) (0.07) (0.12)
From net realized capital gains (0.01) (0.02) (0.01) (0.31)
TOTAL DISTRIBUTIONS (0.12) (0.25) (0.08) (0.43)
Net increase (decrease) in net 1.51 2.32 0.99 1.55
asset value......................
Net Asset Value End of Period 11.51 13.83 10.99 12.54
TOTAL RETURN (a) 16.39% 22.47% 10.70% 18.19%
NET ASSETS, END OF PERIOD........ $23,138,378 $120,088,690 $15,665,864 $70,209,390
RATIOS/SUPPLEMENTAL DATA:
0.35% 0.35% 0.35% 0.35%
Ratio of expenses to average net
assets (b) (c)
Ratio of net investment income to 2.27% 1.97% 1.43% 1.14%
average net assets (b) (c)
Portfolio turnover rate 0.47% 1.77% 2.85% 20.14%
Average commission rate paid (d) $0.0400 $0.0400 $0.0400 $0.0400
</TABLE>
<PAGE>
(a)......Total return does not reflect expenses that apply at the Variable
Account level. Inclusion of these expenses would reduce the total return for the
period shown. All of the Portfolios are reported as period-to-date cumulative
total returns.
(b)......Calculated on an annualized basis.
(c)......Without reimbursements, the above ratios would have been:
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LARGE SMALL
MONEY MARKET COMPANY COMPANY
PORTFOLIO BOND BALANCED STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
Periods Ended: 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996
Ratio of expenses to average net 1.40% 0.65% 1.25% 0.68% 1.15% 0.60% 1.26% 0.63% 1.37% 0.75%
assets:
Ratio of net investment income to 4.66% 4.80% 5.64% 6.18% 3.27% 3.65% 1.37% 1.69% 0.41% 0.74%
average net assets:
</TABLE>
(d)......Amounts shown reflect the average brokerage commission paid on each
share of stock traded by the Portfolio during the period presented.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Portfolios is a fundamental policy which
cannot be changed without the vote of a majority of the outstanding shares of a
Portfolio. Except as otherwise indicated in this prospectus or in the SAI, the
investment policies of each Portfolio may be changed from time to time by the
Board of Directors of the Fund.
The variable annuity premiums from each Certificate Owner are invested in the
Variable Account in combination with those of many other Certificate Owners. The
Portfolios provide diversification by investing the Variable Account's assets in
the securities of different companies, government agencies, and other types of
debt securities. The Portfolios furnish experienced management to select and
monitor these investments. Each Certificate Owner has an indirect interest in
each of the securities held by each Portfolio he or she selects. Certificate
Owners are not "shareholders" of the Fund. Rather, the Variable Account of AAL
is the shareholder, although it will generally pass through voting rights to the
Certificate Owners.
Because the Portfolios invest in securities such as stocks and bonds, the yields
and values of which fluctuate with market conditions, the value of shares in the
Portfolios will rise and fall over time resulting in increases and decreases in
the value of the Owner's Certificate. AAL (the "Adviser") is responsible for
evaluating and selecting the securities held by the Portfolios and will use its
professional expertise and experience to try to meet the Portfolios' objectives,
although there can be no assurance that the Portfolios' objectives will be
attained.
The AAL Variable Product Money Market Portfolio
Objective: This Portfolio seeks to provide maximum current income, to the extent
consistent with liquidity and a stable net asset value of $1.00 per share, by
investing in a diversified portfolio of high-quality, short-term money market
instruments.
Policies: The Portfolio invests in a diversified portfolio of high-quality,
short-term money market instruments, including:
(1) Obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or shares of money market mutual funds
that limit their investments to the foregoing securities. As to
securities issued by U.S. government agencies and instrumentalities,
the degree of government support for such securities may vary;
(2) Certificates of deposit, bankers acceptances and similar
obligations of U.S. banks, savings associations, foreign branches of
U.S. banks, and domestic branches of foreign banks. Issuing banks must
have total assets at the time of purchase in excess of $1 billion, and
be members of the Federal Deposit Insurance Corporation;
<PAGE>
(3) Commercial paper which at the date of investment is rated (or
guaranteed by a company whose commercial paper is rated) in one of the
two highest categories by a nationally recognized statistical rating
organization, or, if unrated, issued by a corporation with outstanding
short-term debt which has an equivalent or better rating at the time
of investment;
(4) Corporate obligations, including variable rate master notes,
which, at the date of investment, are rated in one of the two highest
categories by a nationally recognized statistical rating organization,
or, if unrated, issued by a corporation with outstanding short-term
debt which has an equivalent or better rating at the time of
investment. Variable rate master notes are unsecured obligations,
redeemable upon notice, that permit investment of fluctuating amounts,
at varying rates of interest, pursuant to direct arrangements with the
issuer;
(5) Short-term Eurodollar and Yankee bank obligations. Eurodollar bank
obligations are dollar-denominated certificates of deposit or time
deposits issued outside the U.S. capital markets by foreign branches
of U.S. banks or by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital markets by
foreign banks; and
(6) Repurchase agreements that are collateralized by the securities
listed in (1) and (2) above.
All of the Portfolio's investments will mature in 397 days or less and the
Portfolio will maintain a dollar-weighted average portfolio maturity of not more
than 90 days. In some instances, the Portfolio may purchase variable rate
securities with actual maturities of 397 days or more, but only under conditions
established by Securities and Exchange Commission rules that permit such
securities to be considered to have maturities of less than 397 days. The yield
on these securities varies in relation to changes in specific money market
rates, such as the "Fed Funds Rate." These changes are reflected in adjustments
to the yields of the variable rate securities, and different securities may have
different adjustment rates.
A description of the ratings provided by certain nationally recognized
statistical rating organizations (Moody's, Duff & Phelps and S&P) is included in
"APPENDIX: SECURITIES RATINGS" in the SAI.
<PAGE>
Investment Risks: While the value of securities held by the AAL Variable Product
Money Market Portfolio may be less sensitive to interest rate changes,
shareholders should recognize that in periods of declining interest rates, this
Portfolio's yield may tend to be somewhat higher than prevailing money market
rates, and in periods of rising interest rates, this Portfolio's yield may tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to this Portfolio from the continuous sales of its shares may be
invested in portfolio instruments producing lower yields than the balance of its
portfolio investments, thereby somewhat reducing its yield. In periods of rising
interest rates, the opposite may be true. Also, to the extent that this
Portfolio invests in Eurodollar and Yankee bank obligations, it may be subject
to risks of the type discussed under "OTHER INVESTMENT AND RISK FACTORS
REGARDING THE PORTFOLIOS--Foreign Securities." Finally, the Portfolio invests in
portfolio instruments of shorter durations in order to provide the flexibility
to redeem shares that the Variable Account purchases, pursuant to certain "free
look" provisions described in the accompanying prospectus relating to the
Certificates.
The AAL Variable Product Bond Portfolio
Objective: This Portfolio seeks to achieve investment results that approximate
the total return of the Lehman Brothers Aggregate Bond Index (the "Lehman Bond
Index") by investing primarily in bonds and other debt securities included in
the index.
The Lehman Bond Index: This index is a broad-based bond index that encompasses
four major classes of investment grade fixed income securities in the United
States: U.S. Treasury and U.S. government agency securities, corporate debt
obligations, mortgage-backed securities and asset-backed securities. As of
December 31, 1996 , these four classes represented the following proportions of
the index's total market value:
<PAGE>
LEHMAN BROTHERS AGGREGATE BOND INDEX STATISTICS
December 31, 1996
Securities as a
Percent of Total
U.S. Treasury & Government Agency 51.6%
----
Corporate 17.8%
----
Mortgage-Backed 29.6%
----
Asset-Backed 1.0%
---
Total 100.0%
As of December 31, 1996, the effective average weighted maturity of the index
was 8.7 years.
<PAGE>
Lehman Brothers reserves the right to make changes to the Lehman Bond Index at
any time, and eligible investments for the Bond Portfolio will include any
additional asset classes included in the Lehman Bond Index.
Policies: The Portfolio will not invest in all of the individual issues that
comprise the Lehman Bond Index because of the large number of securities
(approximately 5,700) involved. Instead, the Portfolio will hold a
representative sample of fixed income and mortgage-backed securities included in
the Lehman Bond Index. The Portfolio will invest 80% or more of its assets in
securities included in the Lehman Bond Index. The securities included in the
Lehman Bond Index generally meet the following criteria, as defined by Lehman
Brothers: an effective maturity of not less than one year; an outstanding market
value of at least $100 million; and investment-grade quality (i.e., rated a
minimum of Baa3 by Moody's Investors Service, Inc. or BBB- by Standard & Poor's
or BBB- by Duff & Phelps, Inc.). A description of the ratings provided by
Moody's, S&P and Duff & Phelps is included in "APPENDIX: SECURITIES RATINGS" in
the SAI.
The Portfolio may purchase mortgage-backed securities issued by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, and the Federal Housing
Authority. GNMA securities are guaranteed by the U.S. government as to the
timely payment of principal and interest; securities from other
government-sponsored entities are generally not secured by an explicit pledge of
the U.S. government. The Portfolio may also invest in conventional
mortgage-backed securities, which are packaged by private corporations and are
not guaranteed by the U.S. government. The Portfolio will invest in the
securities of a particular agency only when the investment adviser is satisfied
that the credit risk is minimal. Mortgage-backed securities that are guaranteed
by the U.S. government are guaranteed only as to the timely payment of principal
and interest. The market value of such securities is not guaranteed and may
fluctuate. See "OTHER INVESTMENT AND RISK FACTORS REGARDING THE
PORTFOLIOS--Mortgage-Backed Securities."
The Portfolio will, to the extent feasible, remain fully invested. The
Portfolio's ability to match the performance of the Lehman Bond Index will be
affected to some extent by the size and timing of cash flows into and out of the
Portfolio. The Portfolio will be managed to reduce such effects. Portfolio
turnover is expected to be less than 50% per year. Although the Portfolio will
attempt to achieve a high correlation with the target Lehman Bond Index, it
cannot guarantee that a high correlation will be achieved. Other factors that
will affect the Portfolio's ability to approximate the target index return are:
the size of the bid-ask spread associated with Portfolio investments and
Portfolio management expenses incurred. A portion of the assets, normally
expected to be less than 5% of the Portfolio's assets, may at times be invested
in money market investments of the types described below under "The AAL Variable
Product Money Market Portfolio." No securities, other than futures contracts,
will be purchased on margin.
<PAGE>
Investment Risks: By the nature of securities markets, holders of bonds bear
certain risks. Bond prices in general may decline over short or even extended
periods of time. Yearly rates of return may vary widely and can include negative
results. The Portfolio will not adopt a temporary or defensive investment
posture in times of generally declining market conditions and investors in the
Portfolio, therefore, will bear the risk of such market conditions.
In order to provide additional revenue and to reduce the effect of price
fluctuations in the Portfolio's securities, the Portfolio may write (sell)
covered call options. As the writer of a covered call option, the Portfolio may
forego, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call option. Further information on
futures and options appears under "OTHER INVESTMENT AND RISK FACTORS REGARDING
THE PORTFOLIOS--Financial Futures Contracts and Options" in this prospectus and
additional information on futures, foreign securities, and covered call options,
including the risks thereof, is set forth in "OPTIONS AND FUTURES" in the SAI.
As part of its effort to approximate the investment performance of the Lehman
Bond Index, the AAL Variable Product Bond Portfolio will invest in
mortgage-backed securities. Mortgage-backed securities represent an interest in
an underlying pool of mortgages. Unlike ordinary fixed income securities, which
generally pay a fixed rate of interest and return principal at predetermined
intervals or upon maturity, mortgage-backed securities repay both interest
income and principal as part of their periodic payments. Because the mortgages
underlying mortgage-backed certificates can be prepaid at any time by homeowners
or corporate borrowers, mortgage-backed securities give rise to certain unique
"prepayment" risks. See "OTHER INVESTMENT AND RISK FACTORS REGARDING THE
PORTFOLIOS--Mortgage-Backed Securities."
The Bond Portfolio is also subject to the risk of increasing levels of interest
rates. See "OTHER INVESTMENT AND RISK FACTORS REGARDING THE PORTFOLIOS--
Interest Rate Fluctuations."
<PAGE>
The AAL Variable Product Balanced Portfolio
Objective: This Portfolio seeks to achieve investment results that reflect
investment in common stocks, bonds and money market instruments, each of which
will be selected consistent with the investment policies of the AAL Variable
Product Large Company Stock, Bond and Money Market Portfolios, respectively.
Policies: The AAL Variable Product Balanced Portfolio will be invested in the
following three market sectors:
(1) Common stocks, including the securities in which the AAL Variable
Product Large Company Stock Portfolio (discussed below) may invest;
(2) Bonds and other debt securities with maturities generally
exceeding one year, including the securities in which the AAL Variable
Product Bond Portfolio (discussed above) may invest; and
(3) Money market instruments and other debt securities with maturities
generally not exceeding 397 days, including the securities in which
the AAL Variable Product Money Market Portfolio (discussed above) may
invest.
The AAL Variable Product Balanced Portfolio will periodically review and may
adjust the mix of investments among the three market sectors to capitalize on
perceived variations in return potential produced by the interaction of changing
financial markets and economic conditions. Under normal market conditions, it is
reasonable to expect that as a percentage of the portfolio, common stocks would
represent 50% to 60%, fixed income securities would represent 30% to 40%, and
money market instruments would represent 0% to 20%. However, this Portfolio will
at all times maintain an investment mix within the following ranges: 35% to 75%
common stocks; 25% to 50% in fixed-income securities; and 0% to 40% in money
market instruments. Changes in the investment mix may occur several times within
a year or over several years depending upon market and economic conditions. It
is expected that the Portfolio's annual turnover rate will not exceed 50% within
the common stock and fixed income sectors.
The Balanced Portfolio's investment policies for each of the three component
types of investments listed above are substantially identical to those discussed
herein for the AAL Variable Product Large Company Stock, the AAL Variable
Product Bond and the AAL Variable Product Money Market Portfolios, respectively.
Investment decisions for the Balanced Portfolio are made by a committee of AAL
investment personnel.
Investment Risks: The Balanced Portfolio is subject to both stock market and
interest rate (bond) risk because it invests in both stocks and bonds.
Fluctuating stock prices are expected to have a significant effect on the
Portfolio's share price, as the Portfolio invests 35% to 75% of its assets in
common stocks. Bond prices are affected primarily by changes in interest rates
and are expected to have a lesser influence on net asset value. In the past, the
stock and bond markets have, from time to time, fluctuated independently of one
another. As a result, with its mix of stocks and bonds, the Balanced Portfolio
is likely to entail less investment risk--and a potentially lower return--than a
portfolio investing exclusively in common stocks. Nevertheless, the Balanced
Portfolio will be subject in some degree to the same risks as are the AAL
Variable Product Large Company Stock, Bond and Money Market Portfolios. For a
discussion of these risks, see "OTHER INVESTMENT AND RISK FACTORS REGARDING THE
PORTFOLIOS" in this prospectus.
<PAGE>
The AAL Variable Product Large Company Stock Portfolio
Objective: This Portfolio seeks to achieve investment results that approximate
the performance of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") by investing primarily in common stocks included in the index.
The S&P 500 Index: This index is a standard used to obtain a broad index of
larger capitalization stocks. It is composed of 500 common stocks representing
more than 70% of the total market value of all publicly traded common stocks.
The index is constructed by Standard & Poor's Corporation ("Standard & Poor's"
or "S&P"), which chooses stocks on the basis of market values and industry
diversification. Most of the largest 500 companies listed on U.S. stock
exchanges are included in the index. Additional stocks that are not among the
500 largest stocks, by market value, are included in the S&P 500 Index for
diversification purposes. The index is capitalization weighted--that is, stocks
with a larger capitalization (shares outstanding times current price) have a
greater weight in the index. S&P periodically makes additions and deletions to
the index. Selection of a stock for inclusion in the S&P 500 Index in no way
implies an opinion by S&P as to its attractiveness as an investment. Standard &
Poor's only relationship to the Portfolio is the licensing of the Standard &
Poor's marks and the S&P 500 Index, which is determined, composed and calculated
by Standard & Poor's without regard to the AAL Variable Product Large Company
Stock Portfolio. "Standard & Poor'sR," "S&PR," "S&P 500R," "Standard & Poor's
500," and "500" are trademarks of McGraw-Hill, Inc. and have been licensed for
use by AAL and the Fund. The Fund and the Certificates are not sponsored,
endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund or the
Certificates.
Policies: Stocks will be held approximately in proportion to their weight in the
index. The Portfolio will seek to hold as high a percentage of the 500 issues in
the index as is practicable. The Large Company Stock Portfolio will not be
managed in the traditional sense using economic, financial and market analysis.
Stock selection in the Portfolio will be computer driven with the criterion for
selection being the achievement of high correlation with the performance of the
S&P 500 Index. Portfolio turnover is expected to be less than 50% per year. As
changes are made to the index during the year, they will be reflected in the
Portfolio as soon as is practicable.
<PAGE>
The Portfolio will, to the extent feasible, remain fully invested. The
Portfolio's ability to match the performance of the S&P 500 Index will be
affected to some extent by the size and timing of cash flows into and out of the
Portfolio. The Portfolio will be managed to reduce such effects. Although the
Portfolio will attempt to achieve a high correlation with the target S&P 500
Index, it cannot guarantee that a high correlation will be achieved. Other
factors that will affect the Portfolio's ability to approximate the target index
return are: commission expenses, other transaction fees, the size of the bid-ask
spread associated with stocks that are traded in the over-the-counter market,
and Portfolio management expenses incurred. A portion of the assets, normally
expected to be less than 3% of the Portfolio's assets, may at times be invested
in money market investments of the types described below under "The AAL Variable
Product Money Market Portfolio." The Portfolio may invest up to 20% of its net
assets, valued at the time of purchase, in securities of foreign issuers,
including American Depositary Receipts ("ADRs"), that are included in the S&P
500 Index. No securities, other than futures contracts, will be purchased on
margin.
Investment Risks: By the nature of securities markets, holders of stocks bear
certain risks. Stock prices in general may decline over short or even extended
periods of time. Yearly rates of return may vary widely and can include negative
results. The Portfolio will not adopt a temporary or defensive investment
posture in times of generally declining market conditions and investors in the
Portfolio, therefore, will bear the risk of such market conditions.
The Portfolio may invest in foreign securities, but only if such securities are
listed and traded on a U.S. national securities exchange. Investments in foreign
securities involve risks discussed under "Foreign Securities," below. The
Portfolio may also invest in Standard & Poor's Depositary Receipts ("SPDRs"). In
order to provide additional revenue and to reduce the effect of price
fluctuations in the Portfolio's securities, the Portfolio may write (sell)
covered call options. As the writer of a covered call option, the Portfolio may
forego, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call option.
Further information on futures and options appears under "OTHER INVESTMENT AND
RISK FACTORS REGARDING THE PORTFOLIOS--Financial Futures Contracts and Options"
in this prospectus and additional information on futures, foreign securities,
SPDRs, and options, including the risks thereof, is set forth in the SAI.
<PAGE>
The AAL Variable Product Small Company Stock Portfolio
Objective: This Portfolio seeks to achieve investment results that approximate
the performance of the Wilshire Small Cap Index by investing primarily in common
stocks included in the index.
The Wilshire Small Cap Index: This index is a creation of Wilshire Associates
Incorporated, the Pacific Stock Exchange and the Chicago Board of Trade. The
index is comprised of 250 stocks weighted by their market capitalization and its
component stocks are selected according to liquidity, industry sector and market
capitalization parameters. It is a custom-designed index intended to represent
the performance attributes of the smaller capitalization segment of the U.S.
equity markets.
Policies: Stocks will be held approximately in proportion to their weight in the
index. The Portfolio will seek to hold as high a percentage of the issues in the
index as is practicable. The Small Company Stock Portfolio will not be managed
in the traditional sense using economic, financial and market analysis. Stock
selection in the Portfolio will be computer driven with the criterion for
selection being the achievement of high correlation with the performance of the
Wilshire Small Cap Index. Portfolio turnover is expected to be less than 50% per
year. As changes are made to the index during the year, they will be reflected
in the Portfolio as soon as is practicable.
The Portfolio will, to the extent feasible, remain fully invested. The
Portfolio's ability to match the performance of the Wilshire Small Cap Index
will be affected to some extent by the size and timing of cash flows into and
out of the Portfolio. The Portfolio will be managed to reduce such effects.
Although the Portfolio will attempt to achieve a high correlation with the
target Wilshire Small Cap Index, it cannot guarantee that a high correlation
will be achieved. Other factors that will affect the Portfolio's ability to
approximate the target index return are: commission expenses, other transaction
fees, the size of the bid-ask spread associated with stocks that are traded in
the over-the-counter market, and Portfolio management expenses incurred. A
portion of the assets, normally expected to be less than 3% of the Portfolio's
assets, may at times be invested in money market investments of the types
described below under "The AAL Variable Product Money Market Portfolio." The
Portfolio may invest up to 20% of its net assets, valued at the time of
purchase, in securities of foreign issuers, including ADRs, that are included in
the Wilshire Small Cap Index. No securities, other than futures contracts, will
be purchased on margin.
<PAGE>
Investment Risks: Historically, small capitalization stocks, which constitute
the Portfolio's primary investments, have been more volatile in price than the
larger capitalization stocks included in the S&P 500 Index. Among the reasons
for the greater price volatility of these small company stocks are the less
certain growth prospects of smaller firms, the lower degree of liquidity in the
markets for such stocks, and the greater sensitivity of small companies to
changing economic conditions. In addition, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Therefore, investment
return may be more volatile and significantly different from that achieved with
larger stock indices such as the S&P 500 Index or the Dow Jones Industrial
Average. The Portfolio will not adopt a temporary or defensive investment
posture in times of generally declining market conditions and investors in the
Portfolio, therefore, will bear the risk of such market conditions.
The Portfolio may invest in foreign securities, but only if such securities are
listed and traded on a U.S. national securities exchange. Investments in foreign
securities involve risks that are discussed under "OTHER INVESTMENT AND RISK
FACTORS REGARDING THE PORTFOLIOS--Foreign Securities," below. In order to
provide additional revenue and to reduce the effect of price fluctuations in the
Portfolio's securities, the Portfolio may write (sell) covered call options. As
the writer of a covered call option, the Portfolio may forego, during the
option's life, the opportunity to profit from increases in the market value of
the security covering the call option above the sum of the premium and the
exercise price of the call option.
Further information on futures and options appears under "OTHER INVESTMENT AND
RISK FACTORS REGARDING THE PORTFOLIOS--Financial Futures Contracts and Options"
in this prospectus and additional information on futures, foreign securities,
the Wilshire Small Cap Index, and options, including the risks thereof, is set
forth in the SAI.
OTHER INVESTMENT AND RISK FACTORS REGARDING THE PORTFOLIOS
Interest Rate Fluctuations
With respect to the AAL Variable Product Bond Portfolio and, to a lesser extent,
the AAL Variable Product Balanced Portfolio, it can be expected that a decline
in prevailing levels of interest rates generally will increase the value of
securities held in the Portfolios and an increase in rates generally will reduce
the value of these securities. As a result, interest rate fluctuations will
affect these Portfolios' net asset values. Because yields on the securities
available for purchase by the Portfolios will vary over time, no specific yield
on shares of the Portfolios can be assured.
<PAGE>
Mortgage-Backed Securities
Certain mortgage-backed securities purchased by the AAL Variable Product Bond
Portfolio and the bond component of the AAL Variable Product Balanced Portfolio
provide for a right to prepay and for amortized payments of both interest and
principal over the term of the security. Prepayments are particularly likely
during times of declining interest rates.
The yield on the original investment in mortgage-backed securities applies only
to the unpaid principal balance, as the Portfolios must reinvest the principal
payments at prevailing market interest rates which may be higher or lower than
the rate on the original security. In times of falling interest rates, the yield
is likely to be lower than that received from the original investment. If these
instruments are purchased at a premium in the market, and if prepayment occurs,
such prepayments will be at par or stated value, which will result in reduced
return on such transactions. Finally, the risk of prepayment tends to cause the
value of a Portfolio's investments in mortgage-backed securities to increase
less in times of decreasing interest rates and decline more in times of
increasing interest rates. On the other hand, these securities tend to have a
higher yield than do securities with no prepayment feature.
Foreign Securities
Holding securities of foreign issuers, including ADRs, entails special risks.
Non-U.S. dollar-denominated foreign securities may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations (including currency blockage) and a Portfolio may incur costs in
connection with conversions between various currencies. Foreign securities may
also involve risks due to changes in the political or economic conditions of
such foreign countries, the possible expropriation or nationalization of assets,
possible difficulty in obtaining and enforcing judgments against foreign
entities, reduced levels of information about and regulation of foreign issuers,
difficulties in repatriation of capital invested abroad, foreign withholding
taxes, and differing accounting, auditing, and financial standards.
Repurchase Agreements and Borrowing
The Portfolios may from time to time enter into repurchase agreements. Under the
terms of a typical repurchase agreement, a Portfolio would acquire an underlying
obligation for a relatively short period (usually from one to seven days)
subject to an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The Portfolios require the sellers to post collateral (in cash,
U.S. government securities, or obligations issued by banks) in an amount at all
times equal to, or in excess of, the market value of the securities which are
the subject of the agreement. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, there may be delays and expenses in
liquidating the securities, decline in their value and loss of interest. The
Portfolios maintain procedures for evaluating and monitoring the
creditworthiness of firms with which they enter into repurchase agreements. No
Portfolio may invest more than 15% (10% in the case of the AAL Variable Product
Money Market Portfolio) of its total assets in repurchase agreements maturing in
more than seven days or in securities that are subject to legal or contractual
restrictions on resale or are otherwise illiquid.
<PAGE>
The AAL Variable Product Money Market Portfolio may enter into reverse
repurchase agreements, subject to its investment restrictions. A reverse
repurchase agreement involves a sale by the Portfolio of securities that it
holds concurrently with an agreement by the Portfolio to repurchase the same
securities at an agreed upon price and date. The Portfolio uses the proceeds of
reverse repurchase agreements to provide liquidity to meet redemption requests
and to make cash payments of dividends and distributions when the sale of the
Portfolio's securities is considered to be disadvantageous. Cash, U.S.
government securities or other liquid high grade debt obligations equal in value
to the Portfolio's obligations with respect to the reverse repurchase
agreements, are segregated and maintained with the Fund's custodian. The Money
Market Portfolio's obligations under reverse repurchase agreements will be
counted towards the limitation on the Portfolio's borrowings, described below.
Each Portfolio may borrow, but only from banks, for temporary or emergency
purposes in amounts not exceeding 10% of a Portfolio's total assets. Any
borrowings will be repaid before any further purchase of securities are made by
the Portfolio.
Interest paid on such borrowings will reduce a Portfolio's net income.
When-Issued Purchases
The AAL Variable Product Bond and Balanced Portfolios may purchase securities on
a when-issued or delayed delivery basis. Although the payment and interest terms
of these securities are established at the time the purchaser enters into the
commitment, the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. The Portfolios make
such commitments only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is deemed advisable for
investment reasons.
Financial Futures Contracts and Options
The AAL Variable Product Bond, Balanced, Large Company Stock and Small Company
Stock Portfolios may utilize futures contracts and options to a limited extent.
Specifically, each Portfolio may enter into futures contracts provided that not
more than 5% of its assets are required as a futures contract margin deposit; in
addition, a Portfolio may enter into futures contracts and options transactions
only to the extent that obligations under such contracts or transactions
represent no more than 33% of the Portfolio's assets.
Futures contracts and options may be used by the Portfolios for several reasons:
to maintain cash reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, to generate additional income, or to hedge
against price movements.
<PAGE>
The primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the stocks held
or eligible to be purchased by a Portfolio and the prices of futures contracts
and options; and (ii) possible lack of a liquid secondary market for a futures
or options contract and the resulting inability to close a position prior to its
maturity date. The risk of imperfect correlation will be minimized by using only
those contracts whose behavior is expected to resemble that of a Portfolio's
underlying securities or that are eligible to be purchased by the Portfolio. The
risk that a Portfolio will be unable to close out a futures or options position
will be minimized by entering into such transactions only on a national exchange
with an active and liquid secondary market.
The risk of loss in investing in futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (or gain) to the investor. When purchasing futures contracts, a
Portfolio will segregate with its custodian (or to the extent legally permitted,
a broker purchasing) cash or cash equivalents in the amount of the underlying
obligation. See "OPTIONS AND FUTURES" in the SAI.
Investment Restrictions
In addition to those policies noted above with respect to specific investments,
the Portfolios are subject to certain investment restrictions. Among other
things, these limitations generally prohibit a Portfolio from investing more
than 25% of its assets in a single industry or in securities of issuers in which
the Portfolio has invested more than 5% of its total assets. These limitations
do not apply to securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. A description of other investment restrictions
applicable to the Fund is included in the SAI. The Fund's policies and
investment restrictions are not deemed fundamental policies, and, therefore, may
be changed by the Board of Directors without shareholder approval, except to the
extent that such approval may be legally required.
<PAGE>
MANAGEMENT OF THE FUND
The Fund's Board of Directors decides matters of general policy and reviews the
activities of the Fund's Adviser and the Fund's officers conduct and supervise
the daily business operations of the Fund.
The Adviser
Aid Association for Lutherans ("AAL" or "Adviser") is the investment adviser to
the Fund. AAL was organized on November 24, 1902. The Adviser is a fraternal
benefit society under Internal Revenue Code section 501(c)(8) and incorporated
under the laws of the state of Wisconsin. As of December 31, 1996, AAL had
approximately 1.7 million members and is the world's largest fraternal benefit
society in terms of assets (over $16.7 billion) and life insurance in force
($78.8 billion), ranking it in the top two percent of all life insurers in the
United States in terms of ordinary life insurance in force. Membership is open
to Lutherans and their families. AAL offers life, disability income insurance
and annuities to its members. All members are part of one of about 9,500 local
AAL branches throughout the United States. AAL has extensive experience in
investment management matters and staff professionals associated with the
Adviser have previous experience in the management of financial assets. AAL
manages assets in excess of $15.6 billion for its insurance portfolios. The
principal address of the Adviser is 4321 North Ballard Road, Appleton, Wisconsin
54919-0001.
Pursuant to an Investment Advisory Agreement, dated September 27, 1994, as
amended February 28, 1996, with the Fund (the "Advisory Agreement"), the Adviser
manages the investment and reinvestment of the Fund's assets, provides the Fund
with office space, executive and other personnel, facilities and administrative
services, and supervises the Fund's daily business affairs, all subject to the
supervision of the Fund's Board of Directors. The Adviser formulates and
implements a continuous investment program for the Portfolios consistent with
each Portfolio's investment objectives, policies and restrictions.
The Adviser receives an investment advisory fee as compensation for its services
to the Fund. The fee is a daily charge equal to an annual rate of .35% of the
average daily net assets of each Portfolio up to $250,000,000 and .30% of the
average daily net assets of each Portfolio in excess of that amount.
In addition to the investment advisory fee, subject to the expense reimbursement
arrangement discussed below, each Portfolio will bear all of its operating
expenses that are not specifically assumed by the Adviser, including the
following: (i) interest and taxes; (ii) brokerage commissions; (iii) insurance
premiums; (iv) compensation and expenses for those Directors who are not
affiliated with the Adviser; (v) independent legal and audit expenses; (vi) fees
and expenses of the Fund's custodian, shareholder servicing or transfer agent
and accounting services agent; (vii) expenses incident to the issuance of its
shares, including stock certificates and issuance of shares on the payment of,
or reinvestment of dividends; (viii) fees and expenses incident to the
registration under Federal or state securities laws of the Fund or its shares;
(ix) Fund or Portfolio organizational expenses; (x) expenses of preparing,
printing and mailing Fund reports, notices, proxy material and prospectuses to
shareholders of the Fund; (xi) all other expenses incidental to holding meetings
of the Fund's shareholders; (xii) dues of, or assessments of, or contributions
to, the Investment Company Institute or any successor or other industry
association; (xiii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations which the Fund may have
to indemnify its officers and Directors with respect thereto; and (xiv) cost of
daily valuation of each of the Portfolio's securities and net asset value per
share.
<PAGE>
The Advisory Agreement provides that, notwithstanding the foregoing, the Adviser
will reimburse the Fund for substantially all of its operating expenses, other
than investment advisory fees, brokerage commissions, and any extraordinary
items such as litigation expenses or income tax liabilities. The Adviser may
withdraw this undertaking on 30 days' written notice to the Fund. The Adviser
has informed the Fund's Board of Directors that it currently intends to bear all
of the Fund's operating expenses, other than those specified immediately above,
through at least December 31, 1997.
Portfolio Managers
Money Market Portfolio - Alan D. Onstad, CFA, has managed this Portfolio since
inception. He is a Vice President of Aid Association for Lutherans where he has
been employed since 1973.
Bond Portfolio - R. Jerry Scheel has managed this Portfolio since inception. He
is a Vice President of Aid Association for Lutherans where he has been employed
since 1972.
Balanced Portfolio - John A. Larson, CFA, has managed this Portfolio since
inception. He is a Director of Securities for Aid Association for Lutherans
where he has been employed since 1984.
Large Company Stock Portfolio - David J. Schnarsky, CFA, has managed the
Portfolio since inception. He is a Director of Securities for Aid Association
for Lutherans where he has been employed since 1991.
Small Company Stock Portfolio - Brian J. Flanagan has managed the Portfolio
since March 1, 1997. He is an investment manager for Aid Association for
Lutherans where he has been employed since 1994. From 1992 to 1994 he was an
investment assistant with Valley Trust Company, Madison, Wisconsin and an
investment analyst for Northwestern National Insurance Group, Brookfield
Wisconsin.
The Administrator
Pursuant to an Administrative Services Agreement between the Adviser and AAL
Capital Management Corporation (the "Administrator"), a wholly-owned indirect
subsidiary of the Adviser, the Administrator has agreed to perform certain
services that the Adviser has contracted to provide to the Fund under the
Investment Advisory Agreement, including portfolio accounting, expense accrual,
valuation and financial reporting, and tax accounting services for each
Portfolio. The Adviser pays the Administrator at a specified rate not to exceed
the rates charged by unaffiliated vendors for comparable services, plus
reimbursable expenses, as may be approved annually by a majority of the Fund's
Board of Directors. The Fund does not directly reimburse the Adviser for the
cost of these services provided by the Administrator. The Administrative
Services Agreement provides that it will continue in effect from year to year
with respect to any Portfolio, so long as such continuation is specifically
approved at least annually by the Fund's Board of Directors or by a vote of a
majority of the outstanding voting securities of such Portfolio, and, in either
case, a majority of the Fund's disinterested Directors.
<PAGE>
Third party Administrator
AAL has entered into a Service Agreement with The Continuum Company, Inc.
("Continuum"), pursuant to which Continuum will provide certain services in
connection with the Variable Account including, among other things, application
and premium processing. Continuum has the necessary equipment and personnel to
provide and support remote terminal access to AAL's annuity processing system
for the establishment and maintenance of annuity records, processing
information, and the generation of output with respect to the records and
information
Portfolio Transactions
The Adviser directs the placement of orders for the purchase and sale of the
Funds' Portfolio securities. In doing so, the best combination of price and
execution is sought, which involves a number of judgmental factors. When the
Adviser believes that more than one broker or dealer is capable of providing the
best combination of price and execution in a particular portfolio transaction,
normally a broker or dealer is selected that has furnished brokerage and
research services.
It is possible that from time to time the Adviser may make similar investment
decisions for one or more Portfolios, for the Adviser's own account, and, when
applicable, for its other clients where it is consistent with their respective
investment objectives and policies. If these entities desire to buy or sell the
same Portfolio securities at about the same time, combined purchases and sales
may be made and allocated at the average net unit price for the securities and,
as nearly as practicable, on a pro-rata basis in proportion to the amounts
desired to be purchased or sold by each entity. While it is conceivable that in
certain instances this procedure could have a detrimental effect on the price or
volume of the security to be purchased or sold, as far as a Portfolio is
concerned, it is believed that this procedure would generally contribute to
better overall execution of the Fund's Portfolio transactions, including, but
not limited to, the realization of lower commission rates and advantageous
prices. For example, coordination with transactions for other clients and the
ability to participate in volume transactions could benefit the Fund. Where
combined purchases and sales are not made, volume transactions and any resulting
benefit, of course, would not be available. AAL does not expect that the
opportunity to make such combined purchases and sales will arise in the ordinary
course of its business.
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Shares of all Portfolios are continuously offered and redeemed by the Fund,
without sales charge, at prices equal to the respective per share net asset
value ("NAV") of each Portfolio. Shares of the Fund are currently offered only
to AAL Variable Annuity Account I to fund benefits payable under the
Certificates. The Fund may, at some later date, also offer its shares to other
separate accounts of AAL or a subsidiary or affiliated company of AAL. Shares of
the Fund were sold directly to AAL in connection with the initial capitalization
of the Portfolios.
The Variable Account transmits to the Fund any orders to purchase or redeem
shares of the Portfolio based on the completed purchase payments, redemption
(surrender) requests and transfer requests from Certificate Owners, annuitants
or beneficiaries on the day after AAL receives such orders. The Variable Account
purchases and redeems shares of each Portfolio at the Portfolio's NAV per share
calculated as of the day AAL receives its orders. Orders to purchase or redeem
Fund shares which are not based on actions by Certificate Owners, annuitants or
beneficiaries or routine deductions of charges by AAL will be effected at the
Portfolio's NAV per share next computed after the order is placed.
The Fund is required to pay the proceeds for redemption of all full and
fractional shares of the Fund within seven days after the date as of which the
redemption is priced. The right to redeem shares or to receive payment with
respect to any redemption may be suspended only for any period during which
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or when such exchange is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists as defined by the Securities and Exchange Commission as a
result of which disposal of a Portfolio's securities or determination of the
Portfolio's NAV is not reasonably practicable, and for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
shareholders of any Portfolio.
NET ASSET VALUE
The NAV per share of any Portfolio is determined once daily at the close of
regular trading on the New York Stock Exchange, currently 4:00 p.m., New York
time, on each day that AAL is open for business. NAV will not be determined on
holidays observed by the Exchange. The NAV of shares is computed by adding the
sum of the value of the securities held by each Portfolio plus any cash or other
assets it holds, less all of that Portfolio's liabilities, and dividing the
result by the total number of outstanding shares of that Portfolio at such time.
Securities owned by the Fund for which market quotations are readily available
are valued at current market value. However, all securities of the AAL Variable
Product Money Market Portfolio are valued on the basis of their amortized cost,
which approximates market value. All other securities and assets are valued at
fair value as determined in good faith by or under the direction of the Fund's
Board of Directors.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify as a "regulated investment company" under the
Internal Revenue Code (the "Code") and to take all other action required so that
no federal income tax will be payable by the Portfolios themselves. Each
Portfolio will be treated as a separate regulated investment company under the
requirements of the Code.
The Fund intends to distribute as dividends substantially all the net investment
income, if any, of each Portfolio. For dividend purposes, net investment income
of each Portfolio, other than the AAL Variable Product Money Market Portfolio,
will consist of all payments of dividends (other than stock dividends) or
interest received by such Portfolio less the estimated expenses of such
Portfolio (including fees payable to the Adviser). Net investment income of the
AAL Variable Product Money Market Portfolio consists of (i) interest accrued
and/or discount earned (including both original issue and market discount), (ii)
plus or minus all realized gains and losses, (iii) less the estimated expenses
of the Portfolio (including the fees payable to the Adviser).
Shares of a Portfolio will begin accruing dividends on the day following the
date as of which the shares are credited to the Variable Account. Dividends will
generally be declared and reinvested daily on the AAL Variable Product Money
Market Portfolio, and monthly on all other Portfolios, although the Fund may
make distributions of dividends on any Portfolio more or less frequently, as
appropriate. The Fund will also declare and distribute annually all net realized
capital gains of the Fund, other than short-term gains of the Money Market
Portfolio, which are declared as dividends daily. A capital gain distribution
will usually be made in December.
All income dividends and capital gains distributions are reinvested in full and
fractional shares of a Portfolio at NAV, without any charges, on the payment
date, unless an election is made on behalf of the Variable Account to receive
distributions in cash.
Purchases of securities for each of the Portfolios also will be limited in
accordance with the diversification requirements for insurance products
established pursuant to Section 817(h) of the Code. To comply with the
regulations under Section 817(h), each Portfolio is required to diversify its
investments so that on the last day of each quarter of a calendar year, no more
than 55% of the value of its total assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by any
four investments. In calculating these percentages, securities of a given issuer
generally are treated as one investment, but each U.S. government agency and
instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the United
States or an agency or instrumentality of the United States, is treated as a
security issued by the U.S. government, agency or instrumentality, whichever is
applicable. Failure to comply with these diversification requirements may result
in immediate taxation to the Certificate Owners of returns credited to
Certificates.
<PAGE>
PERFORMANCE INFORMATION
The Portfolios may, from time to time, include quotations of their total return
or yield in connection with the total return for the Variable Account in
advertisements, sales literature, or reports to Certificate Owners or to
prospective investors. Total return and yield quotations reflect only the
performance of a hypothetical investment in the Portfolio during a specified
period. Such quotations do not in any way indicate or project future
performance. Quotations of total return and yield regarding a Portfolio do not
reflect charges or deductions against the Variable Account or charges and
deductions against the Certificates. Where relevant, the prospectus and SAI for
the Certificate contain additional performance information.
The total return of a Portfolio refers to the average annual percentage change
in value of an investment in the Portfolio held for various periods of time,
including, but not limited to, one year, five years, ten years or such shorter
period as the Portfolio has been in operation, as of a stated ending date. When
the Portfolio has been in operation for these periods, the total return for such
periods will be provided if performance information is quoted. Total return
quotations are expressed as average annual compound rates of return for each of
the periods quoted, reflect the deduction of a proportional share of Portfolio
expenses and assume that all dividends and capital gains distributions during
the period are reinvested in the Portfolio when made.
A Portfolio may, from time to time, disclose in advertisements, sales literature
and reports to Certificate Owners or to prospective investors, total return for
the Portfolio for periods in addition to those required to be presented, or
disclose other nonstandardized data such as cumulative total returns, actual
year-by-year returns, or any combination thereof.
A Portfolio may also, from time to time, compare the performance of the
Portfolio in advertisements, sales literature and reports to Certificate Owners
or to prospective investors to: (1) the S&P 500 Index, the Wilshire Small Cap
Index, the Lehman Bond Index, the Dow Jones Industrial Average, or other widely
recognized indices; (2) other mutual funds whose performance are reported by
Lipper Analytical Services, Inc. ("Lipper"), Variable Annuity Research & Data
Service ("VARDS") and Morningstar, Inc. ("Morningstar"), or reported by other
services, companies, individuals or other industry or financial publications of
general interest, such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Changing Times and Fortune, which rank and/or rate mutual funds by
overall performance or other criteria; and (3) the Consumer Price Index. Lipper,
VARDS and Morningstar are widely quoted independent research firms which rank
mutual funds by overall performance, investment objectives, and assets.
Unmanaged indices may assume the reinvestment of dividends but usually do not
reflect any deduction for the expense of operating or managing a fund.
The Portfolio yield quotation refers to the income generated by a hypothetical
investment in the Portfolio over a specified thirty-day (seven-day for the Money
Market Portfolio) period expressed as a percentage rate of return for that
period. The yield is calculated by dividing the net investment income per share
for the period by the price per share on the last day of that period.
For more information about the Portfolios' performance, see the SAI and the
Fund's annual report to shareholders.
<PAGE>
Performance of the S&P 500 Index
The table below shows annual total returns for the S&P 500 Index for the past 15
years. These returns show the change in value for the S&P 500 index assuming
reinvestment of all dividends paid by stocks included in the Index. Tax
consequences are not included in the illustration, nor are brokerage or other
fees included in the S&P 500 Index return figures. The results shown below
should not be considered representative of the return which may be generated by
the S&P 500 Index or any Portfolio in the future.
Historical Annual Total Rates of Return for the S&P 500 Index
Year Return Year Return Year Return
- ---- ------ ---- ------ ---- ------
1996 23.0%
1995 37.6% 1990 -3.1% 1985 31.6%
1994 1.3% 1989 31.7% 1984 6.1%
1993 10.1% 1988 16.6% 1983 22.4%
1992 7.6% 1987 5.1% 1982 21.4%
1991 30.5% 1986 18.6%
S&P 500 Index historical annualized compound rates of return for the past
5-year, 10-year, and 15-year periods 15.2%, 15.2% and 16.7% respectively. These
compound rates of return are greater than historical returns measured over
longer periods of time based on Ibbotson Associates data. For example, during
the 71-year period from 1926 through 1996, Ibbotson Associates indicates the
compound rate of return on the S&P 500 Index was 10.7% per year.
Had the AAL Variable Product Large Company Stock Portfolio been in existence and
achieved the above returns, such returns would have been reduced by the fees of
the Adviser and other costs associated with the administration of the Portfolio.
See "MANAGEMENT OF THE FUND" for more information.
<PAGE>
Performance of The Wilshire Small Cap Index
The table below shows annual total returns for the Wilshire Small Cap Index for
the past 15 years. These returns show the change in value for the Wilshire Small
Cap Index assuming reinvestment of all dividends paid by stocks included in the
Index. Tax consequences are not included in the illustration, nor are brokerage
or other fees included in the Wilshire Small Cap Index figures. The results
shown below should not be considered representative of the return which may be
generated by the Wilshire Small Cap Index or any Portfolio in the future.
Historical Annual Total Rates of Return for the Wilshire Small Cap Index
Year Return Year Return Year Return
- ---- ------ ---- ------ ---- ------
1996 19.8%
1995 26.5% 1990 -15.1% 1985 32.9%
1994 -3.1% 1989 20.5% 1984 0.0%
1993 18.0% 1988 21.4% 1983 30.3%
1992 14.6% 1987 -3.3% 1982 29.7%
1991 51.8% 1986 10.0%
Wilshire Small Cap Index historical annualized compound rates of return for the
past 5-year, 10-year, and 15-year periods were 14.7, 13.7 and 15.7%
respectively.
Had the AAL Variable Product Small Company Stock Portfolio been in existence and
achieved the above returns, such returns would have been reduced by the fees of
the Adviser and other costs associated with the administration of the Portfolio.
See "MANAGEMENT OF THE FUND" for more information.
<PAGE>
Performance of the Lehman Bond Index
The table below shows annual total returns for the Lehman Bond Index for the
past 15 years. These returns show the change in value for the Lehman Bond Index
assuming reinvestment of all interest paid by securities held by the index. Tax
consequences are not included in the illustration, nor are brokerage or other
fees included in the Lehman Bond Index figures. The results shown below should
not be considered representative of the return which may be generated by the
Lehman Bond Index or any Portfolio in the future.
Historical Annual Total Rates of Return for the Lehman Bond Index
Year Return Year Return Year Return
- ---- ------ ---- ------ ---- ------
1996 3.6%
1995 18.5% 1990 9.0% 1985 22.1%
1994 -2.9% 1989 14.5% 1984 15.2%
1993 9.0% 1988 7.9% 1983 8.4%
1992 7.4% 1987 2.8% 1982 32.6%
1991 16.0% 1986 15.3%
Lehman Bond Index historical annualized compound rates of return for the past
5-year, 10-year, and 15-year periods were 6.9%, 8.4% and 11.7 % respectively.
These compound rates of return are greater than historical returns measured over
longer periods of time based on Ibbotson Associates data. For example, during
the 71-year period from 1926 through 1996, Ibbotson Associates indicates the
compound rate of return has been 5.2% per year on Intermediate-term Government
Bonds and 5.6% per year on Long-term Corporate Bonds.
Had the AAL Variable Product Bond Portfolio been in existence and achieved the
above returns, such returns would have been reduced by fees of the Adviser and
other costs associated with the administration of the Portfolio. See "MANAGEMENT
OF THE FUND" for more information.
<PAGE>
DESCRIPTION OF SHARES
The Fund may issue up to 2 billion shares of common stock, $.001 par value, in
one or more series (Portfolios) as the Board of Directors may authorize.
Currently, the Board has authorized five series which bear the designation of
the names of the respective Portfolios.
Each share of a Portfolio is entitled to participate pro rata in any dividends
or other distributions declared by the Board with respect to that Portfolio, and
all shares of a Portfolio have equal rights in the event of liquidation of that
Portfolio.
AAL provided the initial capitalization of each Portfolio and, as of December
31, 1996, beneficially owned more than 25 % of the shares of the AAL Variable
Product Bond Portfolio. As a result of such ownership, AAL may be deemed to be
in control of this Portfolio.
Voting Privileges
The voting privileges of Certificate Owners, and limitations on those
privileges, are explained in the accompanying prospectus relating to the
Certificates. AAL, as the owner of the assets in the Variable Account, will
attend shareholder meetings and will vote all of the shares of the Portfolios
held to fund the benefits under the Certificates, but it will generally do so in
accordance with the instructions of the Certificate Owners. Any such shares of a
Portfolio attributable to a Certificate for which no timely voting instructions
are received, and any shares of the Portfolio held by AAL or any of its
subsidiaries or affiliates for their own account, will be voted by AAL in
proportion to the voting instructions that are received with respect to all
Certificates participating in that Portfolio. Under certain circumstances
described in "VOTING PRIVILEGES" in the Fund's SAI, however, AAL may disregard
voting instructions received from Certificate Owners.
Shareholders are entitled to one vote for each share held. Because the per share
purchase price of shares of different Portfolios will not, generally, be the
same (the initial NAV established for shares of the AAL Variable Product Bond,
Balanced, Large Company Stock and Small Company Stock Portfolios, was $10.00 per
share, as compared to $1 per share for the AAL Variable Product Money Market
Portfolio), the number of votes obtained as a result of a particular amount
invested will generally vary depending upon which Portfolio's shares are
purchased (for example, using the initial NAVs set forth above, a $100
investment in the AAL Variable Product Money Market Portfolio would result in
100 votes, whereas the same investment in any one of the other Portfolios would
result in only 10 votes).
The Fund is not required to hold annual shareholder meetings. However, special
meetings may be called for purposes such as electing or removing Directors,
changing fundamental policies, or approving an investment advisory contract.
Shares of each series are entitled to vote as a series only to the extent
required by the 1940 Act and rules thereunder or as permitted by the Directors.
No matter required to be submitted to shareholder vote is deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each series that may be affected by the matter
differently from another series. On matters affecting an individual Portfolio,
such as approvals of investment advisory agreements and changes in investment
objectives, a separate vote of the shares of that Portfolio is required. Shares
of a Portfolio are not entitled to vote on any matter not affecting that
Portfolio. The shares of all the Portfolios vote together on matters that do not
affect one Portfolio differently from another, such as the election of Directors
and ratification of the Fund's auditors.
<PAGE>
Indemnity and Limitation of Liability of Directors and Officers
To the fullest extent permitted by Maryland and federal law, the Fund will
indemnify and limit the liability of Directors and officers of the Fund from any
personal liability to the Fund or the holders of shares of its series or classes
for money damages. However, this limitation and indemnification does not protect
any Director or officer from liability to which the Director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
CUSTODIAN, TRANSFER AGENT AND INDEPENDENT AUDITORS
Citibank, N.A., 111 Wall Street, New York, NY 10043, serves as Custodian
for the Fund. AAL serves as Transfer Agent for the Fund. Ernst & Young LLP, 111
East Kilbourn Avenue, Suite 900, Milwaukee, Wisconsin 53202, serves as
independent auditors for the Fund. The Financial Highlights included in this
prospectus and the financial statements of the Fund included in the SAI have
been audited by Ernst & Young LLP, and have been so included in reliance on
their report as experts in accounting and auditing.
SHAREHOLDER INQUIRIES
All inquiries from Certificate Owners regarding the Fund should be directed to
the Fund at: AAL Variable Annuity Service Center, P.O. Box 419108, Kansas City,
Missouri, 64141-6108 or telephone number 800-778-1762.
<PAGE>
[Back Cover of prospectus]
Service Center:
AAL VARIABLE ANNUITY SERVICE CENTER
P.O. Box 419108
Kansas City, Missouri 64141-6108
Telephone (800) 778-1762
Investment Adviser and Transfer Agent:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Custodian:
Citibank, N.A.
111 Wall Street
New York, NY 10043
Independent Auditors:
Ernst & Young LLP
111 East Kilbourn Avenue, Suite 900
Milwaukee, Wisconsin 53202
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
(414) 734-5721
Statement of Additional Information
Dated May 1, 1997
This Statement of Additional Information ("SAI") is not a prospectus but
provides additional information which should be read in conjunction with the
prospectus of the AAL Variable Product Series Fund, Inc., dated May 1, 1997.
Capitalized terms used in this SAI that are not otherwise defined herein have
the same meaning given to them in the prospectus. The Fund's prospectus may be
obtained at no charge by writing or telephoning the Fund at the address and
telephone number above.
The investment objectives of the Portfolios are as follows:
The AAL Variable Product Money Market Portfolio seeks to provide maximum current
income, to the extent consistent with liquidity and a stable net asset value of
$1.00 per share, by investing in a diversified portfolio of high-quality,
short-term money market instruments.
The AAL Variable Product Bond Portfolio seeks to achieve investment results that
approximate the total return of the Lehman Brothers Aggregate Bond Index by
investing primarily in bonds and other debt securities included in the index.
The AAL Variable Product Balanced Portfolio seeks to achieve investment results
that reflect investment in common stocks, bonds, and money market instruments,
each of which will be selected consistent with the investment policies of the
AAL Variable Product Large Company Stock Portfolio, Bond Portfolio and Money
Market Portfolio, respectively.
The AAL Variable Product Large Company Stock Portfolio seeks to achieve
investment results that approximate the performance of the Standard & Poor's
500(R) Composite Stock Price Index by investing primarily in common stocks
included in the index.
The AAL Variable Product Small Company Stock Portfolio seeks to achieve
investment results that approximate the performance of the Wilshire Small Cap
Index by investing primarily in common stocks included in the Index.
<PAGE>
Statement of Additional Information
Table of Contents
Page
INTRODUCTION........................................................SAI-
VOTING PRIVILEGES...................................................SAI-
INVESTMENT TECHNIQUES...............................................SAI-
THE S&P 500 INDEX(R)................................................SAI-
THE WILSHIRE SMALL CAP INDEX........................................SAI-
OPTIONS AND FUTURES.................................................SAI-
INVESTMENT RESTRICTIONS.............................................SAI-
PURCHASES AND REDEMPTIONS...........................................SAI-
MANAGEMENT OF THE FUND..............................................SAI-
PORTFOLIO TRANSACTIONS..............................................SAI-
DIVIDENDS AND DISTRIBUTIONS.........................................SAI-
CALCULATION OF YIELD AND TOTAL RETURN...............................SAI-
PRICING CONSIDERATIONS..............................................SAI-
GENERAL.............................................................SAI-
APPENDIX: SECURITY RATINGS..........................................SAI-
FINANCIAL STATEMENTS................................................SAI-
<PAGE>
INTRODUCTION
The following information supplements the discussion in the Fund's prospectus of
the Portfolios' respective investment objectives and policies and other aspects
of the Fund's management and operations.
VOTING PRIVILEGES
Each Portfolio's investment objective is a fundamental policy, which may not be
changed without the approval of a "majority of the outstanding voting
securities" of that Portfolio. A "majority of the outstanding voting securities"
means the approval of the lesser of (i) 67% or more of the voting securities at
a meeting if the holders of more than 50% of the outstanding voting securities
of a Portfolio are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of a Portfolio.
While AAL, as the owner of the assets of its AAL Variable Annuity Account I (the
"Variable Account"), is entitled to vote all of the shares of a Portfolio held
to fund the benefits under variable annuity certificates funded through the
Variable Account (the "Certificates"), it will generally do so in accordance
with the instructions of Certificate owners ("Owners"). However, AAL may
disregard voting instructions received from Owners that would require shares to
be voted to (i) disapprove a change from a diversified to a non-diversified
investment company (or vice versa) or a change in investment objective, if such
change is required by an insurance regulatory authority; (ii) approve any
investment advisory agreement that has been disapproved by an insurance
regulatory authority; (iii) approve any change in investment objective or
policies that would violate state law or result in the purchase of securities
that vary from the general quality and nature of investments or investment
techniques used by any other separate accounts of AAL or its affiliates that
have similar investment objectives; (iv) approve a change in any principal
underwriter of the Fund that is reasonably disapproved by AAL; or (v) approve a
change in the Fund's investment adviser initiated by insurance contract owners
or the Fund's Board of Directors, if the proposed advisory fee exceeds any
applicable maximums specified in any insurance contract participating in the
Fund or if the proposed investment adviser may be expected to use investment
techniques different from those generally used by the current adviser or to
advise the purchase or sale of securities which would not be consistent with the
investment objectives of the Fund or which would vary from the quality and
nature of the investments made by any other separate accounts of AAL and its
affiliates that have similar investment objectives.
Any such shares of a Portfolio attributable to a Certificate for which no timely
voting instructions are received, and shares of that Portfolio held by AAL or
any of its subsidiaries or affiliated companies for their own account, will be
voted by AAL in proportion to the voting instructions that are received with
respect to all Certificates participating in that Portfolio.
<PAGE>
INVESTMENT TECHNIQUES
Each Portfolio may use the following techniques in pursuit of its investment
objective.
Lending Portfolio Securities
Subject to restriction (4) under "INVESTMENT RESTRICTIONS," a Portfolio may lend
its portfolio securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value of the securities
loaned by the Portfolio. The Portfolio would continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned, and
would also receive an additional return which may be in the form of a fixed fee
or a percentage of the collateral. The Portfolio would have the right to call
the loan and obtain the securities loaned at any time on notice of not more than
five business days. The Portfolio would not have the right to vote the
securities during the existence of the loan but would call the loan to permit
voting of securities during the existence of the loan if, in the Adviser's
judgment, a material event requiring a shareholder vote would otherwise occur
before the loan was repaid. In the event of bankruptcy or other default of the
borrower, the Portfolio could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the securities loaned
during the period while the Portfolio seeks to enforce its rights thereto, (b)
possible subnormal levels of income and lack of access to income during this
period, and (c) expenses of enforcing its rights.
When-Issued and Delayed Delivery Securities
A Portfolio may purchase securities on a when-issued or delayed delivery basis,
as described in the prospectus. A Portfolio makes such commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for investment reasons.
At the time a Portfolio enters into a binding obligation to purchase securities
on a when-issued basis, liquid high-grade debt obligations of the Portfolio,
having a value at least as great as the purchase price of the securities to be
purchased, will be identified on the books of the Portfolio and held by the
Portfolio's custodian throughout the period of the obligation. The use of these
investment strategies may increase NAV fluctuation.
Rated Securities
For a description of certain ratings applied by rating services to debt
securities, please refer to the Appendix to this SAI. The rated debt securities
described under "Investment Objectives and Policies" in the prospectus for each
Portfolio include securities given a rating conditionally by Moody's Investors
Service, Inc. ("Moody's"), or provisionally by Standard and Poor's Corporation
("S&P") or Duff & Phelps, Inc. ("Duff & Phelps"). If the rating of a security
held by a Portfolio is lost or reduced, the Portfolio is not required to sell
the security, but the Adviser will consider such fact in determining whether
that Portfolio should continue to hold the security. To the extent that the
ratings accorded by Moody's, S&P or Duff & Phelps for debt securities may change
as a result of changes in such organization, or changes in their rating systems,
a Portfolio will attempt to use comparable ratings as standards for its
investments in debt securities in accordance with its investment policies.
<PAGE>
Foreign Securities
The AAL Variable Product Large Company Stock and Small Company Stock Portfolios
and the stock component of the Balanced Portfolio may invest in the common stock
of foreign corporations, including American Depositary Receipts ("ADRs"), but
only if such securities are listed and traded on a U.S. national securities
exchange. The AAL Variable Product Bond Portfolio and the bond component of the
AAL Variable Product Balanced Portfolio may invest in debt securities of foreign
issuers that are payable in U.S. dollars. The AAL Variable Product Money Market
Portfolio and the money market component of the AAL Variable Product Balanced
Portfolio may invest in short-term Eurodollar and Yankee bank obligations.
Foreign securities may represent a greater degree of risk (including risks
relating to tax provisions or expropriation of assets) than do securities of
domestic issuers.
ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank. ADRs are traded on a
United States exchange or in the domestic over-the-counter market. Investment in
ADRs has certain advantages over direct investment in the underlying foreign
securities since: (i) ADRs are U.S. dollar-denominated investments that are
easily transferable and for which market quotations are readily available, and
(ii) issuers whose securities are represented by ADRs are, in some cases,
subject to auditing, accounting and financial reporting standards similar to
those applied to domestic issuers.
Privately Issued Securities: The AAL Variable Product Money Market Portfolio
Commercial paper and other securities in which the AAL Variable Product Money
Market Portfolio may invest include securities issued by major corporations
without registration under the Securities Act of 1933 in reliance on certain
exemptions, including the "private placement" exemption afforded by Section 4(2)
of that Act. Section 4(2) paper is restricted as to disposition under the
federal securities laws in that any resale must be made in an exempt
transaction. This paper normally is resold to other institutional investors
through, or with, the assistance of investment dealers who make a market in it,
thus providing liquidity. In the opinion of the Adviser, Section 4(2) paper is
no less liquid or saleable than commercial paper issued without legal
restrictions on disposition. However, regulatory interpretations currently in
effect require that the Portfolio will not purchase Section 4(2) paper if more
than 10% of its total assets would consist of such paper and illiquid (including
other restricted) securities.
Standard & Poor's Depositary Receipts
The AAL Variable Product Large Company Stock Portfolio may, consistent with its
objectives, purchase Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs are
American Stock Exchange-traded securities that represent ownership in the SPDR
Trust, a trust which has been established to accumulate and hold a portfolio of
common stocks that is intended to track the price performance and dividend yield
of the S&P 500(R) Index. This trust is sponsored by a subsidiary of the American
Stock Exchange. SPDRs may be used for several reasons, including but not limited
to: facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk to the Portfolio as the
price movement of the instrument does not perfectly correlate with the price
action of the underlying index.
<PAGE>
THE S&P 500(R) INDEX
The S&P 500(R) Index is a broad index of larger capitalization stocks. It is
composed of 500 common stocks representing more than 70% of the total market
value of all publicly traded common stocks. The index is constructed by Standard
& Poor's Corporation, which chooses stocks on the basis of market values and
industry diversification. Most of the largest 500 companies listed on U.S. stock
exchanges are included in the index. Most stocks in the index are listed on the
New York Stock Exchange. A much smaller number come from the American Stock
Exchange and the over-the-counter market. Additional stocks that are not among
the 500 largest stocks, by market value, are included in the S&P 500(R) Index
for diversification purposes. The index is capitalization-weighted--that is,
stocks with a larger capitalization (shares outstanding times current price)
have a greater weight in the index. Market capitalizations of stocks in the
index as of December 1996, range from a maximum of $163 billion to a minimum of
$400 million. The average capitalization was $11.2 billion and the median
capitalization was $5.3 billion. S&P periodically makes additions and deletions
to the index. Selection of a stock for inclusion in the S&P 500(R) Index in no
way implies an opinion by Standard & Poor's as to its attractiveness as an
investment.
THE WILSHIRE SMALL CAP INDEX
The AAL Variable Product Small Company Stock Portfolio attempts to generate an
investment return comparable to that of the Wilshire Small Cap Index. This index
was created through an association between Wilshire Associates Incorporated, the
Pacific Stock Exchange and the Chicago Board of Trade. Wilshire Associates ranks
the 2500 largest capitalization stocks traded on the U.S. stock exchanges to
create its Wilshire 2500 Index. It breaks this index into two component indices:
(1) the Wilshire Top 750, comprised of the largest 750 stocks, by
capitalization, traded on the exchanges, and (2) the Wilshire Next 1750,
comprised of the next 1750 largest stocks or those ranked from 751 to 2500 in
terms of capitalization. The Wilshire Small Cap Index is a subset of this Next
1750. The Wilshire Small Cap Index is comprised of 250 stocks weighted by their
market capitalization and its component stocks are selected according to
liquidity, industry sector and market capitalization parameters. The Wilshire
Small Cap Index attempts to capture the return profile and fundamental
characteristics of the Wilshire Next 1750. The index is recreated annually at
the end of June based on market values as of that date. The index is rebalanced
quarterly to reflect periodic changes in shares outstanding. No names are added
or deleted as a result of the rebalancing process. Stocks may be dropped from
the index at any time due to merger or acquisition or any other event which
causes the company to cease to exist as an ongoing concern. In that event, a new
name is added to maintain the total at 250.
OPTIONS AND FUTURES
The AAL Variable Product, Bond, Balanced, Large Company Stock and Small Company
Stock Portfolios may write (sell) covered call options to provide
additional revenue and to reduce the effect of price fluctuations in that
Portfolio's securities. In addition, through the purchase of options and the
purchase and sale of futures contracts and related options, these Portfolios
may at times seek to enhance current returns or to hedge against a decline in
the value of currently-owned securities or an increase in the price of
securities intended to be purchased. Options and futures contracts may
also be used to facilitate trading, reduce transaction costs or to
simulate full investment while maintaining cash reserves.
Additional types of options, futures contracts, futures options and related
strategies that are not described in the Fund's prospectus or this SAI also may
be employed if approved by the Board of Directors and if their use is consistent
with the Portfolio's investment objective.
<PAGE>
Options on Securities and Indexes
Options may be purchased and sold on debt or other securities or indexes in
standardized contracts traded on national securities exchanges, boards of trade,
or similar entities, or quoted on NASDAQ. In addition, agreements sometimes
called cash puts may accompany the purchase of a new issue of bonds from a
dealer.
An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from ("call") or sell to
("put") the writer of the option the security underlying the option (or the cash
value of a multiple of the index) at a specified exercise price at any time
during the term of the option. The writer of an option on a security has the
obligation upon exercise of the option to deliver the underlying security upon
payment of the exercise price or to pay the exercise price upon delivery of the
underlying security. Upon exercise, the writer of an option on an index is
obligated to pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular financial or
securities market, a specific group of financial instruments or securities, or
certain economic indicators.)
A Portfolio will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is covered if the
Portfolio owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount are held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. For a call option on an
index, the option is covered if the Portfolio maintains, in a segregated account
with its custodian, cash or cash equivalents equal to the contract value. A call
option also is covered if the Portfolio holds a call on the same security or
index as the call written where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Portfolio in cash or cash equivalents in a segregated account with its
custodian. A put option on a security or an index is covered if the Portfolio
maintains cash or cash equivalents equal to the exercise price in a segregated
account with its custodian. A put option also is covered if the Portfolio holds
a put on the same security or index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written, or (ii) less than the exercise price of the put written, provided the
difference is maintained by the Portfolio in cash or cash equivalents in a
segregated account with its custodian.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying security or index, exercise price, and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be effected
when the Portfolio desires.
The principal factors affecting the market value of a put or call option include
supply and demand, interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option, the
volatility of the underlying security or index, and the time remaining until the
expiration date.
The premium paid for a put or call option purchased by a Portfolio is an asset
of the Portfolio. The premium received for an option written by a Portfolio is
recorded as a deferred credit. The value of an option purchased or written is
marked to market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.
<PAGE>
Risks Associated with Options on Securities and Indexes
There are several risks associated with transactions in options on securities
and on indexes. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Portfolio seeks
to close out an option position. If a Portfolio were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If a
Portfolio were unable to close out a covered call option that it had written on
a security, it would not be able to sell the underlying security unless the
option expires without exercise. As the writer of a covered call option, a
Portfolio forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased by a Portfolio, the Portfolio
would not be able to close out the option. If restrictions on exercise were
imposed, the Portfolio might be unable to exercise an option it has purchased.
Except to the extent that a call option on an index written by the Portfolio is
covered by an option on the same index purchased by the Portfolio, movements in
the index may result in a loss to the Portfolio; however, such losses may be
mitigated by changes in the value of the Portfolio's securities during the
period the option was outstanding.
Futures Contracts and Options on Futures Contracts
A Portfolio may use interest rate and index futures contracts. An interest rate
or index futures contract provides for the future sale by one party and purchase
by another party of a specified quantity of a financial instrument or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index contract
was originally written. Although the value of an index might be a function of
the value of certain specified securities, no physical delivery of those
securities is made.
Use of futures could facilitate the handling of portfolio cash flows and trading
and reduce transaction costs. Futures would not be used by the Bond, Large
Company Stock, and Small Company Stock Portfolios for hedging purposes but to
gain exposure to the underlying indices with available cash. The S&P 500 Index
Future would be the instrument used to gain S&P 500(R) Index exposure in the AAL
Variable Product Large Company Stock Portfolio. The Russell 2000 Index future
would be the instrument used to gain small capitalization market exposure in the
AAL Variable Product Small Company Stock Portfolio. The Russell 2000 Index
futures was introduced on the Chicago Mercantile Exchange on February 3, 1993
and has become the most liquid of the small capitalization index futures.
<PAGE>
A public market exists in futures contracts covering a number of other indexes,
as well as the following financial instruments: U.S. Treasury bonds, U.S.
Treasury notes, GNMA certificates, three-month U.S. Treasury bills, 90 day
commercial paper, bank certificates of deposit, and Eurodollar time deposits. It
is expected that other futures contracts will be developed and traded. A
Portfolio may engage in transactions involving new futures contracts (or options
thereon) if, in the opinion of the Board of Directors, they are appropriate in
carrying out the investment objectives of the Portfolio.
The Portfolios may purchase or write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes. A futures option gives the holder the right, in return for the premium
paid, to assume a long position (call) or short position (put) in a futures
contract at a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true.
Each Portfolio will only enter into futures contracts and futures options which
are standardized and traded on a U.S. exchange, board of trade, or similar
entity, or quoted on an automated quotation system. Options on futures contracts
may be liquidated without exercise if the Fund enters into an offsetting
position in the identical option prior to the expiration date.
When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. A Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by a Portfolio is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Portfolio
pays or receives cash, called "variation margin," equal to the daily change in
value of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by a Portfolio but is
instead settlement between the Portfolio and the broker of the amount one would
owe the other if the futures contract expired. In computing daily net asset
value, each Portfolio will mark to market its open futures positions.
In similar fashion, a Portfolio also is required to deposit and maintain margin
with respect to put and call options on futures contracts written by it. Such
margin deposits will vary depending on the nature of the underlying futures
contract (and the related initial margin requirements), the current market value
of the option, and other futures positions held by the Portfolio.
Risks Associated with Futures
There are several risks associated with the use of futures contracts and futures
options. A purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract. There can be no guarantee that
there will be a correlation between price movements in the futures contract and
in the underlying index or debt instrument. There are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets. The degree of imperfection of correlation
depends on circumstances such as: variations in speculative market demand for
futures, futures options and debt securities, including technical influences in
futures and futures options trading and differences between the financial
instruments owned or eligible to be acquired by the Portfolios and the
instruments underlying the standard contracts available for trading, in such
respects as interest rate levels, maturities, and creditworthiness of issuers.
<PAGE>
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day,
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures or futures option position, and the
Portfolio would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
Limitations on Options and Futures
A Portfolio will not enter into a futures contract or purchase or write an
option thereon if, immediately thereafter, the initial margin deposits for
futures contracts held and options thereon written by that Portfolio plus
premiums paid by it for open futures options positions, less the amount by which
any such positions are "in the money," would exceed 5% of the Portfolio's net
assets. A call option is "in the money" if the price of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in the money" if the exercise price exceeds the price of the futures contract
that is the subject of the option.
When purchasing a futures contract or writing a put on a futures contract, a
Portfolio must maintain, in a segregated account with its custodian, cash or
cash equivalents which, when added to the related initial margin maintained by
the Portfolio, equals the market value of such contract. When writing a call
option on a futures contract, the Portfolio similarly will maintain with its
custodian cash or cash equivalents which, when added to the related initial
margin maintained by the Portfolio, at all times equals the amount such option
is in the money until the option expires or is closed out by the Portfolio.
A Portfolio may not maintain open short positions in futures contracts, call
options written on futures contracts or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its Portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the Portfolio and the positions. For this purpose, to
the extent the Portfolio has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
<PAGE>
Taxation of Options and Futures
If a Portfolio exercises a call or put option it owns, the premium paid for the
option is added to the cost of the security purchased (call) or deducted from
the proceeds of the sale (put). For cash settlement options and futures options,
the difference between the cash received at exercise and the premium paid is a
capital gain or loss.
If a call or put option written by a Portfolio is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost of the security purchased (put). For cash settlement options
and futures options, the difference between the cash paid at exercise and the
premium received is a capital gain or loss.
A Portfolio will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Portfolio will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Portfolio will realize a capital gain or, if it is
less, the Portfolio will realize a capital loss. If an option was "in the money"
at the time it was written and the security covering the option was held for
more than six months prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long term. The holding period
of the securities covering an "in the money" option will not include the period
of time the option is outstanding.
If an option written by a Portfolio expires, the Portfolio realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by a Portfolio expires unexercised, the Portfolio realizes a
capital loss equal to the premium paid.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, the Portfolio realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. The transaction costs must also be included in these
calculations.
A futures contract held until delivery results in capital gain or loss equal to
the difference between the price at which the futures contract was entered into
and the settlement price on the earlier of the delivery notice date or
expiration date. If a Portfolio delivers securities under a futures contract,
the Portfolio also realizes a capital gain or loss on those securities.
<PAGE>
For federal income tax purposes, a Portfolio generally is required to recognize
as income for each taxable year its net unrealized gains and losses as of the
end of the year on options (other than an option on a stock), futures and
futures options positions ("year-end mark to market"). Generally, any gain or
loss recognized with respect to such positions (either by year end mark to
market or by actual closing of the positions) is considered to be 60% long term
and 40% short term, without regard to the holding periods of the contracts.
However, in the case of positions classified as part of a "mixed straddle," the
recognition of losses on certain positions (including options, futures and
futures options positions, the related securities and certain successor
positions thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or buying put
options (or futures put options) which are intended to hedge against a change in
the value of securities held by a Portfolio: (1) will affect the holding period
of the hedged securities; and (2) may cause unrealized gain or loss on such
securities to be recognized upon entry into the hedge.
In order for each Portfolio to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income: i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities. In addition, gains realized on the sale or other disposition of
securities held for less than three months must be limited to less than 30% of
the Portfolio's annual gross income. Any net gain realized from futures (or
futures options) contracts will be considered gain from the sale of securities
and therefore be qualifying income for purposes of the 90% requirement. In order
to avoid realizing excessive gains on securities held less than three months,
the Portfolio may be required to defer the closing out of certain positions
beyond the time when it would otherwise be advantageous to do so. Year-end mark
to market gains on positions open for less than three months as of the end of a
Portfolio's fiscal year are considered gains on securities held three months or
more for purposes of the 30% test.
Each Portfolio distributes to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including year-end mark to
market gains) on options and futures transactions. Such distributions are
combined with distributions of capital gains realized on the Portfolio's other
investments and shareholders are advised of the nature of the payments.
INVESTMENT RESTRICTIONS
Each Portfolio operates under the following investment restrictions. A Portfolio
may not:
(1) make any investment if, immediately thereafter, less than 75%
of its total assets would be represented by (a) cash,
receivables and other cash items, (b) securities issued by the
U.S. government, its agencies or instrumentalities, and (c)
other securities limited in respect of any one issuer to an
amount not greater in value than 5% of such total assets. For
purposes of this restriction, repurchase agreements fully
collateralized by securities of the U.S. government, its
agencies and instrumentalities shall be considered to be
securities issued by the governmental entity in question,
rather than by the repurchase agreement obligor;
(2) purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of
portfolio securities, but it may, to the extent consistent
with its investment objectives and policies, make margin
deposits in connection with transactions in options, futures
and options on futures;
<PAGE>
(3) make short sales of securities or maintain a short position,
or write, purchase, or sell puts, calls, straddles, spreads,
or combinations thereof, except, to the extent consistent with
its investment objectives and policies, transactions in
options on securities or indexes, interest rate and index
futures and options on such futures;
(4) make loans to other persons, except that the Portfolios
reserve freedom of action, consistent with their other
investment policies and restrictions and as described in the
prospectus and this SAI, to (i) invest in debt obligations,
including those which are either publicly offered or of a type
customarily purchased by institutional investors, even though
the purchase of such debt obligations may be deemed the making
of loans, (ii) enter into repurchase agreements, and (iii)
lend portfolio securities, provided that no Portfolio may lend
securities if, as a result, the aggregate value of all
securities loaned would exceed 33% of its total assets (taken
at market value at the time of such loan);
(5) issue senior securities or borrow, except that a Portfolio may
borrow in amounts not in excess of 10% of its total assets,
taken at current value, and then only from banks, as a
temporary measure for extraordinary or emergency purposes. The
Portfolios will not borrow to increase income but may borrow,
among other things, to meet redemption requests which
otherwise might require untimely dispositions of portfolio
securities;
(6) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by a
Portfolio except as may be necessary in connection with and
subject to the limits in restriction (5);
(7) underwrite any issue of securities, except to the extent that
the purchase of securities directly from an issuer thereof in
accord with a Portfolio's investment objectives and policies
may be deemed to be underwriting or to the extent that in
connection with the disposition of portfolio securities a
Portfolio may be deemed an underwriter under federal
securities laws;
(8) purchase or sell real estate, provided that a Portfolio may
invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
(9) purchase or sell commodities or commodity contracts, except
that, to the extent consistent with its investment objective
and policies, a Portfolio may purchase or sell interest rate
and index futures and options thereon. For purposes of this
restriction, foreign exchange contracts are not considered to
be commodities contracts;
<PAGE>
(10) invest more than 25% of its total assets (taken at current
value at the time of each investment) in securities of issuers
whose principal business activities are in the same industry.
For purposes of this restriction, telephone, water, gas and
electric public utilities are each regarded as separate
industries, and wholly-owned finance subsidiaries are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of their parents. Nor does this restriction apply to
investments by a Portfolio in obligations of the U.S.
government or any of its agencies or instrumentalities. Nor,
with respect to the AAL Variable Product Money Market
Portfolio, does this restriction apply to certificates of
deposit, bankers' acceptances or similar obligations of
domestic banking institutions;
(11) invest in oil, gas or mineral related programs or leases;
(12) invest in repurchase agreements maturing in more than seven
days or in other securities with legal or contractual
restrictions on resale if, as a result thereof, more than 15%
of a Portfolio's total assets (10% in the case of the AAL
Variable Product Money Market Portfolio), taken at current
value at the time of such investment, would be invested in
such securities;
(13) purchase securities of other investment companies, if the
purchase would cause more than 10% of the value of a
Portfolio's total assets to be invested in investment company
securities, provided that (a) no investment will be made in
the securities of any one investment company if, immediately
after such investment, more than 3% of the outstanding voting
securities of such company would be owned by a Portfolio or
more than 5% of the value of a Portfolio's total assets would
be invested in such company, and (b) no restrictions shall
apply to a purchase of investment company securities in
connection with a merger, consolidation, acquisition or
reorganization; or
(14) purchase more than 10% of the outstanding voting securities of
an issuer or invest for the purpose of exercising control or
management.
For purposes of any restrictions or limitations to which the Fund is subject, no
Portfolio, by entering into any futures contract or acquiring or writing any
option thereon or on any security or market index, shall be deemed:
(1) to have acquired or invested in any securities of any exchange
or clearing corporation for any such instrument; or
(2) to have acquired or invested in any debt obligations or in any
stocks comprising indexes on which such instrument is based,
but which the Portfolio does not hold directly in its
portfolio.
In pursuing their respective objectives, each Portfolio may employ the
investment techniques described in the prospectus and elsewhere in this SAI.
Each Portfolio's investment objective is a fundamental policy, which may not be
changed without the approval of a "majority of the outstanding voting
securities" of that Portfolio. Each of the restrictions (1) through (14), above,
are not deemed fundamental policies, and therefore, may be changed without
shareholder approval, except to the extent such approval is legally required.
<PAGE>
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the prospectus under the headings
"Purchase and Redemption of Shares," "Description of Shares," and "Net Asset
Value," and that information is incorporated herein by reference.
The Fund's net asset value is determined only on days on which the New York
Stock Exchange (the "Exchange") is open for trading and on which AAL is open for
business. The Exchange is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last Monday in May,
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. In addition to the
foregoing, during 1997, AAL will be closed for business on the day after
Thanksgiving, and the day before Christmas.
The Fund intends to pay all redemption proceeds in cash. However, redemptions
may be paid wholly or partly by a distribution "in-kind" of securities if the
Fund's Board of Directors deems this to be in the best interest of the Fund or
its shareholders. If redemptions were made in kind, the redeeming shareholders
might incur brokerage fees in selling the securities received in the
redemptions.
Each Portfolio reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that Exchange is closed
for other than customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) an emergency,
as determined by the Securities and Exchange Commission, exists, making disposal
of portfolio securities or valuation of net assets of the Portfolio not
reasonably practicable, and for such other periods as the Securities and
Exchange Commission may by order permit for the protection of shareholders of
each Portfolio.
The AAL Variable Product Money Market Portfolio--Amortized Cost Valuation
The AAL Variable Product Money Market Portfolio values its portfolio securities
on the basis of their amortized cost. Amortized cost is an approximation of
market value, whereby the difference between acquisition cost and value at
maturity is amortized on a straight line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a result
of fluctuating interest rates is not taken into account and thus, the amortized
cost method of valuation may result in the value of a security being higher or
lower than its actual market value. In addition, if a large number of
redemptions take place at a time when interest rates have increased, the
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
<PAGE>
The Portfolio uses its best efforts to maintain a constant NAV of $1.00 per
share for purchases and redemptions. The Board of Directors has established
procedures for this purpose, which procedures include a review of the extent of
any deviation of NAV per share, based on available market quotations, from the
$1.00 amortized cost per share. Should that deviation exceed 1/2 of 1% for the
Portfolio, the Board of Directors will promptly consider whether any action
should be initiated to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redemption of shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends, and utilizing a NAV per share as determined by using available market
quotations. The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less and will not purchase any instrument deemed to have
a remaining maturity greater than 397 days, will limit portfolio investments,
(including repurchase agreements), to those dollar denominated instruments that
the Board of Directors determine present minimal credit risks as advised by the
Adviser, and will comply with the requirements as to the quality of certain
portfolio securities specified by the Securities and Exchange Commission for
money market funds using the amortized cost method of valuation and with certain
related reporting and recordkeeping procedures. There is no assurance that
constant NAV per share can be maintained at all times. In the event amortized
cost ceases to represent fair value, the Board will take appropriate action.
<PAGE>
MANAGEMENT OF THE FUND
Board of Directors and Executive Officers
The Directors and executive officers of the Fund and their principal occupations
during the past five years are described below. Unless otherwise specified, the
business address of all Directors and officers is 4321 North Ballard Road,
Appleton, WI 54919-0001:
Name, Address and Age Position Principal Occupation
with the
Fund
John O. Gilbert dob 8/30/42 Director* President and Chief
4321 North Ballard Road Executive Officer
Appleton, WI 54919-0001 Aid Association for Lutherans
Ronald G. Anderson dob 10/2/48 Director* President, AAL Capital Management
222 West College Avenue Corporation; Senior Vice President
Appleton, WI 54919-0007 and Chief Investment Officer, Aid
Association for Lutherans
Richard L. Gady dob 2/28/43 Director Vice President
One Con Agra Drive Public Affairs and Chief Economist
Omaha, NE 68102-5001 ConAgra, Inc. (agribusiness)
F. Gregory Campbell dob 12/16/39 Director President
2001 Alford Park Drive Carthage College
Kenosha, WI 53140
D. W. Russler dob 10/28/28 Director Retired; formerly Senior Vice
24 Turnbridge Drive President Finance and Administration
Hilton Head Island, SC 29928 NCR Corporation (computers and
related equipment); Member, Advisory
Board - Saratoga Partners II
(corporate-buyout Limited
Partnership)
Lawrence M. Woods dob 4/14/32 Director Retired; formerly
524 Sunset Drive Executive Vice President and
Worland, WY 82401 Director Mobil Oil Corporation
Steven A. Weber dob 10/29/52 President Senior Vice President
4321 North Ballard Road and Aid Association for Lutherans
Appleton, WI 54919-0001 Director*
Carl J. Rudolph dob 10/16/45 Treasurer Vice President and Controller
4321 North Ballard Road Aid Association for Lutherans
Appleton, WI 54919-0001
James H. Abitz dob 5/27/45 Assistant Vice President, Securities
222 West College Avenue Treasurer Aid Association for Lutherans
Appleton, WI 54919-0007
Mark J. Mahoney dob 5/11/53 Secretary Second Vice President
222 West College Avenue Insurance Products and Securities
Appleton, WI 54919-0007 Aid Association for Lutherans
Kathy Brost dob 9/2/61 Assistant Associate Attorney
222 West College Avenue Secretary Insurance Products and Securities
Appleton, WI 54919-0007 Aid Association for Lutherans
Dan Shinnick dob 4/12/59 Vice Vice President
4321 North Ballard Road President Aid Association for Lutherans
Appleton, WI 54919-0001
Robert G. Same dob 7/28/45 Assistant Executive Vice President
222 West College Avenue Secretary Chief Operating Officer
Appleton, WI 54919-0007 AAL Capital Management Corporation
- ---------------------------
* Denotes Directors who are "interested persons" of the Fund, as defined
in the Investment Company Act of 1940.
<PAGE>
The following table shows the compensation paid to the Directors* of the Fund
for the year ended December 31, 1996:
Pension or Total
Retirement Estimated Compensation
Benefits Annual From Fund
Aggregate Accrued as Benefits and AAL Fund
Compensation Part of Upon Complex** Paid
Name, Position from Fund Fund Expenses Retirement to Directors
Richard L. Gunderson, -0- -0- -0- -0-
Director (through
12/31/96)
John O. Gilbert, -0- -0- -0- -0-
Director
John H. Pender, $6,000- -0- -0- $6,000-
Director (through
12/31/96)
Richard L. Gady, $6,000 -0- -0- $20,000
Director
F. Gregory Campbell, $6,000 -0- -0- $20,000
Director
D.W. Russler, $6,000 -0- -0- $20,000
Director
Lawrence M. Woods, $6,000 -0- -0- $20,000
Director
Steven A. Weber, -0- -0- -0- -0-
Director
Ronald G. Anderson, -0- -0- -0- -0-
Director
- -----------------------------
* The Fund did not pay any compensation to its executive officers during
this period.
** The AAL Fund Complex includes The AAL Mutual Funds with
respect to which each of the Fund's independent directors serves as a
trustee.
<PAGE>
The Investment Adviser
Please refer to the description of the Adviser, its Advisory Agreement with the
Fund, and fees under "MANAGEMENT OF THE FUND" in the prospectus, which is
incorporated herein by reference.
The Advisory Agreement provides that, subject to Section 36 of the Investment
Company Act of 1940 (the "1940 Act"), the Adviser shall not be liable to the
Fund for any error of judgment or mistake of law or for any loss arising out of
any investment or for any act or omission in the management of the Fund and the
performance of its duties under the Agreement except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Agreement.
In the event the expenses of a Portfolio (including the fees of the Adviser and
amortization of organization expenses, but excluding interest, taxes, brokerage
commissions, extraordinary expenses and sales charges and distribution fees) for
any fiscal year exceed the limits set by applicable regulations of state
securities commissions, the Adviser will reduce its fee by up to the amount of
such excess. Any such reductions are subject to readjustment during the year.
The payment of the management fee at the end of any month will be reduced or
postponed or, if necessary, a refund will be made to a Portfolio so that at no
time will there by any accrued, but unpaid, liability under this expense
limitation.
The Fund has agreed to use its best efforts to change its name if the Adviser
ceases to act as such with respect to the Fund and the continued use of the
Fund's present name would create confusion in the context of the Adviser's
business.
The Advisory Agreement was most recently approved by the Board of Directors of
the Fund, including a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of any party to the Agreement, on February 28,
1996, and was approved by Fund shareholders on April 24, 1996. The Advisory
Agreement terminates automatically upon assignment or at any time without
penalty by vote of the Fund's Board of Directors or, with respect to any
Portfolio, by the vote of a majority of the outstanding shares of such
Portfolio, or by the Adviser, in each case on 60 days' written notice to the
other party.
AAL received the following investment advisory fees:
June 14, 1995
(commencement
of operations)
through Year ended
December 31, December 31,
1995 1996
AAL Variable Product Money Market Portfolio $ 8,720 $ 43,414
AAL Variable Product Bond Portfolio $12,744 $ 48,124
AAL Variable Product Balanced Portfolio $35,948 $257,782
AAL Variable Product Large Company Stock Portfolio $26,916 $221,856
AAL Variable Product Small Company Stock Portfolio $17,641 $139,625
Please refer to the prospectus for a description of the administrative services
provided to the Fund by AAL Capital Management Corporation, the Fund's
Administrator, pursuant to its Administrative Services Agreement with AAL. For
services rendered for the year ended December 31, 1996, the Administrator
received fees from AAL in the amount of $35,000 per Portfolio. None of these
fees resulted in additional charges to any Portfolio.
<PAGE>
Custodian, Transfer Agent and Independent Auditors for the Fund
Citibank, N.A., 111 Wall Street, New York, NY 10043, serves as Custodian for the
Fund. The Custodian is responsible for holding the Funds' assets and provides
certain administrative and accounting services to the Fund, including
maintaining the original entry documents and books of record and general
ledgers; posting cash receipts and disbursements; reconciling bank account
balances monthly; recording purchases and sales based on Adviser communications;
and preparing monthly and annual summaries to assist in the preparation of
financial statements of, and regulatory reports for, the Fund.
AAL serves as Transfer Agent and Dividend Disbursing Agent for the Fund. In its
capacity as Transfer Agent, AAL is responsible for, among other things, issuing
shares of the Fund, recording the issuance of those shares, computing the number
of issuable shares in the case of an order for a specific dollar amount of
shares, processing redemptions and repurchases of shares, maintaining certain
shareholder records, mailing proxy cards supplied by the Fund in connection with
Fund shareholder meetings, examining and tabulating those proxies that have been
returned, and certifying the vote of each Portfolio of the Fund. In its capacity
as Dividend Disbursing Agent, AAL is responsible for distributing or crediting
income or capital gains payments, as the case may be. AAL receives no monetary
compensation for serving as Transfer Agent and Dividend Disbursing Agent for the
Fund.
Ernst & Young LLP, 111 East Kilbourn Avenue, Suite 900, Milwaukee, Wisconsin
53202, independent auditors for the Fund, examine and audit the Fund's annual
financial statements and assist in the preparation of certain reports to the
Securities and Exchange Commission and the Fund's federal and state tax returns.
Principal Holders of Securities
As of April 14, 1997, AAL owned of record and beneficially the percentages of
each Portfolio's outstanding shares as shown below. As a result of such
beneficial ownership, AAL may be presumed to control the Bond Portfolio. Such
control may dilute the effect of the votes of other shareholders of each
Portfolio. AAL, which was organized in 1902 under the laws of the State of
Wisconsin, is located at 4321 North Ballard Road, Appleton, Wisconsin 54919.
AAL Variable Product Money Market Portfolio 0.00%
AAL Variable Product Bond Portfolio 25.90%
AAL Variable Product Balanced Portfolio 0.00%
AAL Variable Product Large Company Stock Portfolio 1.95%
AAL Variable Product Small Company Stock Portfolio 0.00%
<PAGE>
As of April 14, 1997, the Variable Account owned of record the percentages of
each Portfolio's outstanding shares as shown below. The Variable Account is
located at 4321 North Ballard Road, Appleton, Wisconsin 54919. Certificate
Owners may be deemed to beneficially own shares of one or more of the
Portfolios, to the extent that they are given the right to provide voting
instructions with regard to shares of those Portfolios. To the knowledge of the
Fund, no Certificate Owner beneficially owns five percent or more of any
Portfolio.
AAL Variable Product Money Market Portfolio 100.0%
AAL Variable Product Bond Portfolio 74.10%
AAL Variable Product Balanced Portfolio 100.0%
AAL Variable Product Large Company Stock Portfolio 100.0%
AAL Variable Product Small Company Stock Portfolio 98.95%
As of April 14, 1997, the Directors and officers of the Fund as a group owned
beneficially less than 1% of the outstanding shares of any Portfolio.
PORTFOLIO TRANSACTIONS
For more information, please refer to "MANAGEMENT OF THE FUND - - Portfolio
Transactions," in the prospectus, which is incorporated herein by reference.
The Adviser directs the placement or orders for the purchase and sale of the
Funds' portfolio securities.
The costs of securities transactions for each Portfolio will consist primarily
of brokerage commissions or dealer or underwriter spreads. Bonds and money
market instruments are generally traded on a net basis and do not normally
involve brokerage commissions. Occasionally, securities may be purchased
directly from the issuer, which does not involve the payment of commissions.
For securities traded primarily in the over-the-counter market, the dealers who
make a market in the securities will be dealt with directly unless better prices
and execution are available elsewhere. Such dealers usually act as principals
for their own account. In placing portfolio transactions, the Adviser seeks the
best combination of price and execution.
In determining which brokers and dealers provide best price and execution, the
Adviser looks primarily to the price quoted by the broker or dealer, and
normally places orders with the broker or dealer through which the most
favorable price can be obtained. It is expected that securities will ordinarily
be purchased in the primary markets, and that in assessing the best net price
and execution available to a Portfolio, the Adviser will consider all factors
deemed relevant, including the breadth or the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
<PAGE>
Assuming equal execution capabilities and price, other factors may be taken into
account in selecting brokers or dealers to execute particular transactions and
in evaluating the best net price and execution available. The Adviser may
consider "brokerage and research services" (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934), statistical quotations,
specifically the quotations necessary to determine the Portfolios' net asset
values, and other information provided to the Fund or to the Adviser. The
Adviser may also cause a Portfolio to pay to a broker who provides brokerage and
research services a commission for executing a portfolio transaction which is in
excess of the amount of commission another broker would have charged for
effecting that transaction. The Adviser must determine, in good faith, however,
that such commission is reasonable in relation to the value of the brokerage and
research services provided, viewed in terms of that particular transaction or in
terms of all the accounts over which the Adviser exercises investment
discretion. It is possible that certain of the services received by the Adviser
attributable to a particular transaction will benefit one or more other accounts
for which investment discretion is exercised by the Adviser.
Brokerage commissions paid by each of the Portfolios listed below were as
follows:
June 14, 1995
(commencement of
operations) through
December 31, 1996
AAL Variable Product Money Market Portfolio N/A
AAL Variable Product Bond Portfolio N/A
AAL Variable Product Balanced Portfolio $121,832
AAL Variable Product Large Company Stock Portfolio $80,143
AAL Variable Product Small Company Stock Portfolio $45,929
Certain of the Portfolios acquired securities of their regular brokers or
dealers, or their parents, during the period from January 1, 1996 through
Decmber 31, 1996. As of December 31, 1996, the market value of each Portfolio's
aggregate holdings of each broker's securities was as follows:
<PAGE>
AAL Variable Product Money Market Portfolio:
Broker Market Value
- ------ ------------
Merrill Lynch & Co. $299,067 (commercial paper)
C.S. First Boston $489,984 (commercial paper)
AAL Variable Product Balanced Portfolio:
Broker Market Value
- ------ ------------
Merrill Lynch & Co. $163,000 (common stock)
$3,320,087 (commercial paper)
C.S. First Boston $482,478 (commercial paper)
AAL Variable Product Large Company Stock Portfolio:
Broker Market Value
- ------ ------------
Merrill Lynch & Co. $285,250 (common stock)
Merrill Lynch & Co. $975,095 (commercial paper)
AAL Variable Product Small Company Stock Portfolio:
Broker Market Value
- ------ ------------
Merrill Lynch & Co. $521,615 (commercial paper)
<PAGE>
DIVIDENDS AND DISTRIBUTIONS Each of the Portfolios' dividends from net
investment income together with distributions of short-term capital gains
(collectively "income dividends") are taxable as ordinary income to AAL as sole
shareholder, whether reinvested in additional shares or paid in cash. Any
long-term capital gains ("capital gain distributions") distributed to
shareholders are treated as such by the shareholder, whether received in cash or
in additional shares, regardless of the length of time a shareholder has owned
the shares. All of the Portfolios intend to distribute all their net investment
income and net realized long-term capital gains. The AAL Variable Product Small
Company Stock, Large Company Stock, Bond and Balanced Portfolios expect to pay
any income dividends monthly. The AAL Variable Product Money Market Portfolio
will accrue income dividends daily and expects to pay these dividends daily. All
of the Portfolios expect to distribute long-term capital gains, if any,
annually.
The fact that dividends and distributions may be taxable to AAL as sole
shareholder does not necessarily imply a tax consequence to the Owner. For
information regarding tax consequences to Owners, please refer to "FEDERAL TAX
STATUS" in the Certificate prospectus.
<PAGE>
CALCULATION OF YIELD AND TOTAL RETURN
From time to time the Fund may advertise yield and total return for various
periods of investment. Such advertisements will always include uniform
performance calculations based on standardized methods established by the
Securities and Exchange Commission, and may also include other total return
information. Performance information should be considered in light of the
particular Portfolio's investment objectives and policies, characteristics and
quality of its portfolio securities and the market conditions during the
applicable periods and should not be considered as a representation of what may
be achieved in the future. Investors should consider these factors, in addition
to differences in the methods used in calculating performance information and
the impact of taxes on alternative investments, when comparing a particular
Portfolio's performance to any performance data published for alternative
investments.
Standardized Performance Information
Average Annual Total Return. For each of the Portfolios, except the AAL Variable
Product Money Market Portfolio, standardized average annual total return is
computed by finding the average annual compounded rates of return over the 1-,
5- and 10-year periods (or, in the case of a start-up Fund such as this, the
portion thereof during which the Fund has been in existence) 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 $1,000 initial payment;
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 and 10 year
periods (or fractional portion thereof).
For the period from June 14, 1995 (commencement of operations) through December
31, 1996, the average annual total return* for each Portfolio was as follows:
Average Annual
Portfolio Total Return*
AAL Variable Product Money Market Portfoio 5.34%
AAL Variable Product Bond Portfolio 5.77%
AAL Variable Product Balanced Portfolio 16.47%
AAL Variable Product Large Company Stock Portfolio 25.68%
AAL Variable Product Small Company Stock Portfolio 18.93%
<PAGE>
For the period from January 1, 1996 through December 31, 1996, the average
annual total return* for each Portfolio was as follows:
Average Annual
Portfolio Total Return*
AAL Variable Product Money Market Portfolio 5.23%
AAL Variable Product Bond Portfolio 3.10%
AAL Variable Product Balanced Portfolio 13.65 %
AAL Variable Product Large Company Stock Portfolio 22.47%
AAL Variable Product Small Company Stock Portfolio 18.19%
* The total return figures provided for each Portfolio (except for the Money
Market Portfolio) are provided on an annualized basis, for the period indicated.
Additionally, these values reflect the deduction of a .35% annual management
fee, but do not reflect Portfolio expenses which are voluntarily paid by AAL or
reimbursed by AAL. Without the payment and reimbursement of expenses by AAL,
which can be changed on 30 days notice, these total returns would have been
lower.
Current Yield. Current yield quotations for the Portfolios, except the AAL
Variable Product Money Market Portfolio, are based on a 30-day (or one-month)
period, and are computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:
Yield = 2[(((a-b)/cd)+1)^6-1]
a = Dividends and interest earned during the period;
b = Expenses accrued for the period (net of reimbursements);
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = The maximum offering price per share on the last day of the period.
For purposes of this calculation, income earned on debt obligations is
determined by applying a calculated yield-to-maturity percentage to the
obligations held during the period. Interest earned on mortgage-backed
securities will be calculated using the coupon rate and principal amount after
adjustment for a monthly paydown. Income earned on common and preferred stocks
is determined by using the stated annual dividend rate applied over the
performance period.
<PAGE>
For the one-month period ended December 31, 1996, the current yield for the
AAL Variable Product Bond Portfolio was 6.18% and for the AAL Variable
Product Balanced Portfolio was 3.71%.
Calculation of Yield -- AAL Variable Product Money Market Portfolio
The AAL Variable Product Money Market Portfolio may quote a "Current Yield" or
"Effective Yield" from time to time. The Current Yield is an annualized yield
based on the net change in account value for a seven-day period. The Effective
Yield is an annualized yield based on a daily compounding of the Current Yield.
These yields are each computed by first determining the "Net Change in Account
Value" for a hypothetical account having a balance of one share at the beginning
of a seven-day period ("Beginning Account Value"), excluding capital changes.
The yields then are computed as follows:
Current Yield = Net Change in Account Value 365
( --------------------------- ) X (---)
Beginning Account Value 7
365/7
Effective Yield = Net Change in Account Value
[( 1 + --------------------------- ) ] - 1
Beginning Account Value
In addition to fluctuations reflecting changes in net income of the Portfolio
resulting from changes in income earned on its portfolio securities and in its
expenses, the Portfolio's yield also would be affected if the Portfolio were to
restrict or supplement its dividends in order to maintain its NAV at $1.00 per
share. See "PURCHASES AND REDEMPTIONS--The AAL Variable Product Money Market
Portfolio--Amortized Cost Valuation." Portfolio changes resulting from net
purchases or net redemptions of Portfolio shares may affect yield. Accordingly,
the Portfolio's yield may vary from day to day and the yield stated for a
particular past period is not a representation as to its future yield. The
Portfolio's yield is not guaranteed, nor is its principal insured; however, the
Portfolio will attempt to maintain its NAV per share at $1.00.
For the seven days ended December 31, 1996, the Current and Effective Yields of
the AAL Variable Product Money Market Portfolio were 5.14% and 5.27%,
respectively.
Other Performance Information
All of the Portfolios may, from time to time, include in their advertisements,
total return quotations computed for a time period, or by a method which differs
from the computations described in the foregoing section. Calculations of the
growth of an investment, at various assumed interest rates and compounding, may
be used to show the effect of the length of time, interest rate and/or tax
deferral on an investment.
<PAGE>
Comparison of the Portfolio's yield with those of alternative investments (such
as savings accounts, various types of bank deposits, and other money market
funds) should consider differences between the Portfolio and the alternative
investments, differences in the periods and methods used in the calculation of
the yields being compared, and the impact of taxes on alternative investments.
The Portfolios may, from time to time, illustrate the benefits of tax deferral
by comparing taxable investments to investments made in tax-deferred retirement
plans and may illustrate in graph or chart form, or otherwise, the benefit of
dollar cost averaging by comparing investments made pursuant to a systematic
investment plan.
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 an Owner.
PRICING CONSIDERATIONS
Reliable market quotations are not considered to be readily available for many
long-term corporate bonds and notes, certain preferred stocks, or certain
foreign securities. These investments are stated at fair value on the basis of
valuations furnished by pricing services approved by the Directors, which
determine valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders.
Generally, trading in U.S. government securities and other fixed income
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
determining the NAV of a Portfolio's shares are computed as of such times.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the New York Stock Exchange, which events will not
be reflected in the computation of a Portfolio's NAV. If events materially
affecting the value of the Fund's securities occur during such a period, then
these securities will be valued at their fair value as determined in good faith
by the Directors.
GENERAL
The Fund's Articles and Bylaws permit its Directors to issue up to 2 billion
shares of common stock on a full or fractional share basis, and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in a Portfolio. Each share
represents an interest in a Portfolio proportionately equal to the interest of
each other share. If the Fund were to liquidate, all shareholders of a Portfolio
would share pro rata in its net assets available for distribution to
shareholders. If they deem it advisable and in the best interests of
shareholders, the Board may create additional classes of shares which may differ
from each other only as to dividends or, as is the case with the Portfolios,
have separate assets and liabilities (in which case any such class would have a
designation including the word "series").
Income and operating expenses are generally allocated to the Portfolio in which
the related assets are held. In the event that there are any assets, income,
liabilities, or expenses which are not readily identifiable as belonging to any
particular Portfolio, the Directors will allocate them among any one or more of
the Portfolios in such manner and on such basis as the Directors, in their sole
discretion, deem fair and equitable.
<PAGE>
APPENDIX: SECURITY RATINGS
Ratings in General
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards as to the creditworthiness of an issuer. Consequently,
the Adviser believes that the quality of debt securities in which the AAL
Variable Product Money Market, Bond, and Balanced Portfolios invest should be
periodically reviewed and individual analysts give different weight to the
various factors involved in credit analysis. A rating is not a recommendation to
purchase, sell or hold a security, because it does not take into account market
value or suitability for a particular investor. When a security has received a
rating from more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished by the issuer
or obtained by the rating services from other sources which they consider
reliable. Ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or for other reasons.
The following is a description of the characteristics of ratings used by
Moody's, S&P and Duff & Phelps:
CORPORATE BOND RATINGS
Ratings by Moody's
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds rated Baa are considered medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact may have
speculative characteristics as well.
Moody's applies numerical modifiers "l," "2," and "3" to the Aa, A and Baa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
<PAGE>
Ratings by Standard & Poor's
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
S&P ratings may be modified by the addition of a plus (+) or minus (-) sign to
show relative standing within the major ratings categories.
Ratings by Duff & Phelps
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA -- High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A -- Good quality investment grade securities. Protection factors are average
but adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Below average protection factors but still considered sufficient for
institutional investment. Considerable variability risk during economic cycles.
The Duff & Phelps ratings may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major ratings categories.
COMMERCIAL PAPER RATINGS
Ratings by Moody's
Moody's commercial paper ratings are opinions of the ability to repay punctually
the obligations. Moody's employs the following three investment grade
designations to indicate the relative repayment capacity of the rated issuers:
Prime 1 (Highest Quality); Prime 2 (Higher Quality); Prime 3 (High Quality).
<PAGE>
The rating Prime is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
evaluation of the management of the issuer; economic evaluation of the issuer's
industry or industries and an appraisal of speculative-type risks which may be
inherent in certain areas; evaluation of the issuer's products in relation to
competition and customer acceptance; liquidity; amount and quality of long-term
debt; trend of earnings over a period of 10 years; financial strength of any
parent company and the relationships which exist with the issuer; and
recognition by the management of obligations which may be present or may arise
as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
relative repayment capacity of the issuer is rated Prime-1 (Highest Quality),
Prime-2 (Higher Quality), or Prime-3 (High Quality). The Portfolios will not
invest in commercial paper rated Prime-3.
Ratings by S & P
Issues assigned the highest rating, A, are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers "1," "2," and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-l" which possess overwhelming safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1.
The Portfolios will not invest in commercial paper rated A-3.
Ratings by Duff & Phelps
Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or ready
access to alternative sources of funds, is clearly
outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors
are excellent and supportedby strong fundamental protection
factors. Risk factors are minor.
Duff 1 minus: High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
Category 2: Good Grade
Duff 2: Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing internal
funds needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small.
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Fund for the period January 1, 1996 through
December 31, 1996, and the report of the Fund's independent auditors thereon,
previously filed and available upon request without charge, are incorporated by
reference into this SAI.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Part A. The audited financial highlights of the AAL Variable Product Series
Fund, Inc. ("Fund" or "Registrant") are included in Part A of this Registration
Statement.
Part B. The audited financial statements for the Fund for year ended December
31, 1996 are incorporated into Part B of this Registration Statement. The
financial statements included in Part B are:
Schedules of Investments as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the year ended Decmeber 31, 1996
Statement of Changes in Net Assets for the years ended December 31, 1996
and 1995
Notes to Financial Statements
Financial Highlights
Report of Independent Auditors
(b) Exhibits:
(1) Articles of Incorporation of the Fund
(2) ByLaws of the Fund
(5)(a) Investment Advisory Agreement by and between the Fund and AAL
(6) Participation Agreement by and between AAL, on its own behalf and
on behalf of AAL Variable Account I, and the Fund
(8)(b) Custodian Agreement between the Fund and Citibank N.A.
(9)(a) Transfer Agency Agreement by and between the Fund and AAL
(9)(b) Trade Name/Service Mark Licensing Agreement by and between AAL
and the Fund
(9)(c) First Amendment to the Administrative Services Agreement by and
between AAL Capital Management Corporation and AAL
<PAGE>
(10) Opinion and Consent of Counsel
(11)(a) Consent of Independent Auditors
(11)(b) Opinion of Counsel as to materiality of Amendment
(13) Agreement or Understanding Providing Initial Capital (Stock
Subscription Agreement
(17) The Financial Data Schedule required to be filed pursuant to Form
N-1A, Item 24(b)(17), is filed herewith as Exhibit 27, as
dictated by the Securities and Exchange Commission's Electronic
Data Gathering, Analysis, and Retrieval System
(19) Powers of Attorney
(27) Financial Data Schedule
Item 25. Persons Controlled by or under Common Control with Registrant
AAL may be deemed to control the Bond Portfolio of the Fund. In response to this
item, the information set forth in Item 26 of Post-Effective Amendment No. 3 to
the Form N-4 Registration Statement of AAL Variable Annuity Account 1, being
filed simultaneously herewith, is hereby incorporated by reference.
Item 26. Number of Holders of Securities.
As of December 31, 1996, the Fund had the following number of shareholders of
record:
Title of Class Number of Record Holders
- -------------- ------------------------
Large Company Stock Portfolio 2
Small Company Stock Portfolio 2
Bond Portfolio 2
Balanced Portfolio 2
Money Market Portfolio 2
<PAGE>
Item 27. Indemnification.
Section E, subsection (viii) of Article SEVENTH of Registrant's Articles of
Incorporation states as follows:
"(E) (viii) Indemnification and Limitation of Liability. To the fullest
extent permitted by Maryland and Federal law, as amended or interpreted, no
Director or officer of the Corporation shall be personally liable to the
Corporation or the holders of shares of its series or classes for money damages
and each Director and officer shall be indemnified by the Corporation; provided,
however, that nothing herein shall be deemed to protect any Director or officer
of the Corporation against any liability to the Corporation or the holders of
shares of its series or classes to which such Director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office."
Moreover, Article X of the By-Laws further provides:
"Section 10.01. Indemnification: The Corporation shall indemnify any
individual ("Indemnitee") who is a present or former Director, officer,
employee, or agent of the Corporation, or who is or has been serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
or agent of another corporation, partnership, joint venture, trust or other
enterprise, who, by reason of his service in that capacity, was, is, or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any judgments,
penalties, fines, settlements, and reasonable expenses (including attorneys'
fees) incurred by such Indemnitee in connection with any Proceeding, to the
fullest extent that such indemnification may be lawful under the Maryland
General Corporation Law. Subject to any applicable limitations and requirements
set forth in the Corporation's Articles of Incorporation and in these By-Laws,
any payment of indemnification or advance of expenses, as provided below, shall
be made in accordance with the procedures set forth in the Maryland General
Corporation Law. [MGCL, Section 2-418(b)]
Notwithstanding the foregoing, nothing herein shall protect or purport to
protect any Indemnitee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office (such
conduct hereinafter referred to as "Disabling Conduct"). [Investment Company
Act, Section 17(h)]
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court or other body
before whom the Proceeding was brought that the Indemnitee was not
liable by reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the
Indemnitee was not liable by reason of Disabling Conduct, which
determination shall be made by:
(i) the vote of a majority of a quorum of Directors who are
neither "interested persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company Act, nor parties
to the Proceeding; or
(ii) an independent legal counsel in a Written opinion. [MGCL,
Section 2-418(e)]
<PAGE>
Section 10.02. Advance Payment of Expenses: The Corporation shall pay any
reasonable expenses so incurred by such Indemnitee in defending a Proceeding in
advance of the final disposition thereof to the fullest extent that such advance
payment may be lawful under the Maryland General Corporation Law. [MGCL, Section
2-418(f)]
Anything in this Article X to the contrary notwithstanding, any advance
of expenses by the Corporation to any Indemnitee shall be made only upon receipt
of: (a) a written affirmation by the Indemnitee of his good faith that the
requisite standard of conduct necessary for indemnification under the Maryland
General Corporation Law has been met and (b) a written undertaking by such
Indemnitee to repay the advance if it is ultimately determined that such
standard of conduct has not been met, and if one of the following conditions is
met:
(a) the Indemnitee provides a security for his undertaking; or
(b) the Corporation shall be insured against losses arising by reason
of any lawful advances; or
(c) there is a determination, based on a review of readily available
facts, that there is reason to believe that the Indemnitee will
ultimately be found entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of Directors who are neither
"interested persons" of the Corporation as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 10.03. Insurance of Officers, Directors, Employees, and Agents:
To the fullest extent permitted by applicable Maryland law and by Section 17(h)
of the Investment Company Act, as from time to time amended, the Corporation may
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee, or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability assessed against him and
incurred by him in or arising out of his position, whether or not the
Corporation would have the power to indemnify him against such liability. [MGCL,
Section 2-418(k)]
Pursuant to a resolution, dated February 7, 1996, the Board of Directors
of AAL resolved that AAL would indemnify the Fund in an amount not to exceed the
total sum of five million dollars ($5,000,000), in the event the Fund advances
or indemnifies the expenses of any officer or director of the Fund for defense
litigation costs, or if the Fund incurs or pays any expenses, judgments, fines
or settlements incurred by a director or officer of the Fund for any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative. However, in no event would AAL provide
indemnification for any director's or officer's liability which arises from such
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's position.
Section 2(d) of the Investment Advisory Agreement between AAL and the
Fund, filed as Exhibit 5 to this Registration Statement, provides that the Fund
will indemnify the Adviser (and its officers, directors, agents, employees and
controlling persons, shareholders and any other person or entity affiliated with
the Adviser) from any liability arising from the Advisers' conduct under the
Agreement, to the extent permitted under the Fund's Articles and By-Laws and
applicable law; provided that said indemnity does not extend to liabilities
resulting from the indemnitee's willful misfeasance, bad faith, gross negligence
or reckless disregard of its duties under the Agreement.
<PAGE>
Pursuant to Section 7.1 of the Participation Agreement, filed as Exhibit
6 to this Registration Statement, AAL agrees to indemnify the Fund and its
directors, officers and controlling persons against certain liabilities.
Pursuant to Section 7.2 of said Participation Agreement, the Fund agrees to
indemnify AAL and its directors, officers, employees and control persons, some
of whom are also directors, officers or affiliated persons of the Fund, against
certain liabilities. Section 7.1 and 7.2 are incorporated by reference into this
response to Item 27.
Section 14 of the Transfer Agency Agreement between AAL and Fund, filed
as Exhibit 9(a) to this Registration Statement, provides, in part, that the Fund
shall indemnify AAL from loss resulting from any claim in connection with the
performance of the duties under the Agreement; provided, however, that the
indemnification shall not apply to AAL's actions or omissions in cases of AAL's
gross negligence, bad faith or willful misfeasance in the performance of its
duties, or that of AAL's officers, agents and employees in the performance of
the Agreement.
Section 8 of the Administrative Services Agreement, filed as Exhibit 9(c)
to this Registration Statement, provides, in part, that AAL Capital Management
Corporation ("AALCMC") (and its officers, directors, employees, and any person
performing certain functions on behalf of the Fund at the direction or request
of AALCMC) shall not be liable for any error of judgment, mistake of law, or
loss suffered by AAL or the Fund, in connection with matters to which the
Administrative Services Agreement relates, except for loss resulting from
willful misfeasance, bad faith, or negligence in the performance of the duties
on behalf of AAL or the Fund, or from reckless disregard of the duties under the
Administrative Services 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 that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, 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 in connection with the securities being
registered, registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Aid Association for Lutherans (the "Adviser") is the investment adviser of the
Registrant. Information as to the business, profession, vocation or employment
of a substantial nature of the Adviser and its directors and officers is
provided in Registrant's Statement of Additional Information, and the Form ADV
filed by the Adviser under the Investment Advisers Act of 1940, both of which
are hereby incorporated by reference.
Item 29. Principal Underwriters.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Registrant and Registrant's
Custodian, as follows: the documents required to be maintained by paragraphs
(4), (5), (6), (7), (9), (10) and (11) of Rule 31a-l(b) will be maintained by
the Registrant, and all other records will be maintained by the Custodian.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish to each person to whom a prospectus
is delivered, upon request and without charge, a copy of Registrant's
most recent annual report to shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this amended Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Appleton and State of Wisconsin, on the 17th day
of April, 1997.
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ Steven A. Weber
Steven A. Weber
President
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Steven A. Weber President April 17, 1997
Steven A. Weber (Principal Executive Officer)
/s/ Carl J. Rudolph Treasurer April 17, 1997
Carl J. Rudolph (Principal Accounting
Financial Officer)
All of the Board of Directors:
Gregory F. Campbell Ronald G. Anderson
Richard L. Gady John O. Gilbert
D. W. Russler Steven A. Weber
Lawrence M. Woods
Steven A. Weber by signing his name hereto, does hereby sign this document on
behalf of himself and each of the other above-named Directors of AAL Variable
Product Series Fund, Inc. pursuant to the powers of attorney duly executed by
such persons.
/s/ Steven A. Weber April 17, 1997
- ------------------------------
Steven A. Weber
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
INDEX TO EXHIBITS
Exhibit
Number: Exhibit
(1) Articles of Incorporation of the Fund
(2) ByLaws of the Fund
(5)(a) Investment Advisory Agreement by and between the Fund and AAL
(6) Participation Agreement by and between AAL, on its own behalf and
on behalf of AAL Variable Account I, and the Fund
(8)(b) Custodian Agreement between the Fund and Citibank N.A.
(9)(a) Transfer Agency Agreement by and between the Fund and AAL
(9)(b) Trade Name/Service Mark Licensing Agreement by and between AAL
and the Fund
(9)(c) First Amendment to the Administrative Services Agreement by and
between AAL Capital Management Corporation and AAL
(10) Opinion and Consent of Counsel
(11)(a) Consent of Independent Auditors
(11)(b) Opinion of Counsel as to materiality of Amendment
(13) Agreement or Understanding Providing Initial Capital (Stock
Subscription Agreement
(17) The Financial Data Schedule required to be filed pursuant to Form
N-1A, Item 24(b)(17), is filed herewith as Exhibit 27, as
dictated by the Securities and Exchange Commission's Electronic
Data Gathering, Analysis, and Retrieval System
(19) Powers of Attorney
(27) Financial Data Schedule
ARTICLES OF INCORPORATION
OF
AAL VARIABLE PRODUCT SERIES FUND, INC.
FIRST: The undersigned, Anne Ertel-Sawasky, whose address is 4321 N. Ballard
Road, Appleton, Wisconsin 54919-0001, being at least eighteen (18) years of age
does hereby file these Articles of Incorporation forming a corporation under the
general laws of the state of Maryland, as set forth below.
SECOND: The name of the corporation ("Corporation") is:
AAL Variable Product Series Fund, Inc.
THIRD: The purposes for which the Corporation is formed are as follows:
(A) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of
such operations.
(B) In general, to carry on any other business in connection with or
incidental to the foregoing purpose, to have and exercise all the
powers conferred upon corporations by the laws of the State of Maryland
as in force from time to time, to do everything necessary, suitable, or
proper for the attainment of any object or the furtherance of any power
not inconsistent with Maryland law, either alone or in association with
others, and to take any action incidental or appurtenant to or growing
out of or connected with the Corporation's business or purposes,
objects, or powers.
(C) To conduct and carry on its business, or any part thereof, to have
one or more offices, and to exercise any or all of its corporate powers
and rights, in the State of Maryland, in other states, territories,
districts, colonies, and dependencies of the United States, and in any
or all foreign countries.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Corporation, within the fullest
extent of the law.
<PAGE>
FOURTH: The address of the principal office of the Corporation in the State
of Maryland is: AAL Variable Product Series Fund, Inc. c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The name and address
of the resident agent of the Corporation in the State of Maryland is: The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The
resident agent is a citizen of the State of Maryland, and actually resides
therein.
FIFTH: Capital Stock.
(A) General. The total number of shares of stock which the Corporation,
by resolution or resolutions of the Board of Directors, shall have
authority to issue is Two Billion (2,000,000,000) shares, par value
One-Tenth of One Cent ($0.001) per share, such shares having an
aggregate par value of Two Million Dollars ($2,000,000). All such
shares are herein classified as "Common Stock," subject, however, to
the authority hereinafter granted to the Board of Directors to classify
or reclassify any such shares, to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any
series or class within a series ("class") that the Corporation has
authority to issue, and to authorize that all such shares of stock be
issued as shares of one or more series or one or more classes
designated as the Board of Directors may determine. Five hundred
million (500,000,000) shares of Common Stock shall be divided equally
among five series as set forth below:
Series Number of Shares
AAL Variable Product Money Market Portfolio 100,000,000
AAL Variable Product Large Company Stock Portfolio 100,000,000
AAL Variable Product Bond Portfolio 100,000,000
AAL Variable Product Small Company Stock Portfolio 100,000,000
AAL Variable Product Balanced Portfolio 100,000,000
(B) Creation of Series or Classes. The balance of shares of stock now
or hereafter authorized but unissued may be issued as Common Stock, in
one or more new series or one or more new classes, each consisting of
such number of shares and having such designations, powers,
preferences, rights, qualifications, limitations, and restrictions,
including variations between different series or classes as to purchase
price, terms and manner of redemption, special and relative rights as
to dividends and on liquidation, conversion rights and conditions of
separate voting rights, as shall be fixed and determined from time to
time by resolution or resolutions providing for the issuance of such
shares adopted by the Board of Directors, to whom authority so to fix
and determine the same is hereby expressly granted.
<PAGE>
(C) Dividends and Distributions. Without limiting the generality of the
foregoing, the dividends and distributions of investment income and
capital gains with respect to Common Stock and any series or class that
may hereafter be created shall be in such amount as may be declared
from time to time by the Board of Directors, and such dividends and
distributions may vary from series to series or class to class to such
extent and for such purposes as the Board of Directors may deem
appropriate, including, but not limited to, the purpose of complying
with any requirements of regulatory or legislative authorities.
(D) Classification. The Board of Directors is hereby expressly granted
authority to (1) classify or reclassify any unissued stock (whether now
or hereafter authorized) from time to time by setting or changing the
preferences, conversion, or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, valuation, or terms or
conditions of redemption of the stock, and (2) pursuant to such
classification or reclassification to increase or decrease the number
of authorized shares of any series or class, but the number of shares
of any series or class shall not be decreased by the Board of Directors
below the number of shares thereof then outstanding, or increased above
the number of shares then authorized; provided however, that nothing
herein shall prohibit the Board of Directors from increasing or
decreasing the aggregate number of shares of stock or the number of
shares of stock of any series or class that the Corporation has
authority to issue.
(E) Provisions for Series and Classes. In addition to other provisions
of these Articles, the following provisions are applicable regarding
any series or class of shares of stock of the Corporation established
and designated by paragraph (A) of this Article FIFTH and shall be
applicable if the Board of Directors shall establish and designate
additional series or classes as provided in that paragraph:
(i) Classification. The Board of Directors may classify or
reclassify any unissued shares, or any shares previously
issued and reacquired, of any series or class into one or more
series or classes that may be established and designated from
time to time. With respect to any shares of any series or
class reacquired by the Corporation from time to time, the
Corporation may cancel such shares, hold such shares as
treasury shares (of the same or some other series or class),
or reissue such shares for such consideration not less than
the greater of the par value and the net asset value per share
(as described in paragraph (A)(ii) of Article SEVENTH hereof)
and on such terms as they may determine.
(ii) Assets Belonging to a Series or Class. All consideration
received by the Corporation for the issue or sale of shares of
a particular series or class, together with all assets in
which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange, or liquidation of
such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall
<PAGE>
irrevocably belong to that series or class for all purposes,
subject only to the rights of creditors, and shall be so
recorded upon the books of account of the Corporation. In the
event that there are any assets, income, earnings, profits,
and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series or class,
the Board of Directors shall allocate them among any one or
more of the series or classes established and designated from
time to time in such manner and on such basis as they, in
their sole discretion deem fair and equitable. Each such
allocation by the Board of Directors shall be conclusive and
binding upon the shareholders of all series and classes for
all purposes.
(iii) Liabilities Belonging to a Series or Class. The assets
belonging to each particular series or class shall be charged
with the liabilities of the Corporation in respect of that
series or class and all expenses, costs, charges, and reserves
attributable to that series or class, and any general
liabilities, expenses, costs, charges, and reserves of the
Corporation that are not readily identifiable as belonging to
any particular series or class shall be allocated, and charged
by the Board of Directors, to and among any one or more of the
series or classes established and designated from time to time
in such manner and on such basis as the Board of Directors in
its sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges, and reserves by the
Board of Directors shall be conclusive and binding upon the
holders of shares of all series and classes for all purposes.
(iv) Dividends and Distributions. The power of the Corporation
to pay dividends and make distributions shall be governed by
paragraph (C) of this Article FIFTH with respect to any one or
more series or classes which represent interests in separately
managed components of the Corporation's assets. Dividends and
distributions on shares of a particular series or class may be
paid with such frequency as the Board of Directors may
determine, which may be daily or otherwise, pursuant to a
standing resolution or resolutions adopted only once or with
such frequency as the Board of Directors may determine. Such
dividends and distributions may be paid to the holders of
shares of a particular series or class, from such of the
income and capital gains, accrued or realized, attributable to
the assets belonging to that series or class, as the Board of
Directors may determine, after providing for actual and
accrued liabilities belonging to that series or class. All
dividends and distributions on shares of a particular series
or class shall be distributed pro rata to the holders of that
series or class in proportion to the number of shares of that
series or class held by such holders at the date and time of
record established for the payment of such dividends or
distributions. Notwithstanding the provisions of this Article
FIFTH, the Board of Directors may declare and distribute a
stock dividend to holders of shares of any series or class of
shares by the distribution of shares of another series or
class.
<PAGE>
(v) Equality. Subject to the provisions of this Article FIFTH,
all shares of all series or classes shall have identical
rights and privileges, except insofar as variations thereof
among series or classes shall have been determined and fixed
by the Board of Directors. Each share of any series or class
shall represent an equal proportionate share in the assets of
that series or class with each other share of that series or
class. The Board of Directors may divide or combine the shares
of any series or class into a greater or lesser number of
shares of the series or class without thereby changing the
proportionate interests of the holders of such shares in the
assets of that series or class.
(vi) Conversion or Exchange Rights. Subject to compliance with
the requirements of the Investment Company Act of 1940, the
Board of Directors shall have the authority to provide that
the holders of shares of any series or class shall have the
right to convert or exchange said shares for or into shares of
one or more other series or classes in accordance with such
requirements and procedures as may be established by the Board
of Directors from time to time.
(vii) Establishment and Designation of Series or Classes. The
establishment and designation of any series or class of shares
in addition to those established and designated in paragraph
(A) of this Article FIFTH shall be effective upon the
execution of the appropriate instruments and the proper filing
thereof in accordance with the Maryland General Corporation
Law, setting forth such establishment and designation and the
relative rights, preferences, voting powers, restrictions,
limitations as to dividends, qualifications, valuation, and
terms and conditions of redemption of such series or class or
as otherwise provided in such instruments. At any time that
there are no shares outstanding or subscribed for any
particular series or class previously established and
designated, the Board of Directors may by a similar procedure
abolish that series or class and the establishment and
designation thereof.
(viii) Liquidation. In the event of the liquidation of a
particular series or class, the shareholders of the series or
class that has been established and designated and that is
being liquidated shall be entitled to receive, when and as
declared by the Board of Directors, the excess of the assets
belonging to that series or class over the liabilities
belonging to that series or class. The holders of shares of
any series or class shall not be entitled thereby to any
distribution upon liquidation of any other series or class.
The assets that may be distributed to the shareholders of any
series or class shall be distributed among such shareholders
in proportion to the number of shares of that series or class
held by each such shareholder and recorded on the books of the
Corporation. The liquidation of any particular series or class
in which there are shares then outstanding may be authorized
by an instrument in writing signed by a majority of the
Directors then in office, subject to the affirmative vote of
"a majority of the outstanding voting securities" of that
<PAGE>
series or class, as the quoted phrase is defined in the
Investment Company Act of 1940.
(ix) Voting. Each share of each series or class shall have
equal voting rights with every other share of every other
series or class, and all shares of all series or classes shall
vote as a single group except where a separate vote of any
series or class is required by the Investment Company Act of
1940, the Maryland General Corporation Law, these Articles of
Incorporation, the By-Laws of the Corporation, or as the Board
of Directors may determine in its sole discretion. Where a
separate vote is required with respect to one or more series
or classes, then the shares of all other series or classes
shall vote as a single series or class, provided that, as to
any matter which does not affect the interest of a particular
series or class, only the holders of shares of the one or more
affected series or classes shall be entitled to vote.
SIXTH: Number of Directors. The number of Directors of the Corporation
shall be 3, or such other number as may from time to time be fixed by the
By-Laws of the Corporation, or pursuant to authorization contained in such
By-Laws, but the number of Directors shall never be less than (A) three (3) or
(B) the number of shareholders of the Corporation, whichever is less. John O.
Gilbert, Carl J. Rudolph, and Dennis Chas. DeVries shall serve as directors
until the first meeting of shareholders or until their successors are duly
chosen and qualified.
SEVENTH: Regulation of the Powers of the Corporation and Its Directors and
Shareholders.
(A) Issuance and Sale of the Corporation's Shares.
(i) General. All corporate powers and authority of the
Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the ByLaws of the
Corporation) shall be vested in and exercised by the Board of
Directors. The Board of Directors shall have the power to
determine or cause to be determined the nature, quality,
character, and composition of the portfolio of securities and
investments of each series or class of the Corporation, but
the foregoing shall not limit the ability of the Board of
Directors to delegate such power to a Committee of the Board
of Directors or to an officer of the Corporation, or to enter
into an investment advisory or management contract as
described in paragraph (E)(v) of this Article SEVENTH. The
Board of Directors may from time to time issue and sell or
cause to be issued and sold any of the Corporation's
authorized shares, including any additional shares which it
hereafter authorizes and any shares redeemed or repurchased by
the Corporation, except that only shares previously contracted
to be sold may be issued during any period when the
determination of net asset value is suspended pursuant to the
provisions of
<PAGE>
paragraph (C)(iii) of this Article SEVENTH. All such
authorized shares, when issued in accordance with the terms of
this paragraph (A) shall be fully paid and nonassessable. No
holder of any shares of the Corporation shall be entitled, by
reason of holding or owning such shares, to any prior,
preemptive, or other right to subscribe to, purchase, or
otherwise acquire any additional shares of the Corporation
subsequently issued for cash or other consideration or by way
of a dividend or otherwise, and any or all of such shares of
the Corporation, whether now or hereafter authorized or
created, may be issued, reissued, or transferred, if the same
have been reacquired and have treasury status, to such
persons, firms, corporations, and associations, and for such
lawful consideration, and on such terms as the Board of
Directors in its discretion may determine, without first
offering the same, or any portion thereof, to any said holder.
Voting power in the election of Directors and for all other
purposes shall be vested exclusively in the holders of the
Corporation's authorized and issued shares.
(ii) Price. No shares of the Corporation shall be issued or
sold by the Corporation, except as a stock dividend
distributed to shareholders, for less than an amount which
would result in proceeds to the Corporation, before taxes
payable by the Corporation in connection with such
transaction, of at least the net asset value per share
determined as set forth in paragraph (C) of this Article
SEVENTH as of such time as the Board of Directors shall have
by resolution theretofore prescribed. In the absence of a
resolution of the Board of Directors applicable to the
transaction, such net asset value shall be that next
determined after receipt of an unconditional purchase order.
(iii) On Merger or Consolidation. The Board of Directors, in
its sole discretion, may permit shares of the Corporation to
be issued for stock or assets of any kind. In this regard, in
connection with the acquisition of any assets or stock of
another person (as such term is defined in Section 2(a)(28) of
the Investment Company Act of 1940), the Board of Directors
may issue or cause to be issued shares of the Corporation and
accept in payment therefor, in lieu of cash, such assets at
their fair market value, or such stock at the fair market
value of the assets held by such person, either with or
without adjustment for contingent costs or liabilities,
provided that the funds of the Corporation are permitted by
law to be invested in such assets or stock.
(iv) Fractional Shares. The Board of Directors may issue and
sell fractions of shares having pro rata all the rights of
full shares, including, without limitation, the right to vote
and to receive dividends.
(v) Restrictions on Transfer of Shares. Shares of any series
or class of the Corporation shall not be transferred until
such transfer shall have been reported to the Board of
Directors and approved by them.
<PAGE>
(B) Redemption and Repurchase of the Corporation's Shares.
(i) Redemption of Shares. The Corporation shall redeem its
shares, subject to the conditions and at the price determined
as hereinafter set forth, upon proper application of the
record holder thereof at such office or agency as may be
designated from time to time for that purpose by the Board of
Directors. Any such application must be accompanied by the
certificate or certificates, if any, evidencing such shares,
duly endorsed or accompanied by a proper instrument or
transfer. The Board of Directors shall have the power to
determine or to delegate to the proper officers of the
Corporation the power to determine from time to time the form
and the other accompanying documents which shall be necessary
to constitute a proper application for redemption. The Board
of Directors may by resolution order the redemption from time
to time of all shares of the stock of the Corporation at the
net asset value of such shares as set forth in paragraph (C)
of this Article SEVENTH in accounts having a net asset value
of $500 or less or such other amount as permitted by law,
subject to such terms and conditions as the Board of Directors
may, in its sole discretion, determine to be appropriate and
desirable.
(ii) Price. Such shares shall be redeemed at their net asset
value determined as set forth in paragraph (C) of this Article
SEVENTH as of such time as the Board of Directors shall have
theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of shares deposited shall be
the net asset value of such shares next determined as set
forth in paragraph (C) of this Article SEVENTH after receipt
of such application.
(iii) Payment. Payment for such shares shall be made to the
shareholder of record within seven (7) days after the date
upon which proper application is received, or such other time
period of greater or lesser duration as permitted by
applicable law, subject to the provisions of paragraph (B)(iv)
of this Article SEVENTH. Such payment shall be made in cash or
other assets of the Corporation or both, as the Board of
Directors shall prescribe.
(iv) Effect of Suspension of Determination of Net Asset Value.
If, pursuant to paragraph (C)(iii) of this Article SEVENTH,
the Board of Directors shall declare a suspension of the
determination of net asset value, the rights of shareholders
(including those who shall have applied for redemption
pursuant to paragraph (B)(i) of this Article SEVENTH but who
shall not yet have received payment) to have shares redeemed
and paid for by the Corporation shall be suspended until the
termination of such suspension is declared. Any record holder
whose redemption right is so suspended may, during the period
of such suspension, by appropriate written notice of
revocation to the office or agency where application was made,
revoke his application and withdraw any share certificates
which accompanied such application. The redemption price of
shares
<PAGE>
for which redemption applications have not been revoked shall
be the net asset value of such shares next determined as set
forth in paragraph (C) of this Article SEVENTH after the
termination of such suspension, and payment shall be made
within seven (7) days after the date upon which the proper
application was made plus the period after such application
during which the determination of net asset value was
suspended.
(v) Repurchase by Agreement. The Corporation may repurchase
shares of the Corporation directly, or through its principal
underwriter or other agent designated for the purpose, by
agreement with the owner thereof, at a price not exceeding the
net asset value per share determined as of the time when the
purchase or contract of purchase is made or the net asset
value as of any time which may be later determined pursuant to
paragraph (C) of this Article SEVENTH, provided payment is not
made for the shares prior to the time as of which such net
asset value is determined.
(C) Net Asset Value of Shares.
(i) By Whom Determined. The Board of Directors shall have the
power and duty to determine the method and time for computing
the net asset value per share of the outstanding shares of the
Corporation and of any such series or class of the
Corporation. It may delegate such power and duty to one or
more of the Directors and officers of the Corporation, to the
custodian or depository of the Corporation's assets, or to
another agent of the Corporation appointed for such purpose.
Any determination made pursuant to this section by the Board
of Directors, or its delegate, shall be binding on all parties
concerned.
(ii) When Determined. The net asset value shall be determined
at such times as the Board of Directors shall prescribe by
resolution, provided that such net asset value shall be
determined at least once each week as of the close of business
on a day the New York Stock Exchange is open for trading and
the Corporation is open for business ("business day"). In the
absence of a resolution of the Board of Directors, the net
asset value shall be determined as of the close of regular
trading on the New York Stock Exchange on each business day.
(iii) Suspension of Determination of Net Asset Value. The
Board of Directors may declare a suspension of the
determination of net asset value for the whole or any part of
any period (a) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, (b)
during which trading on the New York Stock Exchange is
restricted, (c) during which an emergency exists as a result
of which disposal by the Corporation of securities owned by it
is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value
of its net assets, or (d) during which a governmental body
having jurisdiction over the Corporation may by order permit
for the protection
<PAGE>
of the security holders of the Corporation. Such suspension
shall take effect at such time as the Board of Directors shall
specify, which shall not be later than the close of business
on the business day next following the declaration, and
thereafter there shall be no determination of net asset value
until the Board of Directors shall declare the suspension at
an end, except that the suspension shall terminate in any
event on the first day on which (1) the condition giving rise
to the suspension shall have ceased to exist and (2) no other
condition exists under which suspension is authorized under
this paragraph (C)(iii) of Article SEVENTH.
Each declaration by the Board of Directors pursuant to this
paragraph (C)(iii) of Article SEVENTH shall be consistent with
such official rules and regulations, if any, relating to the
subject matter thereof as shall have been promulgated by the
Securities and Exchange Commission or any other governmental
body having jurisdiction over the Corporation and as shall be
in effect at the time. To the extent not inconsistent with
such official rules and regulations, the determination of the
Board of Directors shall be conclusive.
(iv) Computation of Net Asset Value.
(a) Net Asset Value Per Share. The net asset value of
each share of each series or class or, where
applicable, of the Corporation, as of any particular
time shall be the quotient obtained by dividing the
value of the net assets of such series or class or,
where applicable, of the Corporation, by the total
number of shares of the series or class or, where
applicable, the Corporation, outstanding.
Notwithstanding the above, the Board of Directors may
determine to maintain the net asset value per share
of any series or class at a designated constant
dollar amount and in connection therewith may adopt
procedures not inconsistent with the Investment
Company Act of 1940 for the continuing declarations
of income attributable to that series or class as
dividends payable in additional shares of that series
or class at the designated constant dollar amount and
for the handling of any losses attributable to that
series or class. Such procedures may provide that in
the event of any loss, each shareholder shall be
deemed to have contributed to the capital of the
Corporation attributable to that series or class his
pro rata portion of the total number of shares
required to be cancelled in order to permit the net
asset value per share of that series or class to be
maintained, after reflecting such loss, at the
designated constant dollar amount. Each shareholder
of the Corporation shall be deemed to have agreed, by
his investment in any series or class with respect to
which the Board of Directors shall have adopted any
such procedure, to make the contribution referred to
in the preceding sentence in the event of any such
loss.
<PAGE>
(b) Net Asset Value of Series or Class. The value of
the net assets of any series or class or, where
applicable, of the Corporation, as of any particular
time shall be the value of the assets of the series
or class or, where applicable, the Corporation, less
its liabilities, determined and computed as
prescribed by the Board of Directors.
(D) Compliance With Investment Company Act of 1940.
Notwithstanding any of the foregoing provisions of this
Article SEVENTH, the Board of Directors may prescribe, in its
absolute discretion, such other bases and times for
determining the per share net asset value of the shares of any
series or class or, where applicable, of the Corporation, as
it shall deem necessary or desirable to enable the Corporation
to comply with any provision of the Investment Company Act of
1940, or any rule, release, order or regulation thereunder,
including any rule or regulation adopted by any securities
association registered under the Securities Exchange Act of
1934, all as in effect now or as hereafter amended or added,
or any decision of a court of competent jurisdiction,
notwithstanding that any of the foregoing shall later be found
to be invalid or otherwise reversed or modified by any of the
foregoing.
(E) Miscellaneous.
(i) Compensation of Directors. The Board of Directors shall
have power from time to time to authorize payment of
compensation to the Directors for services to the Corporation,
including fees for attendance at meetings of the Board of
Directors and of committees of the Board of Directors.
(ii) Inspection of Corporation's Books. The Board of Directors
shall have power from time to time to determine whether and to
what extent, and at what times and places, and under what
conditions and regulations the accounts and books of the
Corporation (other than the stock ledger) or any of them shall
be open to the inspection of shareholders; and no shareholder
shall have any right to inspect any account, book, or document
of the Corporation except as at the time and to the extent
required by applicable law, unless authorized by a resolution
of the shareholders or the Board of Directors.
(iii) Reservation of Right to Amend. The Corporation reserves
the right to make any amendment of its charter, now or
hereafter authorized by law, including any amendment which
alters the contract rights, as expressly set forth in its
charter, of any outstanding stock, and all rights herein
conferred upon shareholders are granted subject to such
reservation. The Board of Directors shall have the power to
adopt, alter, or repeal the By-Laws of the Corporation, except
to the extent that the By-Laws otherwise provide, or as
otherwise provided by applicable law.
<PAGE>
(iv) Determination of Net Profits, Dividends, Etc. The Board
of Directors is expressly authorized to determine, in
accordance with generally accepted accounting principles and
practices, what constitutes net profits, earnings, surplus, or
net assets in excess of capital, and to determine what
accounting periods, whether daily, annual, or any other
period, shall be used by any series or class or, where
applicable, the Corporation, for any purpose; to set apart out
of any funds of any series or class or, where applicable, the
Corporation, such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay
dividends and distributions in cash, securities, or other
property from surplus or any funds legally available therefor,
in such amounts and at such intervals (which may be as
frequently as daily) or on such other periodic basis, as it
shall determine; to declare such dividends or distributions by
means of a formula or other method of determination, at
meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates
for dividends or any other distributions on any basis,
including dates occurring less frequently than the
effectiveness of the declaration thereof; and to provide for
the payment of declared dividends on a date earlier than the
specified payment date in the case of shareholders of the
Corporation redeeming their entire ownership of shares of the
Corporation.
The Corporation and each of its series intends to qualify as a
"regulated investment company" under the Internal Revenue Code
of 1986, or any successor or comparable statute thereto, and
regulations promulgated thereunder. Inasmuch as the
computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books of
the Corporation, the Board of Directors shall have the power,
in its sole discretion, to distribute in any fiscal year as
dividends, including dividends designated in whole or in part
as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation
and each of its series to qualify as a regulated investment
company and to avoid liability of the Corporation and each of
its series for Federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of
the Board of Directors to make distributions greater than or
less than the amount necessary to qualify as a regulated
investment company and to avoid liability of the Corporation
and each of its series for such tax.
(v) Contracts. The Board of Directors may in its discretion
from time to time enter into an underwriting contract or
contracts providing for the sale of the shares of Common Stock
of the Corporation to net the Corporation not less than the
amount provided for in paragraph (A)(ii) of this Article
SEVENTH, whereby the Corporation may either agree to sell the
shares to the other party to the contract or appoint such
other party its sales agent for such shares (such other party
being herein sometimes called the "underwriter"), and in
either case, on such terms and conditions as may be prescribed
in the By-Laws, if any, and such further terms
<PAGE>
and conditions as the Board of Directors may in its discretion
determine is not inconsistent with the provisions of this
Article SEVENTH or of the By-Laws; and such contract may also
provide for the repurchase of shares of the Corporation by
such other party as agent of the Corporation.
The Board of Directors may in its discretion from time to time
enter into an investment advisory or management contract
whereby the other party to such contract shall undertake to
furnish to a series or class or, where applicable, the
Corporation, such management, investment advisory, statistical
and research facilities and services, and such other
facilities and services, if any, and all upon such terms and
conditions, as the Board of Directors may in its discretion
determine.
Any contract of the character described in the paragraphs
above or for services as custodian, transfer agent, or
disbursing agent or related services may be entered into with
any corporation, firm, trust, or association, although one or
more of the Directors or officers of the Corporation may be an
officer, director, trustee, shareholder, or member of such
other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of
any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship
for any loss or expense to the Corporation under or by reason
of said contract or accountable for any profit realized
directly or indirectly therefrom, except as otherwise provided
by applicable law. The same person (including a firm,
corporation, trust, or association) may be the other party to
contracts entered into pursuant to the above paragraphs, and
any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the
contracts mentioned in this paragraph, except as otherwise
provided by applicable law.
Any contract entered into pursuant to the first two paragraphs
of this paragraph (E)(v) of Article SEVENTH shall be
consistent with and subject to the requirements of Section 15
of the Investment Company Act of 1940 (including any amendment
thereof or other applicable Act of Congress hereafter enacted)
with respect to its continuance in effect, its termination,
and the method of authorization and approval of such contract
or renewal thereof.
(vi) Shareholder Voting. On each matter submitted to a vote of
the shareholders, each holder of a share shall be entitled to
one vote for each whole share and to a proportionate
fractional vote for each fractional share standing in his name
on the books of the Corporation, except as otherwise provided
in paragraph (E)(ix) of Article FIFTH. Notwithstanding any
provision of the Maryland General Corporation Law requiring a
greater proportion than a majority of the votes of all series
or classes, or of any series or class, of stock entitled to be
cast to take or authorize any action, such action may, subject
to other
<PAGE>
applicable provisions of law, these Articles of Incorporation,
and the By-Laws of the Corporation, be taken or authorized
upon the concurrence of a majority of the aggregate number of
the votes entitled to be cast thereon.
(vii) Certificates. The Board of Directors of the Corporation
may by resolution authorize the issuance of some or all of the
shares of any series or classes of the Corporation's Common
Stock without certificates.
(viii) Indemnification and Limitation of Liability. To the
fullest extent permitted by Maryland and Federal law, as
amended or interpreted, no Director or officer of the
Corporation shall be personally liable to the Corporation or
the holders of shares of its series or classes for money
damages and each Director and officer shall be indemnified by
the Corporation; provided, however, that nothing herein shall
be deemed to protect any Director or officer of the
Corporation against any liability to the Corporation or the
holders of shares of its series or classes to which such
Director or officer would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her
office.
EIGHTH: References in these Articles to the Investment Company Act of 1940 shall
mean the published statute, the rules thereunder, and, where applicable,
published cases and interpretative letters of the Securities and Exchange
Commission.
<PAGE>
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act of this 17th day of May, 1994.
/s/ Anne Ertel-Sawasky
- ------------------------------------
Anne Ertel-Sawasky
WITNESS:
/s/ Jean M. Pethan
- ------------------------------------
Jean M. Pethan
BY-LAWS
OF
AAL VARIABLE PRODUCT SERIES FUND, INC.
RATIFIED SEPTEMBER 27, 1994
<PAGE>
TABLE OF CONTENTS
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES, AND
SEAL 1
1.01. Name: 1
----
1.02. Principal Office: 1
----------------
1.03. Seal: 1
----
ARTICLE II. SHAREHOLDERS 1
2.01. Annual Meetings: 1
---------------
2.02. Special Meetings: 2
----------------
2.03. Place of Meetings: 2
-----------------
2.04. Notice of Meetings: 2
------------------
2.05. Voting - In General: 3
-------------------
2.06. Voting- Shareholders Entitled to Vote: 3
-------------------------------------
2.07. Voting - Proxies: 3
----------------
2.08. Quorum: 3
------
2.09. Absence of Quorum: 3
-----------------
2.10. Stock Ledger and List of Shareholders: 4
-------------------------------------
2.11. Informal Action By Shareholders: 4
-------------------------------
ARTICLE III. BOARD OF DIRECTORS 4
3.01. Number and Term of Office: 4
-------------------------
3.02. Qualification of Directors: 4
--------------------------
3.03. Election of Directors: 5
---------------------
3.04. Removal of Directors: 5
--------------------
3.05. Vacancies and Newly Created Directorships: 5
-----------------------------------------
3.06. General Powers: 5
--------------
3.07. Power to Issue and Sell Stock: 6
-----------------------------
3.08. Power to Declare Dividends: 6
--------------------------
3.09. Corporation's Option to Redeem Shares: 7
-------------------------------------
3.10. Borrowing: 7
---------
3.11. Annual and Regular Meetings: 7
---------------------------
3.12. Special Meetings: 8
----------------
3.13. Notice: 8
------
3.14. Waiver of Notice: 8
----------------
3.15. Quorum and Voting: 8
-----------------
3.16. Conference Telephone: 8
--------------------
3.17. Compensation: 8
------------
3.18. Action Without a Meeting: 9
------------------------
<PAGE>
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES 9
4.01. How Constituted: 9
---------------
4.02. Powers of the Executive Committee: 9
---------------------------------
4.03. Other Committees of the Board of Directors: 9
------------------------------------------
4.04. Proceedings, Quorum, and Manner of Acting: 9
-----------------------------------------
4.05. Other Committees: 10
----------------
ARTICLE V. OFFICERS 10
5.01. General: 10
-------
5.02. Election, Term of Office, and Qualifications: 10
--------------------------------------------
5.03. Resignation: 10
-----------
5.04. Removal: 11
-------
5.05. Vacancies and Newly Created Offices: 11
-----------------------------------
5.06. Chairman of the Board: 11
---------------------
5.07. President: 11
---------
5.08. Vice President: 11
--------------
5.09. Treasurer and Assistant Treasurers: 12
----------------------------------
5.10. Secretary and Assistant Secretaries: 12
-----------------------------------
5.11. Subordinate Officers: 12
--------------------
5.12. Remuneration: 13
------------
ARTICLE VI. CUSTODY OF SECURITIES AND CASH 13
6.01. Employment of a Custodian: 13
-------------------------
6.02. Central Certificate Service: 13
---------------------------
6.03. Cash Assets: 13
-----------
6.04. Free Cash Accounts: 14
------------------
6.05. Action Upon Termination of Custodian Agreement: 14
----------------------------------------------
ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES 14
7.01. Execution of Instruments: 14
------------------------
7.02. Voting of Securities: 14
--------------------
<PAGE>
ARTICLE VIII. CAPITAL STOCK 15
8.01. Certificate of Stock: 15
--------------------
8.02. Transfer of Capital Stock: 15
-------------------------
8.03. Transfer Agents and Registrars: 16
------------------------------
8.04. Transfer Restrictions and Regulations: 16
-------------------------------------
8.05. Fixing of Record Date: 16
---------------------
8.06. Lost, Stolen, or Destroyed Certificates: 16
----------------------------------------
ARTICLE IX. FISCAL YEAR, ACCOUNTANT 17
9.01. Fiscal Year: 17
-----------
9.02. Accountant: 17
----------
ARTICLE X. INDEMNIFICATION, ADVANCE PAYMENT OF EXPENSES,
AND
INSURANCE 18
10.01. Indemnification: 18
<PAGE>
10.02. Advance Payment of Expenses: 18
10.03. Insurance of Officers, Directors, Employees, and Agents: 19
ARTICLE XI. AMENDMENTS 19
11.01. General: 19
-------
11.02. By Shareholders Only: 20
--------------------
ARTICLE XII. MISCELLANEOUS 20
12.01. Use of the Term "Annual Meeting": 20
--------------------------------
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
(A Maryland Corporation)
BY-LAWS
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES, AND SEAL
Section 1.01. Name: The name of the Corporation is the AAL Variable Product
Series Fund, Inc.
Section 1.02. Principal Office: The principal office of the Corporation
in the State of Maryland shall be located at 32 South Street, Baltimore,
Maryland 21202, c/o The Corporation Trust Incorporated. The Corporation may, in
addition, establish and maintain such other offices and places of business,
within or outside the State of Maryland, as the Board of Directors may from time
to time determine. [MGCL, Sections 2-103(4), 2-108(a)(1)]*
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form, and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland" or "Corporate Seal, Md."
The form of the seal shall be subject to alteration by the Board of Directors
and the seal may be used by causing it or a facsimile to be impressed or affixed
or printed or otherwise reproduced. In lieu of affixing the corporate seal to
any document it shall be sufficient to meet the requirements of any law, rule,
or regulation relating to a corporate seal to affix the word "(Seal)" adjacent
to the signature of the authorized officer of the Corporation. Any officer or
Director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same. [MGCL, Sections 1-304(b),
2-103(3)]
ARTICLE II. SHAREHOLDERS
Section 2.01. Annual Meetings: The Corporation shall not be required to
hold an annual meeting of its shareholders in any year in which election of
Directors is not required to be acted upon under the Investment Company Act. In
the event that the Corporation shall be required by the Investment Company Act
to hold an annual meeting of shareholders, such meeting shall be held: (a) at a
date and time set by the Board of Directors in accordance with the Investment
Company Act if the purpose of the meeting is to elect Directors, but in no event
later than one hundred and twenty (120) days after the event requiring the
annual meeting; and (b) on a date and time fixed by the Board of Directors
during the month of April (i) in the fiscal year
- --------
* *Bracketed citations are to the State of Maryland General Corporation Law
("MGCL") or to the United States Investment Company Act of 1940, as amended (the
"Investment Company Act"), or to Rules of the United States Securities and
Exchange Commission thereunder ("ICA Rules"). The citations are inserted for
reference only and do not constitute a part of the By-Laws.
<PAGE>
immediately following the fiscal year in which independent accountants were
appointed by the Board of Directors if the purpose of the meeting is to ratify
the selection of such independent accountants or (ii) in any fiscal year if an
annual meeting is to be held for any reason other than as specified in the
foregoing. Any shareholders' meeting held in accordance with the preceding
sentence shall for all purposes constitute the annual meeting of shareholders
for the fiscal year of the Corporation in which the meeting is held. At any such
meeting, the shareholders shall elect Directors to hold the offices of any
Directors who have held office for more than one (1) year or who have been
elected by the Board of Directors to fill vacancies which result from any cause.
Except as the Articles of Incorporation or applicable law provides otherwise,
Directors may transact any business within the powers of the Corporation as may
properly come before the meeting. Any business of the Corporation may be
transacted at the annual meeting without being specially designated in the
notice, except such business as is specifically required by applicable law to be
stated in the notice. [MGCL, Section 2-501]
Section 2.02. Special Meetings: Special meetings of the shareholders
may be called at any time by the Chairman of the Board, if there be such an
officer, the President, any Vice President, or by the Board of Directors.
Special meetings of the shareholders also shall be called by the Secretary on
the written request of shareholders entitled to cast at least ten (10) percent
of all the votes entitled to be cast at such meeting, provided that (a) such
request shall state the purpose or purposes of the meeting and the matters
proposed to be acted on, and (b) the shareholders requesting the meeting shall
have paid to the Corporation the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such shareholders. Unless requested by shareholders entitled to cast a majority
of all the votes entitled to be cast at the meeting, a special meeting need not
be called to consider any matter which is substantially the same as a matter
voted upon at any annual or special meeting of the shareholders held during the
preceding twelve (12) months. [MGCL, Section 2-502; Investment Company Act,
Section 16(c)]
Section 2.03. Place of Meetings: All shareholders' meetings shall be held
at such place within the United States as may be fixed from time to time by the
Board of Directors. [MGCL, Section 2-503]
Section 2.04. Notice of Meetings: Not less than ten (10) days, nor more
than ninety (90) days before each shareholders' meeting, the Secretary or an
Assistant Secretary of the Corporation shall give to each shareholder entitled
to vote at the meeting, and each other shareholder entitled to notice of the
meeting, written notice stating (a) the time and place of the meeting, and (b)
the purpose or purposes of the meeting if the meeting is a special meeting or if
notice of the purpose is required by applicable law to be given. Such notice
shall be personally delivered to the shareholder, or left at his residence or
usual place of business, or mailed to him at his address as it appears on the
records of the Corporation. No notice of a shareholders' meeting need be given
to any shareholder who shall sign a written waiver of such notice, whether
before or after the meeting, which is filed with the records of shareholders'
meetings, or to any shareholder who is present at the meeting in person or by
proxy. Notice of adjournment of a shareholders' meeting to another time or place
need not be given if such time and place are announced at the
<PAGE>
meeting, unless the adjournment is for more than one hundred and twenty
(120) days after the original record date. [MGCL, Sections 2-504, 2-511(d)]
Section 2.05. Voting - In General: Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws, or as required by
provisions of the Investment Company Act or other applicable law, with respect
to the vote of a series or class, if any, of the Corporation, at every
shareholders' meeting, each shareholder shall be entitled to one (1) vote for
each share of stock of the Corporation validly issued and outstanding and held
by such shareholder, except that no shares held by the Corporation shall be
entitled to a vote. Fractional shares shall be entitled to fractional votes.
Except as otherwise specifically provided in the Articles of Incorporation, or
these By-Laws, or as required by provisions of the Investment Company Act or
other applicable law, a majority of all the votes cast at a meeting at which a
quorum is present is sufficient to approve any matter which properly comes
before the meeting. The vote upon any question shall be by ballot whenever
requested by any person entitled to vote, but, unless such a request is made,
voting may be conducted in any way approved by the meeting. [MGCL, Sections
2-214(a)(1), 2-506(a)(2), 2-507(a), 2-509(b)]
Section 2.06. Voting- Shareholders Entitled to Vote: If, pursuant to
Section 8.05 hereof, a record date has been fixed for the determination of
shareholders entitled to notice of or to vote at any shareholders' meeting, each
shareholder of the Corporation shall be entitled to vote in person or by proxy,
each share or fraction of a share of stock outstanding in his name on the books
of the Corporation on such record date. If no record date has been fixed for the
determination of shareholders, the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be the close of business on the day on which notice of the meeting is mailed or
the thirtieth (30th) day before the meeting, whichever is the closer date to the
meeting, or, if notice is waived by all shareholders, at the close of business
on the tenth (10th) day next preceding the date of the meeting. [MGCL, Sections
2-507, 2-511]
Section 2.07. Voting - Proxies: The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder himself, or by his attorney thereunto duly authorized
in writing. No proxy shall be valid more than eleven (11) months after its date
unless it provides for a longer period. Unless otherwise agreed to in writing,
the holder of record of a share of stock which actually belongs to another shall
issue a proxy to vote the share to the actual owner on his demand. [MGCL,
Section 2-507(b)]
Section 2.08. Quorum: The presence at any shareholders' meeting, in person
or by proxy, of shareholders entitled to cast one-third of the votes entitled to
be cast at the meeting shall constitute a quorum. [MGCL, Section 2-506(a)]
Section 2.09. Absence of Quorum: In the absence of a quorum, the holders of
a majority of shares entitled to vote at the meeting and present thereat in
person or by proxy, or, if no shareholder entitled to vote is present in person
or by proxy, any officer present who is entitled
<PAGE>
to preside at or act as Secretary of such meeting, may adjourn the meeting sine
die or from time to time. Any business that might have been transacted at the
meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present.
Section 2.10. Stock Ledger and List of Shareholders: It shall be the
duty of the Secretary or Assistant Secretary of the Corporation to cause an
original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent, containing the names and addresses of all
shareholders and the number of shares of each series or class held by each
shareholder. Such stock ledger may be in written form, or any other form capable
of being converted into written form within a reasonable time for visual
inspection. One or more persons, who together and for at least six (6) months
have been shareholders of record of at least five (5) percent of the outstanding
capital stock of the Corporation, may submit (unless the Corporation at the time
of the request maintains a duplicate stock ledger at its principal office) a
written request to any officer of the Corporation or its resident agent in
Maryland for a list of the shareholders of the Corporation. Within twenty (20)
days after such a request, there shall be prepared and filed at the
Corporation's principal office a list, verified under oath by an officer of the
Corporation or by its transfer agent or registrar, which sets forth the name and
address of each shareholder and the number of shares of each series or class
which the shareholder holds. [MGCL, Sections 2-209, 2-513]
Section 2.11. Informal Action By Shareholders: Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting, if the following are filed with the records of shareholders' meetings:
(a) A unanimous written consent which sets forth the action and is signed
by each shareholder entitled to vote on the matter; and
(b) A written waiver of any right to dissent signed by each shareholder
entitled to notice of the meeting, but not entitled to vote at it. [MGCL,
Section 2-505]
ARTICLE III. BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The Board of Directors shall
consist of three (3) Directors, which number may be increased or decreased by a
resolution of a majority of the entire Board of Directors, provided that the
number of Directors shall not be more than eleven (11) nor less than the lesser
of (i) three (3) or (ii) the number of shareholders of the Corporation. Each
Director (whenever elected) shall hold office until the next annual meeting of
shareholders and until his successor is elected and qualified or until his
earlier death, resignation, or removal.
[MGCL, Sections 2-402, 2-404, 2-405]
Section 3.02. Qualification of Directors: No member of the Board of
Directors need be a shareholder of the Corporation, but at least one (1) member
of the Board of Directors shall be
<PAGE>
a person who is not an interested person (as such term is defined in the
Investment Company Act) of the investment adviser of the Corporation, nor an
officer or employee of the Corporation.
[MGCL, Section 2-403; Investment Company Act, Section 10(d)]
Section 3.03. Election of Directors: Until the first annual meeting of
shareholders, or until successors are duly elected and qualified, the Board of
Directors shall consist of the persons named as such in the Articles of
Incorporation. Thereafter, except as otherwise provided in Sections 3.04 and
3.05 hereof, at each annual meeting, the shareholders shall elect Directors to
hold office until the next annual meeting and/or until their successors are
elected and qualified. In the event that Directors are not elected at an annual
shareholders' meeting, then Directors may be elected at a special shareholders'
meeting. Directors shall be elected by vote of the holders of a plurality of the
shares present in person or by proxy and entitled to vote. [MGCL, Section 2-404]
Section 3.04. Removal of Directors: At any meeting of shareholders,
duly called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any Director or Directors from office, either with or without
cause, and may elect a successor or successors to fill any resulting vacancies
for the unexpired terms of any removed Directors. [MGCL, Sections 2-406, 2-407]
Section 3.05. Vacancies and Newly Created Directorships: In the event
that at any time, other than the time preceding the first meeting of
shareholders, any vacancies occur in the Board of Directors by reason of
resignation, removal, or otherwise, or if the authorized number of Directors is
increased, the Directors then in office shall continue to act, and such
vacancies (if not previously filled by the shareholders) may be filled by a
majority of the Directors then in office, whether or not sufficient to
constitute a quorum, provided that, immediately after filling such vacancy, at
least two-thirds of the Directors then holding office shall have been elected to
such office by the shareholders of the Corporation. In the event that at any
time, other than the time preceding the first meeting of shareholders, less than
a majority of the Directors of the Corporation holding office at that time were
so elected by the shareholders, a meeting of the shareholders shall be held
promptly and in any event within sixty (60) days for the purpose of electing
Directors to fill any existing vacancies in the Board of Directors unless the
Securities and Exchange Commission shall by order extend such period. Except as
provided in Section 3.04 hereof, a Director elected by the Board of Directors to
fill a vacancy shall be elected to hold office until the next annual meeting of
shareholders or until his successor is elected and qualified. A Director elected
by the shareholders to fill a vacancy which results from the removal of a
Director serves for the balance of the term of the removed Director. [MGCL,
Section 2-407; Investment Company Act, Section 16(a)]
Section 3.06. General Powers:
(a) The property, business, and affairs of the Corporation shall be
managed under the direction of the Board of Directors, which may exercise all
the powers of the Corporation except
<PAGE>
such as are by applicable law, by the Articles of Incorporation, or by
these By-Laws conferred upon or reserved to the shareholders of the Corporation.
[MGCL, Section 2-401]
(b) All acts done by any meeting of the Board of Directors or by any
person acting as a Director, so long as his successor shall not have been duly
elected or appointed, shall be treated as valid as if the Directors or such
person, as the case may be, were or was duly elected and qualified to be
Directors or a Director of the Corporation, notwithstanding that it may be
afterwards discovered that there was some defect in the election of the
Directors or such person acting as a Director, or that they or any of them were
disqualified.
Section 3.07. Power to Issue and Sell Stock: The Board of Directors may
from time to time authorize by resolution the issuance and sale of any of the
Corporation's authorized shares to such persons as the Board of Directors shall
deem advisable. Such resolution shall set the minimum price or value of
consideration for the stock or a formula for its determination, and shall
include a fair description of any consideration, other than money, and a
statement of the actual value of such consideration as determined by the Board
of Directors or a statement that the Board of Directors has determined that the
actual value is or will be not less than a certain sum. [MGCL, Section 2-203]
Section 3.08. Power to Declare Dividends:
(a) The Board of Directors, from time to time as it may deem advisable,
may declare that the Corporation pay dividends, in cash, property, or shares of
the Corporation available for dividends, out of any source available for
dividends, to the shareholders according to their respective rights and
interests.
(b) The Board of Directors shall cause a written statement to accompany
any dividend payment wholly or partly from any source other than the
Corporation's accumulated undistributed net income not including profits or
losses realized upon the sale of securities or other properties (as determined
in accordance with good accounting practice and the rules and regulations of the
Securities and Exchange Commission then in effect). Such statement shall
adequately disclose the source or sources of such payment and the basis of
calculation and shall be otherwise in such form as the Securities and Exchange
Commission may prescribe. [Investment Company Act, Section 19 and ICA Rule
19a-l]
(c) Notwithstanding the above provisions of this Section 3.08, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders a stock dividend out of the Corporation's authorized but unissued
shares of stock, including any shares previously redeemed by the Corporation.
The shares so distributed may be declared and paid to the holders of shares of
another series or class. The shares so distributed shall be issued at the par
value thereof, and there shall be transferred to stated capital, at the time
such dividend is paid, an amount of surplus equal to the aggregate par value of
the shares issued as a dividend and there may be transferred from earned surplus
to capital surplus such additional amount as the Board of Directors may
determine. [MGCL, Section 2-309]
<PAGE>
Section 3.09. Corporation's Option to Redeem Shares:
(a) Small Account. The Corporation shall have the right at any time and
without prior notice to the shareholder to redeem for their then-current net
asset value per share all shares that are held by a shareholder whose shares of
the Corporation or of any and all series or classes have an aggregate net asset
value of less than $600, or such other amount as the Board of Directors may from
time to time determine.
(b) Cessation of Offering. If in the sole determination of the Board of
Directors, the continuation of the offering of the shares of any one or more
series or class is no longer in the best interests of the Corporation, e.g.,
because market conditions have changed, regulatory problems have developed, or
participation in such series or class is low, the Corporation may cease the
offering of such shares and may by majority vote of the Board of Directors,
require the redemption of all outstanding shares of stock of such series or
class at their then-current net asset value upon thirty (30) days prior written
notice to the stockholders, all subject to the requirements of applicable law.
(c) Reimbursement. The Corporation shall have the right at any time and
without prior notice to the shareholder to redeem shares in any account,
including any account of any series or class, for their then-current net asset
value per share if and to the extent it shall be necessary to reimburse the
Corporation or its principal underwriter or distributor for any loss sustained
by the Corporation by reason of the failure of the shareholder in whose name
such account is registered to make full payment for shares of the Corporation,
or of any series or class thereof, purchased by such shareholder.
(d) Personal Holding Company. The Corporation shall have the right at
any time and without prior notice to the shareholder to redeem shares in any
account for their then-current net asset value per share if such redemption is,
in the opinion the Board of Directors, desirable in order to avoid the
Corporation being taxed as a "personal holding company" within the meaning of
the Internal Revenue Code of 1986, as amended.
(e) Notice. The right of redemption provided by each of foregoing
subsections of this Section 3.09 hereof shall be subject to such terms and
conditions as the Board of Directors may from time to time approve, and subject
to the Corporation's giving general notice of its intention to avail itself of
such right, either by publication in the Corporation's prospectus or statement
of additional information or by such means as the Board of Directors shall
determine.
Section 3.10. Borrowing: The Board of Directors, from time to time as it
may deem advisable, may establish limitations upon the borrowing of money and
pledging of assets by the Corporation.
Section 3.11. Annual and Regular Meetings: The annual meeting of the
Board of Directors held for the purpose of choosing officers and transacting
other proper business shall be held after the annual shareholders' meeting at
such time and place as may be specified in the
<PAGE>
notice of such meeting of the Board of Directors or, in the absence of such
annual shareholders' meeting, at such time and place as the Board of Directors
may provide. The Board of Directors from time to time may provide by resolution
for the holding of regular meetings and fix their time and place (within or
outside the State of Maryland). [MGCL, Section 2-409(a)]
Section 3.12. Special Meetings: Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, if there
be such an officer, the President (or, in the absence or disability of the
President, by any Vice President), the Treasurer, or two (2) or more Directors,
at the time and place (within or outside the State of Maryland) specified in the
respective notices or waivers of notice of such meetings. [MGCL, Section 2-502]
Section 3.13. Notice: Notice of annual, regular, and special meetings
shall be in writing, stating the time and place, and shall be mailed to each
Director at his residence or regular place of business or caused to be delivered
to him personally or to be transmitted to him by telegraph, telecopy, cable, or
wireless at least two (2) days before the day on which the meeting is to be
held. Except as otherwise required by these By-Laws or the Investment Company
Act, such notice need not include a statement of the business to be transacted
at, or the purpose of, the meeting. [MGCL, Section 2-409(b)]
Section 3.14. Waiver of Notice: No notice of any meeting need be given
to any Director who is present at the meeting or to any Director who signs a
waiver of the notice of the meeting (which waiver shall be filed with the
records of the meeting) whether before or after the meeting.
[MGCL, Section 2-409(c)]
Section 3.15. Quorum and Voting: At all meetings of the Board of
Directors the presence of one-third of the total number of Directors, but not
less than two (2) Directors if there are at least (2) two Directors, shall
constitute a quorum. In the absence of a quorum, a majority of the Directors
present may adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the Directors present at a meeting at which
a quorum is present shall be the action of the Board of Directors unless the
concurrence of a greater proportion is required for such action by applicable
law, by the Articles of Incorporation, or by these By-Laws. [MGCL, Section
2-408]
Section 3.16. Conference Telephone: Members of the Board of Directors
or of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or of such committee by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation by such means
shall constitute presence in person at such meeting, unless otherwise prohibited
by applicable law. [MGCL, Section 2-409(d); Investment Company Act, Sections 15
and 32]
Section 3.17. Compensation: Each Director may receive such remuneration for
his services as shall be fixed from time to time by resolution or resolutions of
the Board of Directors.
<PAGE>
Section 3.18. Action Without a Meeting: Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if a unanimous written consent which sets
forth the action is signed by each member of the Board of Directors or of such
committee and such written consent is filed with the minutes of proceedings of
the Board of Directors or committee, unless otherwise prohibited by applicable
law. [MGCL, Section 2-408(c); Investment Company Act, Sections 15 and 32]
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the Board of
Directors, the Board of Directors may appoint from among its members one or more
committees, including an Executive Committee and an Audit Committee, each
consisting of at least two (2) Directors. Each member of a committee shall hold
such position at the pleasure of the Board of Directors.
[MGCL, Section 2-411]
Section 4.02. Powers of the Executive Committee: Unless otherwise
provided by resolution of the Board of Directors, the Executive Committee, in
the intervals between meetings of the Board of Directors, shall have and may
exercise all of the powers of the Board of Directors to manage the business and
affairs of the Corporation except the power to:
(a) Declare dividends or distributions on stock;
(b) Issue stock other than as provided in Section 2-411(b) of the Maryland
General Corporation Law, as amended, from time to time;
(c) Recommend to the shareholders any action which requires shareholder
approval;
(d) Amend these By-Laws; or
(e) Approve any merger or share exchange which does not require shareholder
approval. [MGCL, Section 2-411(a)]
Section 4.03. Other Committees of the Board of Directors: To the extent
provided by resolution of the Board of Directors, other committees shall have
and may exercise any of the powers that may lawfully be granted to the Executive
Committee. [MGCL, Section 2-411 (a)]
Section 4.04. Proceedings, Quorum, and Manner of Acting: In the absence
of an appropriate resolution of the Board of Directors, each committee may adopt
such rules and regulations governing its proceedings, quorum, and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two (2) Directors. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not
<PAGE>
they constitute a quorum, may appoint a member of the Board of Directors to
act in the place of such absent member. [MGCL, Section 2-411(c)]
Section 4.05. Other Committees: The Board of Directors may appoint
other committees, each consisting of one or more persons who need not be
Directors. Each such committee shall have such powers and perform such duties as
may be assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V. OFFICERS
Section 5.01. General: The officers of the Corporation shall be a
President, one or more Vice Presidents (one or more of whom may be designated
Executive Vice President), a Secretary, and a Treasurer, and may include one or
more Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.11 hereof. The Board of Directors may elect,
but shall not be required to elect, a Chairman of the Board of Directors. [MGCL,
Section 2-412]
Section 5.02. Election, Term of Office, and Qualifications: The
officers of the Corporation (except those appointed pursuant to Section 5.11
hereof) shall be elected by the Board of Directors at its first meeting and
thereafter at each annual meeting of the Board of Directors. If any officer or
officers are not elected at any such meeting, such officer or officers may be
elected at any subsequent regular or special meeting of the Board of Directors.
Except as provided in Sections 5.03, 5.04, and 5.05 hereof, each officer elected
by the Board of Directors shall hold office until the next annual meeting of the
Board of Directors and until his successor shall have been chosen and qualified.
Any person may hold two (2) or more offices of the Corporation, except that
neither the Chairman of the Board, if there be such an officer, nor the
President, may hold the office of Vice President. A person who holds more than
one office may not act in more than one (1) capacity to execute, acknowledge, or
verify any instrument required by applicable law, the Articles of Incorporation,
or these By-Laws to be executed, acknowledged, or verified by two (2) or more
officers of the Corporation, except as otherwise permitted or required by law.
The Chairman of the Board of Directors, if there be such an officer, shall be
selected from among the Directors of the Corporation and may hold such office
only so long as he continues to be a Director. No other officer need be a
Director. [MGCL, Sections 2-412, 2-413, 2-415]
Section 5.03. Resignation: Any officer may resign his office at any
time by delivering a written resignation to the Board of Directors, the Chairman
of the Board if there be such an officer, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
<PAGE>
Section 5.04. Removal: Any officer may be removed from office by the Board
of Directors whenever in the judgment of the Board of Directors the best
interests of the Corporation will be served thereby. [MGCL, Section 2-413(c)]
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification,
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any meeting or, in
the case of any office created pursuant to Section 5.11 hereof, by any officer
upon whom such power shall have been conferred by the Board of Directors.
[MGCL, Section 2-413(d)]
Section 5.06. Chairman of the Board: Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board of Directors, if
there be such an officer, shall be the chief executive and operating officer of
the Corporation. He shall preside at all shareholders' meetings and at all
meetings of the Board of Directors, and he shall be an ex officio member of all
standing committees of the Board of Directors. Subject to the supervision of the
Board of Directors, he shall have general charge of the business affairs,
property, and operation of the Corporation and its officers, employees, and
agents. He may sign (unless the President or a Vice President shall have signed)
certificates, if any, representing stock of the Corporation authorized for
issuance by the Board of Directors and shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors.
Section 5.07. President: Unless otherwise provided by resolution of the
Board of Directors, the President shall, at the request of or in the absence or
disability of the Chairman of the Board, or if no Chairman of the Board has been
chosen, preside at all shareholders' meetings and at all meetings of the Board
of Directors and shall in general exercise the powers and perform the duties of
the Chairman of the Board. He may sign (unless the Chairman of the Board or a
Vice President shall have signed) certificates, if any, representing stock of
the Corporation authorized for issuance by the Board of Directors. Except as the
Board of Directors may otherwise order, he may sign in the name and on behalf of
the Corporation all deeds, bonds, contracts, or agreements. He shall exercise
such other powers and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 5.08. Vice President: The Board of Directors shall, from time
to time, designate and elect one or more Vice Presidents (one or more of whom
may be designated Executive Vice President) who shall have such powers and
perform such duties as from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or disability of
the President, the Vice President (or, if there are two (2) or more Vice
Presidents, the Vice President in order of seniority of tenure in such office or
in such other order as the Board of Directors may determine) may perform all the
duties of the President and, when so acting, shall have all the powers of and be
subject to all the restrictions placed upon the President. Any Vice President
may sign (unless the Chairman of the Board, the President, or another Vice
President shall have signed) certificates, if any, representing stock of the
Corporation authorized for issuance by the Board of Directors.
<PAGE>
Section 5.09. Treasurer and Assistant Treasurers: The Treasurer shall
be the principal financial and accounting officer of the Corporation and shall
have general charge of the finances and books of account of the Corporation.
Except as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the custodian of its duties with respect thereto. He may countersign (unless
an Assistant Treasurer or Secretary or Assistant Secretary shall have
countersigned) certificates, if any, representing stock of the Corporation
authorized for issuance by the Board of Directors. He shall render to the Board
of Directors, whenever directed by the Board of Directors, an account of the
financial condition of the Corporation and of all his transactions as Treasurer;
and as soon as possible after the close of each fiscal year he shall make and
submit to the Board of Directors a like report for such fiscal year. He shall
cause to be prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of operations
for the preceding fiscal year, which shall be submitted at the annual meeting of
shareholders and filed within twenty (20) days thereafter at the principal
office of the Corporation or, if no annual meeting is held, then within sixty
(60) days of the end of the fiscal year. He shall perform all the acts
incidental to the office of the Treasurer, subject to the control of the Board
of Directors. Any Assistant Treasurer may perform such duties of the Treasurer
as the Treasurer or the Board of Directors may assign, and, in the absence of
the Treasurer, he may perform all the duties of the Treasurer and, when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Treasurer. [MGCL, Section 2-313; Investment Company Act, Section 30 and ICA
Rule 30d-1]
Section 5.10. Secretary and Assistant Secretaries: The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the shareholders and Directors in one
or more books to be kept for that purpose. He shall keep in safe custody the
seal of the Corporation and shall have charge of the records of the Corporation,
including the stock books and such other books and papers as the Board of
Directors may direct, and such books, reports, certificates, and other documents
required by law to be kept, all of which shall, at all reasonable times, be open
to inspection by any Director. He shall countersign (unless the Treasurer, an
Assistant Treasurer, or an Assistant Secretary shall have countersigned)
certificates, if any, representing stock of the Corporation authorized for
issuance by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of Directors. Any
Assistant Secretary may perform such duties of the Secretary as the Secretary or
the Board of Directors may assign, and, in the absence of the Secretary, he may
perform all the duties of the Secretary and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
Section 5.11. Subordinate Officers: The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities, and duties. [MGCL, Section
2-412 (b)]
<PAGE>
Section 5.12. Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.11 thereof.
ARTICLE VI. CUSTODY OF SECURITIES AND CASH
Section 6.01. Employment of a Custodian: The Corporation shall place
and at all times maintain in the custody of a Custodian (including any
sub-custodian for the Custodian) all funds, securities, and similar investments
owned by the Corporation. The Custodian shall be a bank having an aggregate
capital, surplus, and undivided profits of not less than $10,000,000. Subject to
such rules, regulations, and orders as the Securities and Exchange Commission
may adopt as necessary or appropriate for the protection of investors, the
Corporation's Custodian may deposit all or a part of the securities owned by the
Corporation in the custody of a sub-custodian or sub-custodians situated within
or without the United States. The Custodian shall be appointed and its
remuneration fixed by the Board of Directors. [Investment Company Act, Section
17(f)]
Section 6.02. Central Certificate Service: Subject to the rules,
regulations, and orders as the Securities and Exchange Commission may adopt as
necessary or appropriate for the protection of investors, the Corporation's
Custodian may deposit all or any part of the securities owned by the Corporation
in a system for the central handling of securities established by a national
securities exchange or national securities association registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Securities and Exchange Commission,
pursuant to which system all securities of any particular series or class of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities. [Investment Company Act Section 17(f)]
Section 6.03. Cash Assets: The cash proceeds from the sale of
securities and similar investments and other cash assets of the Corporation
shall be kept in the custody of a bank or banks appointed pursuant to Section
6.01 hereof, or in accordance with such rules and regulations or orders as the
Securities and Exchange Commission may from time to time prescribe for the
protection of investors, except that the Corporation may maintain a checking
account or accounts in a bank or banks, each having an aggregate capital,
surplus, and undivided profits of not less than $10,000,000, provided that the
balance of such account or the aggregate balances of such accounts shall at no
time exceed the amount of the fidelity bond, maintained pursuant to the
requirements of the Investment Company Act and rules and regulations thereunder,
covering the officers or employees authorized to draw on such account or
accounts. [Investment Company Act, Sections 17 (f) and 17(g)]
<PAGE>
Section 6.04. Free Cash Accounts: The Corporation may, upon resolution of
its Board of Directors, maintain a petty cash account free of the foregoing
requirements of this Article VI in an amount not to exceed $500 or such other
amount permitted by law, provided that such account is operated under the
imprest system and is maintained subject to adequate controls approved by the
Board of Directors over disbursements and reimbursements including, but not
limited to, fidelity bond coverage for persons having access to such funds.
[Investment Company Act, Section 17(f) and ICA Rule 17f-3]
Section 6.05. Action Upon Termination of Custodian Agreement: Upon
resignation of a custodian of the Corporation or inability of a custodian to
continue to serve, the Board of Directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the Board of Directors shall
call as promptly as possible a special meeting of the shareholders to determine
whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the custodian shall deliver and
pay over all property of the Corporation held by it as specified in such vote.
ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. Execution of Instruments: All deeds, documents,
transfers, contracts, agreements, requisitions or orders, promissory notes,
assignments, endorsements, checks and drafts for the payment of money by the
Corporation, and other instruments requiring execution by the Corporation shall
be signed by any two (2) of the following: the Chairman of the Board, if there
be such an officer, the President, a Vice President, the Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary, or as the Board of Directors or
standing Committee(s) of the Board may otherwise authorize, from time to time.
Any such authorization may be general or confined to specific instances.
Section 7.02. Voting of Securities: Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, if there be such an officer, the
President, or any Vice President shall have full power and authority on behalf
of the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of shareholders of any
company in which the Corporation may hold stock. At any such meeting such
officer shall possess and may exercise (in person or by proxy) any and all
rights, powers, and privileges incident to the ownership of such stock. The
Board of Directors may by resolution from time to time confer like powers upon
any other person or persons. [MGCL, Section 2-509]
<PAGE>
ARTICLE VIII. CAPITAL STOCK
Section 8.01. Certificate of Stock:
(a) The Board of Directors may authorize the issuance of some or all
shares of any or all series or classes of the Corporation stock without
certificates. At the time of the issuance of shares without certificates, the
Corporation shall send to the shareholder a written statement of the information
required to be on certificates by Section 2-211 of the Maryland General
Corporation Law, as amended. [MGCL, Section 2-210]
(b) In the event certificates of stock of the Corporation are to be
issued, then such certificates shall be in the form approved by the Board of
Directors. Certificates of stock, if any, shall be signed in the name of the
Corporation by the Chairman of the Board, if there be such an officer, or the
President, or any Vice President and countersigned by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, and shall
certify the number and kind of shares owned by the holder thereof in the
Corporation. Such certificate may be sealed with the corporate seal of the
Corporation. Such signatures may be either manual or facsimile signatures and
the seal may be either facsimile or any other form of seal. [MGCL, Sections
2-210(a), 2-212]
(c) In case any officer, transfer agent, or registrar who shall have
signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer, transfer agent or registrar (because
of death, resignation or otherwise) before such certificate is issued, such
certificate may be issued and delivered by the Corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
[MGCL, Section 2-212(c)]
(d) The number of any certificate issued, the name of the person owning
the shares represented thereby, the number of such shares, and the date of
issuance shall be entered upon the stock books of the Corporation at the time of
issuance.
(e) Every certificate exchanged, surrendered for redemption, or
otherwise returned to the Corporation shall be marked "Cancelled" with the date
of cancellation.
Section 8.02. Transfer of Capital Stock:
(a) Shares of stock of the Corporation shall be transferable only upon
the books of the Corporation kept for such purpose and, if one or more
certificates representing such shares have been issued, upon surrender to the
Corporation or its transfer agent or agents of such certificate or certificates
duly endorsed, or accompanied by appropriate evidence of assignment, transfer,
succession, or authority to transfer.
(b) The Corporation shall be entitled to treat the holder of record of
any share of stock as the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize
<PAGE>
any legal, equitable, or other claim or interest in such share on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise expressly provided by law.
Section 8.03. Transfer Agents and Registrars: The Board of Directors
may, from time to time, appoint or remove transfer agents and registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates, if any, representing shares of capital stock thereafter
issued shall be countersigned by one of such transfer agents or by one of such
registrars of transfers and shall not be valid unless so countersigned.
Section 8.04. Transfer Restrictions and Regulations: The shares of any
series or class within a series of the Corporation may be transferred only upon
the prior approval of the Board of Directors. The Board of Directors may, from
time to time, adopt lawful rules and regulations with reference to the method of
transfer of the shares of stock of the Corporation.
Section 8.05. Fixing of Record Date: The Board of Directors may fix in
advance a date as a record date for the determination of the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion, or exchange of stock, or for any other proper purpose, provided that
such record date shall be a date not more than ninety (90) days nor, in the case
of a meeting of shareholders, less than ten (10) days prior to the date on which
the particular action, requiring such determination of shareholders, is to be
taken. In such case, only such shareholders of record on the record date so
fixed shall be entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment of such dividend or
other distribution, or to receive such allotment of rights, or to exercise such
rights, or to take other action, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any such record
date. A meeting of shareholders convened on the date for which it was called may
be adjourned from time to time without notice to a date not more than one
hundred and twenty (120) days after the original record date. [MGCL, Section
2-511]
Section 8.06. Lost, Stolen, or Destroyed Certificates: Before issuing a
new certificate for stock of the Corporation alleged to have been lost, stolen,
or destroyed the Board of Directors, or any officer authorized by the Board of
Directors, may, in its discretion, require the owner of the lost, stolen, or
destroyed certificate (or his legal representative) to give the Corporation a
bond or other indemnity, in such form and in such amount as the Board of
Directors or any such officer may direct and with such surety or sureties as may
be satisfactory to the Board of Directors or any such officer, sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss, theft, or destruction of any such certificate or
the issuance of such new certificate. The issuance of a new certificate under
such circumstances shall not constitute an overissue of the shares represented
thereby. [MGCL, Section 2-213]
<PAGE>
ARTICLE IX. FISCAL YEAR, ACCOUNTANT
Section 9.01. Fiscal Year: The fiscal year of the Corporation shall be
the twelve (12) calendar months beginning on the first day of January in each
year and ending on the last day of the following December, or such other period
of twelve (12) calendar months as the Board of Directors may by resolution
prescribe.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent public accountant or
firm of independent public accountants as its accountant to examine the accounts
of the Corporation and to sign and certify the Corporation's financial
statements, which may be filed with various regulatory agencies. The
accountant's certificates and reports shall be addressed both to the Board of
Directors and to the shareholders.
(b) A majority of the members of the Board of Directors who are not
"interested persons" (as such term is defined in Section 2(a)(19) of the
Investment Company Act) of the Corporation shall select the accountant, by vote
cast in person, at any meeting held before the first annual shareholders'
meeting, and thereafter shall select the accountant annually, by vote cast in
person, at a meeting held within thirty (30) days before or ninety (90) days
after the beginning of the fiscal year of the Corporation or within thirty (30)
days before the annual shareholders' meeting, if any, held in that year. Such
selection shall be submitted for ratification or rejection at the next
succeeding annual shareholders' meeting. If the holders of a majority vote of
the outstanding voting securities at such meeting reject such selection, the
accountant shall be selected by majority vote of the Corporation's outstanding
voting securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of shareholders called for that purpose.
[Investment Company Act, Section 32(a) and ICA Rule 32a-3]
(c) Any vacancy occurring between annual meetings, due to the death or
resignation of the accountant, may be filled by the vote of a majority of those
members of the Board of Directors who are not "interested persons" (as such term
is defined in Section 2(a)(19) of the Investment Company Act) of the
Corporation, cast in person at a meeting called for the purpose of voting on
such action.
(d) The employment of the accountant shall be conditioned upon the right of
the Corporation by vote of a majority of the outstanding voting securities at
any meeting called for the purpose to terminate such employment forthwith
without any penalty. [Investment Company Act, Section 32(a)]
<PAGE>
ARTICLE X. INDEMNIFICATION, ADVANCE PAYMENT OF EXPENSES, AND
INSURANCE
Section 10.01. Indemnification: The Corporation shall indemnify any
individual ("Indemnitee") who is a present or former Director, officer,
employee, or agent of the Corporation, or who is or has been serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
or agent of another corporation, partnership, joint venture, trust or other
enterprise, who, by reason of his service in that capacity, was, is, or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any judgments,
penalties, fines, settlements, and reasonable expenses (including attorneys'
fees) incurred by such Indemnitee in connection with any Proceeding, to the
fullest extent that such indemnification may be lawful under the Maryland
General Corporation Law. Subject to any applicable limitations and requirements
set forth in the Corporation's Articles of Incorporation and in these By-Laws,
any payment of indemnification or advance of expenses, as provided below, shall
be made in accordance with the procedures set forth in the Maryland General
Corporation Law. [MGCL, Section 2-418(b)]
Notwithstanding the foregoing, nothing herein shall protect or purport
to protect any Indemnitee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office (such
conduct hereinafter referred to as "Disabling Conduct"). [Investment Company
Act, Section 17(h)]
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court or other body
before whom the Proceeding was brought that the Indemnitee was not liable by
reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the Indemnitee was not
liable by reason of Disabling Conduct, which determination shall be made by:
(i) the vote of a majority of a quorum of Directors who are neither
"interested persons" of the Corporation as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written opinion. [MGCL,
Section 2-418(e)]
Section 10.02. Advance Payment of Expenses: The Corporation shall pay any
reasonable expenses so incurred by such Indemnitee in defending a Proceeding in
advance of the final
<PAGE>
disposition thereof to the fullest extent that such advance payment may be
lawful under the Maryland General Corporation Law. [MGCL, Section 2-418 (f)]
Anything in this Article X to the contrary notwithstanding, any advance
of expenses by the Corporation to any Indemnitee shall be made only upon receipt
of: (a) a written affirmation by the Indemnitee of his good faith belief that
the requisite standard of conduct necessary for indemnification under the
Maryland General Corporation Law has been met and (b) a written undertaking by
such Indemnitee to repay the advance if it is ultimately determined that such
standard of conduct has not been met, and if one of the following conditions is
met:
(a) the Indemnitee provides a security for his undertaking; or
(b) the Corporation shall be insured against losses arising by reason
of any lawful advances; or
(c) there is a determination, based on a review of readily available
facts, that there is reason to believe that the Indemnitee will ultimately be
found entitled to indemnification, which determination shall be made by:
(i) a majority of a quorum of Directors who are neither
"interested persons" of the Corporation as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 10.03. Insurance of Officers, Directors, Employees, and Agents:
To the fullest extent permitted by applicable Maryland law and by Section 17(h)
of the Investment Company Act, as from time to time amended, the Corporation may
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee, or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted against him and
incurred by him in or arising out of his position, whether or not the
Corporation would have the power to indemnify him against such liability.
[MGCL, Section 2-418(k)]
ARTICLE XI. AMENDMENTS
Section 11.01. General: Except as provided in Section 11.02 hereof, all By-Laws
of the Corporation, whether adopted by the Board of Directors or the
shareholders, shall be subject to amendment, alteration, or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
<PAGE>
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any annual or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal, or new By-Law; or
(b) the Directors present at any regular or special meeting at which a
quorum is present if the notice or waiver of notice thereof or material sent to
the Directors in connection therewith on or prior to the last date for the
giving of such notice under these By-Laws shall have specified or summarized the
proposed amendment, alteration, repeal, or new By-Law. [MGCL, Section 2-109]
Section 11.02. By Shareholders Only:
(a) No amendment of any section of these By-Laws shall be made except
by the shareholders of the Corporation if the shareholders shall have provided
in the By-Laws that such section may not be amended, altered, or repealed except
by the shareholders.
(b) From and after the issuance of any shares of the Corporation, no
amendment of this Article XI shall be made except by the shareholders of the
Corporation.
ARTICLE XII. MISCELLANEOUS
Section 12.01. Use of the Term "Annual Meeting": The use of the term "annual
meeting" in these By-Laws shall not be construed as implying a requirement that
a shareholder meeting be held annually.
INVESTMENT ADVISORY AGREEMENT
BY AND BETWEEN
AAL VARIABLE PRODUCT SERIES FUND, INC.
AND
AID ASSOCIATION FOR LUTHERANS
<PAGE>
TABLE OF CONTENTS
1. In General........................................................... 3
2. Duties and Obligations of the Adviser With
Respect to Management of the Fund............................ 3
3. Standard of Care and Indemnification...................................5
4. Broker-Dealer Relationships............................................6
5. Allocation of Expenses.................................................6
6. Compensation of the Adviser ...........................................7
7. Duration and Termination...............................................8
8. Exhibits ..............................................................8
9. Amendments.............................................................8
10. State Law..............................................................8
EXHIBIT A....................................................................10
<PAGE>
INVESTMENT ADVISORY AGREEMENT
This INVESTMENT ADVISORY AGREEMENT made and entered into this 27th day of
September, 1994, by and between THE AAL VARIABLE PRODUCT SERIES FUND, INC. (the
"FUND"), a Maryland corporation, and Aid Association for Lutherans, a Wisconsin
corporation (the "ADVISER").
The FUND is an open-end management investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 (the
"Act"). The FUND is a series type investment company, with each series having
its own investment objectives, policies and restrictions. AAL is registered with
the Securities and Exchange Commission as an Investment Adviser under the
Investment Advisers Act of 1940.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
1. In General
The FUND hereby appoints the ADVISER to act as investment adviser to the
FUND with respect to its series of shares described on Exhibit A attached
hereto, which may be amended from time to time. Each series is referred to
herein individually as a "Portfolio" and collectively as the "Portfolios." The
ADVISER agrees, all as more fully set forth herein, to provide professional
investment management with respect to the investment of the assets of each
Portfolio and to supervise and arrange the purchase and sale of securities and
other assets held in each Portfolio and generally administer the affairs of the
FUND. The ADVISER may engage, at the ADVISER'S cost and under the ADVISER'S
supervision, on behalf of the FUND or any Portfolio, the services of a
Sub-Adviser, or an agent to perform certain administrative services, subject to
any limitations imposed by the Act.
2. Duties and Obligations of the Adviser With Respect to Management of the Fund
(a) Subject to the succeeding provisions of this section and subject to
the direction and control of the Board of Directors of the FUND, the
ADVISER, as agent and attorney-in-fact with respect to the FUND, is
authorized, in its discretion and without prior consultation with the
FUND to:
(i) Buy, sell, exchange, convert for the FUND's use, lend and
otherwise trade in any stocks, bonds and any other securities or
assets; and
(ii) Place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
ADVISER may select;
(iii) Formulate programs, obtain necessary information, and
periodically report to the FUND's Board of Directors.
<PAGE>
(b) Any investment purchases or sales made by the ADVISER shall at all
times conform to, and be in accordance with, any requirements imposed by:
(i) the provisions of the Act and of any rules or regulations in
force thereunder; (ii) the provisions of the Internal Revenue Code;
(iii) any other applicable provisions of law; (iv) the provisions
of the Articles of Incorporation and By-Laws of the FUND as amended
from time to time; (v) any policies and determinations of the Board
of Directors of the FUND; and (vi) the fundamental policies of the
FUND, as reflected in its Registration Statement under the Act, or
as amended by the shareholders of the FUND.
(c) The ADVISER shall also administer the affairs of the FUND and, in
connection therewith, shall be responsible for: (i) maintaining the
FUND's books and records, including all financial, accounting, corporate
and other records required by and in accordance with applicable law
(other than financial or accounting books and records maintained by the
FUND's custodian or transfer agent) which books and records shall be the
property of the FUND and shall be surrendered by the ADVISER promptly on
the request of the FUND, without charge except for the ADVISER's direct
expenses; (ii) overseeing the FUND's insurance relationships; (iii)
preparing for the FUND (or assisting counsel and/or auditors in the
preparation of) all required tax returns, proxy statements and reports to
the FUND's shareholders and Directors and reports to and other filings
with the Securities and Exchange Commission, and any other governmental
agency including any filings necessary to maintain the registrations and
qualifications of the Fund and its shares under federal and state law
(the FUND agreeing to supply or cause to be supplied to the ADVISER all
necessary financial and other information in connection with the
foregoing); (iv) preparing such applications and reports as may be
necessary to register or maintain the FUND's registration and/or the
registration of the shares of the FUND under the securities or "Blue Sky"
laws of the various states selected by the FUND's distributor (the
Portfolio or Portfolios agreeing to pay all filing fees or other similar
fees in connection therewith); (v) responding to all inquiries or other
communications of shareholders, if any, which are directed to the
ADVISER, or referring the inquiry for response, if any such inquiry or
communication is more properly to be responded to by other parties, such
as the FUND's custodian, or other person or agent of the ADVISER, and
overseeing its response thereto; (vi) overseeing all relationships
between the FUND and its persons and agents, including any custodian(s),
transfer agent(s), dividend disbursing agent, independent auditor and
independent legal counsel, including assistance in selection of such
persons and agents, the negotiation of agreements and the supervision of
the performance of such agreements; (vii) authorizing and directing any
of the ADVISER's Directors, officers and employees who may be elected as
Directors or officers of the FUND to serve in the capacities in which
they are elected; and (viii), providing the services of individuals
competent to perform all of the FUND'S executive, administrative,
compliance and clerical functions that are not performed by or through
employees or other persons or agents engaged by the FUND; and (ix)
calculating the daily net asset value and the net asset value per share
for each of the FUND's Portfolios. All services to be furnished by the
ADVISER under this Agreement may be furnished through the medium of any
Directors, officers, employees or agents of the ADVISER .
(d) Nothing in this Agreement shall prevent the ADVISER or any
"affiliated person" (as defined in the Act) of the ADVISER from acting as
investment adviser or manager and/or principal underwriter for any other
person, firm or corporation and shall not in any way limit or restrict
the ADVISER or any such affiliated person from buying, selling or trading
any securities for its or their own accounts or the accounts of others
for whom it or they may be acting, provided, however, that
<PAGE>
the ADVISER expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its
obligations to the FUND under this Agreement.
(e) It is agreed that the ADVISER shall have no responsibility or
liability for the accuracy or completeness of the FUND's Registration
Statement under the Act or the Securities Act of 1933 except for
information supplied by the ADVISER for inclusion therein.
(f) The ADVISER shall act as an independent contractor for the purposes
herein and, unless otherwise expressly provided or authorized, shall have
no authority to act for or represent the FUND in any way or otherwise be
deemed an agent of the FUND.
(g) The ADVISER shall have the authority to make combined purchases and
sales of securities for the Portfolios, the ADVISER'S own accounts, or
for its other clients. If various entities desire to buy or sell
securities at about the same time, the ADVISER may allocate the
transactions at an average price and as nearly as practicable on a
pro-rata basis in proportion to the amounts desired to be purchased or
sold by each entity.
3. Standard of Care and Indemnification
ADVISER shall at all times act in good faith and use its best efforts
within reasonable limits to ensure the accuracy of all services performed under
this Agreement, but assumes no responsibility and shall not be liable for loss
or damage due to errors; provided, that ADVISER shall indemnify and hold the
FUND and each of its directors, officers, and employees and each person, if any,
who controls the FUND within the meaning of Section 15 of the 1933 Act, harmless
from all loss, cost, damage, and expense, including reasonable attorneys' fees,
incurred by the FUND as a result of ADVISER'S gross negligence, bad faith, or
willful misfeasance in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, or that
of its officers, agents and employees, in the performance of this Agreement.
Notwithstanding the preceding language, ADVISER shall indemnify and hold the
FUND, and each of its directors, officers, and employees and each person, if
any, who controls the FUND within the meaning of Section 15 of the 1933 Act,
harmless from all loss, cost, damage, and expense, including reasonable
attorneys' fees incurred by the FUND as a result of the failure at any time of
any Portfolio of the FUND (i) to operate as a regulated investment company in
compliance with Subchapter M of the Code and the regulations thereunder, or (ii)
to comply the investment diversification rules of Section 817(h) of the Code and
the regulations thereunder.
The FUND shall indemnify and hold ADVISER harmless from all loss, cost,
damage and expense, including reasonable attorneys' fees incurred by it
resulting from any claim, demand, action or suit in connection with the
performance of its duties hereunder, or as a result of acting upon any
instruction reasonably believed by it to have been properly executed by a duly
authorized officer of the FUND, or upon any information, data, records or
documents provided ADVISER or its agents by computer tape, telex, CRT data entry
or other similar means authorized by the FUND; provided, that this
indemnification shall not apply to actions or omissions of ADVISER in cases of
its own gross negligence, bad faith or willful misfeasance in the performance of
its duties, or by reason of its reckless disregard of its obligations and duties
under this Agreement, or that of its officers, agents and employees, in the
performance of this agreement.
In order that the indemnification provisions contained in this Agreement
shall apply, however, it is understood that if in any case the one party (the
"Indemnitor") may be asked to indemnify or save the
<PAGE>
other party (the "Indemnitee") harmless, the Indemnitor shall be fully and
promptly advised of all pertinent facts concerning the matters in question, and
it is further understood that the Indemnitee will use all reasonable care to
identify and notify the Indemnitor promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Indemnitor. The Indemnitor shall have the option to
defend the Indemnitee against any claim which may be the subject of this
indemnification, and in the event that the Indemnitor so elects, it will so
notify the Indemnitee, and thereupon the Indemnitor shall take over complete
defense of the claim, and the Indemnitee shall in such situations incur no
further legal or other expenses for which it shall seek or be entitled to
indemnification under this paragraph. The Indemnitee shall in no case confess
any claim or make any compromise in any case in which the Indemnitor will be
asked to indemnify the Indemnitee except with the Indemnitor's prior written
consent.
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
4. Broker-Dealer Relationships
In connection with its duties set forth in Section 2(a)(ii) of this
Agreement to arrange for the purchase and sale of securities and other assets
held by each Portfolio by placing purchase and sale orders for the Portfolio,
the ADVISER shall select such broker-dealers ("brokers") as shall, in the
ADVISER's judgment, implement the policy of the FUND to achieve "best
execution," i.e., prompt and efficient execution at the most favorable net
price. In making such selection, the ADVISER is authorized to consider the
reliability, integrity and financial condition of the broker. The ADVISER is
also authorized to consider whether the broker provides brokerage and/or
research services to the FUND and/or other accounts of the ADVISER. The
commissions paid to such brokers may be higher than another broker would have
charged if a good faith determination is made by the ADVISER that the commission
is reasonable in relation to the services provided, viewed in terms of either
that particular transaction or the ADVISER's overall responsibilities as to the
accounts as to which it exercises investment discretion. The ADVISER shall use
its judgment in determining that the amount of commissions paid are reasonable
in relation to the value of brokerage and research services provided and need
not place or attempt to place a specific dollar value on such services or on the
portion of commission rates reflecting such services. To demonstrate that such
determinations were in good faith, and to show the overall reasonableness of
commissions paid, the ADVISER shall be prepared to show that commissions paid
(i) were for purposes contemplated by this Agreement; (ii) provide lawful and
appropriate assistance to the ADVISER in the performance of its decision-making
responsibilities; and (iii) were within a reasonable range as compared to the
rates charged by qualified brokers to other institutional investors as such
rates may become known from available information. The FUND recognizes that, on
any particular transaction, a higher than usual commission may be paid due to
the difficulty of the transaction in question. The ADVISER is also authorized to
consider as a factor in the selection of brokers to execute brokerage and
principal transactions, subject to the requirements of "best execution," as
defined above, sales by brokers of variable annuity contracts resulting in sales
of Fund shares.
5. Allocation of Expenses
The ADVISER agrees that it will furnish the FUND, at the ADVISER's
expense, with all office space, facilities, equipment and clerical personnel
necessary for carrying out its duties under this Agreement. The ADVISER will
also pay all compensation of all Directors, officers and employees of the FUND
who are affiliated persons of the ADVISER. All costs and expenses not expressly
assumed by the
<PAGE>
ADVISER under this Agreement shall be paid by the FUND, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions; (iii) insurance
premiums; (iv) compensation and expenses of its Directors other than those
affiliated with the ADVISER; (v) independent legal and audit expenses; (vi) fees
and expenses of the FUND's custodian, shareholder servicing or transfer agent,
and accounting services agent; (vii) expenses incident to the issuance of its
shares, including stock certificates and issuance of shares on the payment of,
or reinvestment of dividends; (viii) fees and expenses incident to the
registration under federal or state securities laws of the FUND or its shares;
(ix) FUND or Portfolio organizational expenses; (x) FUND expenses of preparing,
printing and mailing reports and notices, proxy material and prospectuses to
shareholders of the FUND; (xi) all other expenses incidental to holding meetings
of the FUND's shareholders; (xii) dues or assessments of or contributions to the
Investment Company Institute or any successor or other industry association;
(xiii) such non-recurring expenses as may arise, including litigation affecting
the FUND and the legal obligations which the FUND may have to indemnify its
officers and Directors with respect thereto; and (xiv) cost of daily valuation
of each of the Portfolio's securities and net asset value per share.
Notwithstanding the foregoing, AAL agrees to reimburse the Fund for
substantially all of its operating expenses, other than investment advisory
fees, brokerage commissions, and any extraordinary items such as litigation
expenses or income tax liabilities. AAL may withdraw this undertaking upon 30
days' written notice to the Fund.
6. Compensation of the Adviser
(a) The FUND agrees to pay the ADVISER and the ADVISER agrees to accept
as full compensation for all services rendered by the ADVISER as such, an
annual management fee, payable monthly and computed on the average daily
net asset value of each Portfolio as shown on "Exhibit A" attached
hereto. The annual management fee will be prorated for any month during
which this Agreement is in effect for only a portion of the month.
(b) In the event the expenses of a Portfolio (including the fees of the
ADVISER and amortization of organization expenses, but excluding
interest, taxes, brokerage commissions, and extraordinary expenses) for
any fiscal year exceed the limits set by applicable regulations of state
securities commissions, the ADVISER will reduce its fee by up to the
amount of such excess. Any such reductions are subject to readjustment
during the year. The payment of the management fee at the end of any
month will be reduced or postponed or, if necessary, a refund will be
made to a FUND so that at no time will there be any accrued, but unpaid,
liability under this expense limitation.
The fees payable to the ADVISER by the FUND or a Portfolio
hereunder shall be reduced by any tender offer solicitation fees or
similar payments received by the ADVISER, or any affiliated person of the
ADVISER, in connection with the tender of securities held by the
Portfolio (less any direct expenses incurred by the ADVISER, or any
affiliated person of the ADVISER, in connection with obtaining such fees
or payments). The ADVISER shall use its best efforts to recapture all
available tender offer solicitation fees and similar payments in
connection with the tenders of the securities held by a Portfolio,
provided, however, that neither the ADVISER, nor any affiliated person of
the ADVISER, shall be required to register as a broker-dealer for this
purpose. The ADVISER shall advise the FUND's Board of Directors of any
fees or payments of whatever type that it may be possible for the
ADVISER, or an affiliated person of the ADVISER, to receive in connection
with the purchase or sale of securities held by a Portfolio. The fees
payable to the ADVISER by a Portfolio hereunder shall be reduced by any
such fees or payments received, less
<PAGE>
any direct expenses incurred by the ADVISER or any affiliate of the
ADVISER in obtaining such fees.
7. Duration and Termination
(a) This Agreement shall go into effect as to each Portfolio on the date
set forth above and shall, unless terminated as hereinafter provided,
continue in effect for a period of not more than two years from the
effective date only so long as such continuance is specifically approved
at least annually by the FUND's Board of Directors, including the vote of
a majority of the Directors who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party cast in
person at a meeting called for the purpose of voting on such approval, or
with respect to any Portfolio by the vote of a "majority" (as defined in
the Act) of the outstanding voting shares of that Portfolio.
(b) This Agreement may be terminated by the ADVISER at any time without
penalty upon giving the FUND sixty (60) days' written notice (which
notice may be waived by the FUND) and may be terminated by the FUND at
any time without penalty upon giving the ADVISER sixty (60) days' written
notice (which notice may be waived by the ADVISER ), provided that such
termination by the FUND shall be directed or approved by the vote of a
majority of all of its Directors in office at the time, or with respect
to any Portfolio, by the vote of a "majority" (as defined in the Act) of
the outstanding voting shares of that Portfolio. This Agreement shall
automatically terminate in the event of its "assignment" (as defined in
the Act).
(c) The FUND hereby agrees that if (i) the ADVISER ceases to act as
investment adviser to the FUND and (ii) the ADVISER notifies the FUND
that, in the ADVISER's judgment, continued use of the FUND's present name
would create confusion in the context of the ADVISER 's business or that
of Aid Association for Lutherans or its subsidiaries and/or affiliates,
the FUND will use its best efforts to change its name in order to delete
the abbreviation "AAL" from its name and will discontinue use of the name
or any sales literature or advertising materials in which the "AAL" name
is used as soon as possible, in no event exceeding 30 days from the date
ADVISER ceases to act as investment adviser to the FUND or so notifies
the FUND.
8. Exhibits
The document entitled "Exhibit A" to the AAL Variable Product Series
Fund, Inc. Investment Advisory Agreement, attached hereto, is added to and
incorporated herein.
9. Amendments
This Agreement may be amended at any time by mutual consent of the
parties in accordance with the Act, provided that the amendment shall have been
approved, in accordance with the Act, with respect to any Portfolio by the vote
of a "majority" (as defined by the Act) of the outstanding voting shares of that
Portfolio.
10. State Law
This Agreement shall be governed in all respects in accordance with the
laws of the State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons and their seals to be
hereunto affixed, all as of the day and year first above written.
THE AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ D. Charles DeVries
--------------------------------------------
D. Charles DeVries
President
By: /s/ Mark J. Mahoney
--------------------------------------------
Mark J. Mahoney
Secretary
AID ASSOCIATION FOR LUTHERANS
By: /s/ R. L. Gunderson
--------------------------------------------
Richard L. Gunderson
President and
Chief Executive Officer
By: /s/ W. R. Heerman
--------------------------------------------
William R. Heerman
Senior Vice President
Secretary and General Counsel
<PAGE>
EXHIBIT A
TO THE AAL VARIABLE PRODUCT SERIES FUND, INC. INVESTMENT ADVISORY
AGREEMENT (Dated September 27, 1994)
1. The AAL Variable Product Money Market Portfolio
The management fee for this Portfolio, calculated in accordance with
paragraph 5 of The AAL Variable Product Series Fund, Inc. Investment Advisory
Agreement, shall be at the annual rate of 0.35 of 1% on the first $250 million
of average daily net assets and 0.30 of 1% on average daily net assets over $250
million.
2. The AAL Variable Product Large Company Stock Portfolio
The management fee for this Portfolio, calculated in accordance with
section 6 of The AAL Variable Product Series Fund, Inc. Investment Advisory
Agreement, shall be at the annual rate of 0.35 of 1% on the first $250 million
of average daily net assets and 0.30 of 1% on average daily net assets over $250
million.
3. The AAL Variable Product Bond Portfolio
The management fee for this Portfolio, calculated in accordance with
section 6 of The AAL Variable Product Series Fund, Inc. Investment Advisory
Agreement, shall be at the annual rate of 0.35 of 1% on the first $250 million
of average daily net assets and 0.30 of 1% on average daily net assets over $250
million.
4. The AAL Variable Product Small Company Stock Portfolio
The management fee for this Portfolio, calculated in accordance with
section 6 of The AAL Variable Product Series Fund, Inc. Investment Advisory
Agreement, shall be at the annual rate of 0.35 of 1% on the first $250 million
of average daily net assets and 0.30 of 1% on average daily net assets over $250
million.
5. The AAL Variable Product Balanced Portfolio
The management fee for this Portfolio, calculated in accordance with
section 6 of The AAL Variable Product Series Fund, Inc. Investment Advisory
Agreement, shall be at the annual rate of 0.35 of 1% on the first $250 million
of average daily net assets and 0.30 of 1% on average daily net assets over $250
million.
PARTICIPATION AGREEMENT
BY AND BETWEEN
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE ACCOUNT I
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. Sale of FUND Shares................................................ 3
2. Representations and Warranties..................................... 4
3. Prospectus and Proxy Statements: Voting............................ 5
4. Sales Material and Information..................................... 6
5. Fees and Expenses.................................................. 7
6. Diversification.................................................... 8
7. Indemnification.................................................... 8
8. Term and Termination Of This Agreement............................. 11
9. Notices............................................................ 13
10. Miscellaneous...................................................... 13
<PAGE>
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT, is made and entered into as of this
27th day of September, 1994, by and among AID ASSOCIATION FOR LUTHERANS
("AAL"), on its own behalf and on behalf of AAL VARIABLE ANNUITY ACCOUNT I (the
"ACCOUNT"), and AAL VARIABLE PRODUCT SERIES FUND, INC. (the "FUND"),
(collectively the "Parties").
WITNESSETH:
WHEREAS, AAL is a fraternal benefit society organized under the laws of
the State of Wisconsin engaged in the writing of life insurance, annuity
contracts, and other insurance products, and serves as sponsor and depositor of
the ACCOUNT and as investment adviser of the FUND;
WHEREAS, the ACCOUNT is a legally segregated asset account of AAL,
established pursuant to the laws of the State of Wisconsin, and currently
consists of five subaccounts (the "Subaccounts"), for the purpose of funding
certain variable annuity contracts (the "Certificates");
WHEREAS, the FUND, which currently consists of five Portfolios (the
"Portfolios"), is registered with the Securities and Exchange Commission (the
"SEC"), as a diversified, open-end management investment company under the
Investment Company Act of 1940 (the "1940 Act"), and its shares are registered
with the SEC under the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, to the extent permitted by applicable insurance, tax and other
laws and regulations, AAL intends to purchase shares in the FUND on behalf of
the ACCOUNT to fund the Certificates and on behalf of the ACCOUNT or on its own
behalf for related purposes, and the FUND is authorized to sell such shares to
the ACCOUNT and to AAL at net asset value;
WHEREAS, the FUND has entered into an Investment Advisory Agreement with
AAL, dated 27th day of September, 1994, wherein AAL has agreed to
serve as investment adviser to the FUND, and to accept certain obligations of
the FUND as set forth herein, i.e., to compute the daily net asset value and the
net asset value per share for each Portfolio and to comply with Subchapter M and
Section 817(h) of the Internal Revenue Code of 1986 (the "Code");
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
1. Sale of FUND Shares
1.1 The Certificates funded through the ACCOUNT will provide for the
allocation of net amounts among certain Subaccounts for investment in
such shares of the Portfolios as may be offered from time to time in the
prospectus of the ACCOUNT for the Certificates. The selection of the
particular Subaccount is to be made by the Certificate owner, and such
selection may be changed in accordance with the terms of the
Certificates.
1.2 The FUND will sell to AAL those shares of each available Portfolio
that AAL orders based on transactions under Certificates, effecting such
orders on a daily basis at the Portfolio's net asset
<PAGE>
value per share computed as of the close of business on the Business Day
immediately prior to the date the order is received by the FUND.
Business Day shall mean any day on which the Portfolio calculates its
net asset value pursuant to rules of the SEC and as described in FUND's
prospectus. Any orders to purchase shares of an available Portfolio not
based on transactions under Certificates will be effected at the
Portfolio's net asset value per share next computed after the order is
received by the FUND.
1.3 The Board of Directors of the FUND (the "Board") may refuse to sell
shares of any Portfolio to AAL, or suspend or terminate the offering of
shares of any Portfolio, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of the Board, acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of the FUND.
1.4 The FUND agrees that its shares will be sold only to AAL. No shares
of any Portfolio will be sold to the general public or to any life
insurance company other than AAL.
1.5 The FUND will redeem for cash from AAL those full or fractional
shares of each Portfolio that AAL requests based on transactions under
Certificates, effecting such requests on a daily basis at the
Portfolio's net asset value per share computed as of the close of
business on the Business Day immediately prior to the date the order is
received by the FUND. Any orders to redeem shares of an available
Portfolio not based on transactions under Certificates will be effected
at the Portfolio's net asset value per share next computed after the
order is received by the FUND.
1.6 Issuance and transfer of the FUND's shares will be by book entry
only. Stock certificates will not be issued to AAL. Shares ordered from
the FUND will be recorded in an appropriate title for AAL.
1.7 The FUND shall furnish notice promptly to AAL of any income,
dividends or capital gain distributions payable on the shares of any
Portfolio. AAL hereby elects to receive all such income, dividends and
capital gain distributions as are payable on FUND shares in additional
shares of that Portfolio. AAL reserves the right to revoke this election
and to receive all such income, dividends and capital gain distributions
in cash. The FUND shall notify AAL of the number of shares so issued as
payment of such income, dividends and distributions.
1.8 The FUND shall make the net asset value per share for each Portfolio
available to AAL on a daily basis, as soon as reasonably practical after
the net asset value per share is calculated.
1.9 The FUND may establish additional Portfolios to provide additional
funding media for the Certificates, or delete, combine, or modify
existing Portfolios. The shares of any additional Portfolio may be made
available to the ACCOUNT by the FUND, pursuant to the terms of this
Agreement, and any applicable reference to any Portfolio, the FUND or
its shares herein shall include a reference to any such Portfolio.
2. Representations and Warranties
2.1 AAL represents and warrants that interests in the ACCOUNT under the
Certificates are or will be registered under the 1933 Act to the extent
required by the 1933 Act, that the Certificates will be issued and sold
in compliance in all material respects with all applicable federal and
state
<PAGE>
laws and that the sale of the Certificates will comply in all material
respects with state insurance suitability requirements. AAL further
represents and warrants that it is a fraternal benefit society organized
under the laws of the State of Wisconsin and engaged in the writing of
life insurance, annuity contracts, and other insurance products; that it
has legally and validly established its ACCOUNT as a segregated asset
account under Wisconsin insurance law; and that it has registered or
will register the ACCOUNT as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a segregated investment
account for the Certificates, to the extent required by the 1940 Act.
2.2 AAL represents and warrants that any interests in the ACCOUNT being
offered for sale under the Certificates are or will be registered under
the 1933 Act to the extent required by the 1933 Act, that the
Certificates will be issued and sold in compliance in all material
respects with all applicable federal and state laws, and that the sale
of the Certificates will comply in all material respects with state
insurance law, NASD, and other applicable suitability requirements.
2.3 The FUND represents and warrants that its shares sold pursuant to
this Agreement are or will be registered under the 1933 Act to the
extent required by the 1933 Act, duly authorized for issuance and sold
in compliance with the laws of the state of Maryland and all applicable
federal securities laws and that the FUND is or will be registered under
the 1940 Act to the extent required by the 1940 Act. The FUND will amend
the registration statement for its shares under the 1933 Act, as well as
its registration statement under the 1940 Act, as required in order to
effect the continuous offering of its shares. The FUND will register and
qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the FUND.
2.4 AAL represents and warrants that its Certificates are currently
treated as annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment.
2.5 The FUND makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses) complies
with the insurance laws or regulations of the various states. The FUND
intends to comply with the insurance laws of any relevant state
regarding any Portfolio's investment objectives, policies and
restrictions to the extent that AAL advises the FUND, in writing, of
such laws or any change in such laws.
2.6 The FUND represents and warrants that each of its Portfolios will
qualify as a regulated investment company under Subchapter M of the Code
and that the investments of each of its Portfolios will comply with the
diversification requirements of Section 817(h) of the Code and the
regulations thereunder, and that it will notify AAL immediately upon
having a reasonable basis for believing that it has ceased to so qualify
or that it might not so qualify in the future.
3. Prospectus and Proxy Statements: Voting
3.1 The FUND will provide such documentation (including a final copy of
any new prospectus, statement of additional information ("SAI"), or
supplement) and other assistance as is reasonably necessary in order for
AAL or its designee to timely distribute the current FUND prospectus,
SAI and any supplement thereto, or, in the alternative, to have the
prospectus of the ACCOUNT for the Certificates and the FUND's prospectus
printed together in one document once each year (or more
<PAGE>
frequently if the prospectus for the FUND is amended) (such printing to
be at the FUND's expense, as provided in Section 5.1).
3.2 The FUND will provide such documentation (including a final copy of
any proxy material, report to shareholders, and other communication to
shareholders) and other assistance as is reasonably necessary for AAL or
its designee to timely distribute the proxy material, report to
shareholders, and other communication (such printing and distribution to
be at AAL's expense, as provided in Section 5.2).
3.3 If, and to the extent required by law, AAL shall, at AAL's expense,
as provided in Section 5.2:
(a) solicit voting instructions from Certificate owners;
(b) vote Portfolio shares in accordance with instructions
received from Certificate owners;
(c) vote Portfolio shares for which no instructions have been
received, as well as Portfolio shares attributable to AAL other
than under Certificates, in the same proportion as shares of such
Portfolio for which instructions have been received, so long as
and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges. AAL reserves the
right to vote Portfolio shares held in any segregated asset
account or in its general account in its own right, to the extent
permitted by law.
3.4 The FUND reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the FUND
solely upon the authorization of its Board.
4. Sales Material and Information
4.1 AAL or its designee will furnish, or will cause to be furnished, to
the FUND or its designee, each piece of sales literature or other
promotional material in which the FUND or AAL is named, at least fifteen
(15) days prior to its intended use. No such material will be used if
the FUND or its designee objects to such intended use within fifteen
(15) days after receipt of such material.
4.2 AAL will not give any information or make any representation or
statement, or cause such information to be given or representation to be
made, on behalf of the FUND or concerning any Portfolio in connection
with the sale of the Certificates other than the information or
representations contained in the registration statement, prospectus, and
SAI for FUND shares, as such registration statement, prospectus, and SAI
may be amended or supplemented from time to time, or in reports or proxy
materials for the FUND, or in sales literature or other promotional
material approved by the FUND or its designee, except with the
permission of the FUND or its designee.
4.3 The FUND or its designee will furnish, or will cause to be
furnished, to AAL or its designee, each piece of sales literature or
other promotional material of the FUND in which AAL and/or its ACCOUNT
is named, at least fifteen (15) days prior to its intended use. No such
material will be used if AAL or its designee objects to such intended
use within fifteen (15) days after receipt of such material.
<PAGE>
4.4 The FUND will not give any information or make any representations
or statements, or cause such information to be given or representations
to be made, on behalf of AAL or concerning AAL, its ACCOUNT or its
Certificates other than the information or representations contained in
a registration statement or prospectus for such Certificates, as such
registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for the ACCOUNT that are in
the public domain or approved by AAL for distribution to owners, or in
sales literature or other promotional material approved by AAL or its
designee, except with the permission of AAL or its designee .
4.5 The FUND will provide to AAL one complete copy of all registration
statements, prospectuses, SAIs, reports, proxy material, sales
literature and other promotional material, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the FUND or its shares, contemporaneously with the filing
of such document with the SEC or other regulatory authorities.
4.6 AAL will provide to the FUND one complete copy of all registration
statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional material,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the ACCOUNT or its
Certificates, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
5. Fees and Expenses
5.1 The FUND will pay all expenses incident to the FUND's performance
under this Agreement. In addition to the investment advisory fee,
subject to the expense reimbursement arrangement discussed below, each
Portfolio will bear all of its operating expenses that are not
specifically assumed by AAL, including the following: (i) interest and
taxes (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses for those Directors who are not "interested"
persons under Section 2(a)(19) of the Act; (v) independent legal and
audit expenses; (vi) fees and expenses of the FUND's custodian,
shareholder servicing or transfer agent and accounting services agent;
(vii) expenses incident to the issuance of its shares, including stock
certificates and issuance of shares on the payment of, or reinvestment
of dividends; (viii) fees and expenses incident to the registration
under Federal or state securities laws of the FUND or its shares; (ix)
FUND or portfolio organizational expenses; (x) fund expenses of
preparing, printing and mailing reports and notices, proxy material and
prospectuses to shareholders of the FUND; (xi) all other expenses
incidental to holding meetings of the FUND's shareholders; (xii) dues or
assessments of or contributions to the Investment Company Institute or
any successor or other industry association; (xiii) such non-recurring
expenses as may arise, including litigation affecting the FUND and the
legal obligations which the FUND may have to indemnify its officers and
Directors with respect thereto; and (xiv) cost of daily evaluation of
each of the Portfolio's securities and net asset value per share.
5.2 AAL will pay all expenses incident to AAL's performance under this
Agreement. In addition, AAL will bear the expenses of printing and
distributing to its Certificate owners the FUND proxy materials, proxy
cards and voting instruction forms (collectively "proxy information"),
tabulating the results of proxy solicitations to its Certificate owners,
printing and distributing to its Certificate owners the FUND prospectus,
SAI, supplement, proxy material, report to shareholders, and other
communication to shareholders, and any expenses associated with
administration of its Certificates.
<PAGE>
6. Diversification
6.1 The Portfolios will at all times invest money from the Certificates
in such a manner as to ensure that the Certificates will be treated as
variable annuity contracts under the Code and the regulations thereunder
insofar as such investment is required for such treatment. Without
limiting the scope of the foregoing, the Portfolios will at all times
comply with Section 817(h) of the Code and Treasury Regulations Section
1.817-5 relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations.
6.2 The FUND shall furnish to AAL on a regular basis reports of all of
the investments of each Portfolio in a form sufficient to permit AAL to
determine whether each Portfolio is in compliance with the
diversification requirements of Section 817(h) of the Code and the
Regulations thereunder and shall take immediate action, on learning
through its own monitoring, or on advice from AAL, that any Portfolio is
not in compliance with such requirements, to return to compliance with
such requirements.
6.3 If any Portfolio is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace
period allowed under the Regulations, the FUND shall take all
appropriate efforts immediately to restore any such Portfolio to
compliance and shall fully cooperate with AAL in any effort to correct
such diversification failure under procedures established by the
Internal Revenue Service, including those set forth in Revenue Procedure
92-25.
7. Indemnification
7.1 Indemnification By AAL
(a) AAL will indemnify and hold harmless the FUND and each of its
directors, officers, and employees and each person, if any, who
controls the FUND within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of AAL) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and
which:
(i) arise out of or are based upon any failure by AAL to
perform the duties or assume the general business
responsibilities of AAL with respect to the design,
drafting, state approvals, issuance, servicing and
administration of the Certificates, or the establishment
and maintenance of the ACCOUNT; or
(ii) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus, or
SAI for the Certificates, or the ACCOUNT, or contained in
the Certificates or sales literature for the Certificates
(or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to
indemnify will not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission
<PAGE>
was made in reliance upon and in conformity with
information furnished in writing to AAL by or on behalf of
the FUND for use in the registration statement,
prospectus, or SAI for the Certificates or the ACCOUNT or
in the Certificates or sales literature (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Certificates or FUND shares; or
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by AAL, or
persons under its control) or wrongful conduct of AAL or
persons under its control, or failure to supervise persons
under AAL's control or entities or individual with which
AAL contracts, with respect to the sale or distribution of
the Certificates or FUND shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to the FUND by or on behalf of AAL;
or
(v) arise out of or result from any failure by AAL to
provide the services and furnish the materials
contemplated by this Agreement; or
(vi) arise out of or result from any material breach of
any representation and/or warranty made by AAL in this
Agreement or arise out of or result from any other
material breach of this Agreement by AAL, as limited by
and in accordance with the provisions of Sections 7.1(b).
and 7.1(c) hereof.
(b) AAL will not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or whichever is applicable.
(c) AAL will not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified AAL in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify AAL of any such
claim will not relieve AAL from any liability that it may have to
the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
AAL shall be entitled to participate, at its own expense, in the
defense thereof. AAL also will be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from AAL to such party of AAL's election to
assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and
AAL will not be liable to such party under this
<PAGE>
Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify AAL of the
commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
7.2 Indemnification By the FUND
(a) The FUND will indemnify and hold harmless AAL and each of its
directors, officers and employees and each person, if any, who
controls AAL within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of FUND) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, regulation at common law or otherwise, and
which:
(i) arise out of or are based upon any failure by the FUND
to perform the duties or assume the general business
responsibilities of the FUND with respect to the sale of
shares of the FUND to AAL;
(ii) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the sales literature for the FUND and/or the
Certificates, or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this Agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
the FUND by or on behalf of AAL for use in the
registration statement, prospectus, or SAI for use in the
sales literature or otherwise for use in connection with
the sale of Portfolio shares;
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by the FUND,
or persons under its control) or wrongful conduct of the
FUND or persons under its control, or failure to supervise
persons under the FUND's control or entities or individual
with which the FUND contracts, with respect to the sale or
distribution of the Certificates or FUND shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to AAL by or on behalf of AAL; or
<PAGE>
(v) arise out of or result from any failure by the FUND
to provide the services and furnish the materials
contemplated by this Agreement; or
(vi) arise out of or result from any material breach of
any representation and/or warranty made by the FUND in
this Agreement or arise out of or result from any other
material breach of this Agreement by the FUND, except to
the extent provided in Section 7.2(b) and 7.2(c) hereof.
(b) The FUND will not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the FUND, whichever is
applicable.
(c) The FUND will not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the FUND
in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the FUND of any such
claim will not relieve the FUND from any liability that it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
the FUND shall be entitled to participate, at its own expense, in
the defense thereof. The FUND also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in
the action. After notice from the FUND to such party of the
FUND's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel
retained by it, and the FUND will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify the FUND of the
commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
8. Term and Termination Of This Agreement
8.1 This Agreement will terminate:
(a) as to any party hereto, at the option of that party, upon
prior written notice to the other party as provided in Section
8.3 herein; or
(b) at the option of the FUND in the event that formal
administrative proceedings are instituted against AAL by the
NASD, the SEC, any insurance commissioner or any other regulatory
body regarding AAL's duties under this Agreement or related to
the sale of the Certificates, the operation of the ACCOUNT, or
the purchase of FUND shares, provided,
<PAGE>
however, that the FUND determines, in its sole judgment exercised
in good faith, that any such administrative proceedings will have
a material adverse effect upon the ability of AAL to perform its
obligations under this Agreement; or
(c) at the option of AAL in the event that formal administrative
proceedings are instituted against the FUND by the NASD, the SEC,
or any state securities or insurance commission or any other
regulatory body, regarding the FUND's duties under this Agreement
or related to the sale of FUND shares or the operation of the
FUND, provided, however, that AAL determines, in its sole
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability
of the FUND to perform its obligations under this Agreement; or
(d) at the option of AAL with respect to the ACCOUNT, upon
requisite authority to substitute the shares of another
investment company for shares of the FUND in accordance with the
terms of the Certificates or in accordance with the ACCOUNT's
investment policy or standards of conduct; or
(e) at the option of a AAL, in the event any of the FUND's shares
are not registered, issued, or sold in accordance with applicable
federal and any state law or such law precludes the use of such
shares as the underlying investment media of the Certificates
issued or to be issued by AAL; or
(f) at the option of a AAL, if the FUND fails to meet the
requirements specified in Section 2.6 hereof; or
(g) at the option of the FUND, if the investments of the ACCOUNTs
fail to satisfy the diversification requirements of the Code and
the regulations thereunder.
8.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 8.1(a) may be exercised for
any reason or for no reason.
8.3 Notice Requirement for Termination. No termination of this Agreement
will be effective unless and until the party terminating this Agreement
gives prior written notice to the other party to this Agreement of its
intent to terminate, and such notice shall set forth the basis for such
termination. Furthermore,
(a) in the event that any termination is based upon the
provisions of Section 8.1(a) hereof, such prior written notice
shall be given at least one hundred eighty (180) days in advance
of the effective date of termination as required by such
provision;
(b) in the event that any termination is based upon the
provisions of Section 8.1(b) or Section 8.1(c) hereof, such prior
written notice shall be given at least ninety (90) days in
advance of the effective date of termination;
(c) in the event that any termination is based upon the
provisions of Section 8.1(d) hereof, AAL will give at least sixty
(60) days prior written notice to the FUND of the date of any
proposed action to substitute FUND shares, including the filing
of any applicable exemptive
<PAGE>
application under the 1940 Act relating to the ACCOUNT; and AAL
will provide the FUND with a copy of any such exemptive
application; and
(d) in the event that any termination is based upon the
provisions of Section 8.1(e), Section 8.1(f), or Section 8.1(g)
hereof, such prior written notice shall be given as soon as
possible within twenty-four (24) hours after the terminating
party learns of the event causing termination to be required.
8.4 Partial Termination. It is also understood that this Agreement may
be terminated with regard to a specific Portfolio or Portfolios of the
FUND, or the entire FUND at the discretion of the terminating party.
Notwithstanding any termination of this Agreement, the FUND shall, at
the option of AAL, continue to make available additional shares of the
FUND pursuant to the terms and conditions of this Agreement, for all
Certificates in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Certificates").
Specifically, without limitation, the owners of the Existing
Certificates shall be permitted to transfer or reallocate investments
under the Certificates, redeem investments in the FUND and/or invest in
the FUND upon the making of additional purchase payments under the
Existing Certificates.
9. Notices
Any notice will be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to AAL: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: William R. Heerman
If to the FUND: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: D. Charles DeVries
10. Miscellaneous
10.1 This Agreement will be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Maryland, where the sale of any FUND share shall be deemed to have been
made; provided, however, that if such laws or any of the provisions of
this Agreement conflict with applicable Provisions of the 1940 Act, the
latter shall control.
10.2 If any provision of this Agreement will be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement will not be effected thereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 27th
day of September, 1994.
AID ASSOCIATION FOR LUTHERANS and
AAL VARIABLE ACCOUNT I
By: /s/ Richard L. Gunderson
--------------------------------------------
Richard L. Gunderson
President and Chief Executive Officer
By: /s/ William R. Heerman
--------------------------------------------
William R. Heerman
Senior Vice President
Secretary and General Counsel
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ D. Charles Devries
--------------------------------------------
D. Charles DeVries
President
By: /s/ Mark J. Mahoney
--------------------------------------------
Mark J. Mahoney
Secretary
U.S. INVESTMENT COMPANY
CUSTODIAL SERVICES AGREEMENT
CUSTODIAL SERVICES AGREEMENT dated as of June 30, 1996 between
CITIBANK, N.A., a national banking association, having an of office at 111 Wall
Street, New York, New York 10043 (the "Bank"), and AAL VARIABLE PRODUCT SERIES
FUND INC., a corporation organized under the laws of the State of Delaware,
having an office at 4321 North Ballard Road, Appleton, Wisconsin 54919 (the
"Fund").
WITNESSETH:
THAT WHEREAS, the Fund represents that it is a management investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act");
WHEREAS, the Fund further represents that it is duly incorporated and
in good standing under the laws of its state of incorporation, and the
consummation of transactions contemplated hereby or directed by it hereunder
will not violate any applicable laws, regulations or orders;
WHEREAS, the Fund represents that it is authorized (a) to open and
maintain a custody account (the "Custody Account") with the Bank to hold certain
property ("Property"), including but not limited to stocks, bonds or other
securities ("Securities"), cash and other property owned or held by the Fund,
(b) to enter into this Agreement and (c) to direct all actions and transactions
contemplated hereunder;
NOW, THEREFORE in consideration of the premises and of the agreements
hereinafter set forth, the parties hereby agree as follows:
1. APPOINTMENT AND ACCEPTANCE
The Fund hereby appoints the Bank as custodian of the Property and as its agent
hereunder, and the Bank hereby agrees to act as such upon the terms and
conditions hereinafter provided.
2. DELIVERY; SAFEKEEPING
The Fund has heretofore delivered, or will deliver or cause to be delivered,
Property to the Bank, which Property the Bank agrees to safekeep as custodian
for the Fund. The Bank shall not surrender possession of Property except upon
properly authorized Instructions (as hereinafter defined) of the Fund or as may
be required by due process of applicable law.
3. IDENTIFICATION AND SEGREGATION OF ASSETS
With respect to Property in the Custody Account:
(A) The Bank shall credit and hold in a separate account the Property owned by
the Fund. The Bank may carry all Securities in fully negotiable form registered
in name of a nominee of the Bank, and hold them in the Bank's (or its
subcustodian's) trust department vaults, in the Federal Reserve Book Entry
System, or in a central clearing corporation or depository as permitted by this
Agreement. Subject to the limitations in Section 4 hereof, this will not in any
way diminish the Bank's responsibility as custodian for any assets so deposited.
The Bank shall at all times maintain a separate record of all assets owned by
the Fund. (B) The Bank shall supply to the Fund, from time to time as mutually
agreed upon, written statement duly identifying all of the Property in the
Custody Account. In the event that the Fund does not inform the Bank in writing
of any exceptions or objections within thirty (30) days after receipt of such
statement, the Fund shall be deemed to have approved such statement.
4. STANDARD OF CARE; LIMITATION OF LIABILITY; INDEMNITY
(A) The Bank shall exercise the same standard of care that it exercises over its
own assets in the safekeeping, handling, servicing and disposition of Property
in accordance with this Agreement. Notwithstanding any other provisions hereof,
in all events the Bank will exercise the due care expected of a professional
custodian for hire with respect to Property in its possession or control.
<PAGE>
The Bank is not under any duty to supervise the investments of the Fund, or to
advise or make any recommendation to the Fund with respect to the purchase or
sale of any Securities or the investment of any funds. The Fund shall have the
sole and exclusive responsibility for the investment of Property held hereunder.
(B) Subject to paragraph (A) above, the Bank shall not be responsible for any
loss or damage suffered by the Fund as a result of the performance of the Bank's
duties hereunder unless such loss or damage arises from (i) burglary, robbery,
holdup, theft or mysterious disappearance, including loss by damage or
destruction; or (ii) acts of negligence or willful misconduct on the part of the
Bank or on the part of a branch of office, affiliate or subsidiary of the Bank
acting as its agent pursuant to the terms of this Agreement or any of officers,
employees or other agent affiliated with the Bank acting on behalf of any such
entity. In the case of any such loss or damage, the Bank's liability shall not
exceed the market value of the Property, including any dividends, interest and
other cash or non-cash distributions with respect to the Property accrued or
distributed during the period of loss, and penalties incurred by the Fund due to
any such loss or damage. The market value of the Property shall be determined as
of the time of the occurrence of the loss or damage under subsection (i) or (ii)
above, as applicable. The Bank shall provide reasonable assistance, as
reasonably requested by the Fund, in the event of any such loss or damage, with
no charge to the Fund for the Bank's internal costs and expenses.
The Fund agrees to indemnify and hold harmless the Bank from and against any
claims and liability which are incurred in connection with the Bank's
performance under this Agreement in due accordance with the properly authorized
Instructions pursuant to Section 8 of this Agreement and Service Standards, as
attached hereto and incorporated herein as Exhibit A, including, without
limitation, the carrying out of Instructions with the terms of and in the manner
provided by this Agreement
(C) In selecting and appointing Clearance Systems (as defined below), Market
Infrastructure Entities (as defined below) and Transport Systems (as defined
below), the Bank shall use reasonable care and shall be responsible only for
negligence in the selection thereof. As used herein, "Clearance Systems" shall
mean securities depositories as contemplated by Section 6 hereof and Foreign
Securities Depositories; "Market Infrastructure Entities" shall mean public
utilities, telecommunications facilities and other common carriers of electronic
and other messages, and public postal services not affiliated with the Bank;
"Transport Systems" shall mean any courier, messenger or other similar transport
system not affiliated with the Bank.
In the event the Fund suffers a loss, liability or damage attributable to any
Clearance System, Market Infrastructure Entity or Transport System, the Bank
shall, to the extent of any such loss, liability or damage and to the extent
permitted by applicable law (and with respect to Clearance Systems, to the
extent not prohibited by any contract with any such Clearance Systems), ( I )
assign the Fund to all of the rights of recovery of the Bank against any such
entity and (2) use all reasonable efforts to assist the Fund in pursuing any
claim without any charge to the Fund for the Bank's internal costs and expenses
. The Bank hereby assigns to the Fund all rights, claims, causes of action and
interests it may have against any such entity resulting from the Fund's loss,
liability or damage; provided, however, that nothing herein shall be interpreted
as granting the Fund any rights to bring any direct claim under any insurance
policy issued in favor of the Bank, or as limiting the rights of the Bank to
bring any claim against any such entity for any damages suffered by the Bank for
any action of its agent.
(D) In no event shall either party be liable to the other party for indirect,
special, consequential or general damages.
Notwithstanding the above, neither the Bank nor its parent nor any of its
branches, subsidiaries or affiliates nor the Fund shall be responsible for any
losses or damages arising from reasons or causes beyond its control, including,
without limitation, electronic, mechanical or other technical difficulties,
nationalization, expropriation, currency restrictions, acts of war, terrorism,
insurrection, revolution, civil unrest, riots or strikes, nuclear fusion or
fission or acts of God."
(E) In the event the Fund enters into triparty repurchase agreements pursuant to
which collateral therefore is to be held by a custodian other than the Bank and
the Fund instructs the Bank to deliver Property to such custodian, the Bank
shall be under no duty to determine whether such custodian satisfies the
requirements of Section 17(f)
<PAGE>
of the Investment Company Act or the Rules promulgated thereunder. The Bank
shall have no further duties or obligations under this Agreement with respect to
such Property.
5. PERFORMANCE BY THE BANK
(A) General
The Bank's performance of its duties hereunder shall be in accordance with the
Service Standards, attached hereto as Exhibit A. Such Service Standards may be
amended from time to time in writing signed by the Fund and the Bank.
Notwithstanding the foregoing, the Bank may unilaterally amend the Service
Standards upon 10 days prior written notice, provided such amendment is the
direct result of a change in the level of service provided to the Bank by
independent third parties upon which performance of the Service Standards
depends. In no event, however, shall the unilateral amendments reduce the
standard of care of the Bank as provided under this Agreement and the Service
Standards.
(B) Receipt. Delivery and Disposal of Securities
The Bank shall, or shall instruct any other entity authorized to hold Property
in accordance with Sections 6 or 7 hereof to, receive or deliver Securities and
credit or debit the Custody Account, in accordance with properly authorized
Instructions (as hereinafter defined). The Bank or such other entity shall also
receive in custody all stock dividends, rights and similar securities issued in
connection with Securities held hereunder, shall surrender for payment, in a
timely manner, all items maturing or called for redemption, and shall take such
other action as the Fund may direct in properly authorized Instructions.
(C) Registration
Securities held hereunder may be registered in the name of the Bank, any entity
authorized to hold Property in accordance with Sections 6 or 7 hereof, or a
nominee of the Bank or any such authorized entity, and the Fund shall be
informed upon request of all such registrations. Securities in registered form
will be transferred upon request of the Fund into such names or registrations as
it may specify in properly authorized Instructions.
(D) Cash Accounts, Segregated Accounts
(i) The Bank shall, for each Portfolio of the Fund, open and maintain a
separate Bank account in the name of the Fund, subject only to draft or
order by the Bank acting pursuant to the terms of this Agreement, and
shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund
relating to such Portfolio, other than cash maintained by the Fund in a
Bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. The Bank shall clearly record in
its records the Portfolio to which each of the Fund's Bank accounts
pertains. Funds held by the Bank for the Fund may be deposited by it to
its credit as "Custodian" in the Trust and Custody Services Department
of the Bank or in such other banks or trust companies as it may, in its
discretion, deem necessary or desirable; provided, however, that every
such bank or trust company, and the funds to be deposited with each
such bank or trust company, shall be approved by vote of a majority of
the Directors of the Fund. Such funds shall be deposited by the Bank in
its capacity as Custodian and shall be withdrawable by the Bank only in
that capacity.
(ii) The Bank shall, upon receipt of properly authorized Instructions
(as hereinafter defined) from the Fund on behalf of any one or more
applicable Portfolios of the Fund, establish a segregated account for
and on behalf of each such Portfolio into which account or accounts may
be transferred cash and/or securities, including securities maintained
in an account by the Bank pursuant to Section 6 hereof, (a) in
accordance with the provisions of any agreement among the Fund, on
behalf of the Portfolio, the Bank and a broker-dealer registered under
the Securities Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization(s), regarding escrow or other
arrangements in connection with transactions by the Portfolio; (b) for
purposes of segregating cash or government securities in connection
with options purchased, sold or written by the Portfolio or commodity
futures contracts or options thereon purchased or sold by the
<PAGE>
Portfolio; (c) for purposes of compliance by the Portfolio(s) with the
procedures required by Investment Company Act Release 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies; (d) to hold securities subject to
repurchase agreements, to the extent that certificates for such
securities are held in physical custody; and (e) for other proper
corporate purposes, but only, in the case of clause (e), upon receipt
of, in addition to proper instructions from the Fund on behalf of the
applicable Portfolio(s), a certified copy of a resolution of the Board
of Directors or of its Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
(iii) The Bank shall receive from the Fund, from the purchaser of Fund
Shares, or from the Transfer Agent of the Fund and, on the date of
receipt, deposit into the Fund's account such payments as are received
for Shares of the Fund issued or sold from time to time by the Fund.
The Bank will make such arrangements with the Transfer Agent as will
ensure receipt by the Bank of all amounts due as payments for Shares of
the Fund.
(iv) Upon mutual agreement between the Fund and the Bank, the Bank
shall, upon the receipt of properly authorized Instructions (as
hereinafter defined):
1) invest in such instruments as may be set forth in such
Instructions on the same day as received all federal funds
received after a time agreed upon between the Fund and the
Bank: and
2) make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Bank
and to the extent that monies are received in payment for
Shares of the Fund and are deposited into the Fund's Bank cash
account.
(v) The Bank shall collect on a timely basis all income and other
payments with respect to registered Securities held hereunder to which
the Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer Securities if, on the date of
payment by the issuer, such Securities are held by the Bank or agent
thereof or are held in a securities depository on such date of payment
and shall credit such income, as collected, to the cash account of the
appropriate Portfolio. Without limiting the generality of the
foregoing, the Bank shall detach and present for payment all coupons
and other income items requiring presentation as and when they become
due and shall collect interest when due on securities held hereunder
(vi) Upon receipt of properly authorized Instructions (as hereinafter
defined), which may be continuing instructions when deemed appropriate
by the parties, the Bank shall pay out moneys of the Fund in the
following cases only:
1) upon the purchase of Securities for the account of the
Fund, but only (a) against the delivery of such Securities to
the Bank (or any agent appointed pursuant to Section 7 hereof)
registered in the manner required for Securities to be held
pursuant to this Agreement or in proper form for transfer; (b)
in the case of a purchase effected through a securities
depository, in accordance with the conditions set forth in
Section 6 hereof; or (c) in the case of repurchase agreements,
against delivery of collateral Securities as provided in
clauses (a) or (b) above;
2) in connection with conversion, exchange or surrender of
Securities owned by the Fund as set forth in Section 2 hereof;
3) for the redemption or repurchase of Shares issued by the
Fund as set forth in Section 5(D)(viii) hereof;
<PAGE>
4) for the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund, whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) for the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) for any other proper purpose, but only upon receipt of, in
addition to proper Instructions, a certified copy of a
resolution of the Directors or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom and the Portfolios
from which such payment is to be made.
Except to the extent that the Bank may be instructed otherwise by
certified resolution meeting the requirements of paragraph (6) of this
Section 5(D)(vi), the payment of Fund monies upon the acquisition of
Securities or the redemption or repurchase of Shares shall be charged
to the account of the Portfolio to which the transaction relates and
all other payments of monies for expenses and other purposes shall be
charged against the appropriate Portfolio in accordance with the Fund's
Articles of Incorporation and current prospectus, as in effect from
time to time.
(vii) In any and every case where payment for purchase of Securities
for the account of the Fund is made by the Bank in advance of receipt
of the Securities purchased (i.e., in advance of the time specified in
Section 5(D)(vi)(l) in the absence of specific written instructions
from the Fund to so pay in advance, the Bank shall be liable to the
Fund for losses resulting from the Bank's negligence for such
Securities to the same extent as if the Securities had been received by
the Bank, except that in the case of repurchase agreements entered into
by the Fund with a bank which is member of the Federal Reserve System
or a registered broker-dealer under the Securities Exchange Act, the
Bank may transfer funds to the account of such bank or broker-dealer
prior to the receipt of written evidence that the Securities subject to
such repurchase agreement have been transferred by book-entry into a
segregated account of the Bank maintained with a Federal Reserve Bank
or of the safe-keeping receipt, provided that such Securities have in
fact been so transferred by book-entry.
(viii) From such funds as may be available for the purpose, the Bank
shall, upon receipt of instructions from the Fund's Transfer Agent (as
such instructions may be confirmed by the Fund pursuant to the Service
Standards or any service level agreements between the parties hereto),
make funds available for payment to holders of Shares who have
delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of
Shares of the Fund, the Bank is authorized, upon receipt of
instructions from the Transfer Agent (as such instructions may be
confirmed by the Fund pursuant to the Service Standards or any service
level agreements between the parties hereto), to wire funds to or
through a commercial bank designated by the redeeming shareholders.
<PAGE>
(E) Reports
(i) If the Bank has in place a system for providing telecommunication
access or other means of electronic access by customers to the Bank's
reporting system for Property in the Custody Account, then, at the
Fund's election, the Bank shall provide the Fund with such instructions
and passwords as may be necessary in order for the Fund to have such
electronic access through the Fund's terminal device. Such electronic
access shall be restricted to information relating to the Custody
Account. If electronic access to such reporting system is requested by
the Fund, the Fund agrees to assume full responsibility for the
consequences of such use, including any misuse or unauthorized use of
the terminal device, instructions or passwords referred to above, and
agrees to defend and indemnify the Bank and hold the Bank harmless from
and against any and all liabilities, losses, damages, costs, counsel
fees, and other expenses of every nature suffered or incurred by the
Bank by reason of or in connection with such use by the Fund or others
of such terminal device, unless such liabilities, losses, damages,
costs, counsel fees and other expenses can be shown to be the result of
negligent or wrongful acts of the Bank, the Bank's employees or the
Bank's agents. Further, in the event the Fund elects to have electronic
access, the Bank shall provide the Fund on each business day a report
of the preceding business day's transactions relating to the Custody
Account and of the closing or net balances of each business day. If the
Fund does not choose to have electronic access, the Bank shall provide
the Fund with such reports of transactions in the Custody Account by
such means as may be mutually agreed upon.
(ii) The Bank agrees to use its best efforts to furnish the Fund with
such information regarding Property held hereunder as the Fund may
request in good faith in connection with its complying with requests of
any regulatory authorities having jurisdiction over the Fund. Upon the
request of the Fund or in compliance with applicable laws or
regulations, the Bank agrees to execute, as custodian, any necessary
declaration or certificates of ownership under the federal tax laws or
the laws or regulations of any other taxing authority now or hereafter
in effect
(iii) The Bank shall also, subject to restrictions under applicable
law, seek to obtain from any entity with which the Bank maintains the
physical possession of any of the Property in the Custody Account
records of such entity relating to the Property in the Custody Account
as may be required by the Fund or its agents in connection with an
internal examination by the Fund of its own affairs. Upon a reasonable
request from the Fund, the Bank shall use its best efforts to furnish
to the Fund reports (or portions thereof) of the external auditors of
each such entity relating directly to such entity's system of internal
accounting controls applicable to its duties under its agreement with
the Bank.
(F) Access
(i) The Bank shall submit to the auditors for the Fund, or to anyone
the Fund designates, such reports (including reports in respect of the
Bank's systems of internal accounting controls as the Fund may
reasonably request from time to time) or other information relating to
the Bank's services hereunder as such auditors or other designees may
require from time to time during the term of this Agreement in good
faith for the Fund's compliance with applicable laws, rules or
regulations. The Bank shall establish and maintain for operational and
account purposes such other accounts or records as the Fund and the
Bank may from time to time consider necessary or appropriate. The Bank
shall furnish the Fund with periodic statements of transactions and
statements of Property held for the account of the Fund as may be
directed by the Fund from time to time.
<PAGE>
(ii) During the Bank's or its subcustodian's regular banking hours, as
the case may be, and upon receipt of reasonable notice directly from
the Fund, any officer or employee of the Fund, any independent
accountant(s) selected by the Fund, and any person designated by any
regulatory authority having jurisdiction over the Fund shall be
entitled to examine on the Bank's (or its subcustodian's) premises
Property held by the Bank on its (or its subcustodian's) premises and
the Bank's records regarding Property held hereunder or deposited with
entities authorized to hold Property in accordance with Section 6 and 7
hereof, but only upon furnishing the Bank with properly authorized
Instructions to that effect.
(iii) The Bank's reasonable costs and expenses in facilitating
an~examination or audit for the Fund's accounts on the Bank's (or its
subcustodian's) premises shall be borne by the Fund. However, such
costs and expenses shall not include the Bank's costs in providing to
the Fund such reports and documents as this Agreement contemplates that
the Bank shall normally furnish to the Fund.
(G) Voting and other Action
(i) The Bank will transmit to the Fund as soon as practicable upon
receipt, and will instruct any entities authorized to hold Property in
accordance with Sections 6 or 7 hereof to transmit to the Fund upon
receipt, all financial reports, stockholder communications, notices,
proxies and proxy soliciting materials received from issuers of
Securities, and all information relating to exchange or tender offers
received from or on behalf of offerors with respect to Securities.
Except as provided herein, the Bank is directed to cause all proxies
for Securities to be executed by the registered holder thereof and
returned to the issuer or other soliciting party with instructions to
vote the proxy in the manner favored by the issuer's management. From
time to time, the Fund may issue, and the Bank agrees to comply with
written instructions as to the voting of proxies, or specified classes
of proxies, at variance from the foregoing direction; provided that the
Bank has not voted any such proxies or classes of proxies prior to any
notification by the Fund not to vote in the manner favored by the
issuer's management. The Bank shall not be liable for any losses or
damages resulting from the voting of any proxies or classes of proxies,
except in the case of the Bank's negligence or willful misconduct in
performing its duties hereunder. The Bank shall provide prompt notice
as further stipulated in the Service Standards in respect of all
corporate announcements (e.g. stock dividends, stock splits, reverse
stock splits, calls, etc.) relating to the Securities held in the
Custody Account. For purposes of the Bank's compliance with the
requirements of Securities and Exchange Commission Rule 14b-2, the Fund
hereby advises the Bank, and the Bank acknowledges, that absent further
written Instructions to the contrary, the Fund objects to information
as to its identity and beneficial Security holdings being disclosed to
any further persons or entities, including the issuers of such
Securities.
(ii) In the event of a tender or exchange offer with respect to
Securities, the Fund will hand deliver or telecopy Instructions to the
Bank as to the action to be taken with respect thereto, specifically
designating such Instructions as relating to a tender or exchange
offer. The Fund shall hold the Bank harmless from any adverse
consequences of the Fund's use of any other method of transmitting
Instructions relating to such offers.
(iii) The Bank is authorized to accept, open and process in accordance
with this Agreement, on the Fund's behalf, all mail or communications
received by it or directed to its care.
<PAGE>
6. USE OF SECURITIES DEPOSITORIES
The Fund authorizes the Bank, for any Securities held hereunder, to use
the services of any securities depository permitted to perform such
services for registered investment companies and their custodians under
Rule 17f-4 promulgated under the Investment Company Act, including but
not limited to, The Depository Trust Company, the Federal Reserve Book
Entry System and Participants Trust Company. The Bank will deposit
Securities held hereunder with a depository only in an account which
holds assets of customers of the Bank.
7. USE OF AGENTS
Except as otherwise specifically provided herein, the Bank may not
appoint agents to perform any of the duties of the Bank hereunder.
Notwithstanding the foregoing, the Bank shall not be prohibited from
using Clearance Systems, Market Infrastructure Entities and Transport
Systems.
8. INSTRUCTIONS
(A) The Bank is authorized to rely and act upon written instructions
("Instructions") which are signed by persons named ("Authorized
Persons") in a list provided by the Fund to the Bank from time to time.
The list must be certified by the Fund's Secretary or Assistant
Secretary and include authenticated specimen signatures of all
Authorized Persons. Such list shall separately designate (x) those
Authorized Persons who may authorize the withdrawal of Securities free
of payment, (y) those Authorized Persons who may authorize the
unconditional transfer of funds, and (z) those Authorized Persons who
may give Instructions by verbal, electronic or other means as
hereinafter provided. Bank shall be entitled to rely upon the continued
authority of any Authorized Person to give Instructions until Bank
receives notice to the contrary in accordance with this Agreement.
(B) The Fund and the Bank further agree that the Bank is also
authorized to rely and act upon:
(i) the procedures prescribed and Instructions issued in
accordance with Exhibit B, "Manual Transmission Authorization
" (including Schedule A thereof), attached hereto and
incorporated herein; and
(ii) Instructions which the Bank receives by means other than
a writing, provided that the Fund and the Bank shall have
agreed, in advance and in writing, upon the means and methods
for transmission (e.g., verbal, telephonic, telegraphic,
electronic, etc.) and authentication of such Instructions, and
further provided that the Bank, its officers, agents and
employees shall have complied, in good faith and
non-negligently, with all material requisites of such agreed
means and methods. Insofar as this Section 8(B)(ii) may be
implemented by the parties with reference to access, by
telecommunication or other electronic means, by or on behalf
of the Fund to the Bank's reporting system for Property in the
Custody Account, this section is intended to supplement, and
not to supplant, the provisions of Section 5(E) of this
Agreement; in each case, whether or not such Instructions are
validly authorized, provided the Bank believes in good faith
such Instructions have been authorized and are in material
compliance with the parties' agreed method of transmission and
authorization of such Instructions.
(C) Notwithstanding any other provisions of this Agreement, the Fund
shall have the right from time to time to appoint and remove one or
more Investment Managers to manage a part of the Property held under
this Custodial Agreement. The Fund shall also have the right to direct
the segregation of any part or all of the Property into one or more
accounts, to be known as "Investment Manager Accounts". Written notice
of any such appointment and removal of Investment Managers shall be
given to the Bank and the Investment Manager so appointed by the Fund,
along with specimen signatures of the Investment Manager(s) authorized
<PAGE>
to give Instructions with respect to the relevant Investment Manager
Accounts. Each Investment Manager shall have authority, as an
Authorized Person, to direct the Bank with respect to the acquisition,
retention, management and disposition of all of the assets from time to
time comprising that portion of the Property segregated into an
Investment Manager Account for the Investment Manager.
(D) The Bank may in its discretion, without express authority from the
Fund:
(i) make payments (not to exceed $2000.00 in total with
respect to each Portfolio before an accounting shall be made
to the Fund) to itself or others for minor expenses of
handling Securities or other similar items relating to its
duties under this Agreement, provided that all such payments
shall be accounted for to the Fund;
(ii) surrender Securities in temporary form for Securities in
definitive form;
(iii) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(iv) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with Securities and Property of
the Fund, except as otherwise directed by the Fund or as
otherwise provided herein.
9. THE FUND
(A) The Fund agrees that no printed material or other matter in any
language (including without limitation, prospectuses, statements of
additional information, notices to shareholders, annual reports and
promotional material) which mention the Bank's or Citicorp's name or
the rights, powers or duties of the custodian of the Fund shall be
issued by the Fund or of Citicorp or on the Fund's behalf unless the
Bank shall first have given its specific written consent thereto;
provided, however, that no prior consent shall be required if the only
reference to the Bank's or Citicorp's name is in identifying the Bank
as the Fund's custodian.
(B) The Fund shall give prior notice to the Bank of any change in its
place of incorporation or organization, mailing address, or sponsors,
or any significant change in management, investment objectives, fees or
redemption rights.
(C) The Fund confirms that it is, and agrees that in the future it will
be, audited at least annually by an independent accounting firm and
that it mails, and in the future will mail, an audited financial report
of the Fund to its shareholders at least annually.
10. FEES AND EXPENSES
Fees and expenses for services rendered under this Agreement shall be
those listed in Exhibit C attached hereto and incorporated herein. Fees
and expenses shall not be increased for five years from the date of
this Agreement. However, the parties may, from time to time, reduce
said fees and expenses upon written agreement between the parties.
11. PAYMENTS BY THE BANK
The parties hereto acknowledge that:
(A) the Fund is not permitted to borrow monies from the Bank in
connection with the transactions contemplated hereby; and
(B) all transactions will be pre-funded and no advances will be made by
the Bank.
12. TAX STATUS/WITHHOLDING TAXES
(A) The Fund hereby agrees to provide the U.S. Tax Identification
Numbers for each portfolio of the Fund.
<PAGE>
(B) The Fund may be required from time to time to file such proof of
taxpayer status or residence, to execute such certificates and to make
such representations and warranties, or to provide any other
information or documents, as the Bank may deem necessary or proper to
fulfill the Bank's obligations under applicable law. The Fund shall
provide the Bank, in a timely manner, with copies of originals if
necessary and appropriate, or any such proofs of residence, taxpayer
status, beneficial ownership and any other information or documents
which the Bank may reasonably request.
(C) If any tax or other governmental charge or assessment shall become
payable with respect to any payment due to the Fund ("Taxes"), such
Taxes shall be withheld from such payment in accordance with applicable
law. The Bank may withhold any interest, any dividends or other
distributions or securities receivable in respect of Securities,
proceeds from the sale or distributions of Securities ("Payments"), or
may sell for the account of the Fund any part thereof or all of the
Securities, and may apply such Payment in satisfaction of such Taxes,
the Fund remaining liable for any deficiency. If any Taxes shall become
payable with respect to any payment made to the Fund by the Bank in a
prior year, the Bank may withhold Payments in satisfaction of such
prior year's Taxes. The Fund shall indemnify and hold harmless the
Bank, its officers, employees, agents and affiliated companies against
any Taxes, penalties, additions to tax, and interest, and costs and
expenses related thereto, arising out of claims against the Bank by any
governmentalauthority for failure to withhold Taxes or arising out of
any reclaim or refund of taxes or other tax benefit obtained by the
Bank for the Fund.
(D) This section 14 shall survive the termination of this Agreement and
continue in force until the time for assessment of all Taxes expires.
13. AMENDMENT
This Agreement may not be amended except by a written agreement among
the parties hereto.
14. TERMINATION
Either the Bank or the Fund may terminate this Agreement upon sixty
(60) days' written notice to the other party. The Fund shall be
responsible only for fees and expenses incurred through the termination
date, excluding any termination fees.
The Fund shall have a right to terminate this Agreement upon ten (10)
days' written notice following receipt of any unilateral revision to
the Service Standards, if the Fund does not reasonably agree in good
faith with the modifications to such Service Standards. In the event of
a termination, Bank shall provide reasonable assistance, as reasonably
requested by the Fund during the transition of custodial services from
the Bank to a third party. The Fund shall be responsible only for fees
and expenses incurred through the termination date, excluding any
termination fees.
15. CONFIDENTIALITY
Subject to the foregoing provisions of this Agreement and any
applicable law, the Fund and the Bank shall each use best efforts to
maintain the confidentiality of matters concerning Property in the
Custody Account.
16. NOTICES
All notices and other communications hereunder, except for Instructions
and reports relating to the Property which are transmitted through the
Bank's electronic reporting system for Property in the Custody Account,
shall be in writing, telex or telecopy or, if verbal, shall be promptly
confirmed in writing, and shall be hand-delivered, telexed, telecopied
or mailed by prepaid first class mail (except that notice of
termination, if mailed, shall be by prepaid registered or certified
mail) to each party at its address set forth above, if to the Fund,
marked "Attention Carl J. Rudolph" and if to the Bank, marked
"Citibank, N.A. as Custodian for AAL Variable Product Series Fund
Inc.", or at such other address as either party may give notice of to
the other.
<PAGE>
17. ASSIGNMENT
No party may assign, transfer or charge all or any of its rights and
benefits hereunder without the written consent of the other parties.
Any purported assignments made in contravention of this Section shall
be null and void and of no effect whatsoever.
18. GOVERNING LAW
This Agreement shall be governed by, and construed according to, the
laws of the State of New York. In the event of litigation, the
prevailing party shall be awarded actual attorneys fees, costs and
expenses.
19. MISCELLANEOUS
(A) This Agreement may be executed in several counterparts, each of
which shall be an original, but all of which shall constitute one and
the same instrument.
(B) This Agreement contains the entire agreement between the parties
relating to custody of Property and supersedes all prior agreements on
this subject. The parties may hereafter enter into further agreements
contemplating the effecting of loans, by the Bank to the Fund, or the
lending by the Fund of Securities to third parties with the Bank acting
as the Fund's agent.
(C) The captions of the various sections and subsections of this
Agreement have been inserted only for the purposes of convenience and
shall not be deemed in any manner to modify, explain, enlarge or
restrict any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized.
CITIBANK, N.A.
BY: /s/ Joseph S. Jasionowski
----------------------------
NAME: Joseph S. Jasionowski
Managing Director
Citibank, N.A.
111 Wall St./ 24th Flr./ Zn. 6
New York, NY 10043
(212) 657-9152
Personnel #5059670
AAL VARIABLE PRODUCT SERIES FUND, INC.
BY: /s/ D. Charles DeVries
-----------------------
D. Charles DeVries
President
BY: /s/ Carl J. Rudolph
----------------------
Carl J. Rudolph
Treasurer
<PAGE>
EXHIBIT A
Citibank/Aid Association for Lutherans
and AAL Variable Product Series Fund, Inc.
Custody Customer Service Standards
July 1996
<PAGE>
Table of Contents
Page
Definitions 3
Securities Processing: Receive Instructions 4
Securities Processing: Delivery Instructions 6
Securities Processing: Delivery - Deadlines 7
Transfer/Split Registration Processing 9
Income Collection and Distribution 10
Reorganization Department 11
Other Citibank Responsibilities 13
Customer Investigations and Inquiries 15
Customer Responsibilities to Citibank 16
Definitions:
Customer Defined: For purposes of the Services Standards herein, Customer shall
mean Aid Association for Lutherans, AAL Employees' Retirement Trust, AAL Savings
Plan Trust and AAL Variable Product Series Fund, Inc.
<PAGE>
Securities Processing: Citibank Receives
Citibank will receive securities delivered to their accounts, in either physical
or book entry form, at the following locations or routing addresses:
PHYSICAL: Citibank
20 Exchange Place
New York, NY 10043
Physical R&D Unit
Level C
Delivery instructions must include:
Customer Name: Customer Account #
With Citibank:
Aid Association for Lutherans 846647
AAL Savings Plan Trust 846648
AAL Employees Retirement Trust 846649
AAL Holdings Inc. 846656
AAL Variable Product Large Company Stock Portfolio 846650
AAL Variable Product Small Company Stock Portfolio 846651
AAL Variable Product Bond Portfolio 846652
AAL Variable Product Balanced Portfolio 846653
AAL Variable Product Money Market Portfolio 846654
FED ELIGIBLE:* Citibank/Cust
ABA #021000089
Reference Relevant Customer Name and Account # From Above
DTC ELIGIBLE:* Citibank #908
Reference Relevant Customer Name and Account # From Above
PTC ELIGIBLE:* CBANK
Reference Relevant Customer Name and Account # From Above
CEDEL(Euroclear): 80826 for Aid Association for Lutherans (Account #846647)
80914 for AAL Savings Plan Trust (Account #846648)
80915 for AAL Employees Retirement Trust (Account #846649)
NSCC ELIGIBLE: Citibank #908
It is important that Citibank be notified in advance of any securities receipts.
However, in the event that no corresponding instructions have been received
prior to Citibank's receipt of a security, the standards on the following page
will apply.
*For book entry settlements, the customer's bank/broker must include customer
name and account number in the comments field of the transaction.
<PAGE>
Citibank will receive items against payment or free. We will apply them to the
customer's account on the same day providing Citibank had previously received a
valid faxed trade ticket. Citibank will ensure all necessary forms, documents,
etc. are attached and completed before receipt. Customer will request
re-registration and deposit as necessary as part of settlement instructions. All
physical securities will be settled and held in New York.
For Securities Received Against Payment Without Instructions:
If the Bank/Broker provides sufficient information for Citibank to identify its
customer, then Citibank will attempt to obtain those instructions through
immediate contact with the customer.
Your response to these exception items must be communicated back to Citibank at
least fifteen minutes for Book Entry and 30 minutes for Physicals prior to the
strict reclaim ("street") deadlines listed on page 7, or the items will be
returned. It is recommended that you don't wait until the deadline to
communicate and that you don't accumulate a list to respond to near the
deadlines.
There will be times when the securities received do not agree with the
customer's instructions (i.e., coupon rate or net money difference). In these
cases, the customer will be immediately contacted. Net money differences less
than $1 on all accounts, other than the AAL Variable Product Series Fund, Inc.
accounts, do not require customer contact. Citibank must receive the customer's
response within the guidelines outlined in the above paragraph.
For Securities Received Free Without Instructions:
If the Bank/Broker provides sufficient information for Citibank to identify its
customer, then Citibank will attempt to obtain those instructions through
immediate contact with the customer.
In the case of securities sent "free" by mail, if instructions or required
documentation are not received within five (5) business days of receipt and the
customer had been previously identified and notified, the securities will be
returned to the sender.
In the case of securities received "over the window" or through a depository, if
instructions or required documentation are not received within three (3)
business days of receipt and the customer had been previously identified and
notified, the securities will be returned.
Please Note:
It is a "street" requirement for amortizing mortgage-backed securities to settle
based on original face value (not the current principal value). Therefore, the
customer's instructions to Citibank should reflect the value of units to be
received or delivered as original face.
<PAGE>
Securities Processing: Citibank Delivers
Citibank will make delivery of securities to its customer's contra parties on
the settlement date of the trade, within "street" standard window closing
deadlines, as long as the account holds deliverable securities and provided that
valid instructions have been received as specified within the standards on page
7. Citibank will communicate to the customer any necessary forms or documents
required in order to ensure timely proper settlement.
Please note that all of the times listed are New York times and that these
standards (for physical deliveries) apply to deliveries within the New York City
Financial District.
These standards do not apply to book entry securities which are requested to be
withdrawn and delivered in physical form, nor do they apply to depository
eligible securities held or received in physical form which are then requested
to be delivered out in book entry form.
See transfer/split deposit processing standards on page 9.
These standards also assume that trades will be input in a staggered fashion
prior to settlement date. If high volumes of delivery instructions are "sent" to
Citibank, by the customer, at or just prior to the stated cutoff times, these
deliveries will be made on a best effort basis (refer to instruction deadline
matrix on page 7).
Please Note:
It is a "street" requirement for amortizing mortgage-backed securities to settle
based on original face value (not the current principal value). Therefore, the
customers' instructions to Citibank should reflect the value of units to be
received or delivered as original face.
<PAGE>
Instruction Deadlines
DELIVERIES vs. PAYMENT (all times are New York times)
If trade information is received prior to the following input deadlines, the
trade will be input by the stated service standard times.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUNDS INPUT BY INPUT BY SERVICE STREET
INSTRUMENT TYPE CUSTOMER CITIBANK STANDARD DEADLINE
Fed Book Entry-Non Dealer FF 2:45 P.M. 2:30 P.M. Same Day 3:00 P.M.
(Gov't Bills, Bonds, Notes,
Agencies)
DTC - SDFS Settlements FF 2:45 P.M. 2:30 P.M. Same Day 3:00 P.M.
(Including Money Market
Instruments)
PTC Eligible Securities FF 2:45 P.M. 2:30 P.M. Same Day 3:00 P.M.
(GNMA's)
Physical Money Market Instruments &
Physical Governments-Non Dealer to Dealer
(BAs, CDs, CP, GNMAs, FF 1:00 P.M. 12:45 P.M. Same Day 2:15 P.M.
FHAs, etc.)
Physical Money Market Instruments &
Physical Governments-Non Dealer to Non Dealer
(BAs, CDs, CP, GNMAs, FF 1:15 P.M. 1:00 P.M. Same Day 2:30 P.M.
FHAs, etc.)
Physical Equities, Corporates, Muni's
CH 7:45 P.M. 4:00 P.M. On S/D 11:30 A.M.
on Prior Day on Prior Day
New Issues:
Physical FF/CH 2:00 P.M. 1:45 P.M. Same Day 3:15 P.M.
DTC-Same Day Funds FF 2:45 P.M. 2:30 P.M. Same Day 3:00 P.M.
</TABLE>
Note: Sales of maturing securities within two (2) days or less of their
stated maturity date for New York Paying Agents, or within seven (7)
days or less for out-of-town agents must be communicated to your
administrator in order to avoid conflicting delivery and redemption
instructions.
S/D = Settlement Date
<PAGE>
Same Day Trades
For same day trades for any short-term transaction such as Treasury Bills,
Commercial Paper, etc., instructions must be sent by 12:30 p.m. EST via a valid
faxed trade ticket. This deadline also applies to the AAL Variable Product
Series Fund, Inc.'s Short Term Investment Fund (STIF).
The Federal Reserve Bank Standards are not static because the Fed often grants
extensions.
Deliveries returned to Citibank (DK'd) require a customer response. Operations
will contact the customer's client administrator as soon as the item is DK'd.
The customer must respond within one business day or the instruction will be
cancelled.
Citibank's demand deposits account (DDA) capability allows for both immediately
available funds (FF) and next day funds (CH) processing. Credits or debits in
next day funds will reflect a one day delay in availability from the transaction
settlement date.
Regarding same day turnaround processing:
- The receive and delivery instructions must be input within the service
standard above. The bank/broker delivering the asset to Citibank must
present them at least 15 minutes prior to the street deadline for book
entry securities and at least 45 minutes prior to the street deadline
for physical securities.
- Same day turnarounds processed within the Federal Reserve System by
Citibank's Custody Operations cannot be delivered in the dealer time.
<PAGE>
Transfer/Split Deposit Processing
Physical:
All physical securities required to be split or re-registered will be forwarded
by Citibank to the appropriate transfer agents within one business day of the
Bank's receipt of these instructions.
Book Entry:
Withdrawal-by-transfer instructions will be processed to the depository within
one business day of the Bank's receipt of these instructions.
Please Note:
The customer will be notified directly if any additional documentation or
registration information is required.
Customers selling securities that are already in transfer will have a high
probability of a delivery fail. However, in those situations Citibank will
contact the agent to expedite the transfer process.
Please Note:
Customers trading physical securities as a "turnaround" should use the clearance
pool transaction. This transaction type bypasses standard processing such as
re-registration and vault processing.
Securities placed out for legal transfer (those transfers requiring
documentation, i.e., letters testamentary, corporate resolutions, etc.)
extending over the settlement date of a pending trade, will not be funded by
Citibank.
All requests for re-registration/splits and associated documentation should be
addressed to:
Citibank, N.A.
WWSS Custody Division
111 Wall Street
New York, NY 10043
Attention:
(The name and location of customer's account administrator.)
<PAGE>
Income Collection and Distribution
Payments of principal, interest and dividends (with the exception of physical
securities item number 3 below) are credited to customers accounts on a
contractual basis. All funds received through the custody accounts for income
and principal payments on securities whether securities are registered in
Citibank's name, Citibank's Nominee name or customer name shall be processed by
Citibank according to the Income Collection and Distribution standards as though
they were in Citibank's Nominee name.
These payments will be made by Citibank within the guidelines below:
Please Note:
Adjustments to income by the paying agent are provided to Citibank's customers
within 48 hours of that adjustment.
U.S. Government Obligations and Agencies (Fed Eligible Securities)
Payment will be in immediately available funds on payable date.
Corporate, Municipal and Equity Securities (DTC) Payment will be in immediately
available funds on payable date.
Mortgage Backed Securities (DTC)
Payment will be in immediately available funds on payable date.
GNMA I Mortgage Backed Securities (PTC)
Payment will be in immediately available funds no later than one business day
after the payable date.
GNMA II Mortgage Backed Securities (PTC)
Payment will be in immediately available funds on payable date.
Physical Securities
1-Bearer Coupon Bonds
Payment will be in immediately available funds on payable date.
2-Registered in Citibank's Nominee with a predetermined payment schedule Payment
will be in immediately available funds on payable date.
3-Registered in Citibank's Nominee without a predetermined payment schedule
Income from physical securities (e.g. FHAs, SBAs, Broker Mortgages, etc.) will
be credited to the customer's account in immediately available funds no later
than five (5) business days after payable date.
4-Registered in Customer's Name and Address See Customer responsibilities to
Citibank on page 16.
Note: For those issues that would normally be paid one business day after the
payable date, income will be credited on the last day of the month if
that is the payment date.
<PAGE>
Reorganization Department
Functional Responsibilities Include:
Tender Offers, Conversions, Mergers, Exchanges, Maturities, Called Bonds,
Rights, Warrants, Liquidations, Bankruptcies, Class Actions, Stock Splits,
Distributions, Put Bonds, Dividend Reinvestments, Treasury Bill Rollover, etc.
Sources of Information:
HARD COPY: o DTC Important Notices
o DTC Participant Terminal System (PTS)
o Wall Street Journal
o New York Times
o Financial Times
o Notices from Redemption Agents
TRANSMISSIONS: o XCITEK, Inc.
o Financial Information, Inc.
TAPE FORM: o Kenny Information Systems
o Interactive Data Services
Customer Notification:
On all voluntary reorganization functions with an expiration date, a critical
notice (detailing all pertinent information) will be sent via fax to the
customer no later than close of business the day following the receipt by
Citibank's Reorganization Department.
The purpose of this notification is for Citibank to solicit a response from the
customer by no later than 5:00 p.m. in New York, two (2) business days prior to
the notice's expiration date, in order to be able to successfully execute the
required functions. Responses received after this deadline will be handled on a
best efforts basis.
Advance notices will be sent via fax to all customers "holding" called bonds
within two (2) days of receipt to give them the opportunity to make reinvestment
decisions as quickly as possible.
Advance notices on full-issue call redemptions will be sent via fax to clients
within two (2) days of the receipt of this information by Citibank.
In the case of partial calls, advance notices will be sent via fax within two
(2) days of the Reorganization Department establishing that the call includes
holdings at Citibank. The allocation of the call for securities held within a
depository will be performed by Citibank based upon market acceptable lottery
practices.
<PAGE>
On puttable bonds, customer will be advised of put no later than the window
expiration date minus seven (7) business days. Response by the customer to the
put option will occur no later than two (2) business days prior to deadline.
On all non-voluntary actions, Citibank shall take prompt and appropriate action
in respect of all corporate announcements (stock dividends, splits, reverse
splits, calls, etc.) directly affecting the capitalization of the issues of any
or all securities in the custody accounts.
All notifications should be faxed in duplicate to customer (one fax to
Investment Accounting and one fax to the Investment Department for Accounts
#846647, #846648, #846649 and #846656; one fax to AAL Capital Management and one
fax to the Investment Department for Accounts #846650, #846651, #846652, #846653
and #846654).
Maturities and Redemptions:
Maturities and redemptions will be posted to customer's accounts on the
scheduled maturity date in either immediately available funds or next day funds
depending on the instrument.
Instructions to rollover maturing U.S. Treasury Bills will be accepted up to the
last day of the week preceding the maturity date of the Bill.
Citibank will deliver maturing physical securities (regardless of nominee name
or held within the vault through simple custody function) to the necessary
agent, trustee, etc. in advance of the maturity date, without notice from the
customer, to ensure payment on payable dates.
Cash and Asset Payments:
Cash payments will be credited to customer's accounts on the payable date of all
called bonds. If a sale is executed after the publication date of any called
bonds, or after the customer's receipt of written notification regarding tender
offers, the customer will assume full responsibility for any exposure this
action might incur.
DTC eligible puttable bonds will be credited on their put date. Other put issues
will be credited on the same day funds are received by Citibank.
Cash payments on all other corporate actions will be credited to customer
accounts on the same day that the funds are received by Citibank.
In the case of a stock split, stock dividend, or stock distribution, the shares
will be posted to customer's accounts, free, on payable date (on ex-date for
splits).
Other security distributions will be credited to customer's accounts within two
(2) business days of payable/effective date.
If the customer utilizes a Dividend Reinvestment Plan, then customer's standing
instructions will be followed. This is subject to "street" conditions and
governed by the plan sponsor.
<PAGE>
Other Citibank Responsibilities
Payment Management:
Citibank will notify both customer and paying agent if payments on any security
held within the custody arrangement is delinquent by more than ten (10) business
days. Citibank will notify both customer and paying agent if overpayments or
underpayments occur on any security held within the custody arrangement within
five (5) business days of occurrence. Both Citibank and customer will resolve
these situations together and appropriately.
Applies to AAL Variable Products Series Fund, Inc. Only: Before responding to a
net cash disbursement request from Vantage/Continuum or any successor
third-party administrator in respect of the AAL Variable Product Series Fund,
Inc., Citibank shall request and receive (i) telephonic instructions from the
AAL Investment Accounting Department, as confirmed by (ii) facsimile bearing the
manual or stamped signature of Carl J. Rudolph of AAL.
Reports:
Citibank will forward confirmation of all transactions that occur within any
securities depository that Citibank deposits customer's securities into,
including DTC and PTC. Citibank will timely forward to customer any report which
it receives in regards to internal control systems for DTC and PTC.
Standard Custody Reports on Citibanking will be available by 7:00 a.m. EST 100%
of the time. These reports include month-end pricing of public securities.
Month-end Investment Accounting Reports on Citibanking will be available by 7:00
a.m. EST on the fifth (5th) business day after month-end.
Automation:
Citibank shall maintain all of the software necessary to support automated
functions performed at the customer level regarding customer custody activity.
Citibank will provide support for an on-line automated transfer of equity
trading with regards to the AAL Variable Product Series Fund, Inc.
Pricing:
Pricing for all Customers, other than the AAL Variable Product Series Fund,
Inc., will be provided for securities utilizing the guidelines contained in the
chart on page 14 herein.
<PAGE>
This chart represents the industry standards for securities pricing as
determined by the MLSPS/Bank Advisory Board.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SECURITY *PRICE PRICING PRIMARY SECONDARY SECONDARY
TYPE TOLERANCE FREQUENCY VENDOR VENDOR 1 VENDOR 2
U.S. Treasury Notes 0.00% Daily Merrill Lynch Interactive Data
U.S. Treasury Bonds 0.00% Daily Merrill Lynch Interactive Data
U.S. Treasury Bills 0.00% Daily Merrill Lynch Interactive Data
GNMA/FNMA/FHLMC 2.00% Daily ABSG Merrill Lynch Interactive Data
(Agencies-Fixed)
GNMA/FNMA/FHLMC 0.25% Daily ABSG Merrill Lynch Interactive Data
(Agencies-ARMS)
GNMA/FNMA/FHLMC REMICS 2.00% Daily ABSG Merrill Lynch Interactive Data
FHLB 2.50% Daily Merrill Lynch Interactive Data ***Prudential
SBA Loans/Pools 2.00% Daily Merrill Lynch Interactive Data ***Prudential
Domestic Corporate Bonds/Notes 2.00% Daily Merrill Lynch Interactive Data ***Prudential
Corp. Floating Rate Bonds/Notes 0.25% Daily Merrill Lynch Interactive Data ***Prudential
Medium Term Notes (Fixed Rate) 2.00% Daily Merrill Lynch Interactive Data ***Muller Data
Medium Term Notes (FLTG Rate) 0.25% Daily Merrill Lynch Interactive Data ***Muller Data
Convertible Bonds 2.00% Daily Merrill Lynch Interactive Data ***Prudential
Private Placements 2.00% Monthly Merrill Lynch Interactive Data ***Prudential
Yankee/Euro 2.00% Daily Merrill Lynch ***Interactive Data ***Bloomberg
CMO's 2.00% Daily ABSG **Merrill Lynch ***Interactive Data
Foreign Denominated Bonds 2.00% Daily EXTEL
Foreign Convertible 2.00% Daily EXTEL
Muncipal Bonds 2.00% Daily Interactive Data ***Prudential
Domestic Common Stock
Listed 0.00% Daily Interactive Data
Unlisted 2.00% Daily Interactive Data ***Prudential
Preferred Stock 2.00% Daily Interactive Data ***Prudential
Convertible Preferred Stock 2.00% Daily Interactive Data ***Prudential
Foreign Denominated Stock
Listed 0.00% Daily EXTEL
Unlisted 2.00% Daily EXTEL
Preferred Stock 2.00% Daily EXTEL
Convertible Preferred Stock 2.00% Daily EXTEL
Mutual Funds 0.00% Daily Interactive Data
ADR'S
Listed 0.00% Daily Interactive Data
Unlisted 0.25% Monthly Interactive Data
NOTE: * = Tolerance is used to determine whether override price will be used
(i.e. other price sources may be used only if outside tolerance).
** = Weekly, mid month and month end pricing source.
*** = Month end pricing source.
<PAGE>
Customer Investigations and Inquiries
All investigations/inquiries should be forwarded to your account administrator
directly.
The minimum information required to respond to an inquiry/investigation is:
o Customer's name and account number
o Citibank's internal security number or industry CUSIP number
o Description of security
o Explanation of problem
o Reference or name to whom Citibank can direct a reply
Note: Any additional relevant information including reference numbers should
be forwarded.
All inquiries will be acknowledged by Client Services within 24 hours of their
receipt.
Customer Investigations and Inquiries will be responded to within 4 business
days provided that the age of the underlying problem is less than six months
old. Older items may require some additional time to resolve.
Items requiring more than four (4) business days to resolve will be
reacknowledged weekly via telephone as to the status of the inquiry.
<PAGE>
Customer Responsibilities to Citibank
Citibank is dedicated to providing the highest levels of service and achieving
the greatest levels of customer satisfaction in its Custody Operations. In order
to ensure that we meet these goals, we ask our customers to abide by the
following principles for each area:
In Instruction Processing:
Ensure the completeness and accuracy of all information that is communicated to
Citibank.
Deliver instructions to Citibank before their stated cutoff times.
Advise Citibank of any amendments or cancellations immediately.
For Settlement Processing:
Follow up with broker/clearing agent on all failed trades the business day
immediately following the contractual settlement date of the trade.
For Income Collection:
Specifically advise Client Services of shares sold ex-dividend and prior to
ex-date or purchased cum-dividend after ex-date.
For Corporate Actions:
In cases where securities are registered in customer's name (i.e. they are
registered in customer name and address but held in safekeeping at Citibank),
and Citibank does not receive notice of a corporate action, it becomes the
customer's responsibility to notify Citibank of the desired course of action or
we will assume no responsibility.
Reply to Citibank before cutoff times specified in the individual corporate
action advises customer received from Citibank.
Advise Citibank of any corporate actions customer becomes aware of where
notification from Citibank has not been received.
For Tax Requirements:
Provide W9 every three years.
Provide needed documentation to satisfy legal requirements.
For Customer Inquiries:
Provide a contact list to ensure replies are directed appropriately.
Use the electronic banking reports service, where appropriate, together
historical information.
<PAGE>
Exhibit B
To: Citibank, N.A.
Date: June 30, 1996
111 Wall Street
New York, New York 10043
(herein referred to as the "Bank")
The Bank has offered the undersigned Fund a transmission method with automated
security procedures for transmitting funds transfer instructions (including
those transfers funded by a securities sale) and other communications to the
Bank; the Fund may decline in certain circumstances (such circumstances
evidenced by the fact that the Bank receives an instruction pursuant to this
Authorization) to use such transmission method and, fully aware of the
associated risks, has requested the Bank to accept instructions and other
communications transmitted by the procedures more fully described in the Manual
Transmission Procedures attached hereto ("Manual Procedures"). In order to
induce the Bank to act upon communications and instructions transmitted by
Manual Procedures, the Fund hereby authorizes the Bank to act upon
communications and instructions received by Manual Procedures in accordance with
the following:
1. The Fund shall provide the Bank with (a) an original statement in the
form of the Manual Procedures, or an equivalent document, and (b) such
other documentation as the Bank may reasonably request evidencing that
this Authorization and all related documents have been properly
authorized and are in conformity with the organizational documents and
any other rules, regulations or laws to which the Fund may be subject.
2. The Fund may, from time to time, add or delete authorized persons by
delivering to the Bank an original statement in the form attached
hereto, or an equivalent document, which shall be effective no earlier
than the business day after receipt by the Bank, and shall not affect
the Bank's actions or omissions prior to such effective date.
3. The Fund agrees to strictly limit information about the contents of
this Authorization to its officers and employees who need to know, and
to use its best efforts to ensure that such officers and employees at
all times treat the contents hereof with strict confidentiality in
order to maintain the security of the procedures established hereby.
The Fund shall immediately notify the Bank of any breach or suspected
breach or compromise of the security established hereby.
4. The Fund acknowledges and agrees that: (a) it has expressly requested
that the Bank implement the procedures set forth in the form attached
hereto, (b) the Bank has offered a secure transmission method which the
Fund knowingly in certain circumstances may decline to use, and as long
as the Bank acts in accordance with the Manual Procedures and
reasonably believes that instructions or communications have been sent
by an authorized person, the Bank shall have no further duty to verify
the content of any communication or instruction or the identity of the
sender or confirmer thereof, and the Fund expressly agrees to be bound
by any communication or instruction, whether or not authorized, sent in
its name and accepted by the Bank. The Bank shalt have absolute
discretion, for any reason whatsoever, to act or not to act upon and/or
request verification of any communication or instruction received by
telephone;
<PAGE>
provided, however, that the Bank shall notify the Fund promptly should
the Bank elect to defer action until the verification is delivered to
the Bank. Nothing contained herein shall require the Bank to violate
any applicable laws, rules or regulations on the transfer of funds or
data transmission.
5. The Fund hereby irrevocably agrees that, as long as the Bank acts in
compliance with this Authorization the Fund will indemnify hand hold
the Bank harmless from and against any loss, liability, claim or
expense (including reasonable legal fees and expenses) resulting from
the Bank's reliance on this Authorization, to the extent the Bank would
be entitled to be indemnified and held harmless pursuant to the
Custodial Services Agreement dated June 30, 1996, agreed upon between
the Bank and the Fund.
6. This Authorization may be terminated by either party hereto upon ten
(10) days' prior written notice to the other; provided, however, that
the Bank's agreement may be terminated immediately without notice in
the event the Bank deems that the security of the Manual Procedures
established hereby have been compromised or breached; and provided,
further, that termination by the Bank shall not affect the Bank's
rights or the Fund's obligations with respect to communications and
instructions received by the Bank prior to the termination.
7. The unenforceability or invalidity of any provision of this
Authorization shall not render any other provision unenforceable or
invalid.
8. This Authorization may not be amended except in a writing executed by
the Fund and accepted by the Bank.
9. Any notices provided for herein shall be in writing, and shall be
deemed to have been given when delivered personally, or when deposited
in the mail, certified, postage prepaid, or sent by authenticated
telecommunications, to the addresses provided below.
10. This Authorization shall in all respects be construed in accordance
with and governed by the laws of New York.
AAL Variable Product Series Fund, Inc. (Fund Name)
By: /s/ D. Charles DeVries
(Authorized Signature)
Name and Title: D. Charles DeVries President
Address for Notices: 4321 N. Ballard Road
Appleton, WI 54919-0001
Attention: Carl J. Rudolph
<PAGE>
ACCEPTED:
CITIBANK, N.A.
By: /s/ Joseph S. Jasionowski
Name and Title: Joseph S. Jasionowski, Managing Director
111 Wall St. /24th Flr./Zn. 6
New York, NY 10043 (212) 657-9152
Address for Notices: Citibank, N.A.
111 Wall Street
New York, New York 10043
Attention:
<PAGE>
MANUAL TRANSMISSION PROCEDURES
dated June 30, 1996
Fund: AAL Variable Product Series Fund, Inc.
Legal Name
Name and date of Fund Agreement or Authorization (if applicable):
- -------------------------------------------------------
List each account number included in the authorization:
Account Number Account Name
846650 AAL Variable Product Large Company Stock Portfolio
846651 AAL Variable Product Small company Stock Portfolio
846652 AAL Variable Product Bond Portfolio
846653 AAL Variable Product Balanced Portfolio
846654 AAL Variable Product Money Market Portfolio
The Bank is hereby authorized to act upon instructions transmitted in the name
of each User listed below in accordance with the following Manual Procedures
(please indicated each primary transmission method):
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C>
===================================================================================================================================
Courier Phone US Fax Other (e.g. Telex, Electronic Mail)
Mail -specify
- -----------------------------------------------------------------------------------------------------------------------------------
X X X X Printed Name & Title James Abitz, Assistant
- - - -
Treasurer & Vice President-
Securities
Specimen Signature: /s/ James Abitz
- -----------------------------------------------------------------------------------------------------------------------------------
X X X X Printed Name & Title Carl J. Rudolph
- - - -
Treasurer
Specimen Signature: /s/ Carl J. Rudolph
- -----------------------------------------------------------------------------------------------------------------------------------
X X X X Printed Name & Title R. Jerry Scheel, Second
- - - -
Vice President-Securities
Specimen Signature: /s/ R. Jerry Scheel
- -----------------------------------------------------------------------------------------------------------------------------------
X X X X Printed Name & Title Alan Onstad Assistant Vice
- - - -
President-Securities
Specimen Signature: /s/ Alan D. Onstad
- -----------------------------------------------------------------------------------------------------------------------------------
X X X X Printed Name & Title Dave Schnarsky, Assistant
- - - -
Vice President-Securities
Specimen Signature: /s/ David J. Schnarsky
- -----------------------------------------------------------------------------------------------------------------------------------
X X X X Printed Name & Title John Larson Assistant Vice
- - - -
President-Securities
Specimen Signature: /s/ John A. Larson
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <C>
Security Procedures:
Transactions requiring a Security Procedure: Security Procedure: Select One:
oFunds Transfer or other Payment - Telephone callback
Instructions (mandatory)
oDeliver Free (mandatory) X - Standing or Pre-defined Instructions
oOther (Please specify):__________________ - Other (Please specify):_____________
</TABLE>
If telephone callback is chosen, instructions for the transactions
noted above received by the Bank pursuant to the Manual Procedures, will be
acted upon by the Bank only after a confirming telephone call to one of the
telephone numbers listed below:
NAME TELEPHONE
The Bank shall be entitled to rely on the names as set forth above
until receipt by the Bank, at least 10 days prior to the effective date thereof,
of written notice of revocation or modification of these Procedures, dated and
signed by an authorized signatory.
* If additional space is required, please attach a separate page, label, sign
and date it.
Executed this 30th day of June, 1996
Customer: AAL Variable Product Series Fund, Inc.
By: /s/ Carl J. Rudolph
(Authorized Signature)
Name and Title: Carl J. Rudolph, Treasurer
ACCEPTED:
CITIBANK, N.A.
By: /s/ Joseph S. Jasionowski
(Authorized Signature)
Name and Title: Joseph S. Jasionowski
Managing Director
Citibank, N.A.
111 Wall St./24th Flr./Zn. 6
New York, NY 10043
(212) 657-9152
Personnel #5059670
Date:
<PAGE>
Exhibit C
WORLDWIDE SECURITIES SERVICES
U.S. CUSTODY
FEE SCHEDULE
FOR
AID ASSOCIATION FOR LUTHERANS
AAL VARIABLE PRODUCT SERIES FUND, INC.
Market value..................................0.3 basis points per year
Transactions ...................................................$5 each
Base charge........................................................$500
The above fee schedule is guaranteed for five years.
This fee agreement has been reviewed and agreed to:
AAL Variable Product Series Fund, Inc.
By: /s/ D. Charles DeVries
D. Charles DeVries
Title: President
Date:
Citibank, N.A.
By: /s/ Joseph S. Jasionowski
Title: Managing Director
Date: 8/30/96
<PAGE>
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
AAL VARIABLE PRODUCTS SERIES FUND, INC.
AND
AID ASSOCIATION FOR LUTHERANS
<PAGE>
TABLE OF CONTENTS
Page
1. Documents....................................................... 3
2. Authorized Shares............................................... 4
3. AAL to Issue and Register Shares................................ 4
4. Notice of Distribution.......................................... 4
5. Distributions................................................... 5
6. Redemptions and Repurchases..................................... 5
7. Processing Transactions......................................... 5
8. Tax Returns..................................................... 5
9. Book and Records................................................ 5
10. Information to be Furnished..................................... 7
11. Proxies......................................................... 7
12. Compliance with Governmental Rules and Regulations.............. 7
13. Force Majeure................................................... 7
14. Standard of Care and Indemnification............................ 7
15. Further Actions................................................. 8
16. Additional Portfolios........................................... 8
17. Assignment and Agents........................................... 8
18. Maryland Law to Apply........................................... 8
19. Amendment and Termination.......................................10
<PAGE>
TRANSFER AGENCY AGREEMENT
This TRANSFER AGENCY AGREEMENT is made and entered into as of this 27th
day of September, 1995 by and between the AAL VARIABLE PRODUCT SERIES
FUND, INC. (the "FUND"), a Maryland corporation, and AID ASSOCIATION FOR
LUTHERANS ("AAL"), a fraternal benefit society founded under the laws of the
State of Wisconsin.
WITNESSETH THAT:
WHEREAS, the Fund is a diversified, open-end management investment
company, registered under the Investment Company Act of 1940 as amended ("1940
Act"), and authorized to issue shares of common stock, $.001 par value ("Common
Stock"), in separate series, with each such series representing an interest in a
separate portfolio of securities and other assets; and
WHEREAS, AAL, a fraternal benefit society founded in Wisconsin in 1902
and owned by and operated for its members, is currently licensed to transact
life insurance business in all 50 states and the District of Columbia and
intends to offer flexible premium deferred variable annuity certificates (the
"Certificates") in states where it has authority to issue variable contracts;
and
WHEREAS, the Fund intends initially to offer shares of the AAL Variable
Product Large Company Stock Portfolio, the AAL Variable Product Small Company
Stock Portfolio, the AAL Variable Product Bond Portfolio, the AAL Variable
Product Balanced Portfolio and the AAL Variable Product Money Market Portfolio
(such portfolios, together with all other portfolios subsequently established by
the Fund and made subject to this Agreement in accordance with Section 16
hereof, the "Portfolios"), exclusively to corresponding subaccounts of the AAL
Variable Annuity Account I funding the Certificates issued by AAL, another
separate account(s) that AAL may establish in the future to fund variable
insurance products issued by AAL, or directly to AAL (the "Shareholders");
NOW THEREFORE, in consideration of the Fund making its shares available
for investment in connection with certain insurance products and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, but for no other fee or reimbursement which is not specifically
set forth herein, AAL is hereby appointed Transfer Agent for the shares of the
Fund and Dividend Disbursing Agent for the Fund, and AAL accepts said
appointment, subject to the following terms and conditions:
1. Documents
1.1 In connection with the appointment of AAL as Transfer Agent, the
Fund shall file with AAL the following documents:
a) A certified copy of the Articles of Incorporation of the Fund and
any amendments thereto;
b) A certified copy of the By-Laws of the Fund as amended to date;
c) A copy of the resolution of the Board of Directors of the Fund
authorizing this Agreement; and
<PAGE>
d) An opinion of counsel for the Fund with respect to the
validity of the shares of the Fund, the number of shares
authorized, the number of shares allocated to each Portfolio, the
status of redeemed or repurchased shares and the number of shares
of each Portfolio with respect to which a registration statement
under the Securities Act of 1933, as amended ("1933 Act"), has
been filed and is in effect.
1.2 The Fund will also furnish to AAL from time to time the following
documents:
a) Each resolution of the Board of Directors of the Fund
authorizing the original issue of its shares or affecting the
status of redeemed or repurchased shares;
b) Each registration statement filed with the Securities and
Exchange Commission under the 1933 Act or under the 1940 Act and
amendments thereof, orders relating thereto and prospectuses and
statements of additional information (hereinafter collectively
referred to as "prospectus") in effect with respect to the sale
of shares of the Fund;
c) A certified copy of each amendment to the Articles of
Incorporation or the By-Laws of the Fund;
d) Certified copies of each resolution of the Board of Directors
authorizing officers to give instructions to the Transfer Agent;
and
e) Such other documents or opinions which AAL may, in its
discretion, reasonably deem necessary or appropriate in the
proper performance of its duties.
2. Authorized Shares
The Fund certifies to AAL that as of the close of business on the date
of this Agreement, it has authorized a total of 2,500,000,000 (two and one-half
billion) shares of its Common Stock, of which 500,000,000 (five hundred million)
shares are divided equally among the five initial Portfolios, and certifies that
by virtue of its Articles of Incorporation and the provisions of the laws of the
state of its incorporation, shares of its Common Stock which are redeemed or
re-purchased by the Fund from the holder will be restored to the status of
authorized and unissued shares.
3. AAL to Issue and Register Shares
AAL shall issue and record the issuance of shares of the Common Stock of
the Fund. AAL shall notify the Fund and its "Custodian" (which term, whenever
used herein, shall mean each Custodian for the one or more Portfolios affected
by the transaction referred to) of every issuance, which notice shall include
the date, Portfolio, number of shares, and dollar amount of the transaction. AAL
shall compute the number of shares issuable in the case of an order for a dollar
amount of shares (or the purchase price in the case of an order for a specific
number of shares) at the net asset value per share for the Portfolio, as
described in the then-current prospectus of the Fund, unless the Board of
Directors of the Fund should otherwise direct.
4. Notice of Distribution
<PAGE>
The Fund shall promptly inform AAL of the declaration of any dividend or
distribution on account of its shares, including the amount per share, record
date, date payable and the Portfolio.
5. Distributions
AAL shall act as Dividend Disbursing Agent for the Fund, and, as such,
in accordance with the provisions of the Articles of Incorporation and the
then-current prospectus of the Fund, shall distribute or credit income and
capital gain payments to shareholders. The Fund will notify AAL of and cause the
Custodian to make available to AAL out of the assets of the Fund of the
appropriate Portfolio, the amount of any such payment to be paid out in cash.
AAL shall process the reinvestment of distributions in each Portfolio at the net
asset value per share for that Portfolio next computed after the payment, in
accordance with the then-current prospectus of the Fund. AAL shall notify the
Fund and the Custodian as to the number, Portfolio, dollar amount and date of
issue of shares by reinvestment of each distribution.
6. Redemptions and Repurchases
AAL shall process each redemption or repurchase of shares at the net
asset value per share of that Portfolio, as described in the then-current
prospectus of the Fund, unless the Board of Directors of the Fund should
otherwise direct. Where redemption or repurchase of a dollar amount is required,
AAL shall calculate the number of shares to be redeemed or repurchased so as to
provide the shareholder with the dollar value required, and where a stated
number of shares is required, AAL shall compute the dollar amount of the
proceeds. In either case, AAL shall notify the Fund of the number of shares and
the Portfolio out of which the shares are to be redeemed or repurchased, and the
dollar amount and date of the redemption or repurchase, and shall direct the
Fund to make the required amount of proceeds available to the shareholder out of
the assets of that Portfolio. The Fund shall cause its Custodian to make such
proceeds available not more than seven calendar days after receipt of the
redemption or repurchase request.
7. Processing Transactions
In calculating the number of shares to be issued on purchase or
reinvestment, or redeemed or repurchased, or the amount of the purchase payment
or redemption or repurchase proceeds owed, AAL shall use the net asset value per
share computed by AAL in accordance with the investment advisory agreement
between the Fund and AAL.
The authority of AAL to process purchases, reinvestments, redemptions
and repurchases shall be suspended upon receipt of notification by AAL of the
suspension of the determination of the net asset value of the Portfolios of the
Fund, until such suspension has been lifted.
8. Tax Returns
AAL shall, if necessary, prepare, file with the Internal Revenue Service
and with the appropriate state agencies, and, if required, mail to shareholders
such returns for reporting dividends and distributions paid as are required to
be so filed and mailed under applicable federal and state income tax laws, rules
and regulations.
9. Book and Records
<PAGE>
With respect to each Portfolio, AAL shall maintain records showing for
each shareholder's account the following:
a) Names, address and tax identifying numbers;
b) Number of shares of each Portfolio held;
c) Historical information regarding transactions with respect to
each Portfolio, including purchases, redemptions, dividends and
distributions, transfers, and any other transactions, with date
and price for all transactions;
d) Any stop or restraining order placed against the account;
e) Correspondence relating to the current maintenance of the account;
f) Any information required in order for the AAL to perform the
calculations contemplated or required by this Agreement; and
g) Such other records as the Fund may from time to time reasonably
request, and any other document pertinent to the above, or to functions
that the parties to a transfer agent agreement may assign to the
transfer agent.
Any such records required to be maintained by Rule 31a-1 of the General
Rules and Regulations under the 1940 Act shall be preserved by AAL for the
periods prescribed in Rule 31a-2 of said rules. Such record retention shall be
at the expense of AAL and records may be inspected by the Fund or its designees
at reasonable times, and, upon reasonable request of the Fund, copies of records
shall be provided at AAL expense to the Fund or its designee. AAL may, at its
option at any time, and shall forthwith upon the demand of the Fund, turn over
to the Fund and cease to retain in AAL files, records and documents created and
maintained by AAL pursuant to this Agreement which are no longer needed by AAL
in performance of its services or for its protection. If not so turned over to
the Fund, such records and documents will be retained by AAL for six years from
the year of creation, during the first two of which such documents will be in
readily accessible form. At the end of the six year period, such records and
documents will either be turned over to the Fund, or destroyed in accordance
with the authorization of the Fund.
Any such records required to be maintained by Maryland General
Corporation Law shall be maintained by AAL upon the terms thereunder.
Any such records maintained by AAL pursuant to this Agreement are deemed
to be the property of the Fund and will be promptly surrendered or made
available to the Fund or its designee, without charge, except for reimbursement
of expenses for surrender of such documents, upon request by the Fund or upon
termination of this Agreement.
AAL and the Fund agree that all books, records, information and data
pertaining to the business of the other Party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.
<PAGE>
10. Information to be Furnished
AAL shall furnish to the Fund such other information, including
statistical information, as needed to implement the provisions of this Agreement
and as may be agreed upon from time to time.
AAL shall report to the Fund regarding its performance under this
Agreement as may be reasonably requested by the Fund.
The Fund shall furnish to AAL such instructions and other information as
are needed to implement the provisions of this Agreement and as may be agreed
upon from time to time.
11. Proxies
AAL shall mail or otherwise distribute such proxy cards and other
material supplied to it by the Fund in connection with shareholder meetings of
the Fund and shall receive, examine and tabulate returned proxies and voting
instructions and certify the vote of each Portfolio of the Fund.
12. Compliance with Governmental Rules and Regulations
As between the Fund and AAL in its capacity as Transfer Agent, the Fund
assumes full responsibility for the preparation, contents and distribution of
each prospectus of the Fund and for complying with all applicable requirements
of the 1933 Act, the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction over the Fund, except as may be
specifically provided herein.
13. Force Majeure
AAL shall not be liable for loss of data occurring by reason of
circumstances beyond its control, including but not limited to acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots, or failure of transportation, communication or
power supply. AAL shall use its best efforts to minimize the likelihood of such
damage, loss of data, delays or errors resulting from uncontrollable events, and
if such damage, loss of data, delays or errors occur, AAL shall use its best
efforts to mitigate the effects of such occurrence.
14. Standard of Care and Indemnification
AAL shall at all times act in good faith and use its best efforts within
reasonable limits to ensure the accuracy of all services performed under this
Agreement, but assumes no responsibility and shall not be liable for loss or
damage due to errors; provided, that AAL shall indemnify and hold the Fund
harmless from all loss, cost, damage, and expense, including reasonable
attorneys' fees, incurred by the Fund as a result of AAL's gross negligence, bad
faith, or willful misfeasance in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement, or
that of its officers, agents and employees, in the performance of this
Agreement.
The Fund shall indemnify and hold AAL harmless from all loss, cost,
damage and expense, including reasonable attorneys' fees incurred by it
resulting from any claim, demand, action or suit in connection with the
performance of its duties hereunder, or the functions of Transfer and Dividend
Disbursing Agent or as a result of acting upon any instruction reasonably
believed by it to have been
<PAGE>
properly executed by a duly authorized officer of the Fund, or upon any
information, data, records or documents provided AAL or its agents by computer
tape, telex, CRT data entry or other similar means authorized by the Fund;
provided, that this indemnification shall not apply to actions or omissions of
AAL in cases of its own gross negligence, bad faith or willful misfeasance in
the performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement, or that of its officers, agents and
employees, in the performance of this agreement.
In order that the indemnification provisions contained in this Section
14 shall apply, however, it is understood that if in any case the one party (the
"Indemnitor") may be asked to indemnify or save the other party (the
"Indemnitee") harmless, the Indemnitor shall be fully and promptly advised of
all pertinent facts concerning the matters in question, and it is further
understood that the Indemnitee will use all reasonable care to identify and
notify the Indemnitor promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Indemnitor. The Indemnitor shall have the option to defend the
Indemnitee against any claim which may be the subject of this indemnification,
and in the event that the Indemnitor so elects, it will so notify the
Indemnitee, and thereupon the Indemnitor shall take over complete defense of the
claim, and the Indemnitee shall in such situations incur no further legal or
other expenses for which it shall seek or be entitled to indemnification under
this paragraph. The Indemnitee shall in no case confess any claim or make any
compromise in any case in which the Indemnitor will be asked to indemnify the
Indemnitee except with the Indemnitor's prior written consent.
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
15. Further Actions
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
16. Additional Portfolios
In the event that the Fund establishes one or more Portfolios in
addition to the five initial Portfolios with respect to which it desires to have
AAL render services as Transfer Agent and Dividend Disbursing Agent under the
terms hereof, it shall so notify AAL in writing, and if AAL agrees in writing to
provide such services, such Portfolio shall become a Portfolio hereunder. AAL
shall not unreasonably withhold approval of such new Portfolio.
17. Assignment and Agents
AAL may not assign this Agreement or delegate any of its
responsibilities hereunder without the express written consent of the Fund.
However, AAL may from time to time employ agents to act on its behalf to perform
and carry out its functions set forth as responsibilities of AAL in this
Agreement.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18. Maryland Law to Apply
<PAGE>
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Maryland.
19. Amendment and Termination
This Agreement may be modified or amended from time to time by written
agreement between the parties hereto. This Agreement may be terminated at any
time by not less than one hundred twenty (120) days' written notice given by one
party to the other.
EXECUTED under seal as of the day and year first above written:
AID ASSOCIATION FOR LUTHERANS
By: /s/ Richard L. Gunderson
--------------------------------------------
Richard L. Gunderson
President and
Chief Executive Officer
By: /s/ William R. Heerman
--------------------------------------------
William R. Heerman
Senior Vice President
Secretary and General Counsel
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ D. Charles DeVries
--------------------------------------------
D. Charles DeVries
President
By: /s/ Mark J. Mahoney
--------------------------------------------
Mark J. Mahoney
Secretary
TRADE NAME/SERVICE MARK LICENSING AGREEMENT
BY AND BETWEEN
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
TRADE NAME/SERVICE MARK LICENSING AGREEMENT
This TRADE NAME/SERVICE MARK LICENSING AGREEMENT made and entered on the 27th
day of September, 1994, by and between AID ASSOCIATION FOR LUTHERANS, a
fraternal benefit society incorporated under the laws of the State of Wisconsin,
and having its principal place of business at 4321 North Ballard Road, City of
Appleton, County of Outagamie, State of Wisconsin, hereafter referred to as
LICENSOR, and AAL VARIABLE PRODUCT SERIES FUND, INC., a corporation organized
under the laws of the State of Maryland, and having its principal place of
business at 4321 North Ballard Road, City of Appleton, County of Outagamie,
State of Wisconsin, hereafter referred to as LICENSEE.
RECITALS
LICENSOR has used the trade name/service mark "AAL" for the marketing of
insurance, mutual fund, fraternal and other related services since 1917, and the
name is associated with and represents LICENSOR and the quality of services it
provides, and all the goodwill associated with it. LICENSOR has a valid federal
service mark for said name, registered with The United States Patent & Trademark
Office, encompassing the services offered by LICENSEE. LICENSOR will have the
non-exclusive right to use and license others to use such trade name/service
mark for mutual fund services marketed only to AAL Variable Annuity Account I,
AAL and/or AAL Benefit Members (or those eligible for membership), and employees
and their immediate families of AAL, its subsidiaries and affiliates.
Consideration for this agreement shall be $1.00 in United States
currency, receipt of which by LICENSOR shall be acknowledged by the signing of
this agreement, and the mutual promises herein.
Nothing in this agreement shall be construed in any way to create a
partnership, agency or subsidiary relationship between the parties involved
herein.
LICENSEE desires to obtain a license, under the terms and conditions
provided herein, to utilize said trade name/service mark in association with the
marketing, servicing and provision of only the services agreed to in this
licensing agreement, only to AAL Variable Annuity Account I, AAL, AAL benefit
members and employees and their immediate families of AAL, its subsidiaries and
affiliates.
LICENSOR is willing to grant a limited license to LICENSEE to use such
trade name/service mark under the terms and conditions provided herein.
AGREEMENT
In consideration of the mutual covenants contained in this agreement, and
other good and valuable consideration as stated above, the parties agree:
1. DEFINITIONS
As used in this agreement, the following terms shall have the following
meanings:
<PAGE>
"Mutual Fund Services" shall mean the establishment, marketing, sales and
servicing of mutual fund shares and accounts and other products and services
approved for mutual funds.
"Contract Year" shall mean one year periods, the first beginning from the
date this agreement is signed, and running until the following calendar year,
ending on midnight the day before the one year anniversary of the signing of
this agreement. (For example, if signed on November 1, the contract period shall
be from November 1 until midnight October 31 of the next calendar year.)
"Licensor" shall mean Aid Association for Lutherans, its successors, and
assigns.
"Licensee" shall mean AAL Variable Product Series Fund, Inc., its
successors, and assigns.
"Member" shall mean a Benefit Member of LICENSOR, or one eligible for
Benefit Membership.
"Service Mark" shall mean the designation of AAL(R), which was adopted
and used in the sale or advertising of services to identify the services of
LICENSOR, or the business which it conducts, and which has also come to be used
by others, and through its' association with such services or business, the name
has acquired a special significance or goodwill.
"Trade name" shall mean the designation of "AAL", which was adopted and
used in trade by LICENSOR to designate the services which it renders, or
business which it conducts, and which has also come to be used by others, and
through its' association with such services or business, the name has acquired a
special significance and goodwill.
2. INTEREST GRANTED
Subject to the terms and conditions specified in this agreement, LICENSOR
hereby grants to LICENSEE the non-exclusive right to use the trade name/service
mark in connection with the marketing, sales, servicing and operation of its
Mutual Fund Services to AAL Members and employees of AAL, its subsidiaries and
affiliates, and immediate family members of each.
3. SUPERVISION OF LICENSEE
LICENSOR shall have the right to review the production and marketing of
all materials or written or oral solicitations of customers with which the AAL
trade name/service mark will be used. LICENSEE agrees to furnish any necessary
information or records LICENSOR may require for this purpose, and permit
LICENSOR'S authorized personnel to enter LICENSEE's premises at all reasonable
times, with or without advanced notice, in order to carry out said review.
LICENSOR reserves the right to such review for the purpose of protecting
and maintaining the standards of quality, integrity and goodwill established by
the LICENSOR for all services and/or products offered under said trade
name/service mark.
4. SUB-LICENSING OF SERVICE MARK BY LICENSEE
LICENSEE shall not directly or indirectly license or attempt to license or
assign, whether orally or in writing, any other person or company the right to
use the trade name/service mark herein. However,
<PAGE>
this does not preclude LICENSEE from using agents for the performance of the
obligations under this Agreement.
5. DEFICIENCIES
If LICENSOR at any time finds the Mutual Fund Services as offered and
provided by LICENSEE to be deficient in quality of service, or marketed or sold
in a misleading or deceptive manner, or otherwise prepared, advertised, marketed
or sold in a manner in violation of this agreement, then LICENSOR may notify
LICENSEE in writing of such deficiency or deficiencies, and if LICENSEE fails to
correct or eliminate such deficiency or deficiencies within 30 days after
receipt of such notice, LICENSOR may at its' election declare this licensee
terminated.
6. ADVERTISING AND MARKETING
All sales literature, descriptive material, advertising and stationary or
paperwork of any kind containing the trade name/service mark shall be developed
by LICENSEE through its own channels, and shall be subject to LICENSOR'S
approval. Insofar as possible, standard programs will be established for
advertising and promotional work, and routine matters handled in accordance with
approved programs need not be submitted for prior approval; all advertising copy
must be approved by LICENSOR before dissemination to the public.
7. INDEMNIFICATION OF LICENSOR BY LICENSEE
LICENSEE agrees to indemnify LICENSOR for any and all expenses, fines,
attorney's fees, penalties, judgments, settlement costs, or any cost whatsoever
related to any claim, suit, allegations or charges against LICENSOR arising out
of LICENSEE's use or misuse of said trade name/service mark. LICENSEE agrees to
assist LICENSOR in the prosecution or defense of lawsuits or claims identified
herein, by providing such evidence and expert assistance as LICENSEE may have
within its control, and, to the extent permitted by law, LICENSEE shall have the
right to intervene at its own expense in any legal proceeding affecting the
rights acquired by LICENSEE under this agreement.
8. TERMINATION
This agreement shall continue in full force and effect for one year from
the date hereof, unless sooner terminated as provided in section five herein, or
if LICENSEE terminates its Investment Advisory Agreement with LICENSOR.
This agreement shall be automatically renewed annually under the same
terms as herein, unless either party gives 30 days notice to the other party,
prior to the end of the present contract year.
Upon termination of this agreement for any reason, LICENSEE shall
immediately discontinue use of all labels, stationary or paperwork, and
advertising materials of any kind using the trade name/service mark.
9. SEVERABILITY
If any provision of this contract shall be construed to be illegal or
invalid, it shall not affect the legality or validity of any other provisions
herein, and the illegal or invalid provisions shall be deemed
<PAGE>
stricken and deleted from this contract to the same extent and effect as if
never incorporated herein, but all other provisions herein shall remain
unaffected by this.
10. AMENDMENT
The parties to this agreement hereby agree that this contract shall not
be altered or amended except in writing executed by the parties, and that this
agreement contains the whole of the covenants agreed to by the LICENSOR and
LICENSEE.
11. GOVERNING LAW
The construction of this agreement shall be governed by the laws of the
State of Wisconsin.
<PAGE>
12. NON-WAIVER
Any failure by LICENSOR to exercise any right hereunder, or otherwise
waive or condone any delay or failure by LICENSEE to comply with any of the
terms or conditions of this agreement shall not constitute a waiver of any such
requirement or provisions of LICENSOR'S right to terminate, or any rights of
LICENSOR hereunder.
In witness whereof, parties hereby execute this agreement at Appleton,
Wisconsin, on this 27th day of September, 1994.
AID ASSOCIATION FOR LUTHERANS
By: /s/ Richard L. Gunderson
--------------------------------------------
Richard L. Gunderson
President and
Chief Executive Officer
By: /s/ William R. Heerman
--------------------------------------------
William R. Heerman
Senior Vice President
Secretary and General Counsel
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ D. Charles DeVries
--------------------------------------------
D. Charles DeVries
President
By: /s/ Mark J. Mahoney
--------------------------------------------
Mark J. Mahoney
Secretary
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
AAL CAPITAL MANAGEMENT CORPORATION
AND
AID ASSOCIATION FOR LUTHERANS
Dated August 28, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. Services. ............................................... 4
--------
2. Rate of Payment for the Services......................... 5
--------------------------------
2.1 Contract Price. .............................. 5
--------------
2.2 Reimbursement for Expenses. .................... 5
---------------------------
3. Employees. .............................................. 5
---------
4. AALCMC's Use of the Services of Others. ................. 5
---------------------------------------
5. Ownership of Records. ................................... 5
--------------------
6. Reports to AAL or the Fund by AALCMC. ................... 6
------------------------------------
7. Services to Other Clients. .............................. 6
-------------------------
8. Limitation of Liability of AALCMC. ...................... 6
---------------------------------
9. Term of Agreement. ...................................... 7
------------------
10. Termination of Agreement. ............................... 7
-------------------------
11. Miscellaneous............................................ 8
--------------
11.1 Captions. ...................................... 8
---------
11.2 Interpretation. ................................ 8
---------------
11.3 Definitions. ................................... 8
-----------
11.4 Governing Law. ................................. 8
-------------
11.5 Amendment. ..................................... 8
----------
11.6 Notices. ....................................... 8
-------
11.7 Entire Agreement. .............................. 9
----------------
11.8 Enforceability. ................................ 9
--------------
11.9 Scope of Agreement. ......................... 9
-------------------
Schedule A Portfolios of the AAL Variable Product Series Fund, Inc.
Schedule B Services to be performed by AALCMC
Schedule C Contract Price Accounting/Pricing Fee Schedule
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and
entered into as of this twenty-eighth day of August, 1996 by and between AAL
CAPITAL MANAGEMENT CORPORATION, ("AALCMC") a Delaware corporation and AID
ASSOCIATION FOR LUTHERANS,
( "AAL") a Wisconsin corporation, (collectively, the "Parties").
WHEREAS, AAL is a fraternal benefit society organized under the laws of
the State of Wisconsin engaged in the writing of life insurance, annuity
contracts, and other insurance products; AAL serves as sponsor and depositor of
AAL VARIABLE ANNUITY ACCOUNT I (the "Variable Account") a legally segregated
asset account of AAL, established pursuant to the laws of the State of Wisconsin
and registered as a unit investment trust in accordance with the provisions of
the Investment Company Act of 1940 (the "1940 Act"), to serve as a segregated
investment account for the purpose of funding certain flexible premium deferred
variable annuity certificates (the "Certificates") AAL and its Variable Account
propose to offer for sale the Certificates, interests of which are registered
with the Securities and Exchange Commission ("SEC") as securities under the
Securities Act of 1933 (the "1933 Act"), the 1940 Act, and the laws of certain
states.
WHEREAS, AAL VARIABLE PRODUCT SERIES FUND, INC. (the "Fund") a Maryland
Corporation, is a diversified open-end management investment company registered
with the SEC under the 1940 Act and the Fund's shares are registered with the
SEC under the 1933 Act; the Fund is a series type investment company, with each
Portfolio having its own investment objectives, policies and restrictions; the
Fund currently consists of five (5) portfolios identified in Schedule A attached
hereto (each portfolio is hereinafter referred to singularly as the "Portfolio"
and collectively as the "Portfolios").
WHEREAS, AALCMC is a wholly-owned indirect subsidiary of AAL; AALCMC is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934 (the "1934 Act") and with state securities authorities in all fifty (50)
states; AALCMC is a member of the National Association of Securities Dealers,
Inc. ("NASD") and is authorized to offer and sell mutual funds and variable
insurance products; and AALCMC acts as the "DISTRIBUTOR" pursuant to that
certain Principal Underwriting and
<PAGE>
Servicing Agreement, dated November 23rd, 1994, by and between AAL and AALCMC,
whereby AALCMC is the exclusive principal underwriter in a continuous offering
of the Certificates.
WHEREAS, the Fund appointed AAL to act as investment adviser to the
Fund, with respect to the Portfolios, pursuant to that certain Investment
Advisory Agreement, dated September 27, 1994, by and between the Fund and AAL;
such Investment Advisory Agreement provides, in part, that (i) AAL as "Adviser"
to the Fund, may engage at the Adviser's cost and under the Adviser's
supervision, on behalf of the Fund or any Portfolio, the services of a
Subadviser, or an agent to perform certain administrative services; and (ii) AAL
shall administer the affairs of the Fund by providing, in part, the services of
individuals competent to perform all of the Fund's executive, administrative,
compliance and clerical functions where such services are not performed by or
through the Fund's employees or other people or agents engaged by the Fund.
WHEREAS, AAL desires AALCMC to render the services to the Fund in the
manner and on the terms and conditions hereinafter set forth with respect to
each of the Fund's Portfolios identified on Schedule A attached hereto, as
modified from time to time by the mutual consent of the Parties.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:
1. Services.
AAL hereby engages AALCMC, and AALCMC accepts such engagement, to perform
administrative, accounting and pricing services for AAL, on behalf of the Fund,
as set forth in Schedule B, as the same may be modified from time to time by the
mutual consent of the Parties. These services are to be performed according to
the Fund Accounting Performance Standards as may be agreed to by the parties.
AAL agrees that AALCMC shall have ready access to AAL's and the Fund's agents,
books, records, financial information, management and resources, at such times
and for such periods as AALCMC deems necessary to perform the Services.
<PAGE>
2. Rate of Payment for the Services.
2.1 Contract Price.
AAL agrees to pay AALCMC for the Services at such rate as set forth in
Schedule C (the "Contract Price"). The Contract Price shall be payable
monthly within ten (10) days of the date of invoice. The Contract Price
shall be reviewed annually, or at such other times as agreed to by the
Parties, and shall be modified by mutual consent of the Parties.
2.2 Reimbursement for Expenses.
Subject to AAL's prior approval, AALCMC may be paid by AAL for
extraordinary expenses and costs incurred by AALCMC in the performance
of services under this Agreement.
3. Employees.
All personnel assigned by AALCMC to perform the Services will be employees of
AALCMC or its affiliates. AALCMC will be considered for all purposes, an
independent contractor, and it will not, directly or indirectly, act as an
agent, servant or employee of AAL or the Fund, or make any commitments or incur
any liabilities on behalf of AAL or the Fund, without AAL's prior written
consent.
4. AALCMC's Use of the Services of Others.
AALCMC may at its cost employ, retain or otherwise avail itself of the services
or facilities of other persons or organizations for the purpose of providing to
AAL, on behalf of the Fund, with such information or Services as it may deem
necessary, appropriate or convenient for the discharge of AALCMC's obligations
hereunder, or in the discharge of AALCMC's overall responsibilities with respect
to the Services to be provided to AAL.
5. Ownership of Records.
All records required to be maintained and preserved by AAL or the Fund, pursuant
to the provisions of rules or regulations of the SEC under Section 31(a) of the
1940 Act, and maintained and preserved by
<PAGE>
AALCMC on behalf of AAL or the Fund, are the property of AAL and will be
surrendered by AALCMC to AAL promptly on request by AAL or the Fund.
6. Reports to AAL or the Fund by AALCMC.
AALCMC shall provide AAL or the Fund, at such times as AAL or the Fund may
reasonably require, with reports relating to the Services provided by AALCMC
under this Agreement. Such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by AAL or the Fund.
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of AALCMC or any affiliated
person of AALCMC to render investment advice or corporate administrative
services to other investment companies, to act as investment adviser or
investment counselor to other persons, firms or corporations, or to engage in
other business activities.
8. Limitation of Liability of AALCMC.
8.1 Neither AALCMC, nor any of its officers, directors, or employees,
nor any person performing administrative or other functions for AAL in
connection with AALCMC's discharge of its obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for
any error of judgment or mistake of law or for any loss suffered by AAL
or the Fund in connection with the matters to which this Agreement
relates, except for loss resulting from willful misfeasance, bad faith,
or negligence in the performance of its or their duties on behalf of
AAL or the Fund, or from reckless disregard by AALCMC or any such
person of the duties of AALCMC under this Agreement.
8.2 AALCMC shall not be liable or responsible for delays or errors
occurring by reason of circumstances beyond its control, including acts
of civil or military authority, natural or state emergencies, fire,
flood or catastrophe, acts of God, insurrection, war, riots or failure
of transportation, communication or power supply.
8.3 In the event of a mechanical breakdown beyond its control, AALCMC
shall take all reasonable steps to minimize service interruptions for
any period that such interruption continues
<PAGE>
beyond AALCMC's control. AALCMC will make every reasonable effort to
restore any lost or damaged data and the correcting of any errors
resulting from such a breakdown will be at the expense of AALCMC.
AALCMC agrees that it shall at all times have reasonable contingency
plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of AAL shall be
entitled to inspect AALCMC's premises and operating capabilities at any
time during regular business hours of AALCMC, upon reasonable notice to
AALCMC.
8.4 The indemnification provided by this Section 8, includes any act,
omission to act, or delay by AALCMC in reliance upon, or in accordance
with, any written or oral instruction it receives from any duly
authorized officer of AAL.
8.5 AAL will notify AALCMC of any balancing or control error caused by
AALCMC within three (3) business days after receipt of any reports
rendered by AALCMC to AAL, or within three (3) business days after
discovery of any error or omission not covered in the balancing or
control procedure, or within three (3) business days of receiving
notice from any Certificate Owner.
9. Term of Agreement.
The term of this Agreement shall begin, with respect to any Portfolio of the
Fund, on the date first above written, or the first offering of any additional
Portfolio(s), if later. Once effective with respect to any Portfolio, this
Agreement will continue in effect from year to year with respect to such
Portfolio, subject to the termination provisions and all other terms and
conditions hereof. AALCMC shall furnish to AAL promptly upon AAL's request, such
information as may reasonably be necessary to evaluate the terms of this
Agreement or any extension, renewal or amendment hereof.
10. Termination of Agreement.
This Agreement may be terminated, with respect to each Portfolio, by either
party hereto without the payment of any penalty, upon sixty (60) days prior
written notice to the other party. This Agreement shall automatically and
immediately terminate in the event of its assignment.
<PAGE>
11. Miscellaneous.
11.1 Captions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
11.2 Interpretation.
Nothing herein contained shall be deemed to require AAL or the Fund to
take any action contrary to their respective Articles of Incorporation
or By-Laws, or any applicable statutory or regulatory requirement to
which AAL or the Fund are subject or by which AAL or the Fund are
bound, or to relieve or deprive the board of directors of AAL or the
Fund of their respective responsibility for and control of the conduct
of the affairs of AAL or the Fund.
11.3 Definitions.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term
or provision of the 1940 Act and to interpretations thereof, if any, by
the United States courts or, in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC validly
issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the SEC, whether
of special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
11.4 Governing Law.
This Agreement shall be construed and governed by the laws of the state
of Wisconsin.
11.5 Amendment.
This Agreement, including the Schedules hereto, may be amended by
mutual consent of the Parties.
11.6 Notices.
<PAGE>
All communications or notices required or permitted by this Agreement
shall be in writing and shall be deemed to have been given at the
earlier of the date when actually delivered to an officer of a party or
when deposited in the United States Mail, certified or registered mail,
postage prepaid, return receipt requested, and addressed to the
principal place of business of such party, unless and until any of such
Parties notifies the other Parties to this Agreement, Parties in
accordance with this section, of a change of address.
11.7 Entire Agreement.
This Agreement together with the Schedules hereto constitutes the
entire Agreement between AAL and AALCMC with respect to the subject
matter hereof. There are no restrictions, promises, warranties,
covenants or undertakings other than those expressly set forth herein.
This Agreement supersedes all prior negotiations, agreements and
undertakings between the Parties with respect to the subject matter
stated herein.
11.8 Enforceability.
The invalidity or unenforceability of any provision hereof shall not
affect or impair any other provisions of this Agreement.
11.9 Scope of Agreement.
If the scope of any of the provisions of this Agreement is too broad in
any respect whatsoever, to prevent enforcement to its full extent, then
such provisions shall be enforced to the maximum extent permitted by
law, and the Parties hereto consent and agree that such scope may be
judicially modified accordingly and that the whole of such provisions
of this Agreement shall not hereby fail, but that the scope of such
provisions shall be limited only to the extent necessary to conform to
the law.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.
AID ASSOCIATION FOR LUTHERANS ("AAL")
By: /s/ John O. Gilbert
--------------------------------------------
John O. Gilbert
President and Chief Operating Officer
By: /s/ Carl J. Rudolph
--------------------------------------------
Carl J. Rudolph
Vice President and Controller
By: /s/ Woodrow E. Eno
--------------------------------------------
Woodrow E. Eno
Secretary and General Counsel
AAL CAPITAL MANAGEMENT CORPORATION ("AALCMC")
By: /s/ H. Michael Spence
--------------------------------------------
H. Michael Spence
President
By: /s/ Terrance P. Gallagher
--------------------------------------------
Terrance P. Gallagher
Senior Vice President and Chief Financial Officer
<PAGE>
SCHEDULE A
Portfolios of the AAL Variable Product Series Fund, Inc.
The AAL Variable Product Large Company Stock Portfolio
The AAL Variable Product Small Company Stock Portfolio
The AAL Variable Product Bond Portfolio
The AAL Variable Product Balanced Portfolio
The AAL Variable Product Money Market Portfolio
<PAGE>
SCHEDULE B
Services to be performed by AALCMC:
1. Portfolio Accounting Services.
AALCMC shall provide the following portfolio accounting and reporting services
for each Portfolio covered by this Agreement.
1.1 Maintain daily portfolio records for each Portfolio on a trade date
basis using security trade information obtained by AAL, as Investment
Adviser to the Fund;
1.2 On each business day record the prices of the Portfolio positions
from a source approved by the Fund's Board of Directors;
1.3 Record interest and dividend accrual balances each business day on
the securities of each Portfolio and calculate and record each
Portfolios' gross earnings on investments for that day;
1.4 Determine gains and losses on Portfolio securities' sales on a
daily basis for each Portfolio and identify such gains and losses as
short-short, short or long-term. Account for periodic distributions of
gain to Certificate Owners of each Portfolio and maintain undistributed
gain or loss balances as of each business day; and
1.5 Provide each Portfolio with Portfolio-based reports on the
foregoing on a periodic basis as mutually agreed upon between AAL and
AALCMC.
<PAGE>
2. Expense Accrual.
AALCMC shall provide accounting and reporting services relating to the accrual
of expenses as described below for each Portfolio of the Fund covered by this
Agreement:
2.1 On each business day, calculate the amounts of expense accrual for
each Portfolio according to the methodology, rate or dollar amount
specified by AAL;
2.2 Account for expenditures and maintain expense accrual balances for
each Portfolio at a level of accounting detail specified by AAL;
2.3 Conduct periodic expense accrual reviews for each series as
requested by AAL comparing actual expenses to accrual amounts; and
2.4 Issue periodic reports for each Portfolio detailing expense
accruals and payments at the times requested by AAL.
3. Valuation and Financial Reporting Services.
AALCMC shall provide accounting and reporting services relating to the net asset
value of each Portfolio of the Fund covered by this Agreement as described
below:
3.1 Account for purchases, sales, exchanges, transfers, dividend
reinvestment and other activity relating to the shares of each
Portfolio as reported by the Fund's Transfer Agent on a daily basis;
3.2 Provide AAL, as Investment Adviser, with a daily report of cash
reserves available for short-term investing;
3.3 Record daily the net investment income (earnings) for each
Portfolio. Account for periodic distributions of earnings to Certificate
Owners of each
<PAGE>
Portfolio and maintain undistributed net investment income balances as
of each business day;
3.4 Maintain a general ledger for each Portfolio in the form specified
by AAL and produce a set of financial statements for each Portfolio as
requested from time to time by AAL;
3.5 On each business day of the Fund determine the net asset value of
each Portfolio in accordance with the accounting policies and
procedures described in the current Prospectus of the Fund;
3.6 On each business day of the Fund, calculate the per share net asset
value, per share net earnings and other per share amounts reflective of
the operations of each Portfolio on the basis of the number of shares
outstanding as reported by the Transfer Agent;
3.7 Issue daily reports detailing such per share information of each
Portfolio to such persons (including the Transfer Agent and the
Investment Adviser (AAL) and the distributor (AALCMC)), as directed by
AAL;
3.8 Issue to AAL, monthly reports that document the adequacy of the
accounting detail necessary to support month-end ledger balances for
each Portfolio; and
4. Tax Accounting Services.
AALCMC shall provide the following tax accounting services for each Portfolio of
the Fund covered by this Agreement:
4.1 Maintain tax accounting records for the investment portfolio of
each Portfolio necessary to support Internal Revenue Service tax
reporting requirements for regulated investment companies;
<PAGE>
4.2 Maintain tax lot detail for the investment portfolio of each
Portfolio;
4.3 Calculate taxable gains and losses on sales of Portfolio securities
for each Portfolio using the tax cost basis defined for the particular
Portfolio;
4.4 Issue reports to the Transfer Agent of each Portfolio detailing the
taxable components of income and capital gains distributions as
necessary to assist such Transfer Agent in issuing reports to AAL and
the Certificate Owners; and
4.5 Provide any other reports relating to tax matters for each
Portfolio as reasonably requested from time to time by AAL.
<PAGE>
SCHEDULE C
Contract Price
Accounting/Pricing Fee Schedule
Pursuant to Section 2.1, the "Contract Price" shall be determined annually. For
the year beginning September 1, 1996 the annual rate will be Thirty-Five
Thousand dollars ($35,000) for each Portfolio.
<PAGE>
1996-1997 FUND ACCOUNTING PERFORMANCE STANDARDS
The following is a listing of the fund accounting activities performed
on a daily or periodic basis by AAL Capital Management Corporation, that will be
specifically identified to measure the quality and timeliness of the fund
accounting services provided to AAL by AALCMC pursuant to the Administrative
Services Agreement between the parties dated August 28, 1996.
Daily:
1. Supply the daily cash availability report to the AAL Investment
Department in good form by 8:30 A.M. CST each business day.
2. Meet all industry and SEC guidelines and standards related to:
A. Accounting for the daily portfolio trading activities.
B. Update the general ledger accounts for each portfolio.
3. Supply the NAV proof report to AAL accounting by 8:00 A.M. the
next business day.
4. Obtain the daily fund prices in a timely manner from IDC, by 4:00
P.M.
5. Calculate an accurate daily fund NAV by 4:30 P.M. each business
day.
6. Communicate each fund's NAV to Continuum Vantage the transfer
agent by 5:00 P.M. each business day.
Periodic: 1. Supply the month-end trial balances and the two sets of
the Portfolio Analysis for each fund to AAL accounting by the
first business day of the following month.
<PAGE>
2. Supply the Semi-Annual and Annual financial statements and each
corresponding schedule of investments for all the funds by the
fifteenth day of the following month.
3. Supply the monthly SEC Yield Calculation for the Bond and
Balanced portfolios to AAL accounting by the first business day
of the next month.
4. Supply the weekly Money Market portfolio amortized cost versus
market value analysis report to AAL accounting by the next
business day.
5. Supply other accounting information to AAL as requested in a
timely manner.
[AAL Logo]
[AAL Letterhead]
Members of the Board of Directors
AAL Variable Product Series Fund, Inc.
4321 Ballard Rd.
Appleton, Wisconsin 54919
Directors:
I have examined the form of Registration Statement to be filed by the Fund with
the Securities and Exchange Commission on Form N-lA in connection with the
registration under the Securities Act of 1933, as amended, ("1933 Act") and the
Investment Company Act of 1940, of an indefinite number of shares of its common
stock in five separate series or portfolios, all of $0.001 par value (the
"Shares"). I am familiar with the proceedings either taken or proposed to be
taken in connection with the authorization, issuance and sale of the Shares.
I have also examined the Articles of Incorporation and By-Laws of the Fund, the
records of certain meeting and written consents of the Directors of the Fund,
and such other documents, records and certificates as I have deemed necessary
for the purpose of my opinion. Based upon my examination, and upon my knowledge
of anticipated corporate activities, it is my opinion that the Fund has been
duly organized, is validly existing and is in good standing under the laws of
the State o f Maryland and that the Shares will, when issued and sold in the
manner described in the Registration Statement, be legally and validly issued,
fully paid, and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Legal Matters" in
the prospectus. In giving this consent I do not hereby admit that I come within
the category of persons whose consent is required under section 7 of the 1933
Act or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
Respectfully submitted,
/s/ Mark J. Mahoney
Mark J. Mahoney
Attorney at Law
July 18, 1994
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Custodian, Transfer Agent and Independent Auditors" and to
the incorporation by reference of our report dated January 31, 1997 in the
Registration Statement (Form N-1A) and its incorporation by reference in
the related Prospectus of AAL Variable Product Series Fund, Inc., filed
with the Securities and Exchange Commission in this Post-Effective Amendment
No. 4 to the Registration Statement under the Securities Act of 1933
(File No. 33-82056) and in this Amendment No. 5 to the Registration Statement
under the Investment Company Act of 1940 (File No. 811-8662).
ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 17, 1997
April 17, 1997
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N. W.
Washington, DC 20549
Re: AAL Variable Product Series Fund, Inc. (the "Fund")
1933 Act Registration No. 33-82056
1940 Act File No. 811-8662
CIK #0000927648
Post-Effective Amendment No. 4 to Form N-1A
Filed in Accordance with Rules 485(b) and 497(j)
Ladies and Gentlemen:
This letter relates to the Fund's filing, pursuant to Rule 485(b) under the
Securities Act of 1933 (the "1933 Act"), of Post-Effective Amendment No. 4 under
the 1933 Act and Amendment No. 5 under the Investment Company Act of 1940 (the
"Amendment") to its Registration Statement on Form N-1A (the "Registration
Statement"). As legal counsel to the Fund, we assisted in the preparation of the
Amendment and we certify that the Amendment does not contain any disclosures
that would render it ineligible to become effective automatically on May 1, 1997
pursuant to Rule 485(b) under the 1993 Act.
Please direct any questions or comments regarding this filing to the undersigned
at (414)277-5309.
Sincerely yours,
/s/ Quarles & Brady
Quarles & Brady
Fredrick G. Lautz
STOCK SUBSCRIPTION AGREEMENT
Agreement between AAL Variable Product Series Fund, Inc., a Maryland corporation
and open-end investment company (hereinafter the "FUND"), and Aid Association
for Lutherans, a Wisconsin corporation (hereinafter "AAL").
In consideration of the mutual promises set forth herein, and other good and
valuable consideration, the parties agree as follows:
1. The FUND agrees to sell to AAL, and AAL agrees to purchase, shares
equal to the following dollar amount for each portfolio:
AAL Variable Product Money Market Portfolio $2,000,000.00
AAL Variable Product Bond Portfolio $5,000,000.00
AAL Variable Product Balanced Portfolio $12,500,000.00
AAL Variable Product Large Company Stock Portfolio $7,500,000.00
AAL Variable Product Small Company Stock Portfolio $5,000,000.00
2. The initial net asset value per share for each of the portfolios (other
than the AAL Variable Product Money Market Portfolio) will be $10.00.
The initial net asset value per share for the AAL Variable Product
Money Market Portfolio will be $1.00.
3. AAL hereby represents that it is purchasing the shares solely for its
own account and solely for investment purposes without any present
intent of distributing or reselling said shares. AAL further represents
that disposition of said shares will only be by direct redemption to or
repurchase by the FUND.
4. AAL acknowledges that the shares will not have been registered under
any state or federal securities laws at the time of the transaction and
that, therefore, the Fund will be relying on certain exemptions therein
from such registration requirements, including exemptions dependent on
the intent of the undersigned in acquiring the shares.
5. AAL hereby agrees that the FUND shares purchased pursuant to this
Agreement will not be redeemed until the occurrence of either of the
following events: (1) the passage of one year from the date of AAL's
investment; or (2) such time as the total net assets for each portfolio
equal or exceed the amounts specified below:
AAL Variable Product Money Market Portfolio $25,000,000.00
AAL Variable Product Bond Portfolio $50,000,000.00
AAL Variable Product Balanced Portfolio $100,000,000.00
AAL Variable Product Large Company Stock Portfolio $50,000,000.00
AAL Variable Product Small Company Stock Portfolio $50,000,000.00
AAL further agrees to provide the applicable portfolio with at least 10
days' advance written
<PAGE>
Stock Subscription, page 2
notice of any intended redemption and agree that it will work with the
portfolio with respect to the amount of such redemption so as not to
place a burden on the portfolio and to facilitate normal portfolio
management of the portfolio.
In witness whereof, the parties hereto have executed this Agreement by their
duly authorized representatives this 6th day of October, 1994.
AAL VARIABLE PRODUCT SERIES FUND, INC. AID ASSOCIATION FOR LUTHERANS
/s/ D. Charles DeVries /s/ R. L. Gunderson
- ----------------------------------- --------------------------------------
D. Charles DeVries Richard L. Gunderson
President President and Chief Executive Officer
Attest /s/ Anne Ertel-Sawasky Attest /s/ W. R. Heerman
- ----------------------------------- ------------------------------------
Anne T. Ertel-Sawasky W.R. Heerman
Assistant Secretary Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints John O. Gilbert, Steven A. Weber, or Ronald G.
Anderson, as true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any or all amendments to the
Registration Statement on Form N-1A for the AAL Variable Product Series Fund
Inc., or any other Form as may be required by the Securities and Exchange
Commission, and to file each and any of them, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
/s/ F. Gregory Campbell
F. Gregory Campbell
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints John O. Gilbert, Steven A. Weber, or Ronald G.
Anderson, as true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any or all amendments to the
Registration Statement on Form N-1A for the AAL Variable Product Series Fund
Inc., or any other Form as may be required by the Securities and Exchange
Commission, and to file each and any of them, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
/s/ Richard Gady
Richard L. Gady
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints John O. Gilbert, Steven A. Weber, or Ronald G.
Anderson, as true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any or all amendments to the
Registration Statement on Form N-1A for the AAL Variable Product Series Fund
Inc., or any other Form as may be required by the Securities and Exchange
Commission, and to file each and any of them, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
/s/ D.W. Russler
D. W. Russler
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints John O. Gilbert, Steven A. Weber, or Ronald G.
Anderson, as true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any or all amendments to the
Registration Statement on Form N-1A for the AAL Variable Product Series Fund
Inc., or any other Form as may be required by the Securities and Exchange
Commission, and to file each and any of them, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
/s/ Lawrence M. Woods
Lawrence M. Woods
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints John O. Gilbert or Ronald G. Anderson, as true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any or all amendments to the Registration
Statement on Form N-1A for the AAL Variable Product Series Fund Inc., or any
other Form as may be required by the Securities and Exchange Commission, and to
file each and any of them, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
/s/ Steven A. Weber
Steven A. Weber
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints John O. Gilbert or Steven A. Weber as true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign any or all amendments to the Registration Statement on Form
N- 1A for the AAL Variable Product Series Fund Inc., or any other Form as may be
required by the Securities and Exchange Commission, and to file each and any of
them, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
/s/ Ronald G. Anderson
Ronald G. Anderson
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below
constitutes and appoints Steven A. Weber or Ronald G. Anderson, as true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any or all amendments to the Registration
Statement on Form N-1A for the AAL Variable Product Series Fund Inc., or any
other Form as may be required by the Securities and Exchange Commission, and to
file each and any of them, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
/s/ John O. Gilbert
John O. Gilbert
Director
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
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