SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
AAL VARIABLE PRODUCT SERIES FUND, INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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4) Date Filed:
AAL VARIABLE PRODUCT SERIES FUND, INC.
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
800-225-5225 or 920-734-5721
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[Logo]
AAL VARIABLE PRODUCT SERIES FUND, INC.
AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
800-225-5225
May 23, 2000
Dear Shareholder:
Re: SPECIAL MEETING OF SHAREHOLDERS
Enclosed is a notice of a Special Meeting of Shareholders of the AAL
Variable Product High Yield Bond Portfolio (the "Fund"), to be held at 10:00
a.m. on June 21, 2000, together with a Proxy Statement and Voting Instruction
Form relating to the business to be transacted at the meeting. This Special
Meeting of Shareholders is being called for the reasons listed below.
PURPOSE
The purpose of the Special Meeting is to consider and vote upon the
Board of Director's recommendation that the Fund and its investment adviser, AAL
Capital Management Corporation ("AAL CMC"), engage Pacific Investment Management
Company ("PIMCO") as the sub-adviser to manage the investment of the Fund's
assets. Approval by Fund shareholders of the new Sub-Advisory Agreement with
PIMCO is required by applicable law. The retention of PIMCO is being proposed
primarily for the following reasons:
1. The investment performance of the AAL Variable Product High Yield
Bond Portfolio has been below a level deemed acceptable by the
Directors and AAL CMC.
2. PIMCO is one of the country's largest money management firms and
has substantial experience in the management of high yield bond
portfolios.
3. PIMCO offers a high level of investment management services. The
engagement of PIMCO would not affect the overall fee that the
Fund pays for management services.
IF YOU HAVE ANY QUESTIONS OR CONCERNS THAT YOU WOULD LIKE TO DISCUSS
ABOUT THE MEETING AND THE MATTERS TO BE ACTED UPON, PLEASE CALL US AT
800-225-5225.
Thank you for your continued confidence in The AAL Variable Product
Series Fund, Inc. Your cooperation and participation in completing and returning
the enclosed Voting Instruction Form will ensure that your vote is counted.
Very truly yours,
THE AAL VARIABLE PRODUCT SERIES FUND, INC.
/s/Robert G. Same
Robert G. Same, President
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
800-225-5225
--------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
--------------------------------------------------
To Be Held on June 21, 2000
A Special Meeting of the Shareholders of the High Yield Bond Portfolio
(the "Fund") of AAL Variable Product Series Fund, Inc. (the "Company"), will be
held at 222 West College Avenue, Appleton, Wisconsin 54919, on June 21, 2000,
beginning at 10:00 a.m. local time for the following purpose:
1. To approve, with respect to the AAL Variable Product High Yield
Bond Portfolio, a new Sub-Advisory Agreement by and among AAL
Variable Product Series Fund, Inc. (on behalf of the Fund), AAL
Capital Management Corporation (the Fund's investment adviser),
and Pacific Investment Management Company ("PIMCO") (as
sub-adviser to the Fund). A copy of the Sub-Advisory Agreement is
attached as Appendix A to the accompanying Proxy Statement;
2. To transact such other business as properly may come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 28,
2000, as the record date for determining shareholders entitled to notice of, and
to vote at, the Special Meeting and any adjournment thereof. Only shareholders
of record at the close of business on that date will be entitled to vote. Your
attention is invited to the Proxy Statement accompanying this Notice for a more
complete statement regarding the matters to be acted upon at the Special
Meeting.
By Order of the Board of Directors of
AAL Variable Product Series Fund, Inc.
/s/Robert G. Same
Robert G. Same, President
Appleton, Wisconsin
May 23, 2000
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED VOTING
INSTRUCTION FORM AND RETURN IT PROMPTLY IN THE ENCLOSED POSTPAID ENVELOPE
PROVIDED FOR THAT PURPOSE.
<PAGE>
PROXY STATEMENT
AAL VARIABLE PRODUCT SERIES FUND, INC.
AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
1-800-225-5225
This Proxy Statement was first mailed to
Shareholders on or about May 23, 2000
SOLICITATION AND VOTING
SOLICITATION
The enclosed Voting Instruction Form is being solicited by the Board of
Directors of AAL Variable Product Series Fund, Inc. (the "Company") in
connection with the Special Meeting of Shareholders of its series known as the
AAL Variable Product High Yield Bond Portfolio (the "Fund") to be held at 10:00
a.m. on June 21, 2000 (the "Special Meeting"). As discussed in more detail in
this Proxy Statement, we are calling the Special Meeting to consider and vote on
the approval of a Sub-Advisory Agreement pursuant to which Pacific Investment
Management Company ("PIMCO") would manage the investment of the Fund's assets,
as sub-adviser to the Fund, subject to the direction and control of AAL Capital
Management Corporation ("AAL CMC") and the Board of Directors. You are
encouraged to carefully read this Proxy Statement, including the Sub-Advisory
Agreement attached as Appendix A, and mark and return the Voting Instruction
Form accompanying it.
The Fund is one of several series (or mutual funds) offered by the
Company. The Company is an investment company registered as an open-end,
management investment company. Shares of the Fund are sold to the AAL Variable
Annuity Account I, the AAL Variable Annuity Account II, the AAL Variable Life
Account I (together, the "Variable Accounts"), and the Aid Association for
Lutherans Savings Plan (the "AAL Plan"), a 401(k) plan for employees of Aid
Association for Lutherans ("AAL"). The shares are held in the Variable Account
and the trust created under the AAL Plan to fund benefits under individual
flexible premium deferred variable annuity certificates, individual single
premium immediate variable annuity certificates and flexible premium variable
life insurance certificates issued by Aid Association for Lutherans ("AAL") in
the Variable Accounts, and benefits payable to participants under the AAL Plan
("Plan Participants").
As the record owner of all the assets held in the Variable Accounts and
in the AAL Plan, AAL is the sole shareholder of the Fund and is entitled to vote
all of the shares of the Fund held in the Variable Accounts and the AAL Plans.
However, pursuant to applicable laws, the Fund's current prospectus dated May 1,
2000, and the Company's Articles of Incorporation and By-laws, AAL votes
outstanding shares of the Fund in accordance with instructions received from the
owners of the certificates ("Certificate Owners") issued in the Variable
Accounts and Plan Participants to whose accounts Fund shares have been allocated
under the terms for the AAL Plan. This Proxy Statement and the accompanying
Notice of Special Meeting of Shareholders and Voting Instruction Form are being
delivered to the Contract Owners and Plan Participants who, by virtue of their
ownership of one or more certificates or their participation in the AAL Plan,
beneficially owned shares of the Fund as of April 28, 2000 (together "Beneficial
Owners"), so that they may instruct AAL on how the Fund shares beneficially
owned by them should be voted on the matter to be acted upon at the Special
Meeting.
You are encouraged to read carefully the Proxy Statement and mark and
return the Voting Instruction Form accompanying it.
QUORUM AND VOTING
The presence at the Special Meeting, in person or by proxy, of
shareholders representing one-third of all shares outstanding and entitled to
vote on a matter constitutes a quorum for the transaction of business.
Abstentions will be counted as present for purposes of determining a quorum, but
will not be counted as votes cast with respect to the proposal.
Approval of the Sub-Advisory Agreement requires the affirmative vote of
"a majority of the outstanding voting securities" of the Fund, defined under the
Investment Company Act of 1940 (the "1940 Act") to mean at least a majority of
the outstanding voting shares of the Fund or, if less, 67% of the voting shares
represented at a meeting at which the holders of 50% or more of the outstanding
voting shares of the Fund are present or represented by proxy. Thus abstentions
will have the same effect as votes cast against the proposal.
AAL, as the sole shareholder of the Fund, will submit a proxy for all
shares of the Portfolio owned of record by it as of April 28, 2000 (the "Record
Date"). Shares underlying certificates or held in Plan Participant accounts with
respect to which AAL has received voting instructions from the Beneficial Owner
will be voted by AAL in accordance with such instructions. Shares with respect
to which an executed Voting Instruction Form is received, but provides no voting
instructions, will be voted by AAL "FOR" approval of the Sub-Advisory Agreement.
Shares with respect to which no Voting Instruction Form is received and any
shares held by AAL, its subsidiaries or affiliates for their own account will be
voted by AAL in proportion to the shares with respect to which AAL has received
instructions from Beneficial Owners. For purposes of calculating AAL's
proportional voting, any uninstructed shares will be counted the same as shares
with respect to which AAL has received instructions to vote "FOR" approval of
the Sub-Advisory Agreement.
By way of example, suppose there were outstanding a total of 1,000
shares of the Fund, and that AAL owned 100 shares outright for its own account
and the balance were owned beneficially by Beneficial Owners. Suppose further
that Beneficial Owners owning beneficially 680 of those shares returned Voting
Instruction Forms instructing AAL as follows:
(a) To vote 340 shares "FOR" approval of the Sub-Advisory
Agreements;
(b) To vote 170 shares "AGAINST" approval;
(c) To abstain from voting 85 shares; and
(e) Providing no voting instructions with respect to the
remaining 85 shares.
Under these circumstances, AAL would vote the 595 shares referred to in
clauses (a), (b) and (c) as instructed, and would vote the remaining 85 shares
referred to in clause (d) "FOR" approval of the Sub-Advisory Agreement. In
addition, of the remaining 320 shares (including the 100 owned directly by AAL
and the 220 held for Beneficial Owners that did not return executed Voting
Instruction Forms), AAL would vote 200 shares "FOR" approval (which is
proportional to the sum of the shares referred to in clauses (a) and (d) above
divided by the total number of shares with respect to which executed Voting
Instruction Forms were received), would vote 80 shares "AGAINST" approval, and
would abstain from voting the remaining 40 shares.
With respect to votes by Certificate Holders, the number of votes that
each Certificate Holder may instruct is determined by dividing a Certificate's
accumulated value in the sub-account associated with the Fund in the relevant
Variable Account as of the Record Date by the net asset value per share of the
Fund. Fractional shares are counted. Each Plan Participant may instruct the
voting of Fund shares allocated to his or her account.
Shares represented by properly executed Voting Instruction Forms
received by the Company will be voted at the Special Meeting and any adjournment
thereof in accordance with such Voting Instruction Forms, as described above. A
Beneficial Owner may revoke his or her Voting Instruction Form at any time prior
to the voting thereof by filing a written notice of revocation with the
Secretary of the Company prior to the Special Meeting or by delivering a duly
executed Voting Instruction Form bearing a later date.
Certificate Holders owning Certificates representing shares at the
close of business on the Record Date, and Plan Participants to whose AAL Plan
account shares of the Fund have been allocated as of the close of business on
the Record Date, will be entitled to one vote on each matter presented for each
share so represented or allocated. At that date, there were 4,508,551 shares of
the Fund outstanding.
ADJOURNMENT
In the event that sufficient votes in favor of approval of the
Sub-Advisory Agreement are not received by the time scheduled for the Special
Meeting, the persons named as proxies by AAL may propose one or more
adjournments of the Special Meeting to permit further solicitation of Voting
Instruction Forms with respect to the proposal. Any such adjournment will
require the affirmative vote of a majority of the shares present in person or by
proxy at the session of the Special Meeting to be adjourned. The persons named
as proxy will vote in favor of such adjournment those shares which they are
entitled to vote "FOR" approval of the Sub-Advisory Agreement. They will vote
against any such adjournment those shares required to be voted "AGAINST"
approval of the Sub-Advisory Agreement.
COST OF SOLICITATION
In addition to this solicitation of Voting Instruction Forms by use of
the mails, Voting Instruction Forms may be solicited by officers of the Company
and by officers and employees of AAL or AAL CMC personally or by telephone or
telegraph, without special compensation. Voting Instruction Forms may also be
solicited by a professional solicitation service should management of the
Company determine that solicitation by such means is advisable. The cost of
preparing and mailing Voting Instruction Forms, of the Special Meeting, and of
soliciting Voting Instruction Forms will be borne by the Fund.
UPON REQUEST AND AT NO COST TO A REQUESTING BENEFICIAL OWNER, THE COMPANY
WILL MAIL, BY FIRST CLASS MAIL, A COPY OF THE FUNDS' ANNUAL REPORT FOR THE YEAR
ENDED DECEMBER 31, 1999. REQUEST SHOULD BE DIRECTED TO THE ATTENTION OF
FREDERICK D. KELSVEN, SECRETARY, AT THE AAL VARIABLE PRODUCT SERIES FUND, INC.,
4321 NORTH BALLARD ROAD, APPLETON, WISCONSIN 54919-0001, TELEPHONE:
1-800-225-5225.
APPROVAL OF NEW SUB-ADVISORY AGREEMENT FOR THE AAL VARIABLE PRODUCT HIGH YIELD
BOND PORTFOLIO
BACKGROUND
The Board of Directors has determined that it is in the best interest
of the Shareholders of the Fund to engage PIMCO as the sub-adviser to the Fund.
Accordingly, the Board recommends that the shareholders of the Fund approve a
Sub-Advisory Agreement (the " Sub-Advisory Agreement") among the Company (on
behalf of the Fund), AAL CMC and PIMCO. The change is being recommended for the
reasons discussed below.
AAL CMC presently manages the Fund's investments. Under its management,
the investment performance of the Fund has been below a level deemed acceptable
by the Directors and AAL CMC. The Board of Directors and management determined
that they should investigate alternatives in an effort to improve the Fund's
performance.
The Board of Directors determined that management should search for an
outside advisory firm to assist with the management of the Fund's assets.
Management was directed to conduct a search for an outside advisory firm with a
proven track record in managing high yield bond funds.
The search therefore focused on finding and negotiating acceptable
terms with an outside sub-adviser to manage the Fund's investments, AAL CMC will
continue to provide administrative and other services it presently provides to
the Fund under its investment advisory agreement with the Fund. AAL CMC reviewed
and analyzed a worldwide data base of investment managers published by Lipper
Inc. to identify possible candidates. Through this process, management narrowed
the field to a list of investment management firms that had personnel with
experience in the high yield bond market and investment styles that potentially
qualified them as candidates to manage the Fund's investments. Management
conducted telephone interviews with those firms, to learn more about their
experience, investment management styles and philosophy, performance and
personnel and their level of interest in managing the Fund's assets. Based on
the telephone interviews, management narrowed the field of candidates to three
firms, all of which were invited to participate in face-to-face interviews and
to give personal presentations. After follow-up discussions and further
information exchanges, management identified PIMCO as the leading candidate. AAL
CMC engaged in a further due diligence investigation of PIMCO, which confirmed
management's assessment. The parties then negotiated fee proposals and other
terms of possible engagement of PIMCO as a sub-adviser to the Fund, as reflected
in the attached Sub-Advisory Agreement.
AAL CMC kept the Board of Directors apprised of the steps it was taking
throughout this process, and ultimately AAL CMC presented the Board with its
analyses, findings and recommendations at a special meeting of the Board called
and held for that purpose on May 1, 2000. After a thorough consideration of the
process undertaken by management and AAL CMC and the information, analyses and
recommendations presented, the Board of Directors concluded that the retention
of PIMCO to serve as sub-adviser to the Fund under the terms of the proposed
Sub-Advisory Agreement would be in the best interests of the Fund and its
shareholders. For a detailed description of the specific factors considered by
the Board of Directors, see the discussion under the caption "Directors'
Considerations and Recommendation" below.
PIMCO, which was established in 1971, is a money management
organization primarily specializing in fixed income management. PIMCO is
registered as an investment adviser with the Securities and Exchange Commission.
As of December 31, 1999, PIMCO had under management in excess of $185.9 billion
in assets. PIMCO currently serves as adviser or sub-adviser to two other high
yield bond funds with assets of approximately $3.3 billion as of March 31, 2000.
Those two funds are described in more detail in Appendix C.
DESCRIPTION OF ADVISORY AGREEMENT
AAL served as investment adviser to the Fund from commencement of its
operations on March 2, 1998 until December 31, 1999, when that function was
transferred to AAL CMC as a part of AAL's restructuring of its operations. AAL
CMC provides investment advisory services pursuant to the terms of an Investment
Advisory Agreement, dated January 1, 2000, which has terms and conditions
identical to those pursuant to which AAL formerly provided investment advisory
services to the Fund. Continuation of the Investment Advisory Agreement from
year-to-year is subject to annual approval by the Board of Directors, including
at least a majority of the independent Directors. The Investment Advisory
Agreement was last approved by the Board of Directors at a meeting held on
December 3, 1999. The Investment Advisory Agreement provides that AAL CMC is
entitled to compensation for services provided thereunder at the rate of 0.40%
of the Fund's average daily net assets. The fee is computed daily and paid
monthly. The Fund paid AAL a total of $125,283 for services provided under the
Investment Advisory Agreement for the Fund's fiscal year ended December 31,
1999. AAL waived fees and/or reimbursed expenses to the Fund in the total amount
of $29,752 for that year.
Prior to January 1, 2000, AAL CMC, served as sub-adviser to the Fund.
As sub-adviser, AAL CMC was paid a sub-advisory fee of 0.25% of the Fund's
average daily net assets. This fee was calculated daily and paid out monthly
from the fee paid to the AAL as the investment adviser to the Fund. As
sub-adviser, AAL CMC received $78,302 for services provided to the Fund for the
fiscal year ended December 31, 1999.
THE RETENTION OF PIMCO AS SUB-ADVISER WILL HAVE NO EFFECT ON THE TERMS
OF THE INVESTMENT ADVISORY AGREEMENT OR THE ADVISORY FEE PAID BY THE FUND.
PIMCO's sub-advisory fee will be paid by AAL CMC out of its advisory fee. That
advisory fee is presently 0.40% of the Fund's average daily net assets.
DESCRIPTION OF SUB-ADVISORY AGREEMENT
Under the Sub-Advisory Agreement, PIMCO, subject to the direction and
control of AAL CMC and the Board of Directors, would determine the securities
that would be purchased or sold by the Fund, would arrange for their purchase
and sale and would render other assistance to AAL CMC in formulating and
implementing the investment program of the Fund. PIMCO would furnish or pay for
all facilities, equipment and supplies required for it to carry out its duties
under the Sub-Advisory Agreement, including, but not limited to, office space,
office equipment, furnishings and personnel.
Under the Sub-Advisory Agreement, PIMCO would receive a fee, calculated
daily and paid monthly, out of the fee paid to the Adviser under the Advisory
Agreement, at an annual rate of 0.25% of average daily net assets of the Fund.
Because AAL CMC would pay this fee out of the advisory fee it receives from the
Fund, the retention of PIMCO and PIMCO's receipt of this sub-advisory fee would
not increase the overall fee paid by the Fund.
Services to be Rendered by PIMCO to the Fund. Under the Sub-Advisory
Agreement, PIMCO would:
o Buy, sell, exchange, convert, lend and otherwise trade in any stocks,
bonds, currencies, and any other securities or assets;
o 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 PIMCO may select;
o Enter into and execute agreements on behalf of the Fund, relating to
the acquisition or disposition of investment assets and the execution
of portfolio transactions; and
o Provide AAL CMC and the Directors with such reports as may reasonably
be requested in connection with the discharge of the foregoing
responsibilities and the discharge of AAL CMC's responsibilities under
the Investment Advisory Agreement.
Beyond the performance of these contractual services, PIMCO will
provide marketing assistance and assistance with the servicing of Beneficial
Owners. In general, this assistance will take the form of meetings and
conference calls between one or more of PIMCO's investment staff with licensed
representatives of AAL CMC and/or Beneficial Owners.
If approved, we presently anticipate the Sub-Advisory Agreement would
become effective on or about July 1, 2000. Unless earlier terminated as
described below, the Sub-Advisory Agreement would remain in effect from year to
year only so long as such continuance is specifically approved at least annually
by the affirmative vote of: (i) a majority of the Directors who are not parties
to the Sub-Advisory Agreement or "interested persons" (as defined in the 1940
Act) of any such party cast in person at a meeting called for the purpose of
voting on the approval; and (ii) either a majority of the entire Board of
Directors or of holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund.
The Sub-Advisory Agreement may be terminated by PIMCO at any time
without penalty upon giving AAL CMC and AAL Funds sixty (60) days written
notice, and by AAL Funds or AAL CMC at any time without penalty upon giving
PIMCO sixty (60) days written notice, provided that any termination by AAL Funds
must be directed or approved by the vote of a majority of all of its Directors
in office at the time or by the vote of the holders of a "majority" (as defined
in the 1940 Act) of the voting securities of the Fund.
If the Sub-Advisory Agreement is not approved by the shareholders of
the Fund, AAL CMC will continue to manage the Fund's assets under the terms of
the Investment Advisory Agreement, while other options can be pursued. The
Directors would then consider what course of action to pursue with respect to
the Fund, which could involve renewing the search for additional personnel to
assist AAL CMC with management of the Fund or seeking a different outside
sub-adviser.
INFORMATION ABOUT PIMCO
GENERAL. PIMCO is a Delaware general partnership and is a wholly-owned
subsidiary of PIMCO Advisors, L.P. ("PIMCO Advisors"). PIMCO is located at 800
Newport Center Drive, Newport Beach, California 92660. PIMCO is a money
management firm and is registered as an investment adviser with the Securities
and Exchange Commission. The Principal Executive Officer and Managing Directors
of PIMCO are listed in Appendix B.
Allianz of America, Inc. ("Allianz of America") owns approximately 70%
of the outstanding partnership interests in PIMCO Advisors. The remainder of the
partnership interests in PIMCO Advisors are owned by Pacific Life Insurance
Company ("Pacific Life"). Allianz of America is a subsidiary of Allianz AG.
Allianz AG is a leading provider of financial services, particularly in Europe,
and is represented in 68 countries world-wide through subsidiaries, branch and
representative offices, and other affiliated entities.
Significant institutional shareholders of Allianz AG currently include,
among others, Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and Hypo
Vereinsbank. Credit Lyonnais, Dresdner Bank AG and Deutsche Bank AG, as well as
certain broker-dealers that might be deemed to be affiliated with these
entities, such as DB Alex Brown LLC, Deutsche Bank Securities, Inc. and Dresdner
Kleinwort Benson North America LLC (collectively, the "Affiliated Brokers"), may
be considered to be affiliated persons of PIMCO. Absent an SEC exemption or
other relief, the Fund generally will be precluded from effecting principal
transactions with the Affiliated Brokers, and its ability to purchase securities
being under-written by an Affiliated Broker or to utilize the Affiliated Brokers
for agency transactions is subject to restrictions. PIMCO does not believe that
the applicable restrictions on transactions with the Affiliated Brokers
described above will materially adversely affect its ability to provide services
to the Fund, the Fund's ability to take advantage of market opportunities, or
the Fund's overall performance. Other series of the Company for which PIMCO (or
an affiliate) does not serve as investment adviser or sub-adviser are not, in
general, subject to those same restrictions.
PORTFOLIO MANAGER. Mr. Benjamin Trosky, CFA, leads PIMCO's high yield
team and would be the portfolio manager of the Fund. Mr. Trosky is a Managing
Director and a senior member of PIMCO's portfolio management and investment
strategy groups. He also oversees the firm's credit research team, and is the
portfolio manager for the PIMCO High Yield Fund. Mr. Trosky joined the firm 10
years ago, having been previously associated with Merrill Lynch Asset Management
as a co-manager of high yield mutual funds. He has 20 years of investment
experience in equity and credit research, and holds a bachelor's degree in
Business Administration from Drexel University.
DIRECTORS' CONSIDERATIONS AND RECOMMENDATION
In considering this matter, among other factors considered by the Board
of Directors, the following factors were important in its decision to recommend
PIMCO as sub-adviser for the Fund and the terms of the Sub-Advisory Agreement:
o The breadth of PIMCO's experience in the high yield markets and
management of bond portfolios, and the success it has achieved
managing investments in those markets;
o PIMCO's philosophy with respect to risk management, including its
practice of focusing on relatively higher quality tiers of the high
yield market, its issuer diversification and industry concentration
limitations and its management of duration;
o The high level of consistency of PIMCO's investment philosophy and
style with the investment objective and investment program of the
Fund;
o The quality and integrity of the personnel who would be directly
responsible for attending to the Fund;
o The fee schedule under which PIMCO is willing to provide services;
o The fact that the retention of PIMCO will not increase the overall fee
that the Fund pays for investment management services; and
o The financial strength of PIMCO.
Based upon these considerations, the Board determined that it would be
in the best interests of the Fund's shareholders to have PIMCO serve as the
Fund's sub-adviser. The Board of Directors has further determined that the terms
of the Sub-Advisory Agreement are fair to, and in the best interests of, the
Fund and its shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS, NONE OF WHOM IS AN "INTERESTED PERSON" OF
PIMCO OR ANY OF ITS AFFILIATES, UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE
FUND VOTE "FOR" APPROVAL OF THE SUB-ADVISORY AGREEMENT.
OTHER BUSINESS
Management is not aware of any other matters that will come before the
Special Meeting. However, if any other business should come before the Special
Meeting, your Voting Instruction Form, if signed and returned, will give
discretionary authority to AAL to vote according to its best judgment on such
matters.
ADDITIONAL INFORMATION
ADMINISTRATOR AND DISTRIBUTOR
In addition to serving as investment adviser to the Funds, AAL CMC also
performs certain administrative services for the Fund, including accounting,
expense accrual, valuation and financial reporting and tax accounting services,
pursuant to the terms of an Administrative Services Agreement with AAL. AAL pays
AAL CMC's fees for these services, and the Fund therefore bears no portion of
those fees. AAL CMC serves as the distributor of the variable products funded by
shares of the Fund. AAL CMC's principal executive offices are located at 222
West College Avenue, Appleton, Wisconsin 54919.
AAL CMC was organized in 1986 as a Delaware corporation. It is a
wholly-owned subsidiary of AAL Holdings Inc., which in turn is a wholly-owned
subsidiary of Aid Association for Lutherans ("AAL"). AAL is a non-profit,
non-stock membership organization licensed to do business as a fraternal benefit
society in all states. AAL has more than 1.7 million members and is the world's
largest fraternal benefit society in terms of assets and life insurance in
force. AAL ranks in the top 2% of all life insurers in the United States in
terms of ordinary life insurance (nearly $88 billion in force). AAL offers life,
health and disability income insurance and fixed and variable annuities to its
members. All members are part of one of approximately 10,000 local AAL branches
throughout the United States. AAL's principal executive offices are located at
4321 North Ballard Road, Appleton, Wisconsin 54919.
PORTFOLIO TRANSACTIONS
AAL CMC directs and, if approved as the Fund's sub-adviser, PIMCO will
direct the placement of orders for the purchase and sale of the Fund's portfolio
securities. The costs of securities transactions for the Fund 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 either brokerage commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the sellers who make
a market in the securities are 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, AAL CMC seeks, and PIMCO
will seek, the best combination of price and execution.
PRINCIPAL SHAREHOLDERS AND CERTAIN BENEFICIAL OWNERS
Other than AAL, no person was known to own of record or beneficially
five percent (5%) or more of the outstanding shares of the Fund as of April 28,
2000.
The table presented in Appendix D attached to this Proxy Statement
shows shares of the Fund as to which each Director and the group consisting of
all Directors and executive officers of the Company had or shared power over
voting or disposition as of April 28, 2000.
SHAREHOLDER MEETINGS
The Company is organized as a Maryland corporation, and as such is
subject to Maryland law. Pursuant to Maryland law and the Company's Articles of
Incorporation, the Company is not required to hold a shareholder meeting unless
the election of Directors, approval of the investment advisory agreement (or any
sub-advisory agreement) or ratification of the selection of independent public
accountants is required to be acted upon by shareholders under the 1940 Act.
Meetings of the shareholders will be held when and as determined necessary by
the Board of Directors of the Company and in accordance with the 1940 Act. Other
than the Special Meeting to which this Proxy Statement relates, the Company
currently does not anticipate holding a meeting of shareholders in 2000.
Beneficial Owners who wish to present a proposal for action at the next
meeting or suggestions as to nominees for the Board of Directors should submit
the proposal or suggestions to the following address: AAL Variable Product
Series Fund, Inc., 4321 North Ballard Road, Appleton, Wisconsin 54919-0001,
Attention: Frederick D. Kelsven, Secretary. Proposals must be received a
reasonable time prior to the date of the shareholder meeting to be considered
for inclusion in the proxy materials for the meeting. Timely submission of a
proposal does not, however, necessarily mean that the proposal will be
considered. AAL will vote in its discretion with respect to proposals submitted
on an untimely basis.
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
AAL Variable Product High Yield Bond Portfolio
Special Meeting of Shareholders
THIS VOTING INSTRUCTION FORM IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby instructs Aid Association for Lutherans ("AAL"), with
full power of substitution, to represent and vote, as designated on the reverse
side, all shares the undersigned is beneficially entitled to vote at the Special
Meeting of Shareholders of the AAL Variable Product High Yield Bond Portfolio to
be held at 222 West College Avenue, Appleton, Wisconsin 54919 beginning at 10:00
am local time, on June 21, 2000, or at any adjournment thereof, with respect to
the matters set forth and described in the accompanying Notice of Special
Meeting and Proxy Statement, receipt of which is hereby acknowledged.
DATED: ___________________, 2000
(If shares are owned beneficially by more than one person, all beneficial owners
should sign. Persons signing as executors, administrators, Directors or in
similar capacities should so indicate.)
(Please sign exactly as name appears at left)
* * * * *
Please place an "X" on the desired blank for each Item. Shares represented by
this instruction card will be voted as directed by the beneficial owner. IF NO
DIRECTION IS SUPPLIED, THE SHARES WILL BE VOTED FOR THE PROPOSAL.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------ -------- ------------- ------------
1. Proposal to approve the Sub-Advisory Agreement among AAL Variable Product Series __ FOR __ AGAINST __ ABSTAIN
Fund, Inc. (on behalf of the AAL Variable Product High Yield Bond Portfolio), AAL Capital
Management Corporation and Pacific Investment Management Company, a copy of which is attached
as Appendix A to the accompanying Proxy Statement.
- ------------------------------------------------------------------------------------------------ -------- ------------- ------------
2. In AAL's discretion on such other matters as may properly come before the meeting or any adjournment
thereof
</TABLE>
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THE CARD.
<PAGE>
APPENDIX A
FORM OF SUB-ADVISORY AGREEMENT
AAL VARIABLE PRODUCT SERIES FUND, INC.
SUB-ADVISORY AGREEMENT FOR THE
AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO
WITH
PACIFIC INVESTMENT MANAGEMENT COMPANY
AGREEMENT made this ____ day of ______________, 2000, by and among AAL
VARIABLE PRODUCT SERIES FUND, INC. (the "Fund"), a Maryland corporation, AAL
CAPITAL MANAGEMENT CORPORATION (the "Adviser"), a Delaware corporation, and
PACIFIC INVESTMENT MANAGEMENT COMPANY (the "Sub-Adviser"), a Delaware general
partnership.
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 among the parties hereto as follows:
1. In General.
The Sub-Adviser agrees, as more fully set forth herein, to act as
Sub-Adviser with respect to the investment and reinvestment of the assets of the
Fund's series of shares described as the AAL Variable Product High Yield Bond
Portfolio. It is understood that the Fund has designated, and there presently
exist, several other series of the Fund's shares, and that the Fund may create
one or more additional mutual fund series from time to time in the future. This
Agreement may be amended by the mutual written agreement of the parties to
include any such additional series under the terms of this Agreement.
2. Duties and Obligations of the Sub-Adviser with Respect to Investment
of Assets of the Fund.
(a) Subject to the succeeding provisions of this section and subject
to the oversight and review of the Adviser and the direction and control of
the Board of Directors ("Directors") of the Fund, the Sub-Adviser, as agent
and attorney-in-fact with respect to the Fund, is authorized, in its
discretion and with prior consultation with the Fund, on behalf of each
series covered from time to time by this Agreement, to:
(i) Buy, sell, exchange, convert, lend and otherwise trade in any
stocks, bonds, currencies, and any other securities or assets;
(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
Sub-Adviser may select; including brokers and dealers that may be
affiliates of the Sub-Adviser;
(iii)Enter into and execute agreements on behalf of the Fund,
relating to the acquisition or disposition of investment assets
and the execution of portfolio transactions. Nothing contained
herein, however, shall be deemed to authorize the Sub-Adviser to
take or receive physical possession of any cash or securities
held for the Fund, it being intended that sole responsibility for
safe-keeping thereof and the consummation of all such purchases,
sales, deliveries, and investments made pursuant to the
Sub-Adviser's direction shall rest upon the Fund's Custodian; and
(iv) Provide the Adviser and the Directors with such reports as may
reasonably be requested in connection with the discharge of the
foregoing responsibilities and the discharge of the Adviser's
responsibilities under the Investment Advisory Agreement with the
Fund and those of AAL Capital Management Corporation under the
Distribution Agreement with the Fund.
Written procedures with respect to (i), (ii) and (iii) above
may be set forth as agreed to among the Fund, the Adviser and Sub-Adviser.
(b) Any investment purchases or sales made by the Sub-Adviser under
this section shall at all times conform to, and be in accordance with, any
requirements imposed by: (1) the provisions of the Investment Company Act
of 1940 (the "Act") and of any rules or regulations in force thereunder;
(2) any other applicable provisions of law; (3) the provisions of the
Articles of Incorporation and By-Laws of the Fund as amended from time to
time; (4) any policies and determinations of the Board of Directors of the
Fund; and (5) the fundamental policies of the Fund, as reflected in its
Registration Statement under the Act, or as amended by the shareholders of
the Fund; provided that copies of the items referred to in clauses (3), (4)
and (5) shall have been furnished to the Sub-Adviser.
(c) The Sub-Adviser shall give the Fund the benefit of its best
judgment and effort in rendering services hereunder. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties ("disabling conduct") hereunder on the part of
the Sub-Adviser (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affiliated
with the Sub-Adviser) the Sub-Adviser shall not be subject to liability to
the Fund or to any shareholder of the Fund for any act or omission in the
course of, or connected with rendering services hereunder, including
without limitation, any error of judgment or mistake of law or for any loss
suffered by any of them in connection with the matters to which this
Agreement relates, except to the extent specified in Section 36 (b) of the
Act concerning loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services. Except for such disabling
conduct, the Fund shall indemnify the Sub-Adviser (and its officers,
directors, agents, employees, controlling persons, shareholders and any
other person or entity affiliated with the Sub-Adviser) against any
liability arising from the Sub-Adviser's conduct under this Agreement to
the extent permitted by the Articles of Incorporation and applicable law.
(d) Nothing in this Agreement shall prevent the Sub-Adviser or any
"affiliated person" (as defined in the Act) of the Sub-Adviser from acting
as investment adviser or manager for any other person, firm or corporation
and shall not in any way limit or restrict the Sub-Adviser or any such
affiliated person from buying, selling or trading any securities for its or
their own accounts or for the accounts of others for whom it or they may be
acting, provided, however, that the Sub-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.
It is agreed that the Sub-Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's Registration Statement under
the Act and the Securities Act of 1933 except for information supplied by
the Sub-Adviser for inclusion therein. The Sub-Adviser shall be deemed to
be an independent contractor and, unless otherwise expressly provided or
authorized, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
(e) In connection with its duties to arrange for the purchase and sale
of the securities and other assets of each series covered from time to time
by this Agreement, the Sub-Adviser shall follow the principles set forth in
any investment advisory agreement in effect from time to time between the
Fund and the Adviser, provided that a copy of any such agreement shall have
been provided to the Sub-Adviser. The Sub-Adviser will promptly communicate
to the Adviser and to the officers and the Directors of the Fund such
information relating to portfolio transactions as they may reasonably
request.
(f) The Sub-Adviser may place orders both as to sales and purchases of
assets directly through any broker or dealer it chooses. Brokers or dealers
may be selected who provide brokerage and/or research services to the Fund
and/or other accounts over which the Sub-Adviser or its affiliates exercise
investment discretion. Brokers or dealers who execute portfolio
transactions on behalf of the Fund may receive commissions which are in
excess of the amount of commissions which other brokers or dealers would
have charged for effecting such transactions. In order to cause the Fund to
pay such higher commissions, the Sub-Adviser must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and/or research services provided by such executing brokers or
dealers viewed in terms of a particular transaction or the Sub-Adviser's
overall responsibilities to the Fund or its other discretionary client
accounts.
(g) On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients,
the Sub-Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased in order
to obtain the best execution and lower brokerage commissions, if any. In
such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Sub-Adviser
in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the Fund and to such clients.
The Sub-Adviser may purchase or sell for the Fund, pursuant to the
Fund's Rule 10f-3 Procedures, any security (including securities of the
same class as those under-written or other securities of the same or
related issuer) for which any affiliate of the Sub-Adviser acts as (1) an
underwriter (either as lead underwriter or syndicate member), both during
the pendency of any underwriting or selling syndicate and thereafter, or
(2) a market maker, provided that such security is purchased from a
non-affiliated party.
(h) The Sub-Adviser shall be responsible for Schedule 13F reporting
for the securities held by the AAL Variable Product High Yield Bond
Portfolio.
3. Allocation of Expenses.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities, and other investments (including
brokerage commissions and other transaction charges, if any) purchased for the
Fund. The Sub-Adviser agrees that it will furnish the Fund, at the Sub-Adviser's
expense, with all office space, facilities, equipment, and clerical personnel
necessary for carrying out its duties under this Agreement.
4. Certain Records.
Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 under the Act that are prepared or
maintained by the Sub-Adviser on behalf of the Fund are the property of the Fund
and will be surrendered promptly to the Fund or Adviser on request.
5. Reference to the Sub-Adviser.
Neither the Fund, the Adviser or any affiliate or agent thereof shall
make reference to or use the name of the Sub-Adviser or any of its affiliates in
any advertising or promotional materials without the prior approval of the
Sub-Adviser, which approval shall not be unreasonably withheld.
6. Compensation of the Sub-Adviser.
The Adviser agrees to pay the Sub-Adviser and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the Sub-Adviser as
such, a management fee, payable monthly in arrears and computed on the average
daily net asset value of the AAL Variable Product High Yield Bond Portfolio at
rates shown on Exhibit A attached hereto.
7. Duration and Termination.
(a) This Agreement shall go into effect for the AAL Variable Product
High Yield Bond Portfolio on ______________, 2000, or as soon thereafter as
it is approved by shareholders of that series, and shall, unless terminated
as hereinafter provided, continue in effect thereafter from year to year,
but only so long as such continuance is specifically approved at least
annually by a majority of the Fund's Board of Directors, or by the vote of
the holders of a "majority" (as defined in the Act) of the outstanding
voting securities of the Fund, and, in either case, 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.
(b) This Agreement may be terminated by the Sub-Adviser at any time
without penalty upon giving the Fund and the Adviser sixty (60) days'
written notice (which notice may be waived by the Fund and Adviser) and may
be terminated by the Fund or the Adviser at any time without penalty upon
giving the Sub-Adviser sixty (60) days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the Fund
shall be directed or approved by the vote of a majority of all of the
Directors in office at the time or by the vote of the holders of a majority
(as defined in the Act) of the voting securities of the Fund, with respect
to the AAL Variable Product High Yield Bond Portfolio, or with respect to
any other mutual fund series of the Fund covered by this Agreement, by the
vote of a majority of the outstanding shares of such series. This Agreement
shall automatically terminate in the event of its "assignment" (as defined
in the Act). This Agreement will also terminate in the event that the
Investment Advisory Agreement is terminated.
8. Action By An Individual Series.
The provisions of this Agreement and any amendments hereto with respect
to any series of the Fund may be approved by the shareholders of that series and
become effective with respect to the assets of that series without the necessity
of approval thereof by shareholders of any other series. The Adviser represents
that the holders of a majority (as defined in the "Act") of the AAL Variable
Product High Yield Bond Portfolio, will vote on approval of the entry into this
Agreement on behalf of said series.
9. Notices.
The Sub-Adviser agrees to promptly notify the Adviser of the occurrence
of any of the following events:
(a) Any change in any of the Sub-Adviser's portfolio managers;
(b) The Sub-Adviser fails to be registered as an investment adviser
under the Advisers Act or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement;
(c) The Sub-Adviser is the subject of any action, suit, proceeding,
inquiry or investigation at law or in equity, before any court, public
board or body, involving the affairs of the AAL Variable Product High Yield
Bond Portfolio or another series of the Fund covered by this Agreement; or
(d) Any change in ownership or control, or partnership structure of
the Sub-Adviser.
10. Manner of Notice.
Any notice given hereunder shall be in writing and may be served by
being sent by telex, facsimile or other electronic transmission, or sent by
registered mail or by courier to the address set forth below for the party for
which it is intended. A notice served by mail shall be deemed served seven days
after mailing and in the case of telex, facsimile or other electronic
transmission, 12 hours after confirmed receipt thereof. Addresses for notice may
be changed by written notice to the other party.
The Adviser: Robert G. Same, President
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
Fax: (920)730-3783
The Fund: Robert G. Same, President
AAL Variable Product Series Fund, Inc.
4321 North Ballard Road
Appleton, WI 54919-0001
Fax (920) 734-5721
The Sub-Adviser: ___________________________
Pacific Investment Management Company
800 Newport Center Drive
Suite 300
Newport Beach, CA 92660
Fax: (949) 720-1376
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by all of the
parties.
The Adviser and the Fund acknowledge receipt of the Sub-Adviser's Part
II, Form ADV at least 48 hours in advance of signing this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule, or
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be governed by the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their seals to
be hereunto affixed, all as of the day and year first above written.
AAL VARIABLE PRODUCT SERIES FUND, INC.
Robert G. Same, President
AAL CAPITAL MANAGEMENT CORPORATION
Robert G. Same, President
PACIFIC INVESTMENT MANAGEMENT COMPANY
[Insert Name and Title of Signing Officer]
<PAGE>
EXHIBIT A TO THE AAL VARIABLE PRODUCT SERIES FUNDS SUB-ADVISORY AGREEMENT
(Dated _________________)
1. AAL Variable Product High Yield Bond Portfolio
The management fee for the AAL Variable Product High Yield Bond
Portfolio, payable to the Sub-Adviser by the Adviser, calculated in accordance
with paragraph 6 of The AAL Variable Product Series Fund's Sub-Advisory
Agreement, shall be at the annual rate of: 25 basis points.
<PAGE>
APPENDIX B
The address of each managing director of PIMCO and the principal
executive officer is 840 Newport Center Drive, Suite 300, Newport Beach,
California 92660.
MANAGING DIRECTORS
NAME AND ADDRESS PRINCIPAL OCCUPATION
<TABLE>
<CAPTION>
<S> <C>
William S. Thompson, Jr. Managing Director, Chief Executive Officer and Executive Committee
April 1993 to Present Member, PIMCO; Managing Director, Chief Executive Officer and
Director, PIMCO Management, Inc.; Member of Management Board and
Executive Committee, PIMCO Advisors L.P.; President, Chief Executive
Officer and Member, PIMCO Partners LLC.
William R. Benz, II Managing Director, PIMCO; Managing Director and Director, PIMCO
June 1986 to Present Management, Inc.; Member of PIMCO Partners LLC.
Robert Wesley Burns Managing Director and Executive Committee Member, PIMCO; Managing
February 1987 to Present Director and Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Chris P. Dialynas Managing Director, PIMCO; Managing Director and Director, PIMCO
July 1983 to Present Management, Inc.; Member of PIMCO Partners LLC.
Mohamed A. El-Erian Managing Director, PIMCO; Managing Director and Director, PIMCO
May 1999 to Present Management, Inc.
William H. Gross Managing Director, PIMCO; Managing Director and Director, PIMCO
June 1971 to Present Management, Inc.; Director and Vice President, StocksPLUS Management,
Inc.; Member of Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
John L. Hague Managing Director and Executive Committee Member, PIMCO; Managing
September 1987 to Present Director and Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Pasi M. Hamalainen Managing Director, PIMCO; Managing Director and Director, PIMCO
January 1994 to Present Management, Inc.
Brent R. Harris Managing Director and Executive Committee Member, PIMCO; Managing
June 1985 to Present Director and Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Member of Management Board
and Executive Committee, PIMCO Advisors L.P.; Member of PIMCO
Partners LLC.
Brent L. Holden Managing Director, PIMCO; Managing Director and Director, PIMCO
December 1989 to Present Management, Inc.
Margaret E. Isberg Managing Director, PIMCO; Managing Director and Director, PIMCO
August 1983 to Present Management, Inc.; Member of PIMCO Partners LLC.
John S. Loftus Managing Director, PIMCO; Managing Director and Director, PIMCO
August 1986 to Present Management, Inc.
Dean S. Meiling Managing Director, PIMCO; Managing Director and Director, PIMCO
December 1976 to Present Management, Inc.; Member of PIMCO Partners LLC.
James F. Muzzy Managing Director and Executive Committee Member, PIMCO; Managing
September 1971 to Present Director and Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Member of PIMCO Partners LLC.
William F. Podlich, III Managing Director, PIMCO; Managing Director and Director, PIMCO
June 1966 to Present Management, Inc.; Member of Management Board, PIMCO Advisors L.P.;
Member of PIMCO Partners LLC.
William C. Powers Managing Director, PIMCO; Managing Director and Director, PIMCO
January 1991 to Present Management, Inc.; Member of PIMCO Partners LLC.
Ernest L. Schmider Managing Director and Secretary, PIMCO; Managing Director, Director,
March 1994 to Present and Secretary, PIMCO Management, Inc.; Director and Assistant
Secretary, StocksPLUS Management, Inc.; Senior Vice President, PIMCO
Advisors, L.P.; Secretary PIMCO Partners, LLC.
Lee R. Thomas Managing Director, PIMCO; Managing Director and Director, PIMCO
April 1995 to Present Management, Inc.; Member of PIMCO Partners LLC.
Benjamin L. Trosky Managing Director, PIMCO; Managing Director and Director, PIMCO
October 1990 to Present Management, Inc.; Member of Management Board, PIMCO Advisors L.P.;
Member of PIMCO Partners LLC.
</TABLE>
<PAGE>
APPENDIX C
OTHER HIGH YIELD BOND FUNDS MANAGED BY
PACIFIC INVESTMENT MANAGEMENT COMPANY
MANAGEMENT FEE SCHEDULES FOR SUB-ADVISORY RELATIONSHIPS:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME OF FUND ADVISORY RATE FEE APPROXIMATE ASSETS
PIMCO FUNDS:
PACIFIC INVESTMENT MANAGEMENT SERIES:
High Yield Bond Fund Annual rate of 0.25% of average daily net $131,180,580
assets
PIMCO VARIABLE INSURANCE TRUST:
High Yield Bond Portfolio(1) Annual rate of 0.25% of average daily net $141,365,884
assets
</TABLE>
<PAGE>
APPENDIX D
The table below shows shares of the AAL Variable Product High Yield
Bond Portfolio as to which each Director and the group consisting of all
Directors and executive officers of AAL had or shared power over voting or
disposition as of April 28, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
PERCENT OF
OUTSTANDING
NAME AND ADDRESS NUMBER OF SHARES OF THE FUND(1) SHARES OF FUND
- ---------------- ------------------------------- --------------
F. Gregory Campbell 0 0.00%
Carthage College
2001 Alford Park Drive
Kenosha, WI 53140
Woodrow E. Eno(2) 0 0.000%
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Richard L. Gady 0 0.00%
Conagra Inc.
One Conagra Drive
Omaha, NE 68102-5001
John O. Gilbert(2) 0 0.00%
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
John H. Pender 0 0.00%
1056 S. Manzanita Avenue
Palms Springs, CA 92264
Edward W. Smeds 0 0.00%
10 Regent Woods Road
Northfield, IL 60093
Lawrence M. Woods 0 0.00%
524 Sunset Drive
Worland, WY 82401
All Trustees and Executive Officers as a 2,880.142 Footnote (3)
Group (a total of 14 persons)
</TABLE>
(1) Shares owned by Officers of the Fund are held in the AAL Plan.
(2) Directors who are "interested persons" of the Funds, as defined in the
Investment Company Act of 1940. John Gilbert serves as; President, CEO and
Chairman of the Board of AAL, and Director and President of AAL Holdings
Inc. Woodrow Eno serves as Senior Vice-President, General Counsel and
Secretary of AAL, Director and Chairman of the Board of AAL CMC, and
Director and Secretary of AAL Holdings Inc.
(3) Less than1 percent.
