<PAGE> 1
Registration Nos. 33-82054
811-8660
As filed with the Securities and Exchange Commission on April 29, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO.
-----
POST-EFFECTIVE AMENDMENT NO. 2
-----
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 3
---
AAL VARIABLE ANNUITY ACCOUNT I
(Exact Name or Registrant)
AID ASSOCIATION FOR LUTHERANS
(Name of Depositor)
4321 North Ballard Road, Appleton, Wisconsin 54919-0001
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (414) 734-5721
Woodrow E. Eno, Esq.
Senior Vice President, Secretary and General Counsel
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
(Name and Address of Agent for Service)
Copies to:
Gary O. Cohen, Esq.
Freedman Levy Kroll & Simonds
1050 Connecticut Ave., N.W., Suite 825
Washington, DC 20036
Approximate Date of Proposed Public Offering: Continuous
<PAGE> 2
It is proposed that this filing will become effective:
___ Immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ On May 1, 1996 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ On (date) pursuant to paragraph(a)(1) of Rule 485
If appropriate, check the following:
___ 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
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The securities being registered are units of interest
under variable annuity contracts. Registrant filed a Rule 24f-2 Notice on
February 20, 1996.
<PAGE> 3
AAL VARIABLE ANNUITY ACCOUNT I
CROSS REFERENCE SHEET
Pursuant to Rule 495 under the Securities Act of 1933 indicating the location
in the Prospectus of the information called for by the Items of Parts A and B
of Form N-4.
<TABLE>
<CAPTION>
Item No. Caption Location
- -------- ------- --------
Part A
- ------
<S> <C> <C>
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Fee Table; Summary
4. Condensed Financial Information Selected Accumulation Unit Data
5. General Description of Registrant, AAL, The Variable Account and The Fund;
Depositor, and Portfolio Companies Voting Privileges
6. Deductions Charges and Deductions; Distribution
Arrangements
7. General Description of Variable The Certificates; General Information;
Annuity Contracts Rights Reserved by AAL
8. Annuity Period Annuity Provisions
9. Death Benefit Death Benefits; Annuity Provisions
10. Purchases and Contract Value The Certificates -- Minimum Investment
Requirements; -- Allocation of Premiums; --
Accumulated Value, Accumulation Units and
Accumulation Unit Value; -- Dollar Cost
Averaging Plan; Distribution Arrangements
11. Redemptions The Certificates -- Withdrawal or
Surrender; -- Free Look Period; General
Information -- Postponement of Payments
12. Taxes Federal Tax Status
13. Legal Proceedings Not applicable
14. Table of Contents of the Statement Contents of the Statement of Additional
of Additional Information Information
Part B
- ------
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History General Information; Regulation and Reserves
18. Services Services
19. Purchase of Securities Being Offered Not applicable
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not applicable
23. Financial Statements Financial Statements
Part C
- ------
</TABLE>
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> 4
[AAL LOGO AID ASSOCIATION FOR LUTHERANS]
THE AAL
VARIABLE ANNUITY
PROVIDES YOU
WITH THESE BENEFITS
Tax-Deferred
Growth of Earnings
.............
Convenient Premium
Payment Options
.............
A Variety of
Investment Options
.............
Flexible Withdrawal
and Distribution Options
.............
Death Benefit Guarantee
for Your Heirs
PROSPECTUS
May 1, 1996
AAL VARIABLE
ANNUITY ACCOUNT I
..................
AAL VARIABLE
PRODUCT SERIES FUND, INC.
..................
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
..................
[AAL
VARIABLE
ANNUITY
LOGO]
<PAGE> 5
[AAL
VARIABLE
ANNUITY
LOGO]
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATES
Offered by:
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, Wisconsin 54919-0001 PROSPECTUS
(414) 734-5721 Dated May 1, 1996
Aid Association for Lutherans ("AAL") is offering the individual flexible
premium deferred variable annuity certificate (the "Certificate") described in
this Prospectus to persons who are eligible for membership in AAL, a fraternal
benefit society organized under the laws of the State of Wisconsin. The
Certificate is available in connection with retirement plans that may or may
not qualify for special federal income tax treatment under the Internal Revenue
Code.
The Certificate enables owners ("Owners") to have premiums accumulate on a
variable and/or fixed basis. Owners may allocate premiums to up to five
Subaccounts of AAL Variable Annuity Account I (the "Variable Account") and/or
to the Fixed Account. The Subaccounts invest solely in corresponding portfolios
("Portfolios") of AAL Variable Product Series Fund, Inc. (the "Fund"), a
diversified, open-end management investment company (commonly known as a
"mutual fund"). The five Portfolios that are currently available through the
Subaccounts include: 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. The Fixed Account invests in the
general account of AAL. The Accumulated Value in a Subaccount will vary,
primarily based on the investment experience of the Portfolio whose shares are
held in the Subaccount designated. Premiums allocated to the Fixed Account will
accumulate at fixed rates of interest declared periodically by AAL.
This Prospectus sets forth the information about the Certificate that a
prospective investor should know before investing, and should be read and kept
for future reference. This Prospectus describes only the elements of the
Certificate pertaining to the Variable Account, except where reference to the
Fixed Account is specifically made. Additional information about the
Certificate, AAL and the Variable Account is contained in a Statement of
Additional Information dated May 1, 1996 ("SAI") which has been filed with the
Securities and Exchange Commission and is available upon request without charge
by writing to AAL at the above address. The SAI is incorporated by reference
into this Prospectus. The Table of Contents for the SAI may be found on page 27
of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
SAI (OR ANY SALES LITERATURE APPROVED BY AAL) IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE
CERTIFICATES ARE NOT AVAILABLE IN ALL STATES AND THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD
BE UNLAWFUL THEREIN. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED OR PRECEDED
BY THE CURRENT PROSPECTUS OF THE AAL VARIABLE PRODUCT SERIES FUND, INC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GLOSSARY...................................................................... 4
FEE TABLE..................................................................... 6
SUMMARY....................................................................... 7
SELECTED ACCUMULATION UNIT DATA............................................... 8
AAL, THE VARIABLE ACCOUNT AND THE FUND........................................ 9
AAL......................................................................... 9
The Variable Account........................................................ 9
The Fund.................................................................... 9
THE CERTIFICATES.............................................................. 10
Minimum Investment Requirements............................................. 10
Free Look Period............................................................ 10
Allocation of Premiums...................................................... 11
Accumulated Value, Accumulation Units and Accumulation Unit Value........... 11
Calculation of Accumulated Value......................................... 11
Determination of Number of Accumulation Units............................ 12
Determination of Accumulation Unit Value................................. 12
Withdrawals, Surrenders and Terminations.................................... 12
Transfers Among Subaccounts and/or the Fixed Account........................ 13
Telephone Transactions...................................................... 13
Dollar Cost Averaging Plan.................................................. 14
Owners, Annuitants, and Beneficiaries....................................... 14
Adult Certificates....................................................... 14
Juvenile Certificates.................................................... 14
Assignments of Ownership.................................................... 15
Absolute Assignment...................................................... 15
Collateral Assignment.................................................... 15
Successor Owners......................................................... 15
Certificates Issued in Connection With Qualified Plans................... 15
DEATH BENEFITS................................................................ 15
Death Benefit Before the Annuity Commencement Date.......................... 15
Death of Payee After the Annuity Commencement Date.......................... 16
Manner of Payment--Certificates Not Issued in Connection
with Certain Qualified Plans............................................. 16
Manner of Payment--Certificates Issued in Connection with Qualified Plans... 16
CHARGES AND DEDUCTIONS........................................................ 17
Withdrawal or Surrender Charges............................................. 17
Withdrawals and Surrenders............................................... 17
10% Free Withdrawal...................................................... 17
Waiver of Withdrawal and Surrender Charges............................... 17
Certificate Maintenance Charge.............................................. 17
Mortality and Expense Risk Charge........................................... 18
Investment Advisory Fee of the Fund......................................... 18
Taxes....................................................................... 18
</TABLE>
2
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 7
<TABLE>
<S> <C>
ANNUITY PROVISIONS ............................................................ 19
Annuity Commencement Date..................................................... 19
Settlement Options............................................................ 19
Frequency and Amount of Annuity Payments Pursuant to Settlement Options....... 20
GENERAL INFORMATION............................................................ 20
The Entire Contract........................................................... 20
Maintenance of Solvency....................................................... 20
Postponement of Payments...................................................... 21
Payment by Check.............................................................. 21
Date of Receipt............................................................... 21
Reports to Owners............................................................. 21
Certificate Inquiries......................................................... 21
FEDERAL TAX STATUS............................................................. 21
Introduction.................................................................. 21
Variable Account Tax Status................................................... 21
Taxation of Annuities in General.............................................. 21
Certificates Held by Individuals............................................ 21
Certificates Held by Owners Other Than Individuals.......................... 22
Multiple Certificates....................................................... 22
Qualified Plans............................................................. 22
Tax-Sheltered Annuities..................................................... 23
H.R. 10 Plans............................................................... 23
Individual Retirement Annuities............................................. 23
Corporate Pension and Profit-Sharing Plans.................................. 23
Simplified Employee Pension Plans (SEP-IRAs)................................ 23
1035 Exchanges................................................................ 23
Diversification Requirements.................................................. 24
Withholding................................................................... 24
Rollover into an IRA.......................................................... 24
Other Considerations.......................................................... 24
GENDER NEUTRAL BENEFITS........................................................ 24
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS................................... 25
VOTING PRIVILEGES.............................................................. 25
RIGHTS RESERVED BY AAL......................................................... 25
DISTRIBUTION ARRANGEMENTS...................................................... 25
LEGAL MATTERS.................................................................. 26
FINANCIAL STATEMENTS AND EXPERTS............................................... 26
PERFORMANCE INFORMATION........................................................ 26
FURTHER INFORMATION............................................................ 26
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................ 27
APPENDIX....................................................................... 28
ORDER FORM..................................................................... 29
</TABLE>
3
........ VARIABLE ACCOUNT PROSPECTUS
<PAGE> 8
==============================================================================
A A L V A R I A B L E A N N U I T Y
GLOSSARY
AAL. Aid Association for Lutherans, a fraternal benefit society organized under
the laws of the State of Wisconsin, owned by and operated for its members and
the issuer of the Certificates.
AALCMC. AAL Capital Management Corporation, an indirect subsidiary of Aid
Association for Lutherans and a registered broker-dealer, serves as the
principal underwriter of the Certificates.
AAL REPRESENTATIVE. An AAL District Representative who is licensed by state
insurance department officials to sell the Certificates and who is also a
registered representative of AALCMC.
AAL'S SERVICE CENTER. AAL Variable Annuity Service Center, 301 West 11th
Street, Kansas City, Missouri, 64105. The post office address is P.O. Box
419108, Kansas City, Missouri, 64141-6108. The toll-free telephone number is
1-800-778-1762.
ACCUMULATED VALUE. The sum of the accumulated values for a Certificate in the
Subaccounts and the Fixed Account at any time prior to the Annuity Commencement
Date.
ACCUMULATION UNIT. An accounting unit of measure used to calculate the
accumulated value for the Certificate in each Subaccount prior to the Annuity
Commencement Date.
ACCUMULATION UNIT VALUE. The value of an Accumulation Unit of a Subaccount for
a given Valuation Period prior to the Annuity Commencement Date.
ANNUITANT. The Annuitant is the natural person upon whose life the Certificate
is based. This person is named as "annuitant" on page 3 of the Certificate.
ANNUITY COMMENCEMENT DATE. The date on which the annuity proceeds are applied
to a settlement option for the benefit of the payee.
BENEFICIARY. The person(s) named by the Certificate Owner to receive the death
proceeds under the Certificate. A beneficiary may be a natural person or
non-natural person.
CERTIFICATE. The individual flexible premium deferred variable annuity
Certificate offered by AAL and described in this Prospectus.
CERTIFICATE ANNIVERSARY. The same date in each succeeding year as the
Certificate Issue Date.
CERTIFICATE YEAR. The 12-month period following the issue date of a
Certificate. The first Certificate Year starts on the Certificate Issue Date.
Each succeeding Certificate Year starts on the Certificate Anniversary date.
DEATH PROCEEDS CALCULATION DATE. For purposes of calculating the amount of the
death benefit payable to a Beneficiary prior to the Annuity Commencement Date,
the Death Proceeds Calculation Date is generally the later of the date that
Proof of Death of the Annuitant is received at AAL's Service Center or the date
on which any request in writing from the Beneficiary as to method of payment is
received in good order at AAL's Service Center.
EXCESS AMOUNT. The amount of a withdrawal or surrender in excess of the amount
that may be withdrawn or surrendered free of charge.
FIXED ACCOUNT. The Fixed Account is invested in the general account of AAL,
which consists of all assets of AAL other than those allocated to a
legally-segregated separate account of AAL.
FUND. AAL Variable Product Series Fund, Inc., which is described in the Fund
Prospectus accompanying this Prospectus.
HOME OFFICE. AAL's office at 4321 North Ballard Road, Appleton, Wisconsin
54919-0001 or such other office as AAL shall specify in a notice to the Owner.
INTERNAL REVENUE CODE. The Internal Revenue Code of 1986, as amended.
ISSUE DATE. The date on which the application is signed.
NET ASSET VALUE. The value of any Fund Portfolio as computed once daily at the
close of regular trading on the New York Stock Exchange, currently 4:00 p.m.
Eastern Time. The Net Asset Value 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.
OWNER. The person who may exercise all the rights and enjoy the benefits
provided under the Certificate while an Annuitant is alive and before the
Annuity Commencement Date. The Owner is typically the person who applied for
the Certificate, unless ownership has been transferred. An Owner may be a
natural person or, if the Certificate is transferred, either a natural or
non-natural person.
4
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 9
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
PAYEE. The Owner or other person designated pursuant to the Certificate to
receive payment of the annuity proceeds pursuant to a settlement option.
PORTFOLIO. One of five separate series of the Fund currently available for
investment through a corresponding Subaccount of the Variable Account. Each
Portfolio represents a separate series of the Fund's shares.
PROOF OF DEATH. A certified copy of the death certificate, a certified decree
of a court of competent jurisdiction as to the finding of death, a written
statement by a medical doctor who attended the deceased, or any other proof
satisfactory to AAL.
QUALIFIED PLAN. A retirement plan qualified under Section 401, 403 or 408 or
similar provisions of the Internal Revenue Code.
SUBACCOUNT. A subdivision of the Variable Account. Each current Subaccount
invests exclusively in the shares of a corresponding Portfolio of the Fund.
VALUATION DATE. Each day that AAL is open for business and the New York Stock
Exchange is open for regular trading.
VALUATION PERIOD. The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
VARIABLE ACCOUNT. AAL Variable Annuity Account I, which is a separate account
of AAL.
WRITTEN REQUEST. A written request or notice signed by the Owner, received in
good order by AAL at its Service Center, and satisfactory in form and content
to AAL.
5
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 10
==============================================================================
A A L V A R I A B L E A N N U I T Y
FEE TABLE
The following table shows the various fees and expenses associated with the
Certificate. The purpose of the table is to help the Owner understand the
various costs and expenses the Owner will bear directly or indirectly. The
table reflects expenses of the Variable Account as well as the Fund. The fees
shown below are equally applicable to each Subaccount and so only one table is
shown.
OWNER TRANSACTION EXPENSES1
<TABLE>
<S> <C>
Sales Load Imposed on Purchase
(as a percentage of premium payments).............. None
Maximum Deferred Sales Load
(as a percentage of Excess Amount
withdrawn or surrendered).......................... 7%(2)
Surrender or Withdrawal Fees
(as a percentage of amount withdrawn
or surrendered).................................... None
Transfer Fee........................................ $10(3)
CERTIFICATE MAINTENANCE CHARGE...................... $25(4)
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily Accumulated Value)
Mortality and Expense Risk Fees..................... 1.25%
Account Fees and Expenses........................... None
Total Variable Account Annual Expenses.............. 1.25%
FUND ANNUAL EXPENSES
(as a percentage of Fund average daily net assets)
Management Fees (Investment Advisory Fees).......... 0.35%
Other Expenses After Expense Reimbursement.......... 0.00%(5)
Total Fund Annual Expenses.......................... 0.35%(5)
</TABLE>
- ---------
(1) The Certificates currently are not subject to state premium taxes.
(2) See "CHARGES AND DEDUCTIONS--Withdrawal or Surrender Charges." A
withdrawal or surrender charge is deducted only if a withdrawal or surrender
occurs during the first seven Certificate Years. Up to 10% of the Accumulated
Value existing at the time the first withdrawal in a Certificate Year is made
may be withdrawn without charge. The maximum withdrawal or surrender charge is
7% in the first Certificate Year, and decreases by 1% each subsequent
Certificate Year thereafter. At no point will the aggregate amount of the
withdrawal or surrender charge deducted exceed 7-1/2% of gross premiums paid.
(3) During any Certificate Year, two transfers from the Subaccounts may be
made without charge. Any subsequent transfers are subject to a $10 fee per
transfer. One transfer may be made from the Fixed Account, which may not exceed
the greater of $500 or 25% of the Accumulated Value of the Fixed Account. This
transfer is not subject to a transfer charge.
(4) See "CHARGES AND DEDUCTIONS--Certificate Maintenance Charge." This charge
is deducted from the Accumulated Value on the last day of each Certificate
Year prior to the Annuity Commencement Date, or upon surrender of the
Certificate, unless the sum of premiums received by AAL, less the sum of any
withdrawals and withdrawal charges from the Certificate, is greater than $5,000
at the time the deduction would otherwise be made.
(5) The amount shown for the Fund Annual Expenses does not reflect a
deduction for operating expenses of the Fund, other than the investment
advisory fee, because AAL has voluntarily agreed to either pay on behalf of the
Fund or reimburse the Fund for these operating expenses through at least
December 31, 1996. AAL may withdraw this voluntary undertaking upon 30 days
written notice to the Fund. See "AAL, THE VARIABLE ACCOUNT AND THE FUND--The
Fund." Absent the expense reimbursement, the total fund annual expenses for 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 the AAL Variable Product Money
Market Portfolio, as a percentage of average net assets for the current fiscal
year are estimated to be 1.26%, 1.37%, 1.25%, 1.15%, and 1.40%, respectively.
Actual fees and expenses may be greater or less than those estimated.
6
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 11
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
EXAMPLE (6) ANNUITY
LOGO]
<TABLE>
<CAPTION>
1 Yr 1 Yr 3 Yrs
--------------------------------------------------------------- ---- -----
<S> <C> <C>
If you surrender your Certificate (or if
you annuitize under circumstances where
a surrender charge is payable)(7) at the end
of the applicable time period, you would
pay the following expenses on a $1,000
investment, assuming 5% annual return
on assets: $84 $108
If you do not surrender your Certificate
(or if you annuitize under circumstances
where a surrender charge is not payable)(7)
at the end of the applicable time period,
you would pay the following expenses
on a $1,000 investment, assuming
5% annual return on assets: $19 $59
</TABLE>
THE EXAMPLE SHOWING EXPENSES FOR 1 AND 3 YEAR PERIODS SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
Please read the following summary in conjunction with the detailed information
set out in this Prospectus. Variations due to requirements of particular
states, if any, are described in supplements which are attached to this
Prospectus, or in endorsements to the Certificate, as appropriate. Also,
retirement plans in connection with which Certificates are issued or tax and
other legal requirements in connection with such plans, may, as a practical
matter, restrict the exercise of rights and privileges that otherwise would be
available under a Certificate.
MINIMUM INVESTMENT REQUIREMENTS. The minimum first premium on a billed
Certificate is $100. Thereafter, the minimum amount AAL will accept as a
premium is $50. If on any Certificate Anniversary the Accumulated Value of the
Certificate is below $600, and no premium payment has been received at AAL's
Service Center for the past 36 consecutive months, AAL will terminate the
Certificate and pay its Accumulated Value to the Owner, less any applicable
charges. See "THE CERTIFICATES--Minimum Investment Requirements."
FREE LOOK PERIOD. The Owner has the right to return the Certificate within 10
days after the Owner receives the Certificate, or such longer period as may be
required by state law. See "THE CERTIFICATES--Free Look Period."
ALLOCATION OF PREMIUMS. AAL will allocate initial premiums to the Subaccounts
and Fixed Account according to the Owner's instructions on the date AAL
approves the Owner's application to purchase a Certificate. Subsequent premiums
will be allocated among the accounts in the same proportion as the initial
premium, at the end of the Valuation Period in which the subsequent premium is
received by AAL's Service Center. See "THE CERTIFICATES--Allocation of
Premiums." The Owner may change the allocation for future premiums at any time.
In certain states that require a full refund of premiums paid if a Certificate
is returned during the "free look period," AAL reserves the right to allocate
the initial premium to the AAL Variable Product Money Market Portfolio until
the expiration of the "free look period" required by applicable state law
(currently not more than 20 days from the first premium allocation date), after
which time the Accumulated Value of the Certificate will be allocated to the
Subaccounts or Fixed Account as chosen by the Owner.
INVESTMENT OPTIONS. The Owner may allocate premiums under the Certificate to up
to five Subaccounts of the Variable Account and/or to the Fixed Account. The
assets of each Subaccount will be invested solely in one of five corresponding
Portfolios of the Fund--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 or the AAL
Variable Product Money Market Portfolio. See "AAL, THE VARIABLE ACCOUNT AND THE
FUND" and "THE CERTIFICATES--Allocation of Premiums." The Accumulated Value of
the Certificate in each of the Subaccounts will vary, primarily based on the
investment experience of the Portfolio whose shares are held in the designated
Subaccount. Premiums allocated to the Fixed Account will accumulate at fixed
rates of interest as declared by AAL. See "APPENDIX" and
(6) For purposes of this example the effect of the Certificate Maintenance
Charge has been reflected based on an estimated average Certificate size of
$11,000.
(7) For a description of the circumstances under which a withdrawal or
surrender charge may be payable upon annuitization, see "ANNUITY
PROVISIONS Settlement Options."
7
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 12
==============================================================================
A A L V A R I A B L E A N N U I T Y
"THE CERTIFICATES--Accumulated Value, Accumulation Units, and Accumulation Unit
Value."
WITHDRAWALS AND SURRENDERS. At any time before the Annuity Commencement Date
and while the Annuitant is alive, an Owner may request the withdrawal of part
or the surrender of all of the Accumulated Value of a Certificate. Under
certain circumstances, the Owner may make withdrawals or surrenders after the
Annuity Commencement Date. All withdrawals and surrenders may be subject to a
withdrawal or surrender charge and any other applicable charges. See "THE
CERTIFICATES Withdrawal or Surrender Charges."
TRANSFERS. At any time before the Annuity Commencement Date, and while the
Annuitant is alive, an Owner may transfer all or a part of a Certificate's
Accumulated Value among the Subaccounts or the Fixed Account, subject to
certain limitations. The total amount of any transfer must be at least $500,
or, if less, the Accumulated Value of the Subaccount or Fixed Account from
which the transfer is being made. Transfers from the Fixed Account are limited
to one each Certificate Year and may not exceed the greater of $500 or 25% of
the Accumulated Value of the Fixed Account at the time of transfer. See "THE
CERTIFICATES--Transfers among Subaccounts and/or Fixed Account."
CHARGES AND DEDUCTIONS. For a description of charges and deductions under the
Certificates, see "FEE TABLE" and "CHARGES AND DEDUCTIONS."
ANNUITY PAYMENTS. The Owner may select from among several fixed annuity
settlement options. See "ANNUITY PROVISIONS."
DEATH BENEFIT. In the event the Annuitant dies prior to the Annuity
Commencement Date, a death benefit is payable to the Beneficiary of the
Certificate. See "DEATH BENEFITS--Death Benefit Before the Annuity Commencement
Date."
SURPLUS REFUNDS. The Certificates are entitled to participate in any surplus
refunds declared annually by the AAL Board of Directors. If declared, such
refunds would be credited to the Subaccounts and/or Fixed Account in the same
proportion that premium payments would be credited.
FEDERAL TAX TREATMENT. For a description of the federal income tax treatment of
annuities, see "FEDERAL TAX STATUS--Taxation of Annuities in General."
Generally, a distribution from a Certificate before the taxpayer attains age
59-1/2 will result in a penalty tax of 10% of the amount of the distribution
that is includable in the taxpayer's gross income.
PERFORMANCE INFORMATION. From time to time the Variable Account may advertise
the yield and total return of each of its Subaccounts. See "PERFORMANCE
INFORMATION."
SELECTED ACCUMULATION UNIT DATA
The table below reflects the historical performance of an accumulation unit
outstanding throughout the period shown under a representative Certificate
invested in each Subaccount. When reading the table, please bear in mind that
the unit value of each Subaccount of the Variable Account will not be the same
on any given day as the net asset value per share of the underlying Portfolio
of the Fund in which that Subaccount invests. One reason for this divergence is
that each unit value consists of the underlying Portfolio's net asset value
minus charges to the Variable Account. In addition, dividends declared by the
underlying Portfolio are reinvested by the Subaccount in additional shares of
that Portfolio. These distributions have the effect of reducing the value of
each share of the Fund and increasing the number of Fund shares outstanding.
However, the total cash value in the Variable Account does not change as a
result of such distributions.
<TABLE>
<CAPTION>
MONEY LARGE SMALL
MARKET BOND BALANCED COMPANY STOCK COMPANY STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1995
Accumulation Unit Value 1.02 10.53 11.06 11.53 10.95
Number of Accumulation Units 4,931,298 402,927 1,364,855 1,258,237 928,755
June 15, 1995
Accumulation Unit Value* $1.00 $10.00 $10.00 $10.00 $10.00
</TABLE>
*Accumulation Unit Value as of June 15, 1995, the date each of the
Subaccounts commenced operations.
8
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 13
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
AAL, THE VARIABLE ACCOUNT AND THE FUND
AAL
AAL, the issuer of the Certificates, is a fraternal benefit society owned by
and operated for its members. AAL was founded in 1902 under the laws of the
State of Wisconsin. AAL has approximately 1.7 million members and is the
world's largest fraternal benefit society in terms of assets (over $15.4
billion) and life insurance in force ($75.6 billion), ranking it in the top two
percent of all life insurers in the United States in terms of ordinary life
insurance in force. AAL is currently licensed to transact life insurance
business in all 50 states and the District of Columbia and is offering the
Certificates in states where it has authority to issue the Certificates.
THE VARIABLE ACCOUNT
The Variable Account is a legally-segregated separate account of AAL
established by the Board of Directors of AAL in 1994 pursuant to the laws of
the State of Wisconsin. The Variable Account is registered with the Securities
and Exchange Commission (the "SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"). Such registration does not
involve supervision by the SEC of the management or investment policies or
practices of the Variable Account.
The Variable Account currently consists of five Subaccounts: the Large Company
Stock Subaccount, the Small Company Stock Subaccount, the Bond Subaccount, the
Balanced Subaccount, and the Money Market Subaccount. Each Subaccount invests
in shares of a corresponding Portfolio of the AAL Variable Product Series Fund,
Inc., described below.
The assets of the Variable Account are owned by AAL. AAL is not a trustee with
respect to such assets. Under Wisconsin law, the assets of the Variable Account
that are not in excess of the reserves and other contract liabilities of the
Variable Account will not be chargeable with liabilities arising out of any
other business AAL may conduct. AAL will maintain an amount of assets in the
Variable Account that always has a value approximately equal to or in excess of
the amount of Accumulated Values allocated to the Variable Account under the
Certificates. AAL also may accumulate in the Variable Account or transfer to
its general account the following: equity investment and contractual
Certificate charges and deductions, including Certificate maintenance charges,
mortality and expense risk charges, transfer charges, surrender charges earned,
and mortality gains and losses and investment results applicable to those
assets. Under Wisconsin law, and in accordance with the Certificate, income and
realized and unrealized gains and losses from each Subaccount of the Variable
Account are credited to or charged against that Subaccount without regard to
any of AAL's other income, gains or losses. Nevertheless, obligations arising
under the Certificates are obligations of AAL.
THE FUND
AAL Variable Product Series Fund, Inc. (the "Fund") is a Maryland corporation
registered with the SEC under the 1940 Act as a diversified, open-end
investment company (commonly known as a "Mutual Fund"). This registration does
not involve supervision by the SEC of the management or investment practices or
policies of the Fund.
Shares of the Fund are currently offered only to the Variable Account to fund
benefits payable under the Certificates. The Fund may, at a later date, also
offer its shares to other separate accounts of AAL or to a subsidiary or
affiliated company of AAL. Shares of the Fund may also be offered directly to
AAL.
The Fund currently consists of five separate Portfolios, each with its own
investment objectives, investment program, policies and restrictions. The
investment objectives of each Portfolio are described below. No assurance can
be given that each Portfolio of the Fund will achieve its investment objective.
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.
9
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 14
==============================================================================
A A L V A R I A B L E A N N U I T Y
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.
The Variable Account will purchase and redeem shares from the Fund at Net Asset
Value without any sales or redemption charge. AAL will redeem shares to the
extent necessary to collect charges under the Certificates, to make payments
upon withdrawals or surrenders, to provide benefits under the Certificates, or
to transfer assets from a Subaccount to another Subaccount and/or the Fixed
Account as requested by the Owners. Any dividend or capital gain distribution
received from a Portfolio of the Fund will be reinvested immediately at Net
Asset Value in shares of that Portfolio and retained as assets of the
corresponding Subaccount.
AAL serves as the investment adviser to the Fund. AAL is registered as an
investment adviser under the Investment Advisers Act of 1940.
Each Owner should periodically consider the allocation among the Subaccounts in
light of current market conditions and the investment risks attendant to
investing in the Fund's various Portfolios. A full description of the Fund, its
investment objectives, policies and restrictions, its expenses, the risks
attendant to investing in the Fund's Portfolios and other aspects of its
operation is contained in the accompanying Prospectus for the Fund, which
should be carefully read together with this Prospectus.
THE CERTIFICATES
AAL is offering the Certificates only to persons who are eligible for
membership in AAL and to employees of AAL, its subsidiaries, and affiliated
companies who reside in Wisconsin. To apply for membership and/or purchase a
Certificate, members or prospective members must apply through an AAL
Representative.
Applications may be taken in writing on traditional paper applications, or by
capturing application data in a computer file via a portable computer.
Applicants will be asked to verify the accuracy of the data recorded on the
computer by signing a pre-printed form accompanying the application. The
captured data will be transmitted electronically to AAL where it will be
printed and then be attached to the Certificate for delivery to the Certificate
Owner.
There are two basic forms of Certificate: Adult and Juvenile. Adult
Certificates are issued to applicants over age 16 who become benefit members of
AAL. Juvenile Certificates are issued when the proposed Annuitant is younger
than the minimum age for benefit membership, but is otherwise eligible for
benefit membership. Such Certificate is issued upon the application of some
adult person, who does not become a benefit member by reason of such
application. The Annuitant is the Owner of the Certificate, however ownership
rights under the Certificate may be exercised solely by the applicant until
control of the Certificate is transferred to the juvenile at age 21 or as
otherwise provided in the Certificate. At age 16 the juvenile will become a
benefit member of AAL.
Certain provisions of the Certificates may vary somewhat from state to state in
order to conform with the law of the state in which the Owner resides. This
Prospectus describes generally applicable provisions, and Owners should refer
to their Certificates for specific variations.
MINIMUM INVESTMENT REQUIREMENTS
The minimum single payment premium accepted will be $600. The minimum first
premium on a billed Certificate will be $100. Thereafter, the minimum amount
AAL will accept as a premium is $50. If on any Certificate Anniversary the
Accumulated Value of the Certificate is below $600, and no premium payment has
been received at AAL's Service Center for the past 36 consecutive months, AAL
will terminate the Certificate and pay the Owner the Accumulated Value of the
Certificate. AAL reserves the right to limit the total amount of all premium
payments it will accept on any Certificate to $1 million.
AAL will send premium notices based on the billed premium and premium interval
selected as shown on the specification page of the Certificate. The Owner may
change the amount of the billed premium or the premium interval, or both, at
any time by submitting a Written Request to AAL's Service Center or by
providing instructions by telephone, if the Owner has completed the Telephone
Transaction Authorization portion of the Variable Annuity Option Selection
Form. See "THE CERTIFICATES--Telephone Transactions." Premiums may be billed at
any premium interval offered by AAL.
FREE LOOK PERIOD
The Certificate provides for an initial "free look" period. The Owner has the
right to return the Certificate within
10
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 15
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
10 days after such Owner receives the Certificate or such longer period as may
be required by state law. The Certificate must be delivered or mailed with a
Written Request to the AAL Representative from whom the Certificate was
purchased or to AAL's Service Center. Generally within 7 days after AAL
receives the Owner's request for cancellation, it will cancel the Certificate
and refund to the Owner, except as discussed under "Allocation of Premiums"
immediately below, an amount equal to the Certificate's Accumulated Value as of
the date the returned Certificate or notification of cancellation is received
by AAL's Service Center, whichever is earlier.
ALLOCATION OF PREMIUMS
Upon approval of the Owner's application, AAL will allocate the initial premium
paid among the Subaccounts and/or the Fixed Account according to the Owner's
allocation instructions as specified on the application. If the Owner does not
designate premium allocation percentages, the entire premium will be allocated
to the Money Market Subaccount.
The percentages of each premium that may be allocated to any Subaccount of the
Variable Account or the Fixed Account must be in whole numbers and the sum of
the allocation percentages must be 100%. AAL reserves the right to adjust
allocation percentages to eliminate fractional percentages. The dollar amount
of any premium allocation to a Subaccount or the Fixed Account may not be less
than $50.
If the application is in good order, AAL will allocate the premium payment to
the chosen Subaccount and/or Fixed Account (or, in certain states, to the Money
Market Subaccount as discussed below) within two days of receipt of the
completed application and premium payment. If AAL determines that the
application is not in good order, AAL will attempt to complete the application
within five business days. If the application is not complete at the end of
this period, AAL will inform the applicant of the reason for the delay and that
the initial premium will be returned immediately unless the applicant
specifically consents to AAL keeping the initial premium until the application
is complete.
Subsequent premiums will be allocated among the Subaccounts and/or the Fixed
Account in the same proportion as the initial premium, at the end of the
Valuation Period in which the subsequent premium is received at AAL's Service
Center. Owners may change the allocation proportion for future premiums at any
time by submitting a Written Request to AAL's Service Center or by providing
instructions by telephone, if the Owner has completed the Telephone Transaction
Authorization portion of the Variable Annuity Option Selection Form. See THE
CERTIFICATES--Telephone Transactions." Premiums paid thereafter will be
allocated in the manner specified in the Written Request or telephone
instruction, unless another change is subsequently requested.
In certain states that require a full refund of premiums paid if a Certificate
is returned during the "free look period," AAL reserves the right to allocate
all premiums to the AAL Variable Product Money Market Subaccount until the
expiration of the "free look period" required by applicable state law, after
which time the Accumulated Value of the Certificate will be allocated to the
Subaccounts or Fixed Account as chosen by the Owner. Where the "free look
period," including a five-day period for the Owner's receipt of the Certificate
by mail, aggregates 15 days, AAL will allocate the Accumulated Value of the
Certificate to the Subaccounts or Fixed Account as chosen by the Owner on the
fifteenth day after the first premium allocation date. Where such a "free look
period" aggregates 20 or more days, AAL will allocate the Accumulated Value of
the Certificate to the Subaccounts or Fixed Account as chosen by the Owner on
the twentieth day after the first premium allocation date. In all such states,
AAL will refund to an Owner cancelling a Certificate during the free look
period an amount equal to the greater of any premium received by AAL or the
Accumulated Value on the date the returned Certificate or notification of
cancellation is received at AAL's Service Center, whichever is earlier.
ACCUMULATED VALUE, ACCUMULATION UNITS AND ACCUMULATION UNIT VALUE
A Certificate's Accumulated Value will reflect the investment experience of the
chosen Subaccount(s) of the Variable Account, any amount of value in the Fixed
Account, premiums paid, surplus refunds credited, any withdrawals, and any
charges assessed in connection with the Certificate. There is no guaranteed
minimum Accumulated Value in the Variable Account, and, because a Certificate's
Accumulated Value on any future date depends upon a number of variables, it
cannot be predetermined. Value will largely be determined by market conditions
and investment performance of the Fund's Portfolios corresponding to the
Subaccounts designated by the Owner. The Owner will bear all such risk.
CALCULATION OF ACCUMULATED VALUE. The Accumulated Value of the
Certificate at any time before the Annuity Commencement Date is determined on
each Valuation
11
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 16
==============================================================================
A A L V A R I A B L E A N N U I T Y
DATE. The Certificate's Accumulated Value is the sum of the values of the
Certificate Owner's investment in each Subaccount and/or the Fixed Account. The
value of each Subaccount is based on the value of that Subaccount's
Accumulation Units on any given Valuation Date, and is computed by multiplying
the Subaccount's Accumulation Unit Value by the number of Subaccount
Accumulation Units allocated to the Certificate.
DETERMINATION OF NUMBER OF ACCUMULATION UNITS. Any amounts allocated to a
Subaccount will be converted into Accumulation Units of the Subaccount.
The number of Accumulation Units in any Subaccount may increase or decrease at
the end of each Valuation Period depending on the transactions that occur in
the Subaccount during the Valuation Period. When transactions occur, the actual
dollar amounts of the transactions are converted to Accumulation Units. The
number of Accumulation Units for a transaction in a Subaccount is determined by
dividing the dollar amount of the transaction by the Accumulation Unit Value of
the Subaccount at the end of the Valuation Period during which the transaction
occurs.
The number of Accumulation Units in a Subaccount increases during the Valuation
Period when premiums are allocated to the Subaccount or Accumulated Value is
transferred to the Subaccount from another Subaccount or from the Fixed
Account. The number of Accumulation Units in a Subaccount decreases during the
Valuation Period when Accumulated Value is transferred from the Subaccount to
another Subaccount or to the Fixed Account, withdrawals and withdrawal charges
are applied against the Subaccount, or Certificate Maintenance Charges or
transfer charges are applied against the Subaccount.
DETERMINATION OF ACCUMULATION UNIT VALUE. For each Subaccount, the Accumulation
Unit Value was set at $10 ($1 in the case of the Money Market Subaccount) when
the Subaccount was established. The Accumulation Unit Value of a Subaccount may
increase or decrease from one Valuation Period to the next. The Accumulation
Unit Value of a Subaccount for any Valuation Period is equal to:
* the Net Asset Value of the corresponding Fund Portfolio attributable to
Accumulation Units at the end of the Valuation Period;
* plus the amount of any dividend, capital gain or other distribution made by
the Fund Portfolio if the "ex-dividend" date occurs during the Valuation
Period;
* minus the dollar amount of the mortality and expense risk charge AAL deducts
for each day in the Valuation Period;
* plus or minus any cumulative credit or charge for taxes reserved which AAL
determines has resulted from the operation of the Subaccount; and
* divided by the total number of Accumulation Units outstanding at the end of
the Valuation Period.
For further information about Accumulated Value, Accumulation Units and
Accumulation Unit Value of premium allocations in the Fixed Account, see
"APPENDIX."
WITHDRAWALS, SURRENDERS AND TERMINATIONS
Owners may request a withdrawal or surrender at any time before the Annuity
Commencement Date, while the Annuitant is still alive, by submitting a Written
Request to AAL's Service Center. Within 7 days of receipt of the Written
Request, AAL will pay to the Owner all or part of the Accumulated Value of the
Certificate, as appropriate, less any applicable withdrawal, surrender or other
charges, as of the end of the Valuation Period during which AAL received the
Written Request. See "CHARGES AND DEDUCTIONS--Withdrawal or Surrender Charge;
- --Certificate Maintenance Charge; --Mortality and Expense Risk Charge." For
certain exceptions, however, see "GENERAL INFORMATION--Postponement of
Payments."
Withdrawals will be taken proportionately from each Subaccount and the Fixed
Account according to the ratio that Accumulated Value in the Subaccount or
Fixed Account of the Certificate bears to the total Accumulated Value of the
Certificate at the time of withdrawal. The Owner may select a different
allocation basis with AAL's approval. Any withdrawal charges will then be taken
from each Subaccount or the Fixed Account from which the withdrawal is taken
according to the ratio that the amount of the withdrawal from each Subaccount
or Fixed Account bears to the total amount of the withdrawal. Each withdrawal
must be at least $25.
AAL will cancel the Certificate on any Certificate Anniversary if the
Accumulated Value is less than $600 and no premium payments have been made
within the last 36 consecutive months. If such Certificate Anniversary is not a
Valuation Date, then the
12
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 17
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
Accumulated Value will be determined on the next Valuation Date. Upon
cancellation, AAL will pay the Owner the Accumulated Value as of such Valuation
Date.
After the Annuity Commencement Date, certain of the available settlement
options (those that do not involve a life contingency) also permit withdrawals
or surrenders by the Payee. In such cases, the amount available for withdrawal
or surrender is the commuted value of any unpaid annuity installments, computed
on the basis of the assumed interest rate incorporated in such annuity
installments. However, a withdrawal or surrender charge may be deducted at the
time of annuitization if these settlement options are selected. See "CHARGES
AND DEDUCTIONS--Withdrawal or Surrender Charges."
Consideration should be given to the tax implications prior to making a
withdrawal or surrender request. Most withdrawals and surrenders prior to age
59-1/2 are subject to a 10% penalty on taxable gain distributed from the
Certificate. See "FEDERAL TAX STATUS--Taxation of Annuities in General."
TRANSFERS AMONG SUBACCOUNTS AND/OR THE FIXED ACCOUNT
The Owner may request a transfer of all or part of a Certificate's Accumulated
Value among the Subaccounts and/or the Fixed Account at any time before the
Annuity Commencement Date, while the Annuitant is alive, by submitting a
Written Request (or by telephone if the Owner has completed the Telephone
Transaction Authorization section of the Variable Annuity Option Selection
Form) to AAL's Service Center.
AAL's Service Center will process requests for transfers that it receives
before 3:00 p.m. Central Time on any Valuation Date using the Certificate's
Accumulated Value as of the close of business of that Valuation Date. AAL will
process requests received after that time using a Certificate's Accumulated
Value as of the close of business of the following Valuation Date. To
accomplish a transfer from a Subaccount, the Variable Account will redeem
Accumulation Units in that Subaccount and reinvest that value in Accumulation
Units of the other Subaccounts and/or the Fixed Account as directed in the
request.
The total amount of any transfer must be at least $500, or, if less, the
Accumulated Value of the Subaccount or Fixed Account from which the transfer is
being made. In no event may a transfer to any Subaccount or to the Fixed
Account be less than $50. The Owner may make two transfers from one or more
Subaccounts to one or more other Subaccounts or the Fixed Account in each
Certificate Year without charge. Thereafter, each transfer will be subject to a
$10 transfer charge, which will be deducted from the Accumulated Value of the
Subaccount from which the transfer was made. Where transfers are from two or
more Subaccounts, AAL will apply the $10 transfer charge among such Subaccounts
in proportion to the amounts being transferred from the Subaccounts.
Only one transfer may be made from the Fixed Account in each Certificate Year.
The transfer may not exceed the greater of $500 or 25% of the Accumulated Value
of the Fixed Account at the time of transfer. In no event may a transfer to any
Subaccount be less than $50. This transfer will not be subject to a transfer
charge. To accomplish a transfer from the Fixed Account, the Fixed Account will
redeem Accumulated Value from the Fixed Account and reinvest that value in
Accumulation Units of a particular Subaccount of the Variable Account as
directed in the request.
TELEPHONE TRANSACTIONS
If AAL has received a signed Telephone Transaction Authorization (found on the
Certificate Application and on the Variable Annuity Option Selection Form),
partial withdrawals, transfers, premium payment allocation changes, and certain
other transactions may be made pursuant to the Owner's telephone instructions.
AAL has adopted reasonable security procedures to ensure the authenticity of
telephone instructions, including, among other things, requiring identifying
information, recording conversations, and providing written confirmations of
transactions. Nevertheless, AAL will honor telephone instructions from any
person who provides the correct identifying information, so there is a risk of
possible loss to the Owner if unauthorized persons use this service in the
Owner's name. The Telephone Transaction Authorization provides that AAL is not
liable for acting in good faith on any telephone instructions, although AAL may
be liable for any failure by it to observe reasonable procedures. If several
persons seek to effect telephone instructions at or about the same time, or if
AAL's recording equipment malfunctions, it may be impossible for the Owner to
make a telephone transaction at that time. If this occurs, the Owner should
submit a Written Request. Also, if due to malfunction or other circumstances,
the recording of the Owner's telephone request is incomplete or not fully
comprehensible, AAL will not process the transaction. The phone number for
telephone transactions is 1-800-778-1762.
AAL reserves the right to restrict telephone transactions at any time.
13
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 18
==============================================================================
A A L V A R I A B L E A N N U I T Y
DOLLAR COST AVERAGING PLAN
Owners may make regular transfers of predetermined amounts by establishing a
"Dollar Cost Averaging Plan" with AAL. Under the plan, Owners can authorize
automatic transfers from their investment in the Money Market Subaccount to any
or all of the other Subaccounts. Owners may utilize Dollar Cost Averaging until
the amount in the Money Market Subaccount is completely transferred to other
Subaccounts and may terminate the plan at any time, by Written Request or by
telephone, if a valid Variable Annuity Option Selection Form is on file with
AAL, as set forth above. Dollar Cost Averaging is generally suitable for Owners
making a substantial deposit to the Certificate who wish to transfer into the
other Subaccounts but who desire to spread investments over time to reduce the
risk of investing at the top of the market cycle. Owners interested in
establishing a Dollar Cost Averaging Plan may obtain an application and full
information concerning the plan and its restrictions from AAL's Service Center.
Transfers under Dollar Cost Averaging are not subject to the charges applicable
to transfers, described above.
OWNERS, ANNUITANTS, AND BENEFICIARIES
ADULT CERTIFICATES. The person who applied for the Certificate is the Owner and
Annuitant of the Certificate, unless ownership is transferred or a different
Annuitant is named in the application. While the Annuitant is alive and before
the Annuity Commencement Date, the Owner of the Certificate may exercise every
right and enjoy every benefit provided in the Certificate. The person who
applied for the Certificate becomes a benefit member of AAL upon AAL's approval
of the application. This membership cannot be transferred. The privileges of
membership are stated in the AAL Articles of Incorporation and Bylaws.
The Owner may name one or more Beneficiaries to receive the death benefit
payable under the Certificate. If no Beneficiary has been named or the
Beneficiary does not survive the Annuitant, the death benefit will be paid to
the Owner, if living, otherwise to the Owner's estate. The Bylaws of AAL list
persons eligible to be Beneficiaries. Beneficiaries are designated as first,
second or third class. Unless otherwise specified, the death benefit will be
distributed as follows: (1) Equally to the Beneficiaries in the first class who
survive the Annuitant. If none in the first class survive the Annuitant, then;
(2) equally to the Beneficiaries in the second class who survive the Annuitant.
If none in the second class survive the Annuitant, then; (3) equally to the
Beneficiaries in the third class who survive the Annuitant. If any Beneficiary
dies at the same time as the Annuitant, or within 15 days after the Annuitant
dies but before the death proceeds are paid, AAL will pay the death proceeds as
though that Beneficiary had died before the Annuitant.
The Owner may change the designation of Beneficiaries by sending a Written
Request to AAL's Service Center. AAL will provide a form to use to make this
request. Any change in Beneficiary must be approved by AAL and is effective on
the date the Written Request was dated, or the date received at AAL's Service
Center if no date appears on the request, as long as the request for change was
mailed or actually delivered to AAL while the Annuitant was alive. AAL is not
liable for any payment made or action taken by it before receiving and
approving the change in Beneficiary.
JUVENILE CERTIFICATES. The Annuitant shown on the Certificate is the Owner of
the Certificate. However, because of age, the Annuitant cannot exercise the
rights of ownership of the Certificate. Therefore, the person who applied for
the Certificate on behalf of the Owner will have control. "Control" means
having the ability to exercise certain rights of ownership on behalf of the
Annuitant. These rights are described in the Certificate. The person who has
control may transfer control to another eligible person as determined by AAL,
but cannot transfer ownership.
The Annuitant will obtain control of the Certificate on the earliest of the
following dates: (1) the date of death of the person who has control if that
person dies after the anniversary of the Certificate Issue Date on or following
the Annuitant's 16th birthday; or (2) the date the person who has control
transfers it in writing to the Annuitant, after the anniversary of the
Certificate Issue Date on or following the Annuitant's 16th birthday; or (3)
the anniversary of the Certificate Issue Date on or following the Annuitant's
21st birthday.
If the person who has control of the Certificate dies before the Annuitant
gains control, control will be vested in an eligible person according to the
Bylaws of AAL. If AAL determines that it is best for the Annuitant, control of
the Certificate may be transferred to some other eligible person according to
the Bylaws of AAL.
The Annuitant will become a benefit member of AAL on the anniversary of the
Certificate Issue Date on or following the Annuitant's 16th birthday. This
membership can not be transferred. The privileges of membership are stated in
the AAL Articles of Incorporation and Bylaws.
14
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 19
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO
ASSIGNMENTS OF OWNERSHIP
ABSOLUTE ASSIGNMENT. Except for certain juvenile Certificates and Certificates
issued in connection with Qualified Plans, the Owner may transfer ownership of
the Certificate by submitting a Written Request to AAL's Service Center. AAL
will provide a form to use to make this request. The request must be received
and approved by AAL before it is effective. Once approved, the transfer will
take effect as of the date the request is signed by the Owner, or the date it
was received at AAL's Service Center if no date appears on the request. AAL is
not liable for any payment made or action taken by it before receiving and
approving the transfer at AAL's Service Center. AAL is not responsible for the
validity or tax consequences of any transfer of ownership.
COLLATERAL ASSIGNMENT. Except for Certificates issued in connection with
Qualified Plans, the Owner may assign the Certificate as collateral. The
assignment must be in writing on a form acceptable to AAL and must be filed at
AAL's Service Center. AAL is not liable for any payment made or action taken by
it before receiving and filing the assignment at AAL's Service Center. AAL is
not responsible for the validity or tax consequences of any assignment.
The interest of any Beneficiary will be subject to any collateral assignment.
Any indebtedness and interest charged against the Certificate, or any agreement
for a reduction in benefits, shall have priority over the interest of any
Owner, Beneficiary, or collateral assignee under the Certificate. See "GENERAL
INFORMATION--Maintenance of Solvency."
Consideration should be given to the tax implications of an assignment, sale,
pledge or transfer. Generally speaking, these transactions are deemed to
constitute distributions from a Certificate and are taxable as such. See
"FEDERAL TAX STATUS--Taxation of Annuities in General."
SUCCESSOR OWNERS. If the Owner is not the Annuitant, the Owner may designate a
successor Owner who will become the new Owner of the Certificate if the Owner
dies before the Annuitant. If the Owner does not designate a successor Owner,
or if no successor Owner survives the Owner, and the Owner dies before the
Annuitant, the Owner's estate will become the new Owner.
The Owner may designate or change a successor Owner by submitting a Written
Request to AAL's Service Center. AAL will provide a form to use to make this
request. The request must be received and approved by AAL before it is
effective. Once approved, the designation or change will take effect as of the
date the request is signed by the Owner, or the date it was received at AAL's
Service Center if no date appears on the request. AAL is not liable for any
payment made or action taken by it before receiving and approving the
designation or change at AAL's Service Center. AAL is not responsible for the
validity of any designation or change of a successor Owner.
If ownership is transferred to a successor Owner because the Owner dies before
the Annuitant, the cash surrender value will be paid within 5 years after the
Owner's death. However, if the successor Owner is a natural person, the cash
surrender value may be paid under a settlement option described in the
Certificate provided payments begin within 1 year after the Owner's death and
are paid over the life of the successor Owner or over a period not exceeding
the life expectancy of the successor Owner. The preceding two sentences will
not apply if the surviving spouse is the sole successor Owner.
CERTIFICATES ISSUED IN CONNECTION WITH QUALIFIED PLANS. If the
Certificate is used in a Qualified Plan and the Owner is a trust custodian or
employer, the Owner may transfer ownership to the Annuitant, if the Qualified
Plan permits. Otherwise, a Certificate used in a Qualified Plan may not be sold,
assigned, discounted or pledged as collateral for a loan or as surety for
performance of an obligation or for any other purpose, to any person other than
AAL.
DEATH BENEFITS
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
Before the Annuity Commencement Date, AAL will pay the death proceeds of the
Certificate to the Beneficiary upon receipt of: (1) proof that the Annuitant
has died before the Annuity Commencement Date; (2) a completed claim form; and
(3) such other information that AAL may require for processing the claim.
Payment will be made in either a lump sum payment or under a settlement option,
as elected by the Owner or the Beneficiary, in accordance with the settlement
options provision of the Certificate. The amount of the death proceeds is
calculated on the Death Proceeds Calculation Date. Death proceeds are equal to
or greater than the minimum value required by law.
If the Annuitant dies before attaining age 80, the amount of the death proceeds
is the greatest of: (1) the Accumulated Value of the Certificate on the Death
Proceeds Calculation Date; (2) the sum of all premiums
15
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 20
==============================================================================
A A L V A R I A B L E A N N U I T Y
paid less the sum of any withdrawals as of the Death Proceeds Calculation Date;
or (3) the Accumulated Value of the Certificate on the minimum death proceeds
valuation date preceding the Death Proceeds Calculation Date, plus the sum of
all premiums paid since the minimum death proceeds valuation date, less the sum
of any withdrawals (including related withdrawal charges) since that minimum
death proceeds valuation date. The first minimum death proceeds valuation date
is the Certificate Issue Date. Thereafter, the minimum death proceeds valuation
date is every 7th anniversary of the Certificate Issue Date. If the Annuitant
dies on or after attaining age 80, the amount of the death proceeds is the
Accumulated Value of the Certificate on the Death Proceeds Calculation Date.
Except for Certificates issued in connection with Qualified Plans, if the
Annuitant's spouse is the Owner and sole first Beneficiary, the Certificate
will automatically continue in force with the surviving spouse as the Annuitant
and Owner. If the Annuitant was the Owner, or the Owner was not a natural
person, the death proceeds and any interest credited on such proceeds, will be
paid to the Beneficiary within five years after the Annuitant's death. However,
if the Beneficiary is a natural person, the death proceeds may be paid under a
settlement option described in the Certificate, provided payments begin within
one year after the Annuitant's death and are paid over the life of the
Beneficiary or over a period not exceeding the life expectancy of the
Beneficiary. See "THE CERTIFICATES--Successor Owners" for rules applicable if
the Owner is a natural person and dies before the Annuitant. Similar rules
apply for Certificates issued in connection with Qualified Plans.
Except for Certificates issued in connection with Qualified Plans, if the
Annuitant was the Owner and the Annuitant's spouse is the sole first
Beneficiary, the spouse may elect to continue the Certificate in force as the
Annuitant and Owner, unless the Owner has chosen a mandatory method of payment
in the Beneficiary designation that does not allow the spouse to change it. The
spouse will be deemed to have made this election if a written request from the
spouse to receive the death proceeds is not received at AAL's Service
Center within 60 days after Proof of Death of the Annuitant is received at AAL's
Service Center.
The Beneficiary may elect to receive the death proceeds as a lump sum or in the
form of one of the settlement options provided in the Certificate, subject to
the limitations described in the immediately preceding paragraphs, unless the
Owner has selected a mandatory method of payment that does not allow the
Beneficiary to change it. If AAL does not receive a completed claim form and
such other information that AAL may require for processing from the Beneficiary
to receive the death proceeds or specifying a settlement option within 60 days
after Proof of Death, AAL will apply the death proceeds to settlement Option 1.
See "ANNUITY PROVISIONS--Settlement Options."
DEATH OF PAYEE AFTER THE ANNUITY COMMENCEMENT DATE
If a Payee dies on or after the Annuity Commencement Date and before the entire
interest in the Annuity proceeds have been paid, any remaining portion of such
interest that is payable under the settlement option then in effect will be
paid at least as rapidly as payments were being paid under that settlement
option on the date of death. With respect to a Certificate issued in connection
with a Qualified Plan under Sections 401(a), 403(a), 403(b) or 408 of the
Internal Revenue Code, similar restrictions are also applicable.
MANNER OF PAYMENT--CERTIFICATES NOT ISSUED IN CONNECTION WITH CERTAIN QUALIFIED
PLANS
If the Certificate is not issued in connection with a Qualified Plan under
Sections 401(a), 403(a), 403(b) or 408 of the Internal Revenue Code, the
following rules govern the manner of payment of the death benefit if the
Annuitant dies before the Annuity Commencement Date:
(a) if a single sum is requested, the death benefit will be paid within
seven days after the date that the Proof of Death, completed claim
form, and such other information AAL may require for processing is received
at AAL's Service Center; or
(b) if a settlement option is requested, (i) it must be a settlement option
that the Owner could have selected before the Annuity Commencement Date,
and (ii) the settlement option must provide that the entire amount due under
the Certificate will be distributed (1) within five years from the date of
death; or (2) over the life of the Beneficiary or for a period not in excess
of the Beneficiary's life expectancy, provided that the distributions must
begin within one year from the date of death.
MANNER OF PAYMENT--CERTIFICATES ISSUED IN CONNECTION WITH QUALIFIED PLANS
If the Certificate is issued in connection with a Qualified Plan under Sections
401(a), 403(a), 403(b) or 408 of the Internal Revenue Code, certain
restrictions on the maner of payment of the death benefit prior to the Annuity
Commencement Date, similar to those described above
16
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 21
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
under "Manner of Payment--Certificates Not Issued in Connection with Certain
Qualified Plans," are applicable. The manner of payment of the death benefit
under such a Certificate will be stated in the Certificate or the plan
documents. Purchasers acquiring Certificates pursuant to Qualified Plans should
consult a qualified pension or tax adviser.
CHARGES AND DEDUCTIONS
WITHDRAWAL OR SURRENDER CHARGES
WITHDRAWALS AND SURRENDERS. No charge for sales expenses is deducted from
premiums at the time premiums are paid. However, if some or all of the
Accumulated Value of the Certificate is withdrawn or surrendered on or before
the date the Certificate has been in force for seven full Certificate Years,
the following charges apply:
<TABLE>
<CAPTION>
CERTIFICATE YEAR CHARGE AS PERCENTAGE
IN WHICH WITHDRAWAL OF EXCESS AMOUNT (8)
OR SURRENDER OCCURS WITHDRAWN OR SURRENDERED
------------------- -------------------------
<S> <C>
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
</TABLE>
10% FREE WITHDRAWAL. In each Certificate Year, the Owner may make free
withdrawals of up to 10% of the Accumulated Value existing at the time the
first withdrawal is made in that Certificate Year. A free withdrawal is a
withdrawal on which no withdrawal charge is applied. The free withdrawal amount
available on any withdrawal is the Accumulated Value of the Certificate at the
time of the first withdrawal in the Certificate Year, multiplied by 10%, less
any previous free withdrawals made during the Certificate Year. This right is
not cumulative from Certificate Year to Certificate Year.
If the Owner surrendered the Certificate and no free withdrawals were made
during the Certificate Year, no surrender charge will be subtracted from the
first 10% of the Accumulated Value of the Certificate existing at the time of
surrender. If any free withdrawals were made during the Certificate Year, the
amount of the Accumulated Value of the Certificate not subject to surrender
charges is: the Accumulated Value of the Certificate at the time of the first
withdrawal in the Certificate Year, multiplied by 10%, less any previous free
withdrawals made during the Certificate Year.
WAIVER OF WITHDRAWAL AND SURRENDER CHARGES. AAL will waive the withdrawal or
surrender charge:
(1) if the Owner or the Owner's spouse is confined as an inpatient of a
licensed hospital, nursing home, or a hospice for at least 30
consecutive days, the withdrawal or surrender occurs during the period of
confinement or within 90 days after discharge from the facility, and written
proof satisfactory to AAL is received at AAL's Service Center; where allowed
under State law;
(2) at the time of annuitization if the annuitization occurs more than three
years after the Issue Date and the annuitization is for a life income
with a guaranteed period (e.g. Option 4 or 5). See "ANNUITY
PROVISIONS--Settlement Options"; and
(3) upon the death of the Annuitant.
CERTIFICATE MAINTENANCE CHARGE
On the last day of each Certificate Year prior to the Annuity Commencement
Date, or upon surrender of the Certificate, if earlier, AAL will deduct from
the Certificate's Accumulated Value, proportionately from the Subaccounts and
the Fixed Account that make up the Accumulated Value, a Certificate Maintenance
Charge of $25.
- ---------------
(8) The withdrawal or surrender charge is a percentage of the Excess Amount,
defined as the total amount of the withdrawal or surrender less the amount of
the 10% free withdrawal, described below. The total amount of withdrawal and
surrender charges may not exceed 7-1/2% of total gross premiums paid under the
Certificate.
If withdrawal or surrender charges are not sufficient to cover sales
expenses, the loss will be borne by AAL. Conversely, if the amount of such
charges proves more than sufficient, the excess will be retained by AAL.
AAL does not currently believe that the withdrawal and surrender charges imposed
will cover the expected sales expenses for the Certificates.
Certain withdrawals and surrenders are subject to a 10% federal tax
penalty on the amount of taxable income withdrawn, in addition to ordinary
income tax on any such taxable income. See "FEDERAL TAX STATUS"--Taxation of
Annuities in General".
17
..... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 22
==============================================================================
A A L V A R I A B L E A N N U I T Y
This charge is to reimburse AAL for administrative expenses relating to the
Certificate. AAL will not deduct this charge if the sum of the premiums
received by AAL, less the sum of any withdrawals and withdrawal charges from
the Certificate, is $5,000 or more at the time the deduction would otherwise be
made. AAL does not expect to profit on this charge. AAL will not increase the
charge for administrative expenses regardless of its actual expenses.
MORTALITY AND EXPENSE RISK CHARGE
AAL will assume several mortality risks under the Certificates. First, AAL will
assume a mortality risk by its contractual obligation to pay a death benefit
to the Beneficiary if the Annuitant under a Certificate dies during the
accumulation period. AAL assumes the risk that the Annuitant may die prior to
the Annuity Commencement Date at a time when the death benefit guaranteed by
the Certificate may be higher than the Accumulated Value of the Certificate.
Second, AAL will assume a mortality risk arising from the fact that the
Certificates do not impose any surrender charge on the death benefit. The net
surrender value is lower for Certificates under which a withdrawal or surrender
charge remains in effect, while the amount of the death benefit under such
Certificates is unaffected by the withdrawal or surrender charge. Accordingly,
AAL's mortality risk is higher under such Certificates than it would be under
otherwise comparable Certificates that impose the surrender charge upon payment
of a death benefit.
Third, AAL will assume a mortality risk by its contractual obligation to
continue to make annuity payments for the entire life of the Payee under
annuity options involving life contingencies. This assures each Payee that
neither the Payee's own longevity nor an improvement in life expectancy
generally will have an adverse effect on the annuity payments received under a
Certificate. This relieves the Payee from the risk of outliving the amounts
accumulated for retirement.
Fourth, AAL will assume a mortality risk under its annuity purchase rate tables
which are guaranteed for the life of a Certificate. Options 1, 2, and 3 are
based on a guaranteed effective annual interest rate of 3%. Options 4 and 5
are based on a guaranteed effective annual interest rate of 3-1/2% using the
Commissioner's 1983 Table A "Annuitant Mortality Table".
In addition to the foregoing mortality risks, AAL will assume an expense risk
under the Certificates. This is because the Certificate Maintenance Charge
deducted under the Certificates to cover administrative expenses may not be
sufficient to cover the expenses actually incurred. Administrative expenses
include such costs as processing premium payments, annuity payments,
withdrawals, surrenders and transfers; furnishing confirmation notices and
periodic reports; calculating the mortality and expense risk charge; preparing
voting materials and tax reports; updating the registration statement for the
Certificates; and actuarial and other expenses.
To compensate AAL for assuming such mortality and expense risks, AAL will
deduct a daily mortality and expense risk charge from the net assets of each
Subaccount in the Variable Account. AAL will impose a mortality and expense
risk charge at an annual rate of 1.25% of the average daily net assets of such
Subaccount in the Variable Account for the mortality and expense risks it
assumes under the Certificates.
If the mortality and expense risk charge and other charges under a Certificate
are insufficient to cover the actual mortality costs and administrative
expenses incurred by AAL, AAL will bear the loss. Conversely, if the mortality
and expense risk charge proves more than sufficient, the excess will accrue to
AAL and be available for any proper corporate purpose including, among other
things, payment of sales expenses. AAL expects to make a profit from this
charge.
INVESTMENT ADVISORY FEE OF THE FUND
Because the Variable Account purchases shares of the Fund, the value of the
Variable Account is indirectly affected by the investment advisory fee and any
other unreimbursed expenses incurred by the Fund. AAL is paid a daily fee by
the Fund for its investment management services equal to an annual rate of
0.35% of the aggregate average daily net assets of each Portfolio up to
$250,000,000 and 0.30% of amounts in excess thereof. See "AAL, THE VARIABLE
ACCOUNT AND THE FUND--The Fund" and the accompanying Fund Prospectus.
TAXES
Currently, no charge will be made against the Variable Account for federal
income taxes or state premium taxes. AAL may make such a charge in the future
if income or gains within the Variable Account result in any federal income tax
liability to AAL or AAL becomes subject to state premium taxes. Charges for
any other taxes attributable to the Variable Account may also be made. See
"FEDERAL TAX STATUS."
18
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 23
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is determined based upon the Annuitant's age at
the time of the issuance of the Certificate. The Owner may change an Annuity
Commencement Date selection at any time by submitting a Written Request to
AAL's Service Center. Any change in the Annuity Commencement Date is subject to
AAL's approval. The Annuity Commencement Date is the date on which the annuity
proceeds are applied to a settlement option for the benefit of the Payee.
For a Certificate issued in Pennsylvania, the following requirements for
maximum maturity ages of the Certificate will be used:
PENNSYLVANIA MAXIMUM MATURITY AGES
<TABLE>
<CAPTION>
AGE ON MAXIMUM
DATE OF ISSUE MATURITY AGE*
------------- -------------
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96 99
</TABLE>
- --------------
*For purposes of the Pennsylvania requirements, the maturity age is
defined as the last birthday of the Payee on the Certificate Anniversary on or
immediately prior to the Annuity Commencement Date.
SETTLEMENT OPTIONS
While the Annuitant is alive and before the Annuity Commencement Date, the
Owner may select or change a settlement option. Under Option 1, all of the
Certificate's Accumulated Value is transferred to the Fixed Account to earn
interest, which may be paid at regular intervals or left with AAL to accumulate
with interest. If Option 2, 3, 4, or 5 is selected, all Accumulated Value will
be transferred to the Fixed Account, and the annuity payments will be
guaranteed as to minimum dollar amount. See "APPENDIX."
The Beneficiary may choose to receive the death proceeds in a lump sum payment
or under any settlement option, unless the Owner has chosen a mandatory method
of payment in the Beneficiary designation that does not allow the Beneficiary
to change it, or unless otherwise restricted. AAL will provide a form for this
purpose. On lump sum payments, AAL will pay interest on the death proceeds at a
rate required by law from the Death Proceeds Calculation Date until the date of
payment.
The minimum amount that may be applied to any one settlement option is $1,000.
The following settlement options are generally available under the Certificate:
OPTION 1--INTEREST. The proceeds are left with AAL to earn interest. Interest
earned may be paid in cash at regular intervals or may be left with AAL to
accumulate with interest. All or part of these proceeds may be withdrawn upon
request. Funds held in this Option are not tax-deferred.
OPTION 2--SPECIFIED AMOUNT INCOME. The proceeds are used to make payments at
regular intervals of a specified amount until the proceeds with interest have
been paid. The payment period may not exceed 30 years. The unpaid proceeds may
be withdrawn upon request.
OPTION 3--INCOME FOR A FIXED PERIOD. The proceeds are used to make payments at
regular intervals for a fixed number of years, not to exceed 30 years. The
unpaid proceeds may be withdrawn upon request.
OPTION 4--LIFE INCOME WITH GUARANTEED PERIOD. The proceeds are used to make
payments at regular intervals for the lifetime of the Payee. If the Payee dies
during the guaranteed period, payments will be continued to the named
Beneficiary to the end of that period. A period of 0, 5, 10, 15, or 20 years
may be selected. The amount of the payments depends upon the age and, where
permitted, sex of the Payee at the time AAL issues the settlement agreement.
OPTION 5--JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PERIOD. The proceeds
are used to make payments at regular intervals for the lifetime of both Payees.
Upon the death of one of the Payees, payments will be continued for the
lifetime of the surviving Payee. If both Payees die during the guaranteed
period, payments will be continued to the named Beneficiary to the end of that
period. A period of 0, 5, 10, 15, or 20 years may be selected. The amount of
the payments depends upon the age and, where permitted, sex of the Payees at
the time AAL issues the settlement agreement.
AAL also has other settlement options which may be chosen. Information about
these options may be obtained from an AAL Representative or AAL's Service
Center.
19
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 24
==============================================================================
A A L V A R I A B L E A N N U I T Y
If no valid selection of a settlement option has been made before the Annuity
Commencement Date, Option 4, the Life Income with 10-Year Guaranteed Payment
Period fixed annuity settlement option, shall be automatically effective.
No withdrawal or surrender charge is imposed at the time of annuitization (if
annuitization occurs more than three years after the Issue Date) under a
settlement option providing a life income with a guaranteed period (e.g.,
Option 4 or Option 5 above). See "THE CERTIFICATES--Withdrawal, Surrenders and
Terminations."
The Owner may elect the receipt of a single sum, rather than payment pursuant
to settlement option, by surrendering the Certificate in full prior to the
Annuity Commencement Date. A surrender charge will be deducted from the
Accumulated Value of the Certificate if the Annuity Commencement Date under any
settlement option not providing fixed income with a guaranteed period (e.g.,
Options 1, 2, and 3 above) occurs at any time during the surrender charge
period, taking into account the 10% free withdrawal provision and the maximum
7-1/2% limitation described under "CHARGES AND DEDUCTIONS--Withdrawal or
Surrender Charge."
Any applicable Certificate Maintenance Charge will also be deducted at the
Annuity Commencement Date upon commencement of a settlement option or receipt
of a lump sum in lieu thereof. See "CHARGES AND DEDUCTIONS--Certificate
Maintenance Charge."
Subject to minimums set forth in the Certificate, interest rates applicable to
settlement options are declared at least annually by the AAL Board of Directors
and are based on numerous factors, including the earnings of the general or
special accounts, expenses, and mortality charges and experience.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS PURSUANT TO SETTLEMENT OPTIONS
Payments may be made monthly, quarterly, semiannually, or annually, provided
each payment is at least $25. The first payment under an option will be made on
the first business day following the end of the payment interval chosen. If the
Accumulated Value at the Annuity Commencement Date is less than $1,000 or would
not result in a payment of at least $25, AAL may pay the Accumulated Value in a
single sum and the Certificate will be canceled.
The amount of the first annuity payment (and the amount of subsequent payments)
is determined by applying the Accumulated Value to be applied to the settlement
option at the Annuity Commencement Date, less any fees or charges due (see
"Settlement Options" above), to the annuity table in the Certificate for the
settlement option selected. The table shows the amount of the annuity payments
for each $1000 applied. The values of the Certificate are based on the Payee's
age and sex on the Annuity Commencement Date. If there has been any error as to
the date of birth or sex of the Payee, AAL will adjust any amount payable to
conform to the correct date of birth or sex.
With respect to each settlement option annuity payment, AAL may pay more than
the amount of the guaranteed payment. However, AAL also reserves the right to
reduce the amount of any current payment that is higher than the guaranteed
amount, to an amount not less than the guaranteed amount.
GENERAL INFORMATION
THE ENTIRE CONTRACT
The entire contract between the Owner and AAL is made up of the Certificate,
including any attached endorsements or amendments, the application, and the AAL
Articles of Incorporation and Bylaws which are in force on the Issue Date of
the Certificate. Statements made in the application will be treated as
representations and not warranties. No statement will be used by AAL to void
the Certificate or to deny a claim unless it appears in the application. No
representative of AAL except the president or the secretary may change any part
of the Certificate on behalf of AAL. The Certificate will be incontestable
after it has been in effect during the lifetime of the Annuitant for 2 years
from its Issue Date.
MAINTENANCE OF SOLVENCY
The Certificate contains a maintenance of solvency provision that applies only
to values in the Fixed Account. If AAL's reserves for any class of Certificates
become impaired, the Owner may be required to make an extra payment. AAL's
Board of Directors will determine the amount of any extra payment based on each
member's fair share of the deficiency. If the payment is not made, it will be
charged as an indebtedness against the Certificate with interest at a rate of
5% per year, compounded annually. An equivalent reduction in benefits may be
chosen instead of or in combination with the payment or indebtedness.
20
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 25
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
POSTPONEMENT OF PAYMENTS
Payment of any withdrawal value or cash surrender value will normally be made
within 7 days after the Owner's Written Request is received at AAL's Service
Center. However, AAL may delay this payment or any other type of payment from
the Variable Account for any period when: (a) the New York Stock Exchange is
closed for trading other than customary weekend and holiday closings; (b)
trading on the New York Stock Exchange is restricted; (c) an emergency exists,
as a result of which it is not reasonably practicable to dispose of securities
or to fairly determine their value; or (d) the SEC by order permits the delay
for the protection of Owners. Transfers and allocations of Accumulated Value
among the Subaccounts and the Fixed Account may also be postponed under these
circumstances. AAL may delay payment of any withdrawal value or cash surrender
value from the Fixed Account for up to six months after AAL receives a Written
Request at AAL's Service Center.
PAYMENT BY CHECK
Payment under the Certificate of any amount derived from premiums paid by check
may be delayed until such time as the check has had a reasonable time to clear
the Owner's bank (not to exceed 15 days).
DATE OF RECEIPT
Except as otherwise stated herein, the date of receipt by AAL of any Written
Request, premium payment, telephone instruction or other communication is the
actual date it is received at AAL's Service Center in proper form, unless
received (1) after the close of regular trading on the New York Stock Exchange
or (2) on a date which is not a Valuation Date. In either of these two cases,
the date of receipt will be deemed to be the next Valuation Date.
REPORTS TO OWNERS
AAL will mail to each Owner, at such Owner's last known address of record, at
least annually after the first Certificate Year, a report showing the
Accumulated Value of the Certificate as of a date not more than two months
prior to the date of mailing and any further information required by any
applicable law. AAL also will promptly mail to the Owner a confirmation of each
premium payment or transfer.
CERTIFICATE INQUIRIES
Inquiries regarding a Certificate may be made by writing or calling AAL's
Service Center. The address for the Service Center is: AAL Variable Annuity
Service Center, P.O. Box 419108, Kansas City, Missouri, 64141-6108. The toll
free telephone number is 1-800-778-1762.
FEDERAL TAX STATUS
INTRODUCTION
The ultimate effect of federal income taxes on a Certificate's Accumulated
Value, settlement option annuity payments, or the economic benefit to the
Owner, the Annuitant or the Beneficiary, depends upon the tax status of such
person and, if the Certificate is purchased under a retirement plan, upon the
tax and employment status of the individual concerned. This discussion is
general in nature and is not intended as tax advice. No attempt is made to
consider any applicable state or other tax law. Moreover, this discussion is
based on AAL's understanding of federal income tax laws, as currently
interpreted. No representation is made regarding the likelihood of continuation
of these laws or their interpretations by the Internal Revenue Service. AAL
does not make any guarantee regarding the tax status of any Certificate. Each
person concerned should consult a qualified tax adviser.
VARIABLE ACCOUNT TAX STATUS
The Internal Revenue Code (the "Code"), in effect, provides that the income,
gains and losses from separate account investments are not income to the
insurer issuing the variable contracts so long as the Certificates and the
Variable Account meet certain requirements set forth in the Code. Because the
Certificates and the Variable Account meet such requirements, AAL anticipates
no tax liability resulting from the Certificates, and consequently, no reserve
for income taxes is currently charged against, or maintained by AAL with
respect to the Certificates. AAL is currently exempt from most types of state
and local taxes. If there is a material change in federal, state or local tax
laws, charges for such taxes, if any, attributable to the Variable Account may
be made.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs the federal income taxation of annuities in
general.
CERTIFICATES HELD BY INDIVIDUALS. An individual Owner is not taxed on increases
in the value of a Certificate until a distribution occurs, either in the form
of a withdrawal, surrender, assignment or as settlement option annuity
payments.
Payments from a withdrawal or a surrender of a Certificate generally will be
taxed as ordinary income to the extent that the Accumulated Value exceeds the
owner's cost basis in the Certificate. An assignment of the Certificate (other
than a gift to the Owner's spouse or incident to a divorce) or the use of the
Certificate as
21
....... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 26
==============================================================================
A A L V A R I A B L E A N N U I T Y
collateral for a loan will be treated in the same manner as a surrender.
For settlement option annuity payments, the taxable portion is determined by
application of a formula which establishes the ratio that the cost basis of the
Certificate bears to the total value of annuity payments for the term of the
annuity. The nontaxable portion of each payment equals the amount of the
payment times that ratio. The balance of the payment is taxable. Such taxable
portion is taxed at ordinary income tax rates. For certain Qualified Plans
involving pre-tax contributions, there may be no cost basis in the Certificate
within the meaning of Section 72 of the Code. In such event, the total
payments received may be taxable. Owners, Annuitants and Beneficiaries under
such Certificates should seek qualified tax and financial advice about the tax
consequences of distributions under the Qualified Plans in connection with which
such Certificates are purchased.
Generally, withdrawals, surrenders and assignments of a Certificate before the
Owner attains age 59-1/2 will result in an additional federal income tax penalty
of 10% of the amount distributed that is includable in the Owner's gross
income. The penalty tax will not apply if the distribution is made under one of
the following circumstances:
(1) made to the Beneficiary or successor owner on or after the death of the
Owner, or
(2) made to an Owner who is considered disabled under section 72(m)(7) of the
Code, or
(3) made under a qualified funding asset (commonly referred to as a structured
settlement plan), or
(4) made as one of a series of substantially equal periodic payments for the
life or life expectancy of the Owner or the joint lives or joint life
expectancies of the Owner and the Beneficiary made not less frequently than
annually. For this purpose, if there is a modification of the payment
schedule before the Owner attains age 59-1/2, or before the expiration of
five years from the time of the annuity starting date, the Owner's income
will be increased by the amount of tax and deferred interest that otherwise
would have been incurred, or
(5) made under an immediate annuity (currently not available under the
Certificate), or
(6) from a Certificate purchased by an employer with respect to a terminated
Qualified Plan.
The 10% federal income tax penalty also applies to Certificates which are
issued in connection with certain Qualified Plans issued under section 401(a),
403(a), 403(b) and 408 of the Code. Exemptions similar to those listed above
apply to the penalty tax for Annuitants of Qualified Plan Certificates.
CERTIFICATES HELD BY OWNERS OTHER THAN INDIVIDUALS. Except as hereafter noted,
a Certificate held by an Owner other than a natural person, such as a
corporation, estate or trust, will not be treated as an annuity contract for
federal income tax purposes. The gains under such a Certificate will be taxable
in the year received or accrued by the Owner. This treatment will not apply,
however, if the Owner is acting as an agent for an individual, if the Owner is
an estate which acquired the Certificate as a result of the death of the
decedent, if the Certificate is held by certain Qualified Plans, if the
Certificate is a qualified funding asset (commonly referred to as a structured
settlement plan), if the Certificate was purchased by an employer with respect
to a terminated Qualified Plan or if the Certificate is an immediate annuity.
MULTIPLE CERTIFICATES. Section 72(e)(11) of the Code provides that for the
purpose of determining the amount includable in gross income, all non-qualified
annuity Certificates entered into by AAL with the same Owner during any
calendar year shall be treated as one certificate. The total impact of this
section is not clear. It will likely accelerate the recognition of income by an
Owner owning multiple Certificates and may have the further effect of
increasing the portion of income that will be subject to the 10% penalty tax.
QUALIFIED PLANS. The Certificates are designed for use with several types of
Qualified Plans. The tax rules applicable to participants in such Qualified
Plans vary according to the type of plan and the terms and conditions of the
plan. Therefore, no attempt is made herein to provide more than general
information about the use of the Certificates with the various types of
Qualified Plans. Participants under such Qualified Plans as well as Owners,
Annuitants and Beneficiaries are cautioned that the rights of any person to any
benefits under such Qualified Plans may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the
Certificates issued in connection therewith. Following are brief descriptions
of the various types of Qualified Plans and of the use of the Certificates with
respect to them:
22
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 27
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
TAX-SHELTERED ANNUITIES. Section 403(b) of the Code permits employers of public
school employees and of employees of certain types of charitable, educational
and scientific organizations specified in Section 501(c)(3) of the Code to
purchase, on behalf of their employees, annuity contracts and, subject to
certain limitations, have the amount of purchase payments excluded from the
employees' gross income for tax purposes. These annuity contracts are commonly
referred to as "tax-sheltered annuities." Purchasers of the Certificates for
such purposes should seek qualified advice as to eligibility, limitations on
permissible amounts of purchase payments and tax consequences on distribution.
Section 403(b)(11) of the Code requires that distributions from Section 403(b)
tax-sheltered annuities that are attributable to employee contributions made
pursuant to a salary reduction agreement may be paid only when the employee
reaches age 59-1/2, separates from service, dies or becomes disabled, or in the
case of hardship. (Hardship, for this purpose, is generally defined as an
immediate and heavy financial need, such as for paying for medical expenses,
for the purchase of a principal residence, or for paying certain tuition
expenses.)
An Owner of a Certificate purchased as a tax-sheltered Section 403(b) annuity
contract will not, therefore, be entitled to exercise the withdrawal or
surrender right, described under the heading "THE CERTIFICATES--Withdrawals,
Surrenders and Terminations," in order to receive Accumulated Value
attributable to elective contributions credited under the Certificate to such
participant, unless one of the above-described conditions has been satisfied.
H.R. 10 PLANS. The Self-Employed Individuals Tax Retirement Act of 1962, which
is commonly referred to as "H.R. 10," permits self-employed individuals to
establish Qualified Plans for themselves and their employees. The tax
consequences to participants under such plans depend upon the plan itself. In
addition, such plans are limited by law as to maximum permissible
contributions, distribution dates, nonforfeitability of interest and tax rates
applicable to distributions. In order to establish such a plan, a plan
document, usually in prototype form pre-approved by the Internal Revenue
Service, is adopted and implemented by the employer. Purchasers of the
Certificates for use with H.R. 10 plans should seek qualified advice as to the
suitability of the proposed plan document and of the Certificates to their
specific needs.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"individual retirement annuity" or "IRA." IRAs are subject to limitations on
the amount that may be contributed, on the persons who may be eligible, on the
time when distributions may commence, and on the time when distributions may be
received without penalty. In addition, distributions from certain other types
of Qualified Plans may be placed on a tax-deferred basis into an IRA.
Distributions paid to employees before being "rolled over" to an IRA may be
subject to a 20% withholding requirement. See "FEDERAL TAX
STATUS--Withholding." When issued in connection with an IRA, the Certificates
will be specifically amended to conform to the requirements under such plans.
Sales of the Certificates for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Certificates for such purposes will be provided with such supplementary
information as may be required by the Internal Revenue Service or other
appropriate agency.
CORPORATE PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the
Code permit corporate employers to establish various types of retirement plans
for employees. Such retirement plans may permit the purchase of the
Certificates to provide benefits under the plans. Corporate employers intending
to use the Certificates in connection with such plans should seek qualified
advice in connection with such use.
SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS). Section 408(k) of the Code
permits corporate employers to make deductible contributions directly into IRAs
established for their employees. These contributions are excluded from gross
income of the employee and are deductible by the employer, and earnings on the
contributions are tax-deferred. Employers intending to use the Certificates in
connection with such a plan should seek qualified advice in connection
therewith.
1035 EXCHANGES
Section 1035(a) of the Code permits the exchange of certain life insurance,
endowment and annuity contracts for an annuity contract without a taxable event
occurring. Thus, potential purchasers who already own such a contract issued by
another insurer are generally able to exchange that contract for a Certificate
issued by AAL without a taxable event occurring. There are certain restrictions
which apply to such exchanges, including that the contract surrendered must
truly be exchanged for the Certificate issued by AAL and not merely surrendered
in
23
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 28
==============================================================================
A A L V A R I A B L E A N N U I T Y
exchange for cash. Further, the same person or persons must be the Owner or
Annuitant under the Certificate received in the exchange as under the original
contract surrendered in the exchange. Careful consideration must be given to
compliance with the Code provisions and regulations and rulings relating to
exchange requirements. Potential purchasers should be sure that they understand
any surrender charges or loss of benefits which might arise from terminating a
contract they hold and the application of any new provisions under the Code
that may have been enacted since the issuance of the contract being terminated.
Owners considering such an exchange should consult their tax advisers to ensure
that the requirements of Section 1035 are met.
DIVERSIFICATION REQUIREMENTS
The Internal Revenue Service has promulgated regulations under Section
817(h)(1) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the
regulations was inadvertent, the failure is corrected, and the Owner or the
issuing company pays an amount to the Internal Revenue Service.
Disqualification of the Certificate as an annuity contract would result in
imposition of federal income tax on the Owner with respect to the earnings
allocable to the Certificate prior to the receipt of payments under the
Certificate. Therefore, if the failure to diversify is not corrected in the
manner mentioned above, the Owner of an annuity contract will be deemed the
Owner of the underlying securities and will be taxed on the earnings of his
account. AAL believes, under its interpretation of the Code and regulations,
that the assets of the Fund meet the diversification requirements. AAL will
monitor the Fund and the regulations of the Treasury Department to ensure that
the Certificate will continue to qualify as a variable annuity contract under
the Code.
WITHHOLDING
The taxable portion of a withdrawal or surrender is subject to federal income
tax withholding. Except for certificates issued in connection with certain
Qualified Plans, the Owner can elect not to have federal income tax withheld.
ROLLOVER INTO AN IRA
Eligible rollovers from another Qualified Plan into an IRA may be accomplished
in two ways. First, an eligible rollover distribution may be paid directly to
the IRA (a "direct rollover"). Second, the distribution may be paid directly to
the employee and then, within 60 days of receipt, the amount may be rolled over
to the IRA. However, any amount that was not distributed as a direct rollover
will be subject to mandatory 20% federal income tax withholding.
OTHER CONSIDERATIONS
Because of the complexity of the law and its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Certificate or the exercise of elections under a Certificate. The above
comments concerning federal income tax consequences are not exhaustive, and
special rules are provided with respect to situations not discussed in this
Prospectus.
The preceding description is based upon AAL's understanding of current federal
income tax law. AAL cannot assess the probability that changes in tax laws,
particularly affecting annuities, will be made.
The preceding comments do not take into account estate and gift, state income
or other state tax considerations which may be involved in the purchase of a
Certificate or the exercise of elections under the Certificate. For complete
information on such federal and state tax considerations, a qualified tax
adviser should be consulted.
GENDER NEUTRAL BENEFITS
The Certificates described in this Prospectus (except for Certificates issued
in the state of Montana) involve settlement option rates that distinguish
between men and women. Montana has enacted legislation requiring that optional
annuity benefits offered pursuant to Certificates purchased or annuitized in
Montana not vary on the basis of sex. On July 6, 1983, the Supreme Court held
in Arizona Governing Committee v. Norris that optional annuity benefits
provided under an employer's deferred compensation plan could not, under Title
VII of the Civil Rights Act of 1964, vary between men and women on the basis of
sex. Because of this decision, the settlement option rates applicable to
Certificates purchased under an employment-related insurance or benefit program
may not, in some cases, vary on the basis of sex. Any unisex rates to be
provided by AAL will apply for tax-qualified plans and those plans where an
employer believes that the Norris decision applies. Employers and employee
organizations should consider, in consultation with legal counsel, the impact
of Norris, and Title VII generally, and any comparable state laws that may be
applicable, on any employment-related insurance or benefit plan for which a
Certificate may be purchased.
24
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 29
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
LOGO]
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
AAL owns the assets of the Variable Account and keeps them legally segregated
from the assets of the general account of AAL. All of the Portfolio shares that
AAL holds for each Subaccount are maintained in book entry form rather than
certificated form.
VOTING PRIVILEGES
To the extent required by law, AAL will vote the Portfolio shares held in a
Subaccount at shareholder meetings of the Fund, if any, in accordance with
instructions received from persons having voting interests in the corresponding
Subaccount of the Variable Account. If, however, the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result AAL determines that it is permitted to vote the Fund
shares in its own right, it may elect to do so.
Before the Annuity Commencement Date, the Owner will have the voting interest
with respect to Fund shares attributable to the Certificate. On and after the
Annuity Commencement Date, the Payee under the settlement option has no
interest in the Variable Account so no voting interest.
The number of votes which an Owner has the right to instruct will be calculated
separately for each Subaccount. The number of votes that each Owner may
instruct will be determined by dividing a Certificate's Accumulated Value in a
Subaccount by the Net Asset Value per share of the corresponding Portfolio in
which the Subaccount invests. Fractional shares will be counted. The number of
votes of the Portfolio which the Owner has the right to instruct will be
determined as of the record date established by the Portfolio for determining
shareholders eligible to vote at the meeting of the Fund. Voting instructions
will be solicited by written communications prior to such meeting in accordance
with procedures established by the Fund.
Any Portfolio shares held in the Variable Account for which AAL does not
receive timely voting instructions, or which are not attributable to Owners or
Annuitants, will be represented at the meeting and voted by AAL in proportion
to the instructions received from all Owners. Any Portfolio shares held by AAL
or its affiliates will be voted in proportion to the aggregate votes of all
shareholders in the Portfolio. Each person having a voting interest in a
Subaccount will receive proxy materials, reports and other materials relating
to the appropriate Portfolio.
RIGHTS RESERVED BY AAL
Subject to applicable law, AAL reserves the right to make certain changes if,
in its judgment, they would best serve the interests of the Owners and
Annuitants or would be appropriate in carrying out the purposes of the
Certificate. AAL will obtain, when required, the necessary Owner approval or
regulatory approval. Examples of the changes AAL may make include, but are not
limited to:
* To operate the Variable Account in any form permitted under the 1940 Act or
in any other form permitted by law.
* To add, delete, combine, or modify Subaccounts in the Variable Account.
* To add, delete, or substitute, for the Portfolio shares held in any
Subaccount, the shares of another Portfolio of the Fund or the shares of
another investment company or series thereof, or any other investment
permitted by law.
* To make any amendments to the Certificates necessary for the Certificates to
comply with the provisions of the Internal Revenue Code or any other
applicable federal or state law.
DISTRIBUTION ARRANGEMENTS
AAL Capital Management Corp. ("AALCMC"), located at 222 West College Avenue,
Appleton, Wisconsin 54914, is a wholly owned indirect subsidiary of AAL and
serves as the principal underwriter of the Certificates pursuant to a Principal
Underwriting and Servicing Agreement to which AAL and the Variable Account are
also parties. AALCMC is a member of the National Association of Securities
Dealers, Inc. ("NASD"), and a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934. The Certificates are sold by duly licensed
registered representatives of AALCMC who are also employees of AAL and licensed
by state insurance departments to sell variable insurance products ("AAL
Representatives"). AAL offers the Certificates in all states where AAL is
authorized to sell the Certificates.
Commissions and other distribution compensation to be paid to AAL
Representatives on the sale of Certificates will be paid by AAL and will not
result in any charge to Owners or to the Variable Account in addition to the
charges described in this Prospectus. AAL Representatives
25
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 30
==============================================================================
A A L V A R I A B L E A N N U I T Y
selling the Certificates will be paid a commission of not more than 3% of the
premiums paid on the Certificates. Further, AAL Representatives may be eligible
to receive certain employee benefits from AAL based on the amount of earned
commissions.
An insurance company blanket bond is maintained providing $10,000,000 coverage
for officers and employees of AAL and AALCMC, and $750,000 coverage for their
general agents and AAL Representatives, both subject to a $100,000 deductible.
LEGAL MATTERS
The legal validity of the Certificates described in this Prospectus has been
passed upon by Mark J. Mahoney, Esq. of the law department of AAL. Freedman,
Levy, Kroll & Simonds, Washington, D.C., has advised AAL on certain federal
securities law matters.
FINANCIAL STATEMENTS AND EXPERTS
Audited financial statements of AAL and the Variable Account are contained in
the SAI. The audited financial statements of AAL as of December 31, 1995 and
December 31, 1994, and for each of the three years ended December 31, 1995, and
the audited financial statements of the Variable Account as of December 31,
1995 and for the period from June 15 (commencement of operations) through
December 31, 1995, included in the SAI have been audited by Ernst & Young LLP,
independent auditors, and are included therein in reliance upon the reports of
such firm, which reports are given upon the authority of such firm as experts
in accounting and auditing.
PERFORMANCE INFORMATION
From time to time, the Variable Account may advertise the yields and total
returns of its Subaccounts. These figures will be based on historical results
and are not intended to indicate future performance. The "yield" of a Subaccount
refers to the income generated by an investment in the Subaccount over the
period specified in the advertisement, excluding realized and unrealized capital
gains and losses in the corresponding Fund's investments. This income is then
"annualized" and shown as a percentage of the investment. The Variable Account
also may advertise the "effective yield" of the Money Market Subaccount, which
is calculated similarly but, when annualized, the income earned by an investment
in the Subaccount is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Yield figures do not reflect the effect of any withdrawal
or surrender charge.
The "total return" of a Subaccount is the total change in value of an
investment in the Subaccount over a period of time specified in the
advertisement. "Average annual total return" is the rate of return that would
produce that change in value over the specified period, if compounded annually.
Average annual total return figures are computed in accordance with a
standardized formula prescribed by the SEC and described in the SAI. The
Variable Account may also advertise non-standardized total return figures,
which do not reflect the effect of certain charges under the Certificates,
including, for example, the withdrawal or surrender charges, and the annual
Certificate Maintenance Charge.
The Variable Account's performance reported from time to time in advertisements
and sales literature may be compared to generally accepted indices or analyses
such as those provided by Lipper Analytical Services, Inc., Standard & Poor's
Corporation and Dow Jones. Performance ratings reported periodically in
financial publications such as Money Magazine, Forbes, Business Week, Fortune,
Financial Planning and The Wall Street Journal may also be used. For more
information, see the SAI.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed with
the SEC with respect to the Certificates described herein. This Prospectus and
the SAI do not contain all of the information set forth in the Registration
Statement and exhibits thereto to which reference is hereby made for further
information concerning the Variable Account, AAL and the Certificates. The
information so omitted may be obtained from the SEC's principal office located
at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fee
prescribed by the SEC, or examined there without charge. Statements contained
in this Prospectus as to the provisions of the Certificates and other legal
documents are summaries, and reference is made to the documents as filed with
the SEC for a complete statement of the provisions thereof.
26
....... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 31
==============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
VARIABLE
ANNUITY
CONTENTS OF THE LOGO]
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
CAPTION PAGE
<S> <C>
GENERAL INFORMATION...................................... SAI - 2
REGULATION AND RESERVES.................................. SAI - 2
SERVICES................................................. SAI - 2
PRINCIPAL UNDERWRITER.................................... SAI - 3
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH
MORTALITY AND EXPENSE RISK CHARGE........................ SAI - 3
PERFORMANCE INFORMATION.................................. SAI - 3
Money Market Subaccount................................ SAI - 3
Other Subaccounts...................................... SAI - 4
Performance Comparisons................................ SAI - 6
FINANCIAL STATEMENTS..................................... SAI - 6
</TABLE>
ORDER FORM
/ / Please send me a copy of the most recent Statement of Additional
Information for the Individual Flexible Premium Deferred Variable Annuity
Certificate.
- -------------------------------------------------------------------------------
(Date) (Name)
- -------------------------------------------------------------------------------
(Street Address)
- -------------------------------------------------------------------------------
(City) (State) (Zip Code)
Send to: AAL Variable Annuity Service Center
P.O. Box 419108
Kansas City, Missouri 64141-6108
27
...... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 32
APPENDIX
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 ("1933 Act"),
and the Fixed Account has not been registered as an investment company under
the Investment Company Act of 1940 ("1940 Act"). Accordingly, neither the Fixed
Account nor any interests therein are generally subject to the provisions of
the 1933 or 1940 Acts. Disclosures regarding the Fixed Account option and the
Fixed Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements in prospectuses. AAL has been advised that the staff
of the Securities and Exchange Commission has not reviewed the disclosure
relating to the Fixed Account.
Accumulated Values allocated to the Fixed Account are combined with all the
general assets of AAL and are invested in those assets chosen by AAL and
allowed by applicable law. Any premiums allocated to the Fixed Account prior to
the Annuity Commencement Date will be subject to all fees and expenses
associated with the Variable Account, except for the fund annual expenses and
the mortality and expense risk charge. See "FEE TABLE--Owner Transaction
Expenses."
AAL will periodically declare effective annual interest rates for new premiums
allocated to the Fixed Account or Accumulated Value transferred from a
Subaccount to the Fixed Account. The rate in effect on the date of allocation
or transfer is the initial rate for that allocation or transfer. The initial
effective annual interest rate for each premium allocated or Accumulated Value
transferred to the Fixed Account is guaranteed to remain in effect for at least
12 months from the date of the allocation or transfer. Thereafter, AAL can
change the effective annual interest for that allocation or transfer. However,
any change in the effective annual interest rate for the allocation or transfer
is guaranteed to remain in effect for at least 12 months from the effective
date of such change.
Interest is credited on each premium allocated or Accumulated Value transferred
to the Fixed Account from the date of the allocation or transfer. Interest is
credited and compounded daily.
Under the Fixed Account option, the guaranteed minimum interest credited to the
Fixed Account will be at the effective rate of 3-1/2% per year, compounded
daily. AAL may credit interest at a rate in excess of 3-1/2% per year; however,
AAL is not obligated to do so. There is no specific formula for the
determination of excess interest credits. Such credits, if any, will be
determined by AAL based on numerous factors. Some of the factors that AAL may
consider in determining whether to credit interest above 3-1/2% to amounts
allocated to the Fixed Account, and the amount thereof, include, but are not
limited to, general economic trends, rates of return currently available and
anticipated on AAL's investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED
ACCOUNT IN EXCESS OF 3-1/2% PER YEAR WILL BE DETERMINED AT THE SOLE DISCRETION
OF AAL. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED ACCOUNT
ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3-1/2% FOR ANY GIVEN YEAR.
The rate of interest that is in effect at any time for new allocations or
transfers to the Fixed Account may differ from the rate or rates in effect for
existing Fixed Account values. Existing Fixed Account values under a
Certificate are in many cases expected to be credited with different interest
rates depending on when the premium payment or transferred amount in question
is first deposited in the Fixed Account. For purposes of crediting future
interest, any withdrawals or transfers from the Fixed Account will be taken
first from the oldest deposits and accumulated earnings thereon.
If a settlement option is selected by the Owner, all Accumulated Value at the
Annuity Commencement Date will be transferred to the general account, which
supports the insurance and annuity obligations of AAL.
Owners have no voting rights in the Variable Account with respect to Fixed
Account values.
28
....... VARIABLE ACCOUNT PROSPECTUS
<PAGE> 33
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATE
OFFERED BY:
AID ASSOCIATION FOR LUTHERANS STATEMENT OF ADDITIONAL
4321 NORTH BALLARD ROAD INFORMATION
APPLETON, WISCONSIN 54919-0001 DATED MAY 1, 1996
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus dated May 1, 1996 (the "Prospectus"),
for AAL Variable Annuity Account I (the "Variable Account") describing
individual flexible premium deferred variable annuity certificates
("Certificates") that Aid Association for Lutherans ("AAL") is offering to
persons eligible for membership in AAL. Capitalized terms used in this
Statement of Additional Information that are not otherwise defined herein have
the same meanings given to them in the Prospectus. A copy of the Prospectus
may be obtained by writing to AAL at the above address.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Caption Page
- ------- ----
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-2
REGULATION AND RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-2
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-3
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH MORTALITY AND EXPENSE RISK CHARGE . . . . . . . . . . SAI-3
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-3
Money Market Subaccount- Yield and Effective Yield . . . . . . . . . . . . . . . . . . . . SAI-3
Other Subaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-4
Performance Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-6
</TABLE>
<PAGE> 34
GENERAL INFORMATION
AAL is a fraternal benefit society organized under Internal Revenue Code
section 501(c)(8) and established on November 24, 1902 under the laws of the
State of Wisconsin. Membership is open to Lutherans and their families. AAL
offers life insurance, disability income insurance and annuities to its
members. All members are part of one of over 9,152 local AAL branches
throughout the United States. AAL is currently licensed to transact life
insurance business in all 50 states and the District of Columbia.
REGULATION AND RESERVES
AAL is subject to regulation by the Office of the Commissioner of Insurance of
the State of Wisconsin and by insurance departments of other states and
jurisdictions in which it is licensed to do business. This regulation covers a
variety of areas, including benefit reserve requirements, adequacy of insurance
company capital and surplus, various operational standards, and accounting and
financial reporting procedures. AAL's operations and accounts are subject to
periodic examination by insurance regulatory authorities. The forms of
Certificates described in the Prospectus are filed with and (where required)
approved by insurance officials in each state and jurisdiction in which
Certificates are sold.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the
insurance business in a variety of ways. Federal measures that may adversely
affect the insurance business include employee benefit regulation, tax law
changes affecting the taxation of insurance companies or of insurance products,
changes in the relative desirability of various personal investment vehicles,
and removal of impediments on the entry of banking institutions into the
insurance business. Also, both the executive and legislative branches of the
federal government periodically have under consideration various insurance
regulatory matters, which could ultimately result in direct federal regulation
of some aspects of the insurance business. It is not possible to predict
whether this will occur or, if so, what the effect on AAL would be.
Pursuant to state insurance laws and regulations, AAL is obligated to carry on
its books, as liabilities, reserves to meet its obligations under outstanding
insurance contracts. These reserves are based on assumptions about, among
other things, future claims experience and investment returns. Neither the
reserve requirements nor the other aspects of state insurance regulation
provide absolute protection to holders of insurance contracts, including the
Certificates, if AAL were to incur claims or expenses at rates significantly
higher than expected, or significant unexpected losses on its investments.
SERVICES
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. AAL paid $232,329.00 to Continuum for its services during the
period June 15, 1995 (commencement of the Variable Account's operations)
through December 31, 1995.
SAI-2
<PAGE> 35
PRINCIPAL UNDERWRITER
AAL Capital Management Corp. ("AALCMC"), a wholly-owned, indirect subsidiary of
AAL, serves as the exclusive principal underwriter of the Certificates pursuant
to a Principal Underwriting and Servicing Agreement to which AAL and the
Variable Account are also parties. The Certificates are sold through AAL
Representatives who are licensed by state insurance officials to sell the
Certificates and who are duly licensed registered representatives of AALCMC.
The Certificates are continuously offered in all states where AAL is authorized
to sell the Certificates. AAL paid underwriting commissions of $1,076,737.60
to AALCMC during the period June 15, 1995 (commencement of the Variable
Account's operations) through December 31, 1995. Of this amount, AALCMC
retained $0.
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH MORTALITY AND EXPENSE RISK CHARGE
AAL and AALCMC have obtained exemptive relief from the SEC in connection with
deducting the mortality and expense risk charge pursuant to the Certificates.
In the application for the exemption, AAL and AALCMC have represented and
undertaken, among other things, that:
- The level of the mortality and expense risk charge is within
the range of industry practice for comparable annuity
contracts;
- This conclusion is based upon a review that AAL and AALCMC
have conducted of publicly-available information regarding
annuity contracts of other companies and they will maintain at
their Home Office, and make available on request to the SEC or
its staff, a memorandum setting forth the variable annuity
products analyzed and the methodology and results of the
comparative review;
- There is a reasonable likelihood that the proposed
distribution financing arrangements with respect to the
Certificates will benefit the Variable Account and Certificate
Owners, and the basis for this conclusion is set forth in a
memorandum that AAL will maintain at its Home Office and will
be available to the SEC or its staff on request.
PERFORMANCE INFORMATION
The Variable Account may, from time to time, advertise information relating to
the performance of its Subaccounts. The performance information that may be
presented is not a prediction or guarantee of future investment performance,
and does not represent the actual experience of amounts invested by a
particular Owner.
MONEY MARKET SUBACCOUNT- YIELD AND EFFECTIVE YIELD
Advertisements for the Certificates may include yield and effective yield
quotations for the Money Market Subaccount, which are computed in accordance
with standard methods prescribed by the SEC. Under these methods, the Money
Market Subaccount's yield is calculated based on a hypothetical pre-existing
account having a balance of one Money Market Subaccount Accumulation Unit at
the beginning of a specified seven-day period. Yield is computed by dividing
the net change, exclusive of capital changes, in the Accumulation Unit Value
during the seven-day period, subtracting a hypothetical charge reflecting
deductions from Owner accounts, dividing the difference by the Accumulation
Unit Value at the beginning of the period to obtain the
SAI-3
<PAGE> 36
base period return, and multiplying the base period return by the fraction
365/7. The Money Market Subaccount's effective yield is calculated by
compounding the base period return (computed as described above) for such
period by adding 1 and raising the sum to a power equal to 365/7, and
subtracting 1 from the result. Yield and effective yield do not reflect the
deduction of withdrawal or surrender charges. The Certificates currently are
not subject to charges for state premium taxes.
The yield and effective yield for the Money Market Subaccount for the seven-day
period ended December 31, 1995, were 4.31% and 4.40%, respectively.
OTHER SUBACCOUNTS
30 DAY YIELD: Advertisements for the Certificates may include 30-day (or one
month) yield quotations for each Subaccount other than the Money Market
Subaccount, which are computed in accordance with a standard method prescribed
by the SEC. These 30-day (or one month) yield quotations are computed by
dividing the net investment income per Accumulation Unit earned during the
period (the net investment income earned by the Fund Portfolio attributable to
shares owned by the Subaccount less expenses incurred during the period) by the
offering price per Accumulation Unit on the last day of the period, according
to the following formula that assumes a semi-annual reinvestment of income:
a-b 6
2 [ ( --- +1) - 1 ]
Yield = cd
Where:
a = Net dividends and interest earned during the period by the
Portfolio attributable to the Subaccount.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The Accumulation Unit Value per Unit on the last day of the
period.
For the one-month period ended December 31, 1995, the one-month yield for the
Bond Subaccount was 5.54% and for the Balanced Subaccount was 3.43%.
STANDARDIZED AND NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN. Advertisements
for the Certificates may also include standardized and non-standardized
average annual total return quotations for each Subaccount for 1, 5 and 10-year
periods (or the life of the Subaccount, if less). Standardized average annual
total return quotations are computed in accordance with a standard method
prescribed by the SEC. The average annual total return for a Subaccount for a
specific period is computed by finding the average annual compounded rates of
return over the applicable period that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
n
P(1 + T) = ERV
Where:
P = A hypothetical initial payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5, or 10 year periods (or fractional
portion thereof).
SAI-4
<PAGE> 37
Non-standardized average annual total returns are calculated in the same manner
and for the same time periods as the standardized average annual total returns
described immediately above, except that the value of the non-standardized
total returns do not reflect the effect of the withdrawal or surrender charges
that may be imposed at the end of the period (because it is assumed that the
Certificate will continue through the end of each period) nor the annual
Certificate Maintenance Charge (because the average Certificate size is
generally expected to be greater than $5,000). If reflected, these charges
would reduce the performance results presented.
The standardized and non-standardized average annual total returns for each
Subaccount for the period June 15, 1995 (commencement of operations) through
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL STANDARDIZED AVERAGE ANNUAL NON-STANDARDIZED
TOTAL RETURN THROUGH TOTAL RETURN THROUGH
NAME OF SUBACCOUNT DECEMBER 31, 1995* DECEMBER 31, 1995*
------------------ ------------------ ------------------
<S> <C> <C>
Money Market -4.13% 2.32%
Bond -1.33% 5.31%
Balanced 3.63% 10.60%
Large Company Stock 8.00% 15.26%
Small Company Stock 2.62% 9.52%
</TABLE>
- --------------
* Periods less than one year are not annualized. On an annualized basis, the
standardized and non-standardized average annual total returns for the Money
Market Subaccount for the period indicated were -7.44% and 4.29%, respectively.
CUMULATIVE TOTAL RETURN. Advertisements for the Certificates may also include
cumulative total return quotations for each Subaccount, for which the SEC has
not prescribed a standard method of calculation. Cumulative total return is
the non-annualized cumulative rate of return on a hypothetical initial
investment of $1,000 in a Subaccount for a specified period ("Hypothetical
Initial Investment"). Cumulative total return is calculated by finding the
cumulative rates of return of the Hypothetical Initial Investment over various
periods, according to the following formula, and then expressing that as a
percentage:
C = (ERV/P) - 1
Where:
P = A hypothetical initial payment of $1,000.
C = Cumulative total return.
ERV = Ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
applicable period.
Performance quotations for each Subaccount reflect the deduction of all
recurring fees and charges applicable to each Subaccount, such as the mortality
and expense risk charge and Certificate Maintenance Charge, based on an
estimated average Certificate size of $11,000 and Fund operating expenses (net
of reimbursements), except that yield quotations and non-standardized average
annual total return calculations do not reflect any deduction for withdrawal or
surrender charges. The Certificates are not currently subject to a charge for
state premium taxes.
Cumulative total returns for each Subaccount for the period June 15, 1995
(commencement of operations) through December 31, 1995 were the same as the
average annual total returns for the same period depicted above.
SAI-5
<PAGE> 38
PERFORMANCE COMPARISONS
The performance of each of the Subaccounts may be compared in advertisements
and sales literature to the performance of other variable annuity issuers in
general or to the performance of particular types of variable annuities
investing in mutual funds, or series of mutual funds, with investment
objectives similar to each of the Portfolios in which the Subaccounts invest.
Such comparisons may be made by use of independent services that monitor and
rank the performance of variable annuity issuers in each of the major
categories of investment objectives on an industry-wide basis, ranking such
issuers on the basis of total return, assuming reinvestment of dividends and
distributions, but excluding sales charges, redemption fees or certain expense
deductions at the separate account level. Some rankings are based on total
returns adjusted for withdrawal or surrender charges or may consider the
effects of market risk on total return performance.
Companies providing rankings that may be used in advertisements and sales
literature include Lipper Analytical Services, Inc., Morningstar, Inc., and the
Variable Annuity Research and Data Service.
In addition, each Subaccount's performance may be compared in advertisements
and sales literature to various benchmarks including the Standard & Poor's
Composite Stock Price Index(R), the Wilshire Small Cap Index(R) and the Lehman
Brothers Aggregate Bond Index(R).
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 a Certificate Owner.
FINANCIAL STATEMENTS
The financial statements of AAL should be considered only as bearing upon the
ability of AAL to meet its obligations under the Certificates. The financial
statements of AAL should not be considered as bearing on the investment
experience of the assets held in the Variable Account.
The most current financial statements of AAL are those as of the end of the
most recent fiscal year ended December 31, 1995. AAL does not prepare
financial statements more often than annually in the form required to be
included in a prospectus and believes that any incremental benefit to
prospective Certificate Owners that may result from preparing and delivering
more current financial statements, though unaudited, does not justify the
additional cost that would be incurred.
The financial statements for the Variable Account and AAL, and the accompanying
Reports of Independent Auditors, follow.
SAI-6
<PAGE> 39
AAL VARIABLE ANNUITY ACCOUNT I
AUDITED FINANCIAL STATEMENTS
December 31, 1995
Statement of Net Assets ............................................... VAA-2
Statement of Operations ............................................... VAA-3
Statement of Changes in Net Assets .................................... VAA-4
Notes to Financial Statements ......................................... VAA-5
Report of Independent Auditors ........................................ VAA-8
VAA-1
<PAGE> 40
================================================================================
A A L V A R I A B L E A N N U I T Y
[LOGO OF AAL VARIABLE ANNUITY]
AAL VARIABLE ANNUITY ACCOUNT I
STATEMENT OF NET ASSETS
..............................
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
Investments in AAL Variable Product Series Fund, Inc.:
<S> <C>
Money Market Subaccount:
Money Market Portfolio, 5,044,642 shares at net asset value of
$1.00 per share (cost $5,044,642)............................... $ 5,045,423
Bond Subaccount:
Bond Portfolio, 414,759 shares at net asset value of $10.23
per share (cost $4,173,323)..................................... 4,244,412
Balanced Subaccount:
Balanced Portfolio, 1,382,360 shares at net asset value of $10.92
per share (cost $14,601,735).................................... 15,100,546
Large Company Stock Subaccount:
Large Company Stock Portfolio, 1,259,994 shares at net asset
value of $11.51 per share (cost $13,747,729).................... 14,505,273
Small Company Stock Subaccount:
Small Company Stock Portfolio, 925,566 shares at net asset
value of $10.99 per share (cost $9,947,972)..................... 10,171,538
-----------
TOTAL INVESTMENTS (cost $47,515,401).............................. $49,067,192
LIABILITIES....................................................... -
-----------
NET ASSETS........................................................ $49,067,192
===========
</TABLE>
<TABLE>
<CAPTION>
UNIT EXTENDED
UNITS VALUE VALUE
..............................
<S> <C> <C> <C>
Net Assets are represented by:
Money Market Subaccount........................ 4,931,298 $ 1.02 $ 5,045,423
Bond Subaccount................................ 402,927 10.53 4,244,412
Balanced Subaccount............................ 1,364,855 11.06 15,100,546
Large Company Stock Subaccount................. 1,258,237 11.53 14,505,273
Small Company Stock Subaccount................. 928,755 10.95 10,171,538
-----------
TOTAL NET ASSETS....................................................$49,067,192
===========
</TABLE>
See accompanying notes.
VAA-2
<PAGE> 41
===============================================================================
A A L V A R I A B L E A N N U I T Y
[Logo of A A L Variable Annuity]
AAL Variable Annuity Account I
Statement of Operations
For the Period June 15, 1995(1) to December 31, 1995
<TABLE>
<CAPTION>
LARGE SMALL
MONEY COMPANY COMPANY
MARKET BOND BALANCED STOCK STOCK
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
...................................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ....................................... $ 396,171 $ 76,382 $ 65,068 $140,993 $ 80,453 $ 33,275
Capital gain distributions ...................... 5,505 - - 218 1,653 3,634
----------------------------------------------------------------------
TOTAL INVESTMENT INCOME ......................... 401,676 76,382 65,068 141,211 82,106 36,909
EXPENSES:
Mortality and expense
risk charges ................................... 133,383 17,461 11,062 38,393 40,262 26,205
----------------------------------------------------------------------
NET INVESTMENT INCOME ........................... 268,293 58,921 54,006 102,818 41,844 10,704
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from
investment transactions ........................ 1,564 - 692 146 639 87
Change in net unrealized
appreciation of investments .................... 1,551,010 - 71,089 498,811 757,544 223,566
----------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ............................ 1,552,574 - 71,781 498,957 758,183 223,653
----------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ...................... $1,820,867 $ 58,921 $125,787 $601,775 $800,027 $234,357
======================================================================
</TABLE>
(1) Commencement of operations.
See accompanying notes.
VAA-3
<PAGE> 42
===============================================================================
A A L V A R I A B L E A N N U I T Y
[Logo of A A L Variable Annuity]
AAL Variable Annuity Account I
Statement of Changes in Net Assets
For the Period June 15, 1995(1) to
December 31, 1995
<TABLE>
<CAPTION>
LARGE SMALL
MONEY COMPANY COMPANY
MARKET BOND BALANCED STOCK STOCK
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
...................................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income ....................... $ 268,293 $ 58,921 $ 54,006 $ 102,818 $ 41,844 $ 10,704
Net realized gain from
investment transactions .................... 1,564 - 692 146 639 87
Change in unrealized
appreciation of investments ................ 1,551,010 - 71,089 498,811 757,544 223,566
NET INCREASE IN NET ASSETS ----------------------------------------------------------------------------------
RESULTING FROM OPERATIONS .................. 1,820,867 58,921 125,787 601,775 800,027 234,357
CAPITAL SHARE TRANSACTIONS:
Transfers of net premiums ................... 47,610,113 18,249,874 2,841,432 9,540,542 9,985,987 6,992,278
Transfers of surrenders ..................... (136,290) (64,439) (18,376) (25,229) (13,024) (15,222)
Transfers between subaccounts ............... (227,498) (13,198,933) 1,295,569 4,983,458 3,732,283 2,960,125
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL SHARE ----------------------------------------------------------------------------------
TRANSACTIONS ............................... 47,246,325 4,986,502 4,118,625 14,498,771 13,705,246 9,937,181
----------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS AND
NET ASSETS AT END OF PERIOD ................ $49,067,192 $ 5,045,423 $4,244,412 $15,100,546 $14,505,273 $10,171,538
==================================================================================
</TABLE>
(1) Commencement of operations.
See accompanying notes.
VAA-4
<PAGE> 43
===============================================================================
A A L V A R I A B L E A N N U I T Y
LOGO OF AAL VARIABLE ANNUITY]
AAL Variable Annuity Account I
Notes to Financial Statements
..............................
December 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AAL Variable Annuity Account I (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was
established as a separate investment account within Aid Association for
Lutherans (AAL) to fund flexible premium deferred variable annuity insurance
certificates. The Account commenced operations on June 15, 1995.
The Account has five separate subaccounts, each of which invests solely, as
directed by contract owners, in a different portfolio of the AAL Variable
Product Series Fund, Inc. (the Fund), an open-end, diversified management
investment company sponsored by AAL. Contract owners also may direct
investments to a guaranteed interest subaccount held in the general account of
AAL.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The first-in,
first-out basis has been used in determining the net realized gain or loss from
investment transactions and the cost basis for determining unrealized
appreciation or depreciation on investments. Dividends and capital gain
distributions paid to the Account are automatically reinvested in shares of the
Fund on the payment date.
NOTE 2: EXPENSE CHARGES
The Account pays AAL certain amounts relating to the distribution and
administration of the certificates funded by the Account and as reimbursement
for certain mortality and other risks assumed by AAL. The following summarizes
those amounts.
Mortality and Expense Risk Charge
AAL deducts a daily mortality and expense risk charge from the Account at an
annual rate of 1.25% of the average daily net asset value of the Account. These
charges are deducted by AAL in return for its assumption of risks associated
with adverse mortality experience or excess administrative expenses in
connection with certificates issued.
Certificate Maintenance Charge
Prior to the annuity payment period, AAL deducts a certificate maintenance
charge of $25 per certificate year to reimburse it for administrative expenses
related to the contract, unless the sum of premiums received by AAL less the
sum of any withdrawals and withdrawal charges from the certificate is $5,000 or
more at the time the deduction would be made. A portion of this charge may be
deducted from funds held outside of the Account (i.e., in the Fixed Account).
Withdrawal and Surrender Charges
A withdrawal and surrender charge is imposed in the event of a full or partial
surrender in excess of 10% of the accumulated value during the first seven
contract years. The amount charged is 7% of the amount surrendered during the
first contract year and declines by 1% in each of the next six contract years.
No surrender charge is deducted if the partial surrender or surrender occurs
after seven full contract years.
VAA-5
<PAGE> 44
===============================================================================
A A L V A R I A B L E A N N U I T Y
[LOGO OF AAL VARIABLE ANNUITY]
AAL Variable Annuity Account I
Notes to Financial Statements-Continued
.......................................
December 31, 1995
NOTE 2: EXPENSE CHARGES (CONTINUED)
Transfer Charge
Owners may request transfers of all or part of a certificate's accumulated
value among the subaccounts and/or the fixed annuity, prior to the annuity
commencement date. The owner may make two transfers from one or more
subaccounts to other subaccounts or the fixed annuity in each certificate year
without charge. Thereafter, each transfer will be subject to a $10 transfer
charge.
NOTE 3: FEDERAL INCOME TAXES
The operations of the Account form a part of the operations of AAL. AAL, a
fraternal benefit society, qualifies as a tax-exempt organization under the
Internal Revenue Code. Under current law, no federal income taxes are payable
with respect to the Account's net investment income and net realized gain on
investments. Accordingly, no charge for income taxes is currently being made to
the Account. If such taxes are incurred by AAL in the future, a charge to the
Account may be assessed.
NOTE 4: INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount for the period June 15, 1995 to
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
......................................................................
<S> <C> <C>
Money Market Subaccount...................... $ 9,339,134 $4,294,492
Bond Subaccount.............................. 4,345,071 171,748
Balanced Subaccount.......................... 14,615,015 13,280
Large Company Stock Subaccount............... 13,774,864 27,135
Small Company Stock Subaccount............... 9,952,580 4,608
-----------------------
Combined..................................... $52,026,664 $4,511,263
=======================
</TABLE>
VAA-6
<PAGE> 45
===============================================================================
A A L V A R I A B L E A N N U I T Y
[Logo of A A L Variable Annuity]
AAL Variable Annuity Account I
Notes to Financial Statements--Continued
December 31, 1995
NOTE 5: SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount of the Account for the period June 15,
1995 to December 31, 1995, were as follows:
<TABLE>
<CAPTION>
UNITS SOLD UNITS REDEEMED NET INCREASE
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Money Market Subaccount .................... 17,995,748 $18,249,874 13,064,450 $13,263,372 4,931,298 $ 4,986,502
Bond Subaccount ............................. 404,717 4,137,001 1,790 18,376 402,927 4,118,625
Balanced Subaccount ......................... 1,367,146 14,524,000 2,291 25,229 1,364,855 14,498,771
Large Company Stock Subaccount .............. 1,259,381 13,718,270 1,144 13,024 1,258,237 13,705,246
Small Company Stock Subaccount .............. 930,171 9,952,403 1,416 15,222 928,755 9,937,181
...........................................................................
Combined .................................... 21,957,163 $60,581,548 13,071,091 $13,335,223 8,886,072 $47,246,325
===========================================================================
</TABLE>
NOTE 6: NET ASSETS
The Account has an unlimited number of accumulation units authorized with no
par value. Net assets as of December 31, 1995 consisted of:
<TABLE>
<CAPTION>
LARGE SMALL
MONEY COMPANY COMPANY
MARKET BOND BALANCED STOCK STOCK
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Paid-in Capital ............................ $47,246,325 $4,986,502 $4,118,625 $14,498,771 $13,705,246 $ 9,937,181
Undistributed net investment income ........ 268,293 58,921 54,006 102,818 41,844 10,704
Undistributed net realized gain from
investment transactions ................. 1,564 - 692 146 639 87
Net unrealized appreciation of investments . 1,551,010 - 71,089 498,811 757,544 223,566
...........................................................................
Net Assets ................................. $49,067,192 $5,045,423 $4,244,412 $15,100,546 $14,505,273 $10,171,538
===========================================================================
</TABLE>
VAA-7
<PAGE> 46
================================================================================
A A L V A R I A B L E A N N U I T Y
[LOGO OF AAL VARIABLE ANNUITY]
Report of Independent Auditors
..............................
The Board of Directors and Certificateowners
Aid Association for Lutherans
We have audited the accompanying statement of net assets of the AAL Variable
Annuity Account I (comprising, respectively, the Money Market, Bond, Balanced,
Large Company Stock and Small Company Stock Subaccounts) as of December 31,
1995, and the related statements of operations and changes in net assets for the
period from June 15, 1995 (commencement of operations) to December 31, 1995.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the AAL Variable Annuity Account I at December 31,
1995, and the results of their operations and changes in their net assets for
the period June 15, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 2, 1996
VAA-8
<PAGE> 47
AID ASSOCIATION FOR LUTHERANS
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Contents
<S> <C>
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAL-2
Statements of Financial Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAL-3
Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAL-4
Statements of Changes in Certificateholders'
Contingency Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAL-5
Statements of Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAL-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AAL-7
</TABLE>
AAL-1
<PAGE> 48
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Aid Association for Lutherans
We have audited the accompanying statements of financial position of
Aid Association for Lutherans (AAL) as of December 31, 1995 and 1994, and the
related statements of operations, changes in certificateholders' contingency
reserves and cash flow for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of AAL's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AAL at December 31,
1995 and 1994, and the results of its operations and its cash flow for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
January 26, 1996
AAL-2
<PAGE> 49
AID ASSOCIATION FOR LUTHERANS
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Bonds $ 10,764,128 $ 10,108,741
Stocks 465,507 264,308
Mortgage loans 3,081,209 2,774,279
Real estate (including
home office properties) 185,580 137,476
Certificate loans 497,041 490,185
Cash and short-term investments 161,364 128,224
Other investments 10,238 11,149
Premiums due and uncollected 1,708 1,872
Investment income due and accrued 202,830 195,700
EDP equipment 22,598 20,259
Other assets 1,254 1,055
Separate Account assets 49,067 -
------------- ------------
TOTAL ASSETS $ 15,442,524 $ 14,133,248
============= ============
LIABILITIES AND CERTIFICATEHOLDERS'
CONTINGENCY RESERVES
Certificate reserves $ 13,835,147 $ 12,734,238
Certificate claims 90,022 84,571
Surplus refunds payable 103,141 105,008
Premiums received in advance
and on deposit 13,339 13,913
Asset valuation reserve 231,551 153,062
Interest maintenance reserve 79,824 67,981
Other liabilities 97,750 96,536
Separate Account liabilities 49,067 -
------------- -----------
TOTAL LIABILITIES 14,499,841 13,255,309
============= ===========
CERTIFICATEHOLDERS' CONTINGENCY RESERVES
(for unforeseen contingencies and
additional assurance that all
certificate benefits will be paid) 942,683 877,939
------------- -----------
TOTAL LIABILITIES AND CERTIFICATEHOLDERS'
CONTINGENCY RESERVES $ 15,442,524 $ 14,133,248
============= ============
</TABLE>
See accompanying notes.
AAL-3
<PAGE> 50
AID ASSOCIATION FOR LUTHERANS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C>
INCOME
Life and health insurance premiums $ 685,437 $ 678,680 $ 678,134
Annuity premiums 743,221 824,273 1,062,502
Certificate proceeds and surplus
refund accumulations 237,337 192,010 161,798
Net investment income 1,110,545 1,025,479 968,229
Interest maintenance reserve
amortization 14,781 11,790 8,433
Other income 2,398 794 5,756
----------- ----------- ----------
TOTAL INCOME 2,793,719 2,733,026 2,884,852
DISPOSITION OF INCOME
Insurance benefits 1,112,138 983,680 875,822
Additions to certificate reserves 1,078,575 1,176,279 1,442,538
Fraternal benefits and expenses 84,937 69,624 61,859
Operating expenses 258,486 246,272 241,509
Net transfers to Separate Accounts 44,440 - -
----------- ----------- ----------
TOTAL DISPOSITION OF INCOME 2,578,576 2,475,855 2,621,728
----------- ----------- ----------
NET GAIN FROM OPERATIONS BEFORE SURPLUS
REFUNDS AND NET REALIZED CAPITAL GAINS 215,143 257,171 263,124
Surplus refunds 102,772 106,651 101,893
----------- ----------- ----------
NET GAIN FROM OPERATIONS BEFORE
NET REALIZED CAPITAL GAINS 112,371 150,520 161,231
Net realized capital gains (excluding
amounts transferred to the interest
maintenance reserve; 1995 - $26,624,000;
1994 - $14,989,000; 1993 - $49,813,000) 2,095 734 1,758
----------- ----------- ----------
NET GAIN FROM OPERATIONS $ 114,466 $ 151,254 $ 162,989
=========== =========== ==========
</TABLE>
See accompanying notes.
AAL-4
<PAGE> 51
AID ASSOCIATION FOR LUTHERANS
STATEMENTS OF CHANGES IN CERTIFICATEHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CERTIFICATEHOLDERS' CONTINGENCY
RESERVES, JANUARY 1 $ 877,939 $ 768,447 $ 630,961
Net gain from operations 114,466 151,253 162,989
Change in net unrealized capital gains 56,950 (14,084) (12,443)
Change in non-admitted assets (3,183) (3,764) (1,224)
Change in statutory asset valuation reserve (78,489) (23,913) (11,836)
Increase in certificate reserves (25,000) - -
---------- ---------- ----------
CERTIFICATEHOLDERS' CONTINGENCY
RESERVES, DECEMBER 31 $ 942,683 $ 877,939 $ 768,447
========== =========== ==========
</TABLE>
See accompanying notes.
AAL-5
<PAGE> 52
AID ASSOCIATION FOR LUTHERANS
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ---------- -----------
(In Thousands)
<S> <C> <C> <C>
SOURCE OF FUNDS
Operations
Premiums and considerations received $ 1,665,618 $ 1,694,916 $ 1,902,649
Investment income received 1,107,393 1,003,019 951,167
Insurance benefits paid (1,106,654) (978,699) (859,568)
Surplus refunds paid (104,673) (104,264) (104,496)
Operating and fraternal expenses paid (345,617) (317,911) (303,333)
Net increase in certificate loans (6,856) (17,699) (16,431)
Transfers to Separate Accounts (47,108) - -
Other sources, net (2,181) 3,184 9,566
------------ ---------- ----------
FUNDS PROVIDED FROM OPERATIONS 1,159,922 1,282,546 1,579,554
Investment sales or proceeds
Bonds 2,191,557 1,409,604 2,316,127
Stocks 123,108 142,492 97,059
Mortgage loans 97,616 97,902 74,539
Real estate 6,362 32,088 1,592
Other, net 287 13 0
------------ ---------- ----------
TOTAL FUNDS PROVIDED 3,578,852 2,964,645 4,068,871
APPLICATION OF FUNDS
Investment purchases
Bonds 2,819,701 2,359,599 3,500,993
Stocks 230,766 174,443 163,639
Mortgage loans 477,264 467,905 320,927
Real estate 18,046 11,118 3,873
Other investments 1,925 414 0
Other applications (sources) (1,990) (5,316) 4,671
------------ ---------- ----------
TOTAL FUNDS APPLIED 3,545,712 3,008,163 3,994,103
------------ ---------- ----------
NET CHANGE IN CASH AND SHORT-TERM
INVESTMENTS 33,140 (43,518) 74,768
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 128,224 171,742 96,974
------------ ---------- ----------
CASH AND SHORT-TERM INVESTMENTS AT
EMD OF YEAR $ 161,364 $ 128,224 $ 171,742
============ ========== ==========
</TABLE>
See accompanying notes.
AAL-6
<PAGE> 53
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
AAL is the nation's largest fraternal benefit society in terms of assets and
individual life insurance in force. It provides its 1.7 million members with
life insurance and retirement products (both fixed and variable), as well as
disability income and long-term care insurance, in most states. Mutual funds
are offered to members by AAL's wholly-owned subsidiary, AAL Capital Management
Corporation. Credit union services are available to members from the AAL
Member Credit Union, an affiliate of AAL. AAL members are served by more than
2,000 district representatives across the country.
BASIS OF PRESENTATION
The accompanying financial statements of AAL have been prepared in conformity
with accounting practices prescribed by the Office of the Commissioner of
Insurance of the State of Wisconsin. Such practices presently are regarded as
generally accepted accounting principles (GAAP) for fraternal life insurance
companies. However, beginning in 1996, under the requirements of Financial
Accounting Standards Board (FASB) Interpretation 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises," as amended, financial statements prepared on the basis of
statutory accounting practices will no longer be described as prepared "in
conformity with GAAP." During 1995, the FASB issued Statement of Financial
Accounting Standards No. 120 (Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts), which is also effective for 1996. The Statement
extends certain GAAP accounting guidance for insurance activities to the GAAP
financial statements of fraternal benefit societies. Management anticipates
issuing GAAP financial statements for 1996 on the basis prescribed by FASB
Interpretation No. 40 and Statement No. 120.
The significant accounting practices used in preparation of the financial
statements are summarized below:
VALUATION OF INVESTMENTS
Investment values are determined in accordance with methods prescribed by the
National Association of Insurance Commissioners (the NAIC). Generally, bonds
are valued at amortized cost. Mortgage-backed securities frequently experience
repayment of principal prior to contractual due dates. Payment assumptions are
consistent with the current interest rate and economic environment using the
prospective adjustment method. Premium and discount amortization is calculated
on the level yield method and is adjusted to reflect anticipated payment
patterns.
Stocks of unaffiliated companies are reported at market value as determined by
the Securities Valuation Office of the NAIC. The cost of stocks of
unaffiliated companies at December 31, 1995 and 1994, was $364,543,000 and
$244,635,000, respectively. Common stock of a wholly-owned subsidiary (AAL
Holdings, Inc.) is carried under the statutory equity method. The cost and
equity of Holdings were $22,560,000 and $12,298,000, respectively, at December
31, 1995 and $21,560,000 and $10,616,000, respectively, at December 31, 1994.
Investment real estate is valued at original cost less accumulated depreciation
and write-downs, or market, whichever is lower.
AAL-7
<PAGE> 54
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS (CONTINUED)
Depreciation is computed using both straight-line and constant-yield methods
over the estimated useful lives of the property. Accumulated depreciation and
write-downs were $56,289,000 and $49,806,000, at December 31, 1995 and 1994,
respectively. Mortgage loans are generally valued at the aggregate unpaid
balances less write-downs on specific mortgages. Certificate loans are
generally valued at the aggregate unpaid balances. Other investments,
consisting of joint ventures, are valued on the statutory equity basis.
Realized gains and losses on the sale of investments are determined based on
the specific identification of investments sold and are reflected in the
Statements of Operations, excluding amounts transferred to the Interest
Maintenance Reserve. Unrealized gains and losses from changes in asset values
(including the net income or loss of subsidiaries) are reflected directly in
Certificateholders' Contingency Reserves.
EDP EQUIPMENT
EDP equipment is stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
equipment. Accumulated depreciation was $40,697,000 and $40,511,000, at
December 31, 1995 and 1994, respectively.
NON-ADMITTED ASSETS
Certain assets, such as furniture and equipment and agents' debit balances, are
determined to be "non-admitted" by the NAIC and are not included in the
Statements of Financial Position. Changes in non-admitted assets are reflected
directly in Certificateholders' Contingency Reserves.
CERTIFICATE RESERVES
Reserves for life insurance certificates are calculated using mainly the
Illinois Standard and Commissioners' Reserve Valuation Methods based upon the
1941, 1958 and 1980 Commissioners' Standard Ordinary and American Experience
Mortality Tables with assumed interest rates ranging from 2.5 percent to 4
percent. Reserves for annuities, supplementary contracts with life
contingencies and other benefits are computed using recognized and accepted
mortality tables and methods, which equal or exceed the minimum reserves
calculated under the Commissioners' Annuity Reserve Valuation Method. Accident
and health certificate reserves are generally calculated using both the
two-year preliminary term and the net level premium methods based upon various
morbidity tables. These reserve assumptions are designed to be sufficient to
provide for all contractual benefits.
AAL waives deduction of deferred fractional premiums upon death of insureds and
returns any portion of the final premium beyond the date of death. Surrender
values are not promised in excess of the legally computed reserves.
AAL's practice, which has become policy, is to guarantee excess interest for
each quarter on its universal life business. During 1995, AAL increased
certificate reserves by $25,000,000 to reflect the guarantee.
AAL-8
<PAGE> 55
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ASSET VALUATION RESERVE
The Asset Valuation Reserve is a contingency reserve classified as an
obligation and is maintained for protection against possible future capital
losses on bonds, stocks, mortgage loans, real estate and other invested assets.
Changes in this reserve are reflected directly in Certificateholders'
Contingency Reserves.
INTEREST MAINTENANCE RESERVE
The Interest Maintenance Reserve accumulates realized capital gains and losses
on bonds and mortgages attributed to changes in the general level of interest
rates. These deferred gains and losses are amortized into income over the
approximate remaining lives of the individual investments sold.
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying statements
of financial position represent funds that are separately administered,
principally for annuity contracts, and for which the certificateholder, rather
than AAL, bears the investment risk. Separate account certificateholders have
no claim against the assets of the general account of AAL. Separate account
assets are reported at market value. The operations of the separate accounts
are not included in the accompanying financial statements. Fees charged on
separate account certificateholder deposits are included in net transfers to
separate accounts.
ACQUISITION COSTS AND PREMIUM REVENUES
Commissions and other acquisition costs are charged to expense as incurred,
while premiums are taken into income over the premium-paying period of the
certificates.
SURPLUS REFUNDS
Surplus refunds to be paid in the following year are reflected in the
Statements of Operations for the current year. The majority of life insurance
certificates, except for universal life (Horizon) certificates, begin to
receive surplus refunds at the end of the second certificate year. Surplus
refunds are not currently being paid on annuity and health insurance
certificates. Surplus refund scales are approved annually by AAL's Board of
Directors.
INCOME TAXES
AAL, a fraternal benefit society, qualifies as a tax-exempt organization under
the Internal Revenue Code. Accordingly, income received by AAL is generally
exempt from taxation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
AAL-9
<PAGE> 56
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STTEMENTS (CONTINUED)
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS
The carrying amounts reported in the Statements of Financial Position for
these instruments approximate their fair values.
INVESTMENT SECURITIES
Fair values for bonds are based on quoted market prices where
available, or are estimated using values obtained from independent pricing
services. All bond issues are individually priced based on year-end market
conditions, the credit quality of the issuing company, the interest rate and
the maturity of the issue. The fair values for investments in stocks of
unaffiliated companies are based on quoted market prices.
MORTGAGE LOANS
The fair values for mortgage loans are estimated using discounted cash
flow analyses, based on interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
CERTIFICATE LOANS
The carrying amounts reported in the Statements of Financial Position
for these loans are considered to be reasonable estimates of their fair
value.
FINANCIAL LIABILITIES
The fair values for AAL's liabilities under investment-type contracts,
such as deferred annuities and other liabilities, including supplementary
contracts without life contingencies, deferred income settlement options and
refunds on deposit, are estimated to be the cash surrender value payable upon
immediate withdrawal. These amounts are included in certificate reserves in
the Statements of Financial Position.
AAL-10
<PAGE> 57
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
BONDS
The admitted value and estimated fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Admitted Unrealized Unrealized Fair
Value Gains Losses Value
--------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1995:
U.S. Treasury securities
and non-loan backed
obligations of U.S.
Government corporations
and agencies $ 60,412 $ 3,385 $ (328) $ 63,469
Loan backed obligations of
U.S. Government
corporations and agencies 759,228 33,966 (154) 793,040
Obligations of other
governments, states and
political subdivisions 358,254 16,842 (244) 374,852
Corporate bonds 6,994,612 363,262 (9,742) 7,348,132
Mortgage-backed bonds 2,591,622 40,920 (10,008) 2,622,534
----------- ---------- ---------- -----------
Total bonds $10,764,128 $ 458,375 $ (20,476) $11,202,027
=========== ========== ========== ===========
At December 31, 1994:
U.S. Treasury securities
and non-loan backed
obligations of U.S.
Government corporations
and agencies $ 58,848 $ 978 $ (4,441) $ 55,385
Loan backed obligations of
U.S. Government
corporations and agencies 511,373 4,813 (25,928) 490,258
Obligations of other
governments, states and
political subdivisions 349,965 67 (23,846) 326,186
Corporate bonds 6,525,314 65,470 (339,015) 6,251,769
Mortgage-backed bonds 2,663,241 2,388 (226,894) 2,438,735
----------- ---------- ---------- -----------
Total bonds $10,108,741 $ 73,716 $ (620,124) $ 9,562,333
=========== ========== ========== ===========
</TABLE>
AAL-11
<PAGE> 58
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
BONDS (CONTINUED)
The admitted value and estimated fair value of bonds at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Admitted Fair
Value Value
----------- -----------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 203,934 $ 206,011
Due after one year through five years 3,522,014 3,656,803
Due after five years through ten years 2,965,944 3,144,455
Due after ten years 721,386 779,184
----------- -----------
Total bonds excluding mortgage-backed bonds 7,413,278 7,786,453
Loan-backed obligations of U.S. Government
corporations and agencies 759,228 793,040
Mortgage-backed bonds 2,591,622 2,622,534
----------- -----------
Total bonds $10,764,128 $11,202,027
=========== ===========
</TABLE>
Proceeds from sales of investments in bonds (net of maturities,
prepayments and calls) were $1,516,563,000, $89,785,000, and $262,340,000 in
1995, 1994, and 1993, respectively. Gross gains of $23,466,000, $3,495,000, and
$18,616,000 and gross losses of $3,484,000, $2,000 and $22,000 were realized on
those bond sales in 1995, 1994, and 1993, respectively.
AAL-12
<PAGE> 59
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS
AAL manages its investments in mortgage loans to limit credit risk by
diversifying among various geographic regions and property types as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
Estimated Estimated
Admitted Fair Admitted Fair
Value Value Value Value
---------- ----------- ---------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Geographic Region:
Pacific $1,085,996 $1,249,583 $1,050,137 $1,057,069
South Atlantic 1,107,227 1,269,651 996,124 997,208
Midwest 567,176 636,774 502,047 492,703
Other 320,810 355,306 225,971 217,786
---------- ---------- ---------- ----------
Total Mortgage Loans $3,081,209 $3,511,314 $2,774,279 $2,764,766
========== ========== ========== ==========
Property Type:
Office $ 999,914 $1,151,818 $ 986,204 $ 987,624
Industrial 928,672 1,063,008 798,498 805,435
Retail 428,087 486,406 380,995 376,392
Residential 356,938 402,459 293,130 290,650
Church 160,560 170,323 150,268 139,876
Other 207,038 237,300 165,184 164,789
---------- ---------- ---------- ----------
Total Mortgage Loans $3,081,209 $3,511,314 $2,774,279 $2,764,766
========== ========== ========== ==========
</TABLE>
AAL-13
<PAGE> 60
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER FINANCIAL INSTRUMENTS
The admitted value and estimated fair value of AAL's other financial
instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ---------------------
Estimated Estimated
Admitted Fair Admitted Fair
Value Value Value Value
--------- --------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Other Financial Assets:
Cash and short-term
investments $ 161,364 $ 161,364 $ 128,224 $ 128,224
Stocks of unaffiliated
companies 453,209 453,209 253,692 253,692
Certificate loans 497,041 497,041 490,185 490,185
Financial Liabilities:
Deferred annuities 7,063,712 7,047,240 6,517,345 6,507,965
Other 471,120 469,475 418,309 416,958
</TABLE>
NOTE 3. CERTIFICATE RESERVES
A portion of AAL's certificate reserves relate to liabilities established on a
variety of products, primarily annuities, that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. A summary of
the certificate reserves on these products by withdrawal characteristics is as
follows: (1994 amounts have been reclassified to agree with 1995 presentation.)
<TABLE>
<CAPTION>
1995
----------------------
Amount Percent
---------- ---------
(In Thousands)
<S> <C> <C>
Subject to discretionary withdrawal at book value less
surrender charge of 5 percent or more $1,422,693 17.61
Subject to discretionary withdrawal at market value 49,067 0.61
Subject to discretionary withdrawal at book value
(minimal or no charge or adjustment) 6,177,074 76.46
Not subject to discretionary withdrawal provision 429,608 5.32
---------- ------
Total annuity and deposit liability reserves $8,078,442 100.00
========== ======
</TABLE>
AAL-14
<PAGE> 61
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. CERTIFICATE RESERVES (CONTINUED)
<TABLE>
<CAPTION>
1994
-------------------------
Amount Percent
-------------- -------
(In Thousands)
<S> <C> <C>
Subject to discretionary withdrawal at book value less
surrender charge of 5 percent or more $1,923,819 26.12
Subject to discretionary withdrawal at market value 0 0.00
Subject to discretionary withdrawal at book value
(minimal or no charge or adjustment) 5,076,733 68.92
Not subject to discretionary withdrawal provision 365,110 4.96
---------- ------
Total annuity and deposit liability reserves $7,365,662 100.00
========== ======
</TABLE>
As of December 31, 1995 and 1994, AAL had $2,251,936,000 and $4,472,828,000,
respectively, of insurance in force for which the gross premiums are less than
the net premiums according to the standard valuation requirements set by the
State of Wisconsin. Certificate reserves related to the above insurance totaled
$7,654,000 and $4,567,000 at December 31, 1995 and 1994, respectively.
NOTE 4. RETIREMENT AND SAVINGS PLANS
RETIREMENT PLANS
AAL has noncontributory defined benefit pension plans covering substantially
all home office and field employees. AAL makes annual contributions to the
plans that meet or exceed the minimum amounts specified by the Employee
Retirement Income Security Act of 1974. AAL contributed $4,778,000,
$4,053,000, and $3,313,000 to the plans in 1995, 1994, and 1993, respectively.
The accumulated benefit obligation does not reflect the actual benefits that
will be paid on retirement, but rather the liability that would exist if the
plans were terminated as of the valuation dates. Therefore, as part of the
funding process that considers future benefits, net assets are held in excess
of the accumulated benefit obligation.
Pension plan assets are invested primarily in corporate bonds, certificates of
deposit and listed stocks.
AAL-15
<PAGE> 62
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RETIREMENT AND SAVINGS PLANS (CONTINUED)
RETIREMENT PLANS (CONTINUED)
The following tables set forth the amounts recognized in AAL's financial
statements and the plans' funding status.
<TABLE>
<CAPTION>
December 31
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (132,823) $ 117,037
Nonvested benefits (5,854) 6,442
---------- ----------
Accumulated benefit obligation $ (138,677) $ 123,479
========== ==========
Projected benefit obligation for service
rendered to date $ (190,028) $ (165,555)
Plan assets at fair value 213,512 172,058
---------- ----------
Funded status--excess of plan assets
over projected benefit obligation 23,484 6,503
Unrecognized net gain (loss) from actual
experience different from that assumed
and impact of changes in assumptions (13,876) 6,092
Prior service benefit not yet recognized
in net pension cost 969 (465)
Unrecognized net obligation at transition
to Statement No. 87 on January 1, 1987,
being recognized over a period of 18 years (13,733) (15,769)
---------- ----------
Accrued pension liability included in
other liabilities $ (3,156) $ (3,639)
========== ==========
</TABLE>
AAL-16
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RETIREMENT AND SAVINGS PLANS (CONTINUED)
RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
December 31
1995 1994 1993
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Net pension cost includes the following
components:
Service cost $ 7,736 $ 8,504 $ 6,691
Interest cost 13,724 12,201 10,875
Termination benefits 0 0 1,249
Actual return on plan assets (45,008) 2,013 (12,920)
Net amortization and deferred items 27,844 (18,686) (2,245)
--------- --------- ---------
Net pension cost $ 4,296 $ 4,032 $ 3,650
========= ========= =========
</TABLE>
The termination benefits relate to the adoption of a voluntary early retirement
program, effective January through March 1993. This temporary program
provided enhanced benefits to employees in the major medical product line that
elected early retirement.
The following summarizes certain assumptions included in the preceding
schedules:
<TABLE>
<CAPTION>
December 31
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Assumed discount rate 8.0% 8.5% 7.5%
Expected long-term rate of return on
plan assets 8.5% 8.5% 8.5%
Rate of increase in future
compensation levels 4.0-6.0% 4.0-6.0% 4.0-6.0%
</TABLE>
SAVINGS PLAN
AAL also has a contributory savings plan covering substantially all home office
and field employees. The plan is defined under Internal Revenue Code section
401(k) as a profit sharing savings plan that allows participant contributions
on a before-tax basis as well as an after-tax basis. AAL's total contributions
to the plan for 1995, 1994, and 1993 were $3,537,000, $3,467,000, and
$3,679,000, respectively.
AAL-17
<PAGE> 64
AID ASSOCIATION FOR LUTHERANS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
AAL provides health and life insurance benefits for substantially all retired
home office and field employees. AAL accrues for the projected future cost of
providing postretirement benefits other than pensions as an expense as
employees' rights to those benefits vest.
Postretirement benefit costs for the years ended December 31, 1995, 1994 and
1993 were $3,400,000, $3,100,000, and $2,800,000, respectively. These
amounts include the expected cost of postretirement benefits for newly eligible
or vested employees, interest cost and gains and losses arising from
differences between actuarial assumptions and actual experience.
At December 31, 1995 and 1994, the unfunded postretirement benefit obligation
for retirees and other fully eligible or vested plan participants reported as
part of other liabilities was $24,500,000 and $26,100,000, respectively. The
estimated cost of the benefit obligation for active nonvested employees at
December 31, 1995 and 1994 was $11,300,000 and $11,000,000, respectively. The
discount rate used in determining the accumulated postretirement benefit
obligation was 8.0 percent (8.5 percent in 1994) and generally, the health care
cost trend rate estimate was 6.0 percent per year.
The health care cost trend rate assumption can have a significant effect on the
amounts reported. However, a one percentage point increase in the assumed
health care cost trend rate would not be significant to AAL.
NOTE 6. CONTINGENT LIABILITIES
AAL is involved in various lawsuits and contingencies that have arisen from the
normal conduct of business. Contingent liabilities arising from litigation, tax
and other matters are not considered material in relation to the financial
position of AAL. AAL has not made any provision in the financial statements
for liabilities, if any, that might ultimately result from these contingencies.
AAL-18
<PAGE> 65
AAL VARIABLE ANNUITY
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this amended Registration
Statement and has caused this amended Registration Statement to be signed on
its behalf in the City of Appleton and State of Wisconsin on this 10th day of
April, 1996.
AAL VARIABLE ANNUITY ACCOUNT I
(Registrant)
By: AID ASSOCIATION FOR LUTHERANS
(Depositor, on behalf of itself and Registrant)
By: /s/ Richard R. Gunderson
-----------------------------------
Richard L. Gunderson
Chairman of the Board and
Chief Executive Officer
As required by the Securities Act of 1933, this amended Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated:
/s/ Richard L. Gunderson Chairman of the Board
- ------------------------ and Chief Executive Officer
Richard L. Gunderson (Principal Executive Officer) April 10, 1996
/s/ Roger J. Johnson Chief Financial Officer
- -------------------- (Principal Financial Officer,
Roger J. Johnson Principal Accounting Officer) April 10, 1996
All of the Board of Directors:
Herbert J. Arkebauer Gary J. Greenfield Robert E. Long
Raymond G. Avischious Richard L. Gunderson Robert B. Peregrine
Richard E. Beumer John O. Gilbert Kathi P. Seifert
Kenneth Daly James W. Hanson Roger G. Wheeler
Elizabeth A. Duda Robert H. Hoffman E. Marlene Wilson
Edward A. Engel Arnold G. Kuntz
Mark J. Mahoney, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named Directors of Aid Association for Lutherans
pursuant to powers of attorney duly executed by such persons.
/s/ Mark J. Mahoney April 10, 1996
- -------------------------
Mark J. Mahoney
Attorney-in-Fact
<PAGE> 66
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
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
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
INDEPENDENT AUDITORS
Ernst & Young LLP
111 East Kilbourn Avenue, Suite 900
Milwaukee, Wisconsin 53202
[AAL Capital Management Corporation Logo]
AAL Capital Management Corporation
is the distributor of the AAL Variable Annuity
and is a wholly-owned subsidiary of:
Aid Association for Lutherans
4321 North Ballard Road, Appleton, WI 54919-0001
130 17P 5/96
<PAGE> 67
AAL VARIABLE ANNUITY
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Part A: Selected Accumulation Unit Data.
Part B:
AAL Variable Annuity Account I The following audited
financial statements of AAL Variable Annuity Account I as
of December 31, 1995 and the fiscal period then ended
are included in Part B:
Report of Independent Auditors
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Aid Association for Lutherans The following audited
financial statements of Aid Association for Lutherans
("Depositor") as of December 31, 1995 and December 31,
1994, and for each of the three years in the period ended
December 31, 1995, are included in Part B:
Report of Independent Auditors
Statements of Financial Position
Statements of Operations
Statements of Changes in Certificateholders' Contingency
Reserves
Statements of Cash Flow
Notes to Financial Statements
(b) Exhibits:
1. Resolution of the Board of Directors of the Depositor
authorizing the establishment of AAL Variable Annuity Account
I.*
2. Not applicable.
3. Principal Underwriting and Servicing Agreement by and
between the Depositor and AAL Capital Management Corp.*
4. Individual Certificate Forms:
(a) Adult Certificate.*
(b) Juvenile Certificate (excluding variation page applicable
to section 3.4).*
(c) IRA Endorsement.*
(d) 403(b) Endorsement.
(e) Variation Pages applicable to either Adult or Juvenile
Certificates:
(i) Return of premium paid for 20 day free look states.*
(ii) Allocation of premium to the Money Market Subaccount
for 20 day free look states (section 3.4).*
(iii) Return of premium for 10 day free look states.*
(iv) Cancellation of Certificate by notification by
telegram.*
<PAGE> 68
AAL VARIABLE ANNUITY
(v) Interest penalty for delay of payment of more than
30 days for replacements.*
(vi) Ten percent interest penalty for delay of payment of
more than 30 days.*
(vii) Increased guaranteed interest rate for the Fixed
Period Income Settlement Option.*
(viii) Annuity proceeds to equal accumulated value of the
Certificate on the annuity commencement date.*
(ix) State law to control over conflicting statutes
pertaining to Certificate provisions.*
(x) Unisex tables used for the calculation of
settlement options.*
(xi) Certificate Maintenance Charge for accumulated
values in subaccounts.*
(xii) Interest on delayed payment calculated according to
state law.*
(xiii) Receipt and acceptance of amendments to the
Certificate.*
(xiv) Adjustments to amounts payable due to incorrect age
or sex.*
(xv) Interest on Death Proceeds.*
5. (a) Certificate Application Form (including Telephone
Transaction Authorization).*
(i) Standard Application.*
(ii) Application for Community Property States.*
(b) Certificate Computer Application Form (including
Telephone Transaction Authorization):
(i) Standard Application.*
(ii) Application for Community Property States.*
(c) Variable Annuity Option Selection Form.*
(d) Section 1035 Exchange Form.*
(e) IRA Disclosure Statement.*
6. (a) Articles of Incorporation of Depositor.*
(b) Bylaws of Depositor.*
7. Not applicable.
8. (a) Service Agreement with Vantage Computer Systems,
Inc., now known as The Continuum Company, Inc.*
(i) Amendment to the Service Agreement with Vantage
Computer Systems, Inc. (excluding exhibits), now
known as The Continuum Company, Inc.*
(ii) Second Amendment to the Service Agreement with
Vantage Computer Systems, Inc. (excluding exhibits),
now known as The Continuum Company, Inc.*
(b) Participation Agreement by and between Depositor, on its
own behalf and on behalf of AAL Variable Account I, and
AAL Variable Product Series Fund, Inc.*
(c) Trade Name/Service Mark Licensing Agreement by and between
Depositor and AAL Variable Product Series Fund, Inc.*
9. Opinion of Counsel as to the legality of the securities being
registered (including written consent).*
C-2
<PAGE> 69
AAL VARIABLE ANNUITY
10. Consent of Independent Auditors.
11. Not applicable.
12. Agreement or Understanding providing Initial Capital (Stock
Subscription Agreement).*
13. Schedules for computation of each performance quotation
provided in the Registration Statement in response to Item 21
thereof.
14. A Financial Data Schedule meeting the requirements of Rule
483(e) under the Securities Act of 1933 is being filed as
Exhibit 27 hereof as dictated by the Commission's Electronic
Data Gathering and Retrieval System ("EDGAR").
15(a). Powers of Attorney for the following:*
Herbert J. Arkebauer James W. Hanson
Raymond G. Avischious Robert H. Hoffman
Richard E. Beumer Arnold G. Kuntz
Kenneth Daly Robert E. Long
Elizabeth A. Duda Robert B. Peregrine
Edward A. Engel Roger G. Wheeler
Gary J. Greenfield Marlene Wilson
Richard L. Gunderson
15(b). Power of Attorney for Kathi P. Seifert.*
15(c). Power of Attorney for John O. Gilbert.
27. Financial Data Schedule.
_____________________________________
* Exhibits 1, 2(c), 4(d), 5(a), 5(e), 6(a), 6(b), 8(a), and 9 were
previously filed in the initial filing, dated July 28, 1994, of
Registrant's Form N-4 Registration Statement.
Exhibits 3, 4(a), 4(b), 4(e)(i)-(vi), 8(a)(i), 8(b), 8(c), 12 and 15(a)
were previously filed in Pre-Effective Amendment No. 1, dated December
22, 1994, to Registrant's Form N-4 Registration Statement.
Exhibits 4(e)(vii)-(xv), 5(b), 5(c), 5(d), 8(a)(ii), 8(d) and 15(b) were
previously filed in Post-Effective Amendment No. 1, dated June 13, 1995,
to Registrant's Form N-4 Registration Statement.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors, executive officers, and, to the extent responsible for variable
annuity operations, other officers of Depositor are listed below:
C-3
<PAGE> 70
AAL VARIABLE ANNUITY
Name and
Principal Positions and Offices
Business Address with Depositor
- ---------------- ---------------------
Richard Gunderson Chairman of the Board and
4321 North Ballard Road Chief Executive Officer
Appleton, WI 54919
John O. Gilbert Director, President and
4321 North Ballard Road Chief Operating Officer
Appleton, WI 54919
Herbert J. Arkebauer Director
Professor
Speech and Hearing Science
Southwest State University
Springfield, MO
Raymond G. Avischious Director
formerly President & General Manager
Shurfine-Central
4200 Oaksbury Lane
Rolling Meadows, IL 60008
Richard E. Beumer Director
President
Sverdrup Corporation
13723 Riverport Drive
Maryland Heights, MO 63043
Kenneth Daly Director
Partner
KPMG Peat Marwick
1600 Market Street
Philadelphia, PA 19103-7201
Elizabeth A. Duda Director
2450 Mikler Road
Oviedo, FL 32765
Edward A. Engel Director
President
Edward A. Engel & Associates
P.O. Box 2039
Birmingham, MI 48012
Gary J. Greenfield Director
President
Wisconsin Lutheran College
8830 West Bluemound Road
Milwaukee, WI 53226
C-4
<PAGE> 71
AAL VARIABLE ANNUITY
James W. Hanson Director
formerly Chief Economist
Exxon Corporation New York
505 High Point Drive
Mount Dora, FL 32757
Robert H. Hoffman Director
Vice President
Taylor Corporation
1725 Roe Crest Drive
P.O. Box 3728
North Mankato, MN 56002-3728
Arnold G. Kuntz Director
formerly Director of Congregational
Relations
Christ College
5751 Richmond Avenue
Garden Grove, CA 92645
Robert E. Long Director
Senior Vice President Administration
Park Bank
7540 West Capitol Drive
Milwaukee, WI 53216
Robert B. Peregrine Director
President
Peregrine Law Offices, S.C.
633 West Wisconsin Avenue
Milwaukee, WI 53203
Kathi P. Seifert Group President Director
Kimberly Clark Corp.
Neenah, WI 54956
Roger G. Wheeler Director
President
Wheel-Air Charter, Inc.
8891 Airport Road
Minneapolis, MN 55449
E. Marlene Wilson Director
President
Volunteer Management Associates
1113 Spruce Street, Suite 406
Boulder, CO 80302
Roger J. Johnson Senior Vice President,
4321 North Ballard Road Chief Financial Officer and
Appleton, WI 54919 Treasurer
C-5
<PAGE> 72
AAL VARIABLE ANNUITY
Woodrow E. Eno, Esq. Senior Vice President,
222 West College Avenue Secretary and General Counsel
Appleton, WI 54911
Ronald G. Anderson Senior Vice President and
222 West College Avenue Chief Investment Officer
Appleton, WI 54911
Jerry Laubenstein Senior Vice President
4321 North Ballard Road
Appleton, WI 54919
Steve Weber Senior Vice President
4321 North Ballard Road
Appleton, WI 54919
Kevin Van Eron Senior Vice President
222 West College Avenue
Appleton, WI 54919
D. Charles DeVries Vice President
4321 North Ballard Road
Appleton, WI 54919
Carl Rudolph Vice President & Controller
4321 North Ballard Road
Appleton, WI 54919
James H. Abitz Vice President
222 West College Avenue
Appleton, WI 54919
James Jawort Second Vice President
4321 North Ballard Road
Appleton, WI 54919
Gary Mounce Assistant Vice President
4321 North Ballard Road
Appleton, WI 54919
Mark Mahoney Assistant General Counsel,
222 West College Avenue Insurance
Appleton, WI 54911 Products and Securities
Charles Egli Assistant General Counsel,
222 West College Avenue Employment, Tax and Fraternal
Appleton, WI 54911 and Assistant Secretary
Carl M. Rizzo Assistant General Counsel,
222 West College Avenue Securities
Appleton, WI 54911 and Compliance
C-6
<PAGE> 73
AAL VARIABLE ANNUITY
Dan Shinnick Second Vice President
4321 North Ballard Road
Appleton, WI 54919
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
Registrant is a separate account of Depositor, established by the Board of
Directors of Depositor in 1994, pursuant to the laws of the State of Wisconsin.
Depositor is a fraternal benefit society organized under the laws of the State
of Wisconsin and is owned by and operated for its members. It has no
stockholders and is not subject to the control of any affiliated persons.
Depositor controls the following wholly-owned direct and indirect subsidiaries:
(a) AAL Holdings, Inc., a Delaware corporation that is a holding company that
has no independent operations; (b) AALCMC, a Delaware corporation that is a
registered broker-dealer; and (c) North Meadows Investment Ltd., a Wisconsin
corporation organized for the purpose of holding and investing in real estate.
AAL may be deemed to be a control person of the Bond and Balanced Portfolios of
AAL Variable Product Series Fund, Inc. ("Fund"), a Maryland corporation
organized as an open-end management investment company, because of its
beneficial ownership of more than 25% of those Portfolios' outstanding voting
securities. Financial statements of AAL are filed on a consolidated basis with
regard to each of the foregoing entities, other than the Fund, which files
separate financial statements.
ITEM 27. NUMBER OF CERTIFICATE OWNERS
As of March 31, 1996, there were approximately 3,852 qualified and 3,182
non-qualified Certificate owners.
ITEM 28. INDEMNIFICATION
Section 32 of Depositor's Bylaws, filed as an Exhibit to this Registration
Statement, Section E, subsection (viii) of Article Seventh of the Fund's
Articles of Incorporation and Article X of the Fund's Bylaws, and Section Eight
of AALCMC's Articles of Incorporation, contain provisions requiring the
indemnification by Depositor, the Fund, and AALCMC of their respective
directors, officers and certain other individuals for any liability arising
based on their duties as directors, officers or agents of the Depositor, Fund
or AALCMC, unless, in the case of the Fund, such liability arises due to the
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such office.
In addition, Section 3 of the Investment Advisory Agreement between the Fund
and AAL contains a provision in which the Fund and AAL mutually agree to
indemnify and hold the other party (including its officers, agents, and
employees) harmless for any and all loss, cost damage and expense, including
reasonable attorney's fees, incurred by the other party arising out of their
performance under the Agreement, unless such liability is incurred as a result
of the party's gross negligence, bad faith, or willful misfeasance or reckless
disregard of its obligations and duties under the Agreement.
Sections 15 and 16 of the Transfer Agency Agreement between the Fund and AAL
provide that each party shall indemnify the other for certain liability.
Section 15 states that AAL shall act in good faith and use best efforts within
reasonable limits to ensure the accuracy of the services performed for the
Fund, but assumes no responsibility for loss or damage due to errors. However,
AAL will hold the Fund harmless from all loss, cost damage and expense,
including reasonable attorney's fees, incurred by the Fund as a result of AAL's
gross negligence, bad faith, or willful misfeasance or by reason of its
reckless disregard of its obligations and duties under the Agreement, or that
of its officers, agents and employees. The Fund shall indemnify and hold AAL
harmless for all loss, cost damage and expense resulting from the performance
of its duties, unless due to the gross negligence, bad faith, willful
misfeasance or reckless disregard of its obligations on the part of AAL, its
officers, employees and agents.
C-7
<PAGE> 74
AAL VARIABLE ANNUITY
Section 7 of the Participation Agreement between AAL and the Fund contains a
provision in which the Fund and AAL mutually agree to indemnify and hold the
other party (including its officers, agents, and employees) harmless for any
and all loss, cost damage and expense, including reasonable attorney's fees,
incurred by the other party arising out of their performance under the
Agreement, unless such liability is incurred as a result of the party's gross
negligence, bad faith, or willful misfeasance or reckless disregard of its
obligations and duties under the Agreement.
Section 8 of the Principal Underwriting and Servicing Agreement between AAL and
AALCMC contains a provision in which AAL and AALCMC mutually agree to indemnify
and hold the other party (including its officers, agents, and employees)
harmless for any and all loss, cost damage and expense, including reasonable
attorney's fees, incurred by the other party arising out of their performance
under the Agreement, unless such liability is incurred as a result of the
party's gross negligence, bad faith, or willful misfeasance or reckless
disregard of its obligations and duties under the Agreement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Registrant, pursuant to the foregoing provisions or otherwise, Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Depositor, the Fund or
AALCMC of expenses incurred or paid by a director or officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of
Registrant in connection with the securities being registered, Depositor, the
Fund or AALCMC will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether or not such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
An insurance company blanket bond is maintained, providing $10,000,000 coverage
for officers and employees of Aid Association for Lutherans, Depositor, the
Fund and AALCMC, and $750,000 coverage for their general agents and Depositor's
Representatives, both subject to a $100,000 deductible.
ITEM 29. PRINCIPAL UNDERWRITER
(a) AALCMC, the principal underwriter of the Certificates, is also the
distributor of the shares of The AAL Mutual Funds, a Massachusetts Business
Trust offering a series of individual funds, including The AAL Smaller Company
Stock Fund, The AAL Capital Growth Fund, The AAL Bond Fund, The AAL
International Fund, The AAL Municipal Bond Fund, The AAL Money Market Fund, The
AAL Utilities Fund, The AAL U.S. Government Zero Coupon Target Fund Series 2001
and The AAL U.S. Government Zero Coupon Target Fund Series 2006, all of which
are diversified open-end management investment companies.
(b) The directors and principal officers of AALCMC are set out below. Unless
otherwise indicated, the principal business address of each person named below
is 222 West College Avenue, Appleton, Wisconsin 54911.
Name and
Principal Positions and Offices
Business Address with Underwriter
---------------- ---------------------
John O. Gilbert Director
James H. Abitz Director
C-8
<PAGE> 75
AAL VARIABLE ANNUITY
Ronald G. Anderson Director
H. Michael Spence Director and President
Robert G. Same Senior Vice President,
125 N. Superior Street Secretary and Director
Appleton, WI 54911
Terrance P. Gallagher Senior Vice President,
Chief Financial
Officer, Controller,
Treasurer and Director
Kenneth E. Podell Assistant Secretary
Joseph H. Thomas Vice President
Robert Roth Vice President
Stanley H. Herman Vice President
1427 Hidden Oaks Circle
Corinth, TX 76205
Murray Ruffell Vice President
1193 Salt Marsh Circle
Ponte Vedra Beach, FL 32082
Lori Richardson Vice President
Joseph Wreschnig Assistant Vice President
125 N. Superior Street and
Appleton, WI 54911 Assistant Secretary
Paul Stadler Assistant Vice President
Charles Gariboldi Assistant Vice President
Byron Vielehr Assistant Vice President
Charles Friedman Assistant Vice President
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of Registrant are located at the offices of the
Depositor at 4321 North Ballard Road, Appleton, Wisconsin 54919, and 222 West
College Avenue, Appleton, Wisconsin 54911, and at the office of its
administrator, The Continuum Company, Inc., at 301 West 11th Street, Kansas
City, Missouri, 64105.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
C-9
<PAGE> 76
AAL VARIABLE ANNUITY
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in this Registration Statement are never more
than 16 months old for so long as payments under the Certificates may be
accepted.
(b) Registrant undertakes to include either: (1) as part of any application
to purchase a Certificate offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or
(2) a postcard or similar written communication affixed to or included in
the Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
or financial statements required to be made available under this Form
promptly, upon either written or oral request.
WITHDRAWAL RESTRICTIONS FOR 403(B) PLANS
The Tax Reform Act of 1986 added to the Internal Revenue Code a new Section
403(b)(11), which applies to tax years beginning after December 31, 1988. This
paragraph provides that withdrawal restrictions apply to contributions made and
interest earned subsequent to December 31, 1988. Such restrictions require
that distributions not begin before age 59-1/2, separation from service, death,
disability, or hardship (only employee contributions without accrued interest
may be withdrawn in case of hardship).
AAL relies on a No-Action Letter issued by the Securities and Exchange
Commission staff on November 28, 1988 to the American Council of Life Insurance
stating that no enforcement action would be taken under sections 22(e),
27(c)(1), or 27(d) of the Investment Company Act of 1940 if, in effect, AAL
permits restrictions on cash distributions from elective contributions to the
extent necessary to comply with Section 403(b)(11) of the Internal Revenue Code
in accordance with the following conditions:
(1) Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the Prospectus, used in connection with the offer of the Certificate;
(2) Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the Certificate;
(3) Instruct AAL Representatives who solicit participants to purchase the
Certificate specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
(4) Obtain from each plan participant who purchases a Section 403(b) annuity
Certificate, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) the investment
alternatives available under the employer's Section 403(b) arrangement, to
which the participant may elect to transfer his Certificate Value.
AAL has complied, and is complying, with the provisions of paragraphs (1) - (4)
above.
C-10
<PAGE> 77
AAL VARIABLE ANNUITY
AAL VARIABLE ANNUITY ACCOUNT I
INDEX TO EXHIBITS
Exhibit Exhibit
- ------- -------
Number
- -------
4(d) 403(b) Endorsement
10 Consent of Independent Auditors.
13 Schedules for computation of each performance quotation
provided in the Registration Statement in response to Item 21
thereof.
15(c) Power of Attorney for John O. Gilbert.
27 Financial Data Schedule.
<PAGE> 1
AAL VARIABLE ANNUITY
EXHIBIT 4(d)
CERTIFICATE ENDORSEMENT
AID ASSOCIATION FOR LUTHERANS
THIS ENDORSEMENT IS MADE A PART OF AND AMENDS THE ANNUITY CERTIFICATE TO WHICH
IT IS ATTACHED IN ORDER TO QUALIFY THE CERTIFICATE UNDER SECTION 403(B) OF THE
INTERNAL REVENUE CODE OF 1986 AS AMENDED (CODE).
THE FOLLOWING PROVISIONS SHALL BE APPLICABLE, NOTWITHSTANDING ANY OTHER
PROVISIONS OF THIS CERTIFICATE TO THE CONTRARY:
1. LIMITATIONS ON CONTRIBUTIONS
EXCEPT IN THE CASE OF A ROLLOVER CONTRIBUTION (WITHIN THE MEANING OF
SECTION 403(B)(8) OF THE CODE), A DIRECT ROLLOVER (WITHIN THE MEANING OF
SECTION 403(B)(10) OF THE CODE), OR A DIRECT TRANSFER PURSUANT TO REVENUE
RULING 90-24 (OR OTHER CODE SECTION OR PRONOUNCEMENT OF SIMILAR
APPLICATION AND IMPORT), CONTRIBUTIONS MADE ON BEHALF OF THE CERTIFICATE
OWNER (EMPLOYEE) UNDER THIS CERTIFICATE PURSUANT TO A SALARY REDUCTION
AGREEMENT (WITHIN THE MEANING OF SECTION 3121(A)(5)(D) OF THE CODE) SHALL
NOT EXCEED THE LESSER OF:
A. THE CERTIFICATE OWNER'S (EMPLOYEE'S) EXCLUSION ALLOWANCE
UNDER SECTION 403(B)(2) OF THE CODE;
B. THE LIMITATION OF ELECTIVE DEFERRALS UNDER SECTION 402(G) OF
THE CODE; OR
C. THE APPLICABLE LIMITATION UNDER SECTION 415 OF THE CODE.
2. REQUIRED DISTRIBUTIONS
ALL DISTRIBUTIONS UNDER THIS CERTIFICATE SHALL BE SUBJECT TO AND MADE IN
ACCORDANCE WITH REGULATIONS PRESCRIBED BY THE SECRETARY OF THE TREASURY
PURSUANT TO SECTION 403(B)(10) OF THE CODE, WHICH ARE HEREBY INCORPORATED
BY REFERENCE, OR IN THE ABSENCE OF SUCH REGULATIONS, IN ACCORDANCE WITH
REGULATIONS UNDER SECTION 401(A)(9) OF THE CODE, INCLUDING THE MINIMUM
DISTRIBUTION INCIDENTAL BENEFIT REQUIREMENT.
3. RESTRICTIONS ON DISTRIBUTIONS
DISTRIBUTIONS UNDER THIS CERTIFICATE ATTRIBUTABLE TO CONTRIBUTIONS MADE
PURSUANT TO A SALARY REDUCTION AGREEMENT (WITHIN THE MEANING OF SECTION
3121(A)(5)(D) OF THE CODE) MAY BE MADE ONLY WHEN THE CERTIFICATE OWNER
(EMPLOYEE):
A. ATTAINS AGE 59 1/2;
B. SEPARATES FROM SERVICE;
C. DIES;
1
<PAGE> 2
AAL VARIABLE ANNUITY
D. BECOME DISABLED (WITHIN THE MEANING OF SECTION 72(M)(7) OF
THE CODE);
E. ENCOUNTERS HARDSHIP (WITHIN THE MEANING OF SECTION 403(B)(11)
OF THE CODE).
IN THE CASE OF HARDSHIP, DISTRIBUTIONS SHALL NOT INCLUDE ANY EARNINGS ON
CONTRIBUTIONS MADE UNDER THIS CERTIFICATE PURSUANT TO A SALARY REDUCTION
AGREEMENT.
4. IN NO EVENT SHALL AID ASSOCIATION FOR LUTHERANS REQUIRE, AS A CONDITION
OF ISSUING THIS CERTIFICATE, THAT THE CERTIFICATE OWNER (EMPLOYEE) AGREE
TO MAKE ANNUAL SALARY REDUCTION CONTRIBUTIONS IN EXCESS OF $200 (OR SUCH
OTHER LIMITATION SPECIFIED IN SECTION 403(B)(12) OF THE CODE).
5. IN ADDITION TO THE DISTRIBUTION RESTRICTIONS SET FORTH IN PARAGRAPH 3
ABOVE, ALL DISTRIBUTIONS SHALL BE MADE IN ACCORDANCE WITH THE FOLLOWING
RULES:
A. PRIOR TO MAKING DISTRIBUTION, AID ASSOCIATION FOR LUTHERANS WILL
PROVIDE THE NOTICE REQUIRED UNDER SECTION 1.411(A)-11(C) OF THE
INCOME TAX REGULATIONS OR ANY SUCCESSOR PROVISION OF THE CODE OR
REGULATIONS OF SIMILAR IMPORT.
GENERALLY, DISTRIBUTION WILL BE MADE AT LEAST 30 DAYS FOLLOWING THE
DATE THE NOTICE IS PROVIDED. HOWEVER, IF THE DISTRIBUTION IS ONE TO
WHICH THE JOINT AND SURVIVOR ANNUITY RULES OF ERISA DO NOT APPLY,
DISTRIBUTION MAY BE MADE OR COMMENCE LESS THAN 30 DAYS AFTER NOTICE
IS GIVEN, PROVIDED THAT (1) THE NOTICE PROVIDED CLEARLY INFORMS THE
CERTIFICATE OWNER (EMPLOYEE) THAT THE CERTIFICATE OWNER (EMPLOYEE)
HAS A RIGHT TO A PERIOD OF AT LEAST 30 DAYS AFTER RECEIVING THE
NOTICE TO CONSIDER THE DECISION OF WHETHER OR NOT TO RECEIVE A
DISTRIBUTION (AND TO THE EXTENT APPLICABLE, A DISTRIBUTION OPTION),
AND (2) THE CERTIFICATE OWNER (EMPLOYEE), AFTER RECEIVING THE
NOTICE, AFFIRMATIVELY ELECTS AN IMMEDIATE DISTRIBUTION.
B. THE CERTIFICATE OWNER (EMPLOYEE) MAY ELECT, AT THE TIME AND IN
THE MANNER PRESCRIBED BY AID ASSOCIATION FOR LUTHERANS, TO HAVE ANY
PORTION OF AN ELIGIBLE ROLLOVER DISTRIBUTION PAID DIRECTLY TO AN
ELIGIBLE RETIREMENT PLAN SPECIFIED BY THE CERTIFICATE OWNER
(EMPLOYEE) IN A DIRECT ROLLOVER.
AN ELIGIBLE ROLLOVER DISTRIBUTION IS ANY DISTRIBUTION OF ALL OR ANY
PORTION OF THE BALANCE TO THE CREDIT OF THE CERTIFICATE OWNER
(EMPLOYEE), EXCEPT THAT AN ELIGIBLE ROLLOVER DISTRIBUTION DOES NOT
INCLUDE (1) ANY DISTRIBUTION THAT IS ONE OF A SERIES OF
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS (NOT LESS FREQUENTLY THAN
ANNUALLY) MADE FOR THE LIFE (OR LIFE EXPECTANCY) OF THE CERTIFICATE
OWNER (EMPLOYEE) OR THE JOINT LIVES (OR JOINT LIFE EXPECTANCIES) OF
THE CERTIFICATE OWNER (EMPLOYEE) AND THE CERTIFICATE OWNER'S
(EMPLOYEE'S) DESIGNATED BENEFICIARY, OR FOR A SPECIFIED PERIOD OF
TEN YEARS OR MORE; (2) ANY DISTRIBUTION TO THE EXTENT
2
<PAGE> 3
AAL VARIABLE
SUCH DISTRIBUTION IS REQUIRED UNDER SECTION 401(A)(9) OF THE CODE;
AND (3) THE PORTION OF ANY DISTRIBUTION THAT IS NOT INCLUDIBLE IN
GROSS INCOME (DETERMINED WITHOUT REGARD TO THE EXCLUSION FOR NET
UNREALIZED APPRECIATION WITH RESPECT TO EMPLOYER SECURITIES).
AN ELIGIBLE RETIREMENT PLAN IS AN INDIVIDUAL RETIREMENT ACCOUNT
DESCRIBED IN SECTION 408(A) OF THE CODE, AN INDIVIDUAL RETIREMENT
ANNUITY DESCRIBED IN SECTION 408(B) OF THE CODE, OR AN ANNUITY
CONTRACT OR CUSTODIAL ACCOUNT DESCRIBED IN SECTION 403(B) OF THE
CODE, THAT ACCEPTS THE CERTIFICATE OWNER'S (EMPLOYEE'S) ELIGIBLE
ROLLOVER DISTRIBUTION. HOWEVER, IN THE CASE OF AN ELIGIBLE
ROLLOVER DISTRIBUTION TO THE SURVIVING SPOUSE, AN ELIGIBLE
RETIREMENT PLAN IS AN INDIVIDUAL RETIREMENT ACCOUNT OR INDIVIDUAL
RETIREMENT ANNUITY.
A DIRECT ROLLOVER IS A PAYMENT BY THE PLAN TO THE ELIGIBLE
RETIREMENT PLAN SPECIFIED BY THE CERTIFICATE OWNER (EMPLOYEE).
THE FOREGOING RULES SHALL ALSO APPLY WITH RESPECT TO AN ELIGIBLE
ROLLOVER DISTRIBUTION PAYABLE TO THE CERTIFICATE OWNER'S
(EMPLOYEE'S) SURVIVING SPOUSE OR TO THE CERTIFICATE OWNER'S
(EMPLOYEE'S) SPOUSE OR FORMER SPOUSE WHO IS THE ALTERNATE PAYEE
UNDER A QUALIFIED DOMESTIC RELATIONS ORDER AS DEFINED IN SECTION
414(P) OF THE CODE.
AID ASSOCIATION FOR LUTHERANS RESERVES THE RIGHT TO AMEND THIS CERTIFICATE AT
ANY TIME IN ORDER TO COMPLY WITH CHANGES IN FEDERAL LAWS, RULES OR REGULATIONS.
SIGNED FOR AID ASSOCIATION FOR LUTHERANS AT APPLETON, WISCONSIN.
W.R. HEERMAN
SECRETARY
A-127L
3
<PAGE> 1
AAL VARIABLE
EXHIBIT 10
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 2, 1996 with respect to AAL Variable Annuity
Account I and January 26, 1996 with respect to Aid Association for Lutherans, in
this Post-Effective Amendment No. 2 to Form N-4 Registration Statement under
the Securities Act of 1933 (No. 33-82054) and this Amendment No. 3 to the
Registration Statement under the Investment Company Act of 1940 (No. 811-8660)
and related Prospectus of AAL Variable Annuity Account I dated May 1, 1996.
/s/ ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 19, 1996
<PAGE> 1
AAL VARIABLE ANNUITY
EXHIBIT 13
SCHEDULES FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
Set out below are schedules showing computations for the performance
quotations of each subaccount ("Subaccount") of AAL Variable Annuity Account I
("Variable Account") included in the statement of additional information
contained in Post-Effective Amendment No. 2 to the Variable Account's Form N-4
registration statement.
YIELD QUOTATION COMPUTATIONS
The 30-day (or one month) yield quotations for the Variable Account's Bond
and Balanced Subaccounts are computed according to the following formula
prescribed by the SEC:
a-b 6
Yield = 2[(--- +1) -1]
cd
Where:
a = total income earned during the period by the Portfolio
attributable to shares owned by the Subaccount.
b = total expenses accrued for the period (net of reimbursements).
c = average daily number of Accumulation Units outstanding during the
period.
d = the Accumulation Unit Value per Unit on the last day of the period.
<TABLE>
<CAPTION>
ONE MONTH YIELD FOR
- -------------------
MONTH ENDED 12-31-95 BOND SUBACCOUNT BALANCED SUBACCOUNT
- -------------------- --------------- -------------------
<S> <C> <C>
Step 1 = a - b $23,756.89 - $6,210.75 = $59,083.07 - $20,835.10 =
$17,546.14 $38,247.97
Step 2 = c x d 365,303.535 x $10.530471 = 1,217,976 x $11.059603 =
$3,846,818.28 $13,470,331.02
Step 3 = Step 1/Step 2 $17,546.14/$3,846,818.28 = $38,247.97/$13,470,331.02 =
0.0045612097 0.00283942348
Step 4 = Step 3 + 1 1.00456121 1.00283942
Step 5 = Step 4 * 6 1.02768123 1.01715793
Step 6 = Step 5 - 1 0.02768123 0.01715793
Step 7 = 2 x Step 6 5.54% 3.43%
</TABLE>
<PAGE> 2
AAL VARIABLE ANNUITY
MONEY MARKET SUBACCOUNT YIELD QUOTATION COMPUTATIONS
Yield and effective yield quotations for the Variable Account's Money
Market Subaccount are determined in accordance with the following formulas
prescribed by the SEC:
Current Yield = Net Change in Account Value 365
(---------------------------) (---)
Beginning Account Value 7
Effective Yield = Net Change in Account Value 365/7
[( ---------------------------) ]
1+ Beginning Account Value -1
CURRENT AND EFFECTIVE YIELD CALCULATIONS FOR THE SEVEN DAYS ENDED 12-31-95
.0008262000 365
Current Yield = (---------------) x (-------) = 4.31%
1 7
.0008262000 365
Effective Yield = [ (1 + -----------) * (-------) - 1 = 4.40%
1 7
TOTAL RETURN COMPUTATIONS
AVERAGE ANNUAL TOTAL RETURNS
Standardized average annual total return quotations are computed in
accordance with the following formula prescribed by the SEC:
n
P(1+T) = ERV
Where:
P = a hypothetical investment of $1,000
T = average annual total return
n = number of years
ERV = Ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods (or fractional portion
thereof).
Non-standardized average annual total returns are computed in a similar
manner, except that surrender charges and annual Certificate Maintenance
Charges are not reflected.
2
<PAGE> 3
AAL VARIABLE ANNUITY
CUMULATIVE TOTAL RETURNS
Cumulative total return quotations for the Subaccounts are calculated
using the following formula:
T = ERV/P - 1
Where:
P = a hypothetical investment of $1,000
T = cumulative total return
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods (or fractional portion
thereof).
The table below shows the computations for the standardized and
non-standardized average annual total returns for each Subaccount for the
period from June 15, 1995 (commencement of operations) through December 31,
1995. Average annual total returns for the Subaccounts (other than the Money
Market Subaccount) are not annualized due to the fact that the time period
being reported is less than one year. Computations for the Money Market
Subaccount's average annual total returns are shown on an annualized and
unannualized basis. Computations for cumulative total returns for each
Subaccount would result in the same figures as for average annual total returns
and are not shown.
<TABLE>
<CAPTION>
Name of SEC Standardized Non-Standardized Average
Subaccount Average Annual Total Return Annual Total Return
- -------------------- ---------------------------------- -------------------------
<S> <C> <C>
Large Company Stock $1,000(1+T) * 1 = $1,080.00 $1,000(1+T) * 1 = $1,152.59
Subaccount T = 8.00% T = 15.26%
Small Company Stock $1,000(1+T) * 1 = $1,026.20 $1,000(1+T) * 1 = $1,095.22
Subaccount T = 2.62% T = 9.52%
Bond Subaccount $1,000(1+T) * 1 = $986.70 $1,000(1+T) * 1 = $1,053.05
T = -1.33% T = 5.31%
Balanced Subaccount $1,000(1+T) * 1 = $1,036.30 $1,000(1+T) * 1 = $1,105.96
T = 3.63% T = 10.60%
</TABLE>
3
<PAGE> 4
AAL VARIABLE ANNUITY
<TABLE>
<S> <C> <C>
Money Market $1,000(1+T) * 1 = $958.70 $1,000(1+T) * 1 = $1,023.18
Subaccount T = -4.13% T = 2.32%
$1,000(1 + T) * .547945205 = $1,000(1 + T) * .547945205
$958.70 = $1,023.18
T = -7.44% (annualized) T = 4.29% (annualized)
</TABLE>
4
<PAGE> 1
AAL VARIABLE ANNUITY
EXHIBIT 15(c)
AID ASSOCIATION FOR LUTHERANS
AAL VARIABLE ANNUITY ACCOUNT I
POWER OF ATTORNEY OF
DIRECTORS AND OFFICERS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of AID ASSOCIATION FOR LUTHERANS, a fraternal benefit society organized
under the laws of the state of Wisconsin (the "Society"), the Depositor of AAL
Variable Annuity Account I does hereby make, constitute and appoint Woodrow E.
Eno, Kenneth E. Podell, Mark J. Mahoney, and Carl M. Rizzo and each or any of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of such Society to any Registration Statement or Registration Statements, on
Form N-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by such Society with the Securities and
Exchange Commission, Washington, D.C., in connection with the registration
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, of shares of such Society, and to file the same, with all
exhibits thereto and other supporting or related documents, with such
Commission, granting unto such attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
8th day of April, 1996.
/s/ John O. Gilbert
- ---------------------------
John O. Gilbert
Director, AAL President & Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> AAL LARGE CO. STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 21,455,754
<INVESTMENTS-AT-VALUE> 23,344,636
<RECEIVABLES> 174,694
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,519,330
<PAYABLE-FOR-SECURITIES> 361,452
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,500
<TOTAL-LIABILITIES> 380,952
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,247,089
<SHARES-COMMON-STOCK> 2,009,994
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 973
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,434
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,888,882
<NET-ASSETS> 23,138,378
<DIVIDEND-INCOME> 183,070
<INTEREST-INCOME> 15,273
<OTHER-INCOME> 0
<EXPENSES-NET> 26,916
<NET-INVESTMENT-INCOME> 171,427
<REALIZED-GAINS-CURRENT> 4,092
<APPREC-INCREASE-CURRENT> 1,888,882
<NET-CHANGE-FROM-OPS> 2,064,401
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 170,454
<DISTRIBUTIONS-OF-GAINS> 2,658
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,026,389
<NUMBER-OF-SHARES-REDEEMED> 23,746
<SHARES-REINVESTED> 7,351
<NET-CHANGE-IN-ASSETS> 23,138,378
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,916
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91,132
<AVERAGE-NET-ASSETS> 13,695,556
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.51
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> AAL SMALL CO. STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 15,141,083
<INVESTMENTS-AT-VALUE> 15,847,144
<RECEIVABLES> 172,292
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,019,436
<PAYABLE-FOR-SECURITIES> 340,300
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,272
<TOTAL-LIABILITIES> 353,572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,947,885
<SHARES-COMMON-STOCK> 1,425,566
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 219
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,699
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 706,061
<NET-ASSETS> 15,665,864
<DIVIDEND-INCOME> 75,798
<INTEREST-INCOME> 12,337
<OTHER-INCOME> 0
<EXPENSES-NET> 17,641
<NET-INVESTMENT-INCOME> 70,494
<REALIZED-GAINS-CURRENT> 17,344
<APPREC-INCREASE-CURRENT> 706,061
<NET-CHANGE-FROM-OPS> 793,899
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 70,275
<DISTRIBUTIONS-OF-GAINS> 5,645
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,432,409
<NUMBER-OF-SHARES-REDEEMED> 10,249
<SHARES-REINVESTED> 3,406
<NET-CHANGE-IN-ASSETS> 15,665,864
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 69,620
<AVERAGE-NET-ASSETS> 8,978,620
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.99
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.99
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> AAL BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 9,243,235
<INVESTMENTS-AT-VALUE> 9,433,852
<RECEIVABLES> 178,244
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,612,096
<PAYABLE-FOR-SECURITIES> 242,974
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,290
<TOTAL-LIABILITIES> 249,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,172,632
<SHARES-COMMON-STOCK> 914,759
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,770
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,187)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 190,617
<NET-ASSETS> 9,362,832
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 248,582
<OTHER-INCOME> 0
<EXPENSES-NET> 12,744
<NET-INVESTMENT-INCOME> 235,838
<REALIZED-GAINS-CURRENT> (2,187)
<APPREC-INCREASE-CURRENT> 190,617
<NET-CHANGE-FROM-OPS> 424,268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 234,068
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 932,861
<NUMBER-OF-SHARES-REDEEMED> 24,555
<SHARES-REINVESTED> 6,453
<NET-CHANGE-IN-ASSETS> 9,362,832
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,744
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,561
<AVERAGE-NET-ASSETS> 6,552,655
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> AAL BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 27,024,356
<INVESTMENTS-AT-VALUE> 28,677,578
<RECEIVABLES> 422,670
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,100,248
<PAYABLE-FOR-SECURITIES> 320,452
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,074
<TOTAL-LIABILITIES> 341,526
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,101,590
<SHARES-COMMON-STOCK> 2,632,360
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 834
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,653,222
<NET-ASSETS> 28,138,378
<DIVIDEND-INCOME> 137,978
<INTEREST-INCOME> 310,789
<OTHER-INCOME> 0
<EXPENSES-NET> 35,948
<NET-INVESTMENT-INCOME> 412,819
<REALIZED-GAINS-CURRENT> 1,254
<APPREC-INCREASE-CURRENT> 1,653,222
<NET-CHANGE-FROM-OPS> 2,067,295
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 409,743
<DISTRIBUTIONS-OF-GAINS> 420
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,634,240
<NUMBER-OF-SHARES-REDEEMED> 15,089
<SHARES-REINVESTED> 13,209
<NET-CHANGE-IN-ASSETS> 28,758,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 107,929
<AVERAGE-NET-ASSETS> 18,423,701
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.92
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> AAL MONEY MARKET MUTUAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 7,240,528
<INVESTMENTS-AT-VALUE> 7,240,528
<RECEIVABLES> 158,448
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,398,976
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 354,334
<TOTAL-LIABILITIES> 354,334
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,044,642
<SHARES-COMMON-STOCK> 7,044,642
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,044,642
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 147,234
<OTHER-INCOME> 0
<EXPENSES-NET> 8,720
<NET-INVESTMENT-INCOME> 138,514
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 138,514
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 138,514
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,659,662
<NUMBER-OF-SHARES-REDEEMED> 13,690,621
<SHARES-REINVESTED> 75,601
<NET-CHANGE-IN-ASSETS> 7,044,642
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,720
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,023
<AVERAGE-NET-ASSETS> 4,405,932
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> AAL LARGE CO STOCK SUBACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 13,747,729
<INVESTMENTS-AT-VALUE> 14,505,273
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,505,273
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,705,246
<SHARES-COMMON-STOCK> 1,258,237
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 41,844
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 639
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 757,544
<NET-ASSETS> 14,505,273
<DIVIDEND-INCOME> 80,453
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,653
<EXPENSES-NET> 40,262
<NET-INVESTMENT-INCOME> 41,844
<REALIZED-GAINS-CURRENT> 639
<APPREC-INCREASE-CURRENT> 757,544
<NET-CHANGE-FROM-OPS> 800,027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,259,381
<NUMBER-OF-SHARES-REDEEMED> 1,144
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,505,273
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> AAL SMALL CO. STOCK SUBACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 9,947,972
<INVESTMENTS-AT-VALUE> 10,171,538
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,171,538
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,937,181
<SHARES-COMMON-STOCK> 928,755
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10,704
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 87
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 223,566
<NET-ASSETS> 10,171,538
<DIVIDEND-INCOME> 33,275
<INTEREST-INCOME> 0
<OTHER-INCOME> 3,634
<EXPENSES-NET> 26,205
<NET-INVESTMENT-INCOME> 10,704
<REALIZED-GAINS-CURRENT> 87
<APPREC-INCREASE-CURRENT> 223,566
<NET-CHANGE-FROM-OPS> 234,357
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 930,171
<NUMBER-OF-SHARES-REDEEMED> 1,416
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,505,273
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> AAL BOND SUBACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,173,323
<INVESTMENTS-AT-VALUE> 4,244,412
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,244,412
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,118,625
<SHARES-COMMON-STOCK> 402,927
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 54,006
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 692
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 71,089
<NET-ASSETS> 4,244,412
<DIVIDEND-INCOME> 65,068
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 11,062
<NET-INVESTMENT-INCOME> 54,006
<REALIZED-GAINS-CURRENT> 692
<APPREC-INCREASE-CURRENT> 71,089
<NET-CHANGE-FROM-OPS> 125,787
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 404,717
<NUMBER-OF-SHARES-REDEEMED> 1,790
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,244,412
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> AAL BALANCED SUBACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 14,601,735
<INVESTMENTS-AT-VALUE> 15,100,546
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,100,546
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,498,771
<SHARES-COMMON-STOCK> 1,364,855
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 102,818
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 498,811
<NET-ASSETS> 15,100,546
<DIVIDEND-INCOME> 140,993
<INTEREST-INCOME> 0
<OTHER-INCOME> 218
<EXPENSES-NET> 38,393
<NET-INVESTMENT-INCOME> 102,818
<REALIZED-GAINS-CURRENT> 146
<APPREC-INCREASE-CURRENT> 498,811
<NET-CHANGE-FROM-OPS> 601,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,367,146
<NUMBER-OF-SHARES-REDEEMED> 2,291
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,100,546
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> AAL MONEY MARKET SUBACCOUNT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 5,044,642
<INVESTMENTS-AT-VALUE> 5,045,423
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,045,423
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,986,502
<SHARES-COMMON-STOCK> 4,931,298
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 58,921
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,045,423
<DIVIDEND-INCOME> 76,382
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 17,461
<NET-INVESTMENT-INCOME> 58,921
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 58,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,995,748
<NUMBER-OF-SHARES-REDEEMED> 13,064,450
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,045,423
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
