1933 Act Registration No. 33-82054
1940 Act Registration No. 811-8660
As filed with the Securities and
Exchange Commission on April 18, 1997.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 3 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 X
AAL VARIABLE ANNUITY ACCOUNT I
(Exact name of registrant as specified in charter)
AID ASSOCIATION FOR LUTHERANS
(Name of Depositor)
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (414) 734-5721
WOODROW E. ENO, ESQ.
Senior Vice President, Secretary and General Counsel of
AID ASSOCIATION FOR LUTHERANS
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offerings: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b):
X on May 1, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of its securities of
each of its five series under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant filed a Rule 24f-2 Notice
on February 28, 1997.
<PAGE>
THE AAL VARIABLE ANNUITY ACCOUNT I
CROSS REFERENCE SHEET
Pursuant to Rule 495 under the Securities Act of 1933 indicating the location of
the information called for by the Items of Parts A and B of Form N-4.
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<S> <C> <C> <C>
Item No. Caption Location
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Part A
------
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 Annuity The Certificates; General Information; 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 Unit
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 - SAI Contents of the SAI
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. Purchases 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
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
</TABLE>
<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATES
PROSPECTUS
Dated May 1, 1997
Offered by:
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, Wisconsin 54919
(414) 734-5721
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 Money Market Portfolio, the AAL Variable
Product Bond Portfolio, the AAL Variable Product Balanced Portfolio, the AAL
Variable Product Large Company Stock Portfolio and the AAL Variable Product
Small Company Stock 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 ("SAI") dated May 1, 1997, 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 31
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.
<PAGE>
TABLE OF CONTENTS Page
GLOSSARY.......................................................................
FEE TABLE......................................................................
SUMMARY........................................................................
SELECTED ACCUMULATION UNIT DATA................................................
AAL, THE VARIABLE ACCOUNT AND THE FUND.........................................
AAL.......................................................................
The Variable Account......................................................
The Fund..................................................................
THE CERTIFICATES...............................................................
Minimum Investment Requirements ..........................................
Free Look Period..........................................................
Allocation of Premiums....................................................
Accumulated Value, Accumulation Units and Accumulation Unit Value.........
Calculation of Accumulated Value.....................................
Determination of Number of Accumulation Units........................
Determination of Accumulation Unit Value.............................
Withdrawals, Surrenders and Terminations .................................
Transfers among Subaccounts and/or the Fixed Account......................
Telephone Transactions....................................................
Dollar Cost Averaging Plan................................................
Owners, Annuitants, and Beneficiaries.....................................
Adult Certificates...................................................
Juvenile Certificates................................................
Assignments of Ownership..................................................
Absolute Assignment..................................................
Collateral Assignment................................................
Successor Owners.....................................................
Certificates Issued in Connection with Qualified Plans...............
DEATH BENEFITS.................................................................
Death Benefit Before the Annuity Commencement Date........................
Death of Payee After the Annuity Commencement Date........................
Manner of Payment -- Certificates Not Issued in
Connection with Certain Qualified Plans..............................
Manner of Payment -- Certificates Issued in
Connection with Qualified Plans......................................
CHARGES AND DEDUCTIONS.........................................................
Withdrawal or Surrender Charges...........................................
Withdrawals and Surrenders...........................................
10% Free Withdrawal. ...............................................
Waiver of Withdrawal and Surrender Charges...........................
Certificate Maintenance Charge............................................
Mortality and Expense Risk Charge.........................................
Investment Advisory Fee of the Fund.......................................
Taxes
<PAGE>
ANNUITY PROVISIONS.............................................................
Annuity Commencement Date.................................................
Settlement Options........................................................
Frequency and Amount of Annuity Payments Pursuant to Settlement Options...
GENERAL INFORMATION............................................................
The Entire Contract.......................................................
Maintenance of Solvency...................................................
Postponement of Payments..................................................
Payment by Check..........................................................
Date of Receipt...........................................................
Reports to Owners.........................................................
Certificate Inquiries.....................................................
Third Party Administrator.................................................
FEDERAL TAX STATUS.............................................................
Introduction..............................................................
Variable Account Tax Status...............................................
Taxation of Annuities in General..........................................
Certificates Held by Individuals.....................................
Certificates Held by Owners other than Individuals...................
Multiple Certificates................................................
Qualified Plans......................................................
Tax-Sheltered Annuities..............................................
H.R. 10 Plans........................................................
Individual Retirement Annuities......................................
Corporate Pension and Profit-Sharing Plans...........................
Simplified Employee Pension Plans (SEP-IRAs).........................
Savings Incentive Match Plan (SIMPLE)...............................
1035 Exchanges............................................................
Diversification Requirements..............................................
Withholding...............................................................
Rollover into an IRA......................................................
Other Considerations .....................................................
GENDER NEUTRAL BENEFITS........................................................
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS...................................
VOTING PRIVILEGES..............................................................
RIGHTS RESERVED BY AAL.........................................................
DISTRIBUTION ARRANGEMENTS......................................................
LEGAL MATTERS..................................................................
FINANCIAL STATEMENTS AND EXPERTS...............................................
PERFORMANCE INFORMATION........................................................
FURTHER INFORMATION............................................................
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................
ORDER FORM.....................................................................
APPENDIX.......................................................................
<PAGE>
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, which 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 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.
<PAGE>
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 the 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 need not be a
natural person.
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.
<PAGE>
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 Expenses (1)
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)
EXAMPLE (6)
1 Yr 3 Yrs 5 Yrs 10 Yrs
---- ----- ----- ------
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: $83 $106 $129 $212
If you do not surrender your
Certificate (or if you annuitize
under circumstances where a surrender
charge is not payable) 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: $18 $57 $98 $212
<PAGE>
The Examples showing expenses should not be considered representative of past or
future expenses and actual expenses may be greater or less than those shown.
(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--Certifiicate 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, 1997. 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 Money Market
Portfolio, the AAL Variable Product Bond Portfolio, the AAL Variable
Product Balanced Portfolio, the AAL Variable Product Large Company Stock
Portfolio and the AAL Variable Product Small Company Stock Portfolio, as
a percentage of average net assets for the prior fiscal year were 0.65%,
0.68%, 0.60%, 0.63% and 0.75% respectively. Actual fees and expenses in
the future may be greater or less.
(6) For purposes of this example the effect of the Certificate Maintenance
Charge has been based on an estimated average Certificate size of
$16,000.
(7) For a description of the circumstances under which a withdrawal or
surrender charge may be payable upon annuitization, see "ANNUITY
PROVISIONS--Settlement Options."
<PAGE>
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 Subaccount until the expiration of the
"free look period" required by applicable state law plus an additional five-day
period to allow for the owner's receipt of the certificate by mail, 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 Money Market Portfolio, the
AAL Variable Product Bond Portfolio, the AAL Variable Product Balanced
Portfolio, the AAL Variable Product Large Company Stock Portfolio or the AAL
Variable Product Small Company Stock 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 "THE
CERTIFICATES--Accumulated Value, Accumulation Units, and Accumulation Unit
Value."
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money Large Small
Market Bond Balanced Company Stock Company Stock
Subaccount Subaccount Subaccount Subaccount Subaccount
December 31, 1996
Accumulation Unit Value $1.06 $10.72 $12.41 $13.93 $12.78
Number of Accumulation Units 14,226,261 1,185,965 8,992,900 7,868,532 5,003,533
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
- ------------------------
* The date each of the Subaccounts commenced operations.
</TABLE>
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. As of December 31, 1996, AAL has approximately 1.7 million members
and is the world's largest fraternal benefit society in terms of assets (over
$16.7 billion) and life insurance in force ($78.8 billion), ranking it in the
top two percent of all life insurers in the United States in terms of ordinary
life insurance in force. 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 Money Market
Subaccount, the Bond Subaccount, the Balanced Subaccount, the Large Company
Stock Subaccount and the Small Company Stock Subaccount. Each Subaccount invests
in shares of a corresponding Portfolio of the AAL Variable Product Series Fund,
Inc., described below.
<PAGE>
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.
<PAGE>
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 follow AAL's application procedures and meet
AAL's eligibility requirements.
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.
<PAGE>
There are two basic forms of Certificate: Adult and Juvenile. Adult Certificates
are issued to applicants age 16 or older who become benefit members of AAL.
Juvenile Certificates are issued when the proposed Annuitant is younger than age
16, 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. Under certain circumstances other entities such
as trusts may purchase AAL products but are not eligible for membership.
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 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.
<PAGE>
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.
<PAGE>
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 factors, 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 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.
<PAGE>
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.
<PAGE>
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 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.
<PAGE>
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 800-778-1762.
AAL reserves the right to restrict telephone transactions at any time.
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 Telephone Transaction Authorization 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.
<PAGE>
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 designation 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 designation.
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.
<PAGE>
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 cannot be transferred. The privileges of membership are stated in the
AAL Articles of Incorporation and Bylaws.
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.
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
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 manner of payment of the death benefit prior to the Annuity Commencement
Date, similar to those described above 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:
Certificate Year in which Charge as Percentage of Excess
Withdrawal or Surrender Occurs Amount Withdrawn or Surrendered(1)
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
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(1) 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 or taxable income withdrawn, in addition to ordinary income tax on
any such taxable income. See "FEDERAL TAX STATUS"--Taxation of Annuities in
General."
<PAGE>
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. 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.
<PAGE>
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 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.
<PAGE>
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."
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
Age on Maximum
Date of Issue Maturity Age*
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96 99
- -------------------------------
* 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.
<PAGE>
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--Fixed Period Income. 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 Payment 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 Payment 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.
<PAGE>
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.
<PAGE>
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.
Postponement of Payments
Payment of any withdrawal value or cash surrender value will normally be made
within seven 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).
<PAGE>
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 800-778-1762.
Third Party Administrator
AAL has entered into a Service Agreement with The Continuum Company, Inc.
("Continuum"), pursuant to which Continuum will provide certain services in
connection with the Variable Account including, among other things, application
and premium processing. Continuum has the necessary equipment and personnel to
provide and support remote terminal access to AAL's annuity processing system
for the establishment and maintenance of annuity records, processing
information, and the generation of output with respect to the records and
information.
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.
<PAGE>
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 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 592 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:
<PAGE>
(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 592, 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.
<PAGE>
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:
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 592, 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 (Keogh) 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.
<PAGE>
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.
Savings Incentive Match Plan (SIMPLE). Section 408(p) permits employers with no
more than 100 employees to establish retirement plans having nonelective and
elective contributions made to SIMPLE IRAs. These plans are effective for years
beginning in 1997. Distributions within the first two years may be subject to a
25% penalty tax.
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 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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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 AALCMC and AAL, on behalf of
itself and the Variable Account, are 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"). The Certificates may also be sold by
representatives of other broker-dealer firms with which AALCMC has executed a
selling agreement. In addition, AAL may retain other firms to serve as principal
underwriters of the Certificates. AAL offers the Certificates in all states
where AAL is authorized to sell the Certificates.
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 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.
<PAGE>
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 for the years ended December
31, 1996 and 1995, and the audited financial statements of the Variable Account
for the year ended December 31, 1996, incorporated into the SAI have been
audited by Ernst & Young LLP, independent auditors, and are included therein in
reliance on their reports 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.
<PAGE>
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.
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Caption Page
GENERAL INFORMATION...................................................SAI -
REGULATION AND RESERVES...............................................SAI -
SERVICES..............................................................SAI -
PRINCIPAL UNDERWRITER.................................................SAI -
REASONABLENESS OF MORTALITY AND EXPENSE RISK CHARGES..................SAI-
PERFORMANCE INFORMATION...............................................SAI -
Money Market Subaccount......................................SAI -
Other Subaccounts............................................SAI -
Performance Comparisons......................................SAI -
FINANCIAL STATEMENTS..................................................SAI -
ORDER FORM
[GRAPHIC OMITTED] 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
<PAGE>
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 32% per year, compounded daily.
AAL may credit interest at a rate in excess of 32% 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 32% 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
<PAGE>
investments, regulatory and tax requirements and competitive factors. ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 32% 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 32% 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.
<PAGE>
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, 1997
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the prospectus dated May 1, 1997, 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 SAI that are not otherwise defined herein
have the same meanings given to them in the prospectus. A copy of the prospectus
may be obtained at no charge by writing to AAL at the above address.
TABLE OF CONTENTS
Caption Page
GENERAL INFORMATION.........................................................SAI-
REGULATION AND RESERVES.....................................................SAI-
SERVICES....................................................................SAI-
PRINCIPAL UNDERWRITER.......................................................SAI-
REASONABLENESS OF MORTALITY AND EXPENSE RISK CHARGES........................SAI-
PERFORMANCE INFORMATION.....................................................SAI-
MONEY MARKET SUBACCOUNT - YIELD AND EFFECTIVE YIELD.........................SAI-
OTHER SUBACCOUNTS...........................................................SAI-
PERFORMANCE COMPARISONS.....................................................SAI-
FINANCIAL STATEMENTS........................................................SAI-
<PAGE>
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 about 9,500 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.
<PAGE>
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 and $974,777.31 for the year ended December 31, 1996.
PRINCIPAL UNDERWRITER
AAL Capital Management Corporation ("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 AALCMC and AAL, on behalf of itself and the Variable Account, are parties.
The Certificates are sold through AAL Representatives who are licensed by state
insurance officials to sell the Certificates and who are duly licensed
registered representatives of AALCMC. The Certificates may also be sold by
representatives of other broker-dealer firms with which AALCMC has executed a
selling agreement. In addition, AAL may retain other firms to serve as principal
underwriters of the Certificates. The Certificates are continuously offered in
all states where AAL is authorized to sell the Certificates. AAL paid
underwriting commissions of $1,076,737.60 to AALCMC during the period June 15,
1995 (commencement of the Variable Account's operations) through December 31,
1995 and $5,059,274.35 for the year ended December 31, 1996. Of these amounts,
AALCMC retained $0. For the year ended December 31, 1996, Aegon received $0
pursuant to a selling agreement.
Aid Association for Lutherans represents that the fees and charges deducted
under the contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
sponsor.
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.
<PAGE>
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 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, 1996, were 4.14% and 4.22%, 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:
Yield = 2[(((a-b)/cd)+1)^6-1]
Where:
a = Net dividends and interest earned during the period by the
Portfolio attributable to the Subaccount.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of 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, 1996, the one-month yield for the
Bond Subaccount was 5.15% and for the Balanced Subaccount was 2.46%.
<PAGE>
Standardized and Non-Standardized Average Annual Total Return Advertisements for
the Certificates may also include standardized and non-standardized average
annual total return quotations for each Subaccount for 1, 5 and 10-year periods
(or the life of the Subaccount, if less). Standardized average annual total
return quotations are computed in accordance with a standard method prescribed
by the SEC. The average annual total return for a Subaccount for a specific
period is computed by finding the average annual compounded rates of return over
the applicable period that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1 + T)^n = ERV
Where:
P = A hypothetical initial payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1-, 5-, or 10-year periods
(or fractional portion thereof).
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 year ended December 31, 1996 were as follows:
Average Annual Standardized Average Annual Non-Standardized
Name of Subaccount Total Return - Year ended Total Return-Year ended
December 31, 1996 December 31, 1996
- --------------------------------------------------------------------------------
Money Market -2.62% 3.93%
------- ------
Bond -4.60% 1.81%
------- ------
Balanced 5.15% 12.22%
------- ------
Large Company Stock 13.32% 20.94%
------- ------
Small Company Stock 9.36% 16.71%
------- ------
<PAGE>
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 $16,000 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.
Average annual total returns for each Subaccount for the period June 15, 1995
(commencement of operations) through December 31, 1996 were
Average Annual Average Annual Non-
Name of Subaccount Standardized Total Return - Standardized Total Return
- ------------------ Inception through Inception through
December 31, 1996 December 31, 1996
--------------------------- -------------------------
Money Market 0.39% 4.05%
---- ----
Bond 0.92% 4.60%
---- ----
Balanced 10.93% 14.98%
----- -----
Large Company Stock 19.57% 23.93%
----- -----
Small Company Stock 13.06% 17.19%
----- -----
<PAGE>
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 and the Lehman Brothers
Aggregate Bond Index.
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, 1996. 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 for the year ended December
31, 1996, previously filed, are in corporated by reference herein, and the
statements for AAL, and the accompanying Reports of Independent Auditors,
follow.
<PAGE>
[STATEMENTS PROVIDED]
Aid Association for Lutherans
Audited Financial Statements
Report of Independent Auditors
Statement of Financial Position
Statement of Operations
Statement of Changes in certificate owners'
Contingency Reserves
Statements of Cash Flow
Notes to Financial Statements
<PAGE>
Report of Independent Auditors
The Board of Directors
Aid Association for Lutherans
We have audited the accompanying consolidated balance sheets of Aid Association
for Lutherans (AAL) as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in certificate owners' surplus and
cash flows for the years then ended. These financial statements are the
responsibility of AAL's management. Our responsibility is to express an opinion
on these consolidated 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 consolidated financial position of AAL at December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As discussed in Note 1, in 1996 AAL adopted certain accounting changes to
conform with generally accepted accounting principles for fraternal benefit
societies.
March 14, 1997
<PAGE>
Aid Association for Lutherans
Consolidated Balance Sheets
- --------------------------------------- ---------------------------------------
December 31 (in thousands)
- --------------------------------------- ---------------------------------------
- --------------------------------------- --------------------- -----------------
1996 1995
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Assets
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Investments:
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Securities available for sale, at
fair value
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Fixed maturities 6948203 6879601
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Equity securities 539113 453398
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Fixed maturities held to maturity,
at amortized cost 4423637 4069372
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Mortgage loans 3298335 2952533
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Investment real estate 113282 122899
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Certificate loans 501263 500306
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Other invested assets 10490 10238
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Total investments 15834323 14988347
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
<PAGE>
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Cash and cash equivalents 106568 166020
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Premiums and fees receivable 12198 11500
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Accrued investment income 199051 199566
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Deferred acquisition costs 704515 643540
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Property and equipment 101725 105511
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Assets held in separate accounts 313072 49067
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Other assets 8868 5706
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
Total Assets 17280320 16169257
- --------------------------------------- --------------------- -----------------
<PAGE>
- ----------------------------------------- --------------------------------------
December 31 (in thousands)
- ----------------------------------------- --------------------------------------
- ----------------------------------------- --------------------- ----------------
1996 1995
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Liabilities and certificate owners'
Surplus
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Certificate liabilities and accruals:
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Future certificate benefits 2504708 2381279
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Unpaid claims and claim expenses 101770 89288
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Total certificate liabilities and
accruals 2606478 2470567
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
certificate owner funds 12434551 11838902
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Liabilities related to separate
accounts 313072 49067
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Other liabilities 135390 127957
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Total Liabilities 15489491 14486493
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
<PAGE>
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
certificate owners' Surplus
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Accumulated surplus 1642126 1444084
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Unrealized appreciation on securities
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
available for sale 148703 238680
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Total certificate owners' Surplus 1790829 1682764
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
- ----------------------------------------- --------------------- ----------------
Total Liabilities and certificate owners'
Surplus 17280320 16169257
- ----------------------------------------- --------------------- ----------------
See accompanying notes.
<PAGE>
Consolidated Statements of Income
- ----------------------------------- --------------------------------------------
December 31(in thousands)
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------- ----------------------
1996 1995
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Revenue
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Insurance premiums 364078 370222
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Insurance charges 278774 261376
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Net investment income 1171590 1115790
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Net realized investment gains 62959 16598
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Other revenue 68200 41951
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Total revenue 1945601 1805937
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Benefits and expenses
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Certificate claims and other 345786 324870
benefits
- ----------------------------------- --------------------- ----------------------
<PAGE>
- ----------------------------------- --------------------- ----------------------
Increase in certificate reserves 134900 143120
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Interest credited 748350 731896
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Surplus refunds 105997 103064
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Total benefits 1335033 1302950
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Underwriting, acquisition and 307982 268934
insurance expenses
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Fraternal benefits and expenses 104545 84815
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Total expenses 412527 353749
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Total benefits and expenses 1747560 1656699
- ----------------------------------- --------------------- ----------------------
- ----------------------------------- --------------------- ----------------------
Net income 198041 149238
- ----------------------------------- --------------------- ----------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Consolidated Statements of Changes in certificate owners' Surplus
- -------------------------------------- ---------------------- ------------------- -------------------------
Unrealized Accumulated Total
appreciation surplus certificate owners'
(depreciation) of surplus
securities available
for sale(In
Thousands)
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Balance at January 1, 1995 9057 868882 877939
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Impact of adopting certain -321267 425964 104697
accounting changes discussed in Note
1
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Balance at January 1, 1995 as -312210 1294846 982637
adjusted
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Net income - 149238 149238
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Increase in unrealized appreciation 550890 - 550890
of securities available for sale
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Balance at December 31, 1995 238680 1444085 1682765
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Net income - 198041 198041
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Decrease in unrealized appreciation -89977 - -89977
of securities available for sale
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
- -------------------------------------- ---------------------- ------------------- -------------------------
Balance at December 31, 1996 148703 1642126 1790829
- -------------------------------------- ---------------------- ------------------- -------------------------
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------- ---------------------------------
December 31(in thousands)
- --------------------------------------------- ---------------------------------
- --------------------------------------------- ------------------ --------------
1996 1995
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Operating Activities:
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Net Income 198041 149238
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Increase in certificate liabilities and
accruals 135911 143359
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Increase in certificate owner funds 449570 474774
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Increase in deferred acquisition costs -17547 -32026
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Realized gains on investments -63219 -17530
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Provisions for amortization and
depreciation 20309 19120
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Changes in other assets and liabilities 4166 -5698
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Net cash provided by operating
activities 727231 731237
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Investing Activities:
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Securities available for sale:
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Purchases - fixed maturities -2311534 -2218311
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Sales - fixed maturities 1606098 1256300
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Maturities - fixed maturities 476592 565516
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Purchases - equities -203720 -229771
- --------------------------------------------- ------------------ --------------
<PAGE>
- --------------------------------------------- ------------------ --------------
Sales - equities 201119 123108
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Securities held to maturity:
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Purchases -785732 -601390
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Maturities 435374 369741
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Mortgage loans funded -559005 -478622
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Mortgage loans repaid 207904 166830
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Certificate loans, net -957 -6873
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Other 1099 -102670
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Net cash used in investing activities -932762 -1156142
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Financing Activities:
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Universal life and investment contract
receipts 1086856 1248664
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Universal life and investment contract
withdrawals -940777 -791821
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Net cash provided by financing activities 146079 456843
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Net increase (decrease) in cash and cash
equivalents -59452 31938
- --------------------------------------------- ------------------ --------------
- --------------------------------------------- ------------------ --------------
Cash and cash equivalents, beginning of
year 166020 134082
- --------------------------------------------- ------------------ --------------
Cash and cash equivalents, end of year 106568 166020
- --------------------------------------- --------------------- -----------------
- --------------------------------------- --------------------- -----------------
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1996
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 consolidated financial statements of AAL and its wholly-owned
subsidiaries have been prepared in accordance with generally accepted accounting
principles ("GAAP"). Prior to 1996, AAL prepared its financial statements in
conformity with accounting practices prescribed by the Office of the
Commissioner of Insurance of the State of Wisconsin (statutory-basis) which were
considered GAAP for fraternal benefit societies. FASB Interpretation 40,
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises ("FIN 40"), as amended, which is effective for
1996 annual financial statements and thereafter, no longer permits
statutory-basis financial statements to be described as being prepared in
conformity with GAAP. Accordingly, AAL has adopted GAAP including Statement of
Financial Accounting Standards 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts ("FAS 120"), which addresses the accounting for
long-duration and short-duration insurance and reinsurance contracts, including
all participating business.
Pursuant to the requirements of FIN 40 and FAS 120, the effect of the changes in
accounting have been applied retroactively and the previously issued 1995
financial statements have been restated for the change. The effect of the
changes applicable to years prior to January 1, 1995 has been presented as a
restatement of certificate owners' surplus as of that date.
The adoption had the effect of increasing net income for 1996 and 1995 by
approximately $68,339,000 and $34,772,000, respectively.
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.
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of AAL, its
wholly-owned subsidiary, AAL Holdings Inc., and its wholly-owned subsidiaries,
including AAL Capital Management Corporation and North Meadows Investment Ltd.
All significant intercompany transactions are eliminated.
The significant accounting practices used in preparation of the financial
statements are summarized on the following pages:
Investments
Investments in fixed maturities are classified as available for sale or held to
maturity according to the holder's intent. Securities classified in the
available for sale category are carried at fair value and consist of those
securities which AAL intends to hold for an indefinite period of time but not
necessarily to maturity. Securities in the held to maturity category are carried
at amortized cost and consist of those which AAL has both the ability and the
positive intent to hold to maturity. Changes in fair values of available for
sale securities, after adjustment of deferred acquisition costs (DAC), are
reported as unrealized appreciation or depreciation directly in
certificate owners' surplus and, accordingly, have no effect on net income. The
DAC offsets to the unrealized appreciation or depreciation represent valuation
adjustments of DAC that would have been required as a charge or credit to
operations had such unrealized amounts been realized. The amortized cost of
fixed maturity investments classified as available for sale and as held to
maturity is adjusted for amortization of premiums and accretion of discounts
calculated using the effective interest method. That amortization or accretion
is included in net investment income. Mortgage loans generally are stated at
their outstanding unpaid principal balances. Interest income is accrued on the
unpaid principal balance. Discounts and premiums are amortized to income using
the interest method. Investment real estate is valued at original cost plus
capital expenditures less accumulated depreciation and write-downs. Depreciation
is computed using the straight-line method over the estimated useful life of the
property. Accumulated depreciation and write-downs were $37,763,000 and
$34,660,000, at December 31, 1996 and 1995, respectively.
<PAGE>
Certificate loans are generally valued at the aggregate unpaid balances. Other
investments, consisting of limited partnerships, are valued on the equity basis.
All investments are carried net of allowances for declines in value that are
other than temporary; the changes in those reserves are reported as realized
gains or losses on investments. Realized gains and losses on the sale of
investments and declines in value considered to be other than temporary are
recognized in the Consolidated Statements of Income on the specific
identification basis.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and include all highly liquid
investments purchased with an original maturity of three months or less.
Deferred Acquisition Costs
Costs which vary with and are primarily attributable to the production of new
business have been deferred to the extent such costs are deemed recoverable from
future profits. Such costs include commissions, selling, selection and
certificate issue expenses. For interest sensitive life, participating life and
investment products, these costs are amortized in proportion to estimated gross
profits from interest, mortality and other margins under the contracts.
Amortization of acquisition costs for other certificates is charged to expense
in proportion to premium revenue recognized.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. The
cost of property and equipment is being depreciated by the straight-line method
over the estimated useful lives. Accumulated depreciation was $103,938,000 and
$100,869,000 at December 31, 1996 and 1995, respectively.
Certificate Liabilities and Accruals
Reserves for future certificate benefits for participating life insurance are
net level reserves computed using the same interest and mortality assumptions as
used to compute the cash value. Reserves for future certificate benefits for
non-participating life insurance are also net level reserves, computed using
assumptions as to mortality, interest and withdrawal, with a provision for
adverse deviation. Interest assumptions generally range from 2.5% to 4.0%.
Reserves for future certificate benefits for universal life insurance and
deferred annuities consist of certificate account balances before applicable
surrender charges. The average interest rate credited to account balances in
1996 was 7.6% for universal life, 5.8% for portfolio-average deferred annuities,
and ranged from 5.7% to 6.3% for investment generation deferred annuities,
(IGA), introduced in 1995.
Reserves for accident and health certificates are generally computed using
current pricing assumptions. The interest rate assumptions range from 3.5% to
5.0%. Reserves are computed using a net level reserve method for Medicare
supplement certificates, a one-year preliminary term method for long-term care
certificates, and a two-year preliminary term method for disability income
certificates.
<PAGE>
Claim reserves are established for future payments not yet due on claims already
incurred, relating primarily to accident and health certificates. These reserves
are based on past experience and applicable morbidity tables. Reserves are
continuously reviewed and updated, with any resulting adjustments reflected in
current operations.
Separate Accounts
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable annuity
contracts, and for which the certificate owner, rather than AAL, bears the
investment risk. Fees charged on separate account certificate owner deposits are
included in insurance charges. Separate account assets, which are stated at fair
value based on quoted market prices, and separate account liabilities are shown
separately in the Consolidated Balance Sheets. Operating results of the separate
accounts are not included in the Consolidated Statements of Income.
Insurance Premiums and Charges
For life and some annuity contracts other than universal life or investment
contracts, premiums are recognized as revenues over the premium paying period,
with reserves for future benefits established on a prorated basis from such
premiums.
Revenues for universal life and investment contracts consist of policy charges
for the cost of insurance, policy administration and surrender charges assessed
during the period. Expenses include interest credited to certificate account
balances and benefits incurred in excess of certificate account balances.
Certain profits on limited payment certificates are deferred and recognized over
the certificate term. For accident and health certificates, gross premiums are
prorated over the contract term of the certificates with the unearned premium
included in the certificate reserves.
Surplus Refunds
Surplus refunds are recognized over the certificate year and are reflected in
the Consolidated Statements of Income. The majority of life insurance
certificates, except for universal life and term certificates, begin to receive
surplus refunds at the end of the second certificate year. Surplus refunds are
not currently being paid on interest-sensitive and health insurance
certificates. Surplus refund scales are approved annually by AAL's Board of
Directors.
Fraternal Benefits
Fraternal benefits and expenses includes all fraternal activities as well as
expenses incurred to provide or administer fraternal benefits, and expenses
related to AAL's fraternal character. This would include items such as
benevolences to help meet the needs of people, educational benefits to raise
community and family awareness of an issue, as well as various programs and
church grants. Expenses, such as those necessary to maintain the branch system,
are also included.
Other Revenue
Other revenue consists primarily of concessions and investment advisory fees of
AAL Capital Management Corporation.
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. AAL's wholly-owned subsidiaries are subject to federal and
state taxation.
<PAGE>
Note 2. Investments
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AAL's investments in available for sale securities and held to maturity
securities are summarized as follows:
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Amortized Cost Gross Gross Estimated fair
Unrealized Unrealized Value
gains Losses
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------------------------------------------------------------
(Thousands)
- ----------------------------------- ----------------------------------------------------------------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Available for Sale Securities at
December 31, 1996
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Fixed Maturity Securities
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Loan Backed Obligations of U.S. 292,421 2625 -1276 293770
Government Corporations and
Agencies
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Obligations of other governments, 278,167 5907 -1348 282726
states and political subdivisions
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Corporate Bonds 4,491,290 73719 -48044 4516965
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Mortgage and Asset-Backed 1,877,261 15114 -37633 1854742
Securities
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Total Fixed Maturity Securities 6,939,139 97365 -88301 6948203
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Equity Securities 396,788 142325 0 539113
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Total 7,335,927 239690 -88301 7487316
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
<PAGE>
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Amortized Cost Gross Gross Estimated fair
Unrealized Unrealized Value
gains Losses
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------------------------------------------------------------
(Thousands)
- ----------------------------------- ----------------------------------------------------------------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Held to Maturity Securities at
December 31, 1996
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Fixed Maturity Securities
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
U.S. Treasury Securities and non-loan
backed obligations of U.S. Government
Corporations and Agencies 42106 1881 -782 43205
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Loan Backed Obligations of U.S.
Government Corporations and
Agencies 397200 15875 -3999 409076
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Obligations of other governments,
states and political subdivisions 74908 1052 -1248 74712
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Corporate Bonds 3064485 141260 -13766 3191979
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Mortgage and Asset-Backed
Securities 844938 14086 -8030 850995
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
Total 4423637 174154 -27825 4569967
- ----------------------------------- ----------------- ---------------- ----------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Amortized Cost Gross Unrealized Gross Unrealized Estimated Fair
Gains Losses Value
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------------------------------------------------------------------------
Available for sale (In Thousands)
securities at
December 31, 1995
- ---------------------- -------------------------------------------------------------------------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Fixed maturity
securities
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Loan backed 329257 5949 335206
obligations of U.S.
Government
corporations and
agencies
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Obligations of other 276646 14882 291528
governments, states
and political
subdivisions
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Corporate bonds 4074798 170609 -6799 4238608
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Mortgage & 2002772 21040 -9553 2014259
asset-backed
securities
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Total fixed maturity 6683473 212480 -16352 6879601
securities
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Equity securities 364732 88666 0 453398
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Total 7048205 301146 -16352 7332999
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------- ------------------ ----------------- ------------- ----------------
Amortized Cost Gross Gross Estimated Fair
Unrealized Gains Unrealized Value
Losses
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- -------------------------------------------------------------------
Held to maturity (In Thousands)
securities at December
31, 1995
- --------------------------- -------------------------------------------------------------------
- --------------------------- ------------------ ----------------- ------------- ----------------
Fixed maturity securities
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- ------------------ ----------------- ------------- ----------------
U.S. Treasury securities 60412 3385 -328 63469
and non-loan backed
obligations of U.S.
Government corporations
and agencies
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- ------------------ ----------------- ------------- ----------------
Loan backed obligations 429971 28017 -154 457834
of U.S Government
corporations and agencies
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- ------------------ ----------------- ------------- ----------------
Obligations of other 81608 1961 -245 83324
governments, states and
political subdivisions
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- ------------------ ----------------- ------------- ----------------
Corporate bonds 2908531 205654 -4660 3109525
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- ------------------ ----------------- ------------- ----------------
Mortgage & asset-backed 588850 19880 -455 608275
securities
- --------------------------- ------------------ ----------------- ------------- ----------------
- --------------------------- ------------------ ----------------- ------------- ----------------
4069372 258897 -5842 4322427
- --------------------------- ------------------ ----------------- ------------- ----------------
</TABLE>
<PAGE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1996, 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>
<S> <C> <C> <C> <C>
- -------------------------- ----------------------------------- -----------------------------------
Available for sale Held to maturity
- -------------------------- ----------------------------------- -----------------------------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Amortized Cost Fair Value Amortized Cost Fair Value
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- -----------------------------------------------------------------------
(In Thousands)
- -------------------------- -----------------------------------------------------------------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Due in one year or less 42442 42613 124011 125181
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Due after one year 2690343 2713062 1208261 1247610
through five years
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Due after five years 1817920 1819148 1176274 1230269
through ten years
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Due after ten years 218752 224868 672953 706836
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Total fixed maturity 4769457 4799691 3181499 3309896
securities excluding
mortgage and
asset-backed bonds
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Loan-backed obligations 292421 293770 397200 409076
of U.S. Government
corporations and agencies
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Mortgage and 1877261 1854742 844938 850995
asset-backed securities
- -------------------------- --------------------- ------------- ------------------ ----------------
- -------------------------- --------------------- ------------- ------------------ ----------------
Total fixed maturity 6939139 6948203 4423637 4569967
securities
- -------------------------- --------------------- ------------- ------------------ ----------------
</TABLE>
<PAGE>
Major categories of AAL's investment income are summarized as follows:
- ------------------------------ -------------------- -------------------
Year Ended Year Ended
December 31, 1996 December 31, 1995
- ------------------------------ -------------------- -------------------
- ------------------------------ ----------------------------------------
(In Thousands)
- ------------------------------ ----------------------------------------
- ------------------------------ -------------------- -------------------
Fixed maturity securities 828565 807481
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Equity securities 11030 7973
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Mortgage loans 284534 256251
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Investment real estate 21998 20418
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Certificate loans 34882 34618
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Other invested assets 6666 3665
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Gross investment income 1187675 1130406
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Investment expenses 16085 14616
- ------------------------------ -------------------- -------------------
- ------------------------------ -------------------- -------------------
Net investment income 1171590 1115790
- ------------------------------ -------------------- -------------------
<PAGE>
AAL's realized gains and losses on investments are summarized as follows:
- ----------------------------- ---------------------- ---------------------------
December 31, 1996 December 31, 1995
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
(Thousands)
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Securities Available for Sale
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Fixed Maturity Securities
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Gross Realized Gains 41313 32443
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Gross Realized Losses -9058 -8955
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Equity Securities
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Gross Realized Gains 37001 18209
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Gross Realized Losses -7546 -4960
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Other Investments, Net 1249 -20139
- ----------------------------- ---------------------- ---------------------------
- ----------------------------- ---------------------- ---------------------------
Net Realized Gains 62959 16598
- ----------------------------- ---------------------- ---------------------------
Net unrealized gains on available for sale securities were credited directly to
certificate owners' surplus, as follows:
- ------------------------------------ ------------------------ ------------------
December 31, 1996 December 31, 1995
- ------------------------------------ ------------------------ ------------------
- ------------------------------------ -------------------------------------------
(Thousands)
- ------------------------------------ -------------------------------------------
- ------------------------------------ ------------------------ ------------------
Fair Value Adjustment to Available 151389 284794
for Sale Securities
- ------------------------------------ ------------------------ ------------------
<PAGE>
- ------------------------------------ ------------------------ ------------------
Decrease in Deferred Acquisition -2686 -46114
Costs
- ------------------------------------ ------------------------ ------------------
- ------------------------------------ ------------------------ ------------------
Net Unrealized Gains on Available 148703 238680
for Sale Securities
- ------------------------------------ ------------------------ ------------------
The increase (decrease) in unrealized appreciation on investments in fixed
maturity and equity securities is as follows:
- ------------------------------------ ------------------ ----------------------
Year Ended December 31 1996 1995
- ------------------------------------ ------------------ ----------------------
- ------------------------------------ -----------------------------------------
(Thousands)
- ------------------------------------ -----------------------------------------
- ------------------------------------ ------------------ ----------------------
Fixed Maturity Securities -187064 630394
Available for Sale
- ------------------------------------ ------------------ ----------------------
- ------------------------------------ ------------------ ----------------------
Equity Securities Available for 53659 79610
Sale
- ------------------------------------ ------------------ ----------------------
- ------------------------------------ ------------------ ----------------------
Deferred Acquisition Costs 43428 -159114
- ------------------------------------ ------------------ ----------------------
- ------------------------------------ ------------------ ----------------------
Total -89977 550890
- ------------------------------------ ------------------ ----------------------
<PAGE>
AAL invests in mortgage loans, principally involving commercial real estate.
Such investments consist of first mortgage liens on completed income producing
properties. AAL manages its investments in mortgage loans to limit credit risk
by diversifying among various geographic regions and property types as shown:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Principal 1996 Principal 1995 Percent 1996 Percent 1995
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- ------------------------------------------ --------------------- --------------------
(Thousands)
- ---------------------- ------------------------------------------ --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Geographic Region
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Pacific 1148613 1086817 33.4 35.2
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
South Atlantic 1204145 1108102 35.0 35.9
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Midwest 652296 571206 19.0 18.5
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Other 432983 320810 12.6 10.4
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Total Mortgage Loans 3438037 3086935 100.0 100.0
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Property Type
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Office 1035954 1001258 30.1 32.4
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Industrial 1056824 929260 30.7 30.1
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Retail 448101 431798 13.0 14.0
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Residential 433128 357021 12.6 11.6
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Church 184259 160560 5.4 5.2
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Other 279771 207038 8.2 6.7
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Total Mortgage Loans 3438037 3086935 100.0 100.0
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
<PAGE>
The following table presents changes in the allowance for credit losses:
- ------------------------------------ -------------------- ----------------------
1996 1995
- ------------------------------------ -------------------- ----------------------
- ------------------------------------ -------------------------------------------
(Thousands)
- ------------------------------------ -------------------------------------------
- ------------------------------------ -------------------- ----------------------
Balance at January 1 134402 142402
- ------------------------------------ -------------------- ----------------------
- ------------------------------------ -------------------- ----------------------
Provision for Credit Losses 9066 18138
- ------------------------------------ -------------------- ----------------------
- ------------------------------------ -------------------- ----------------------
Charge offs -3766 -26138
- ------------------------------------ -------------------- ----------------------
- ------------------------------------ -------------------- ----------------------
Recoveries 0 0
- ------------------------------------ -------------------- ----------------------
- ------------------------------------ -------------------- ----------------------
Balance at December 31 139702 134402
- ------------------------------------ -------------------- ----------------------
AAL's investment in mortgage loans includes $281,876,000 and $261,500,000 of
loans that are considered to be impaired as of December 31, 1996 and 1995
respectively, for which the related allowance for credit losses are $56,043,000
and $60,010,000 at December 31, 1996 and 1995, respectively. AAL recorded
interest income on impaired loans of $19,366,000 and $18,259,000 for 1996 and
1995 respectively.
<PAGE>
Note 3. Deferred Acquisition Costs
The changes in deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------- ----------------------------------------------------------------------------------
(Thousands)
- ------------------------- ----------------------------------------------------------------------------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Life Universal Life Other Annuities Health Total
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Balance at January 1, 404955 80309 228918 56446 770628
1995
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Acquisition costs
deferred:
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Commissions, net of 36989 10290 23795 9219 80293
certificate charges
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Other costs 13192 4834 4960 5409 28395
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Total deferred 50181 15124 28755 14628 108688
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Acquisition costs -49084 -5665 -18907 -3006 -76662
amortized
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Increase in deferred 1097 9459 9848 11622 32026
acquisition costs
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Decrease related to -70645 -7707 -80762 0 -159114
unrealized gains on
fixed maturities
recorded as a separate
component of
certificate owner
surplus
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Total increase -69548 1752 -70914 11622 -127088
(decrease)
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Balance at December 335407 82061 158004 68068 643540
31, 1995
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
<PAGE>
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Acquisition costs
deferred:
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Commissions, net of 34046 10756 24316 9509 78627
certificate charges
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Other costs 12064 4758 5165 5512 27499
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Total deferred 46110 15514 29481 15021 106126
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Acquisition costs -59213 -12021 -14915 -2430 -88579
amortized
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Increase (decrease) in
deferred acquisition
costs -13103 3493 14566 12591 17547
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Increase related to 19160 1936 22332 0 43428
unrealized gains on
fixed maturities
recorded as a separate
component of
certificate owner
surplus
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Total increase 6057 5429 36898 12591 60975
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
Balance at December 341464 87490 194902 80659 704515
31, 1996
- ------------------------- --------------- ---------------- ---------------- --------------- ----------------
</TABLE>
<PAGE>
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 $6,993,000 and $4,778,000 to the
plans in 1996 and 1995, 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, listed stocks and
commercial paper. The following tables set forth the amounts recognized in AAL's
financial statements and the plans' funding status.
- ----------------------------------- --------------------------------------------
December 31(in thousands)
- ----------------------------------- --------------------------------------------
- ----------------------------------- ---------------------- ---------------------
1996 1995
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Actuarial Value of Benefit
Obligations
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Vested Benefits -144356 -132823
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Nonvested Benefits -6467 -5854
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Accumulated benefit Obligation -150823 -138677
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Projected Benefit Obligation of -202489 -190028
Service Rendered to Date
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Plan Assets at Fair Value 242837 213512
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Funded Status-Excess of Plan 40348 23484
Assets over Projected Benefit
Obligation
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Unrecognized Net Loss from Actual -30762 -13876
Experience Different from that
Assumed and Impact of Changes in
Assumptions
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Prior Service Benefit Not Yet 903 969
Recognized in Net Pension Cost
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Unrecognized net obligation at -11697 -13733
transition to Statement 87 on
January 1, 1987, being recognized
over a period of 18 years
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Accrued pension liability -1208 -3156
included in other liabilities
- ----------------------------------- ---------------------- ---------------------
<PAGE>
- ----------------------------------- ---------------------- ---------------------
Net Pension Cost includes the
following components
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Service Cost 8902 7736
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Interest Cost 14862 13742
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Actual return on Plan Assets -31061 -45008
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Net Amortization and Deferred item 12342 27844
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
Net Pension Cost 5045 4296
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
The following summarizes certain assumptions included in the preceding
schedules:
- ----------------------------------- ----------------------------- --------------
December 31, 1996 December 31, 1995
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Assumed Discount Rate 8.0% 8.0%
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Expected Long-Term Rate of Return 8.5% 8.5%
on Plan Assets
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Rate of Increase in Future 4.0-6.0% 4.0-6.0%
Compensation levels
- ----------------------------------- ------------------- ----------------------
<PAGE>
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 1996 and 1995 were $3,609,000 and $3,537,000, respectively.
Note 5. Post-Retirement 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 over the
service life of employees.
The following tables set forth the amounts recognized in AAL's financial
statements and the post-Retirement benefit plan's funding status
- ----------------------------------- -------------------------------------------
December 31(in thousands)
- ----------------------------------- -------------------------------------------
- ----------------------------------- --------------------- ---------------------
1996 1995
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Actuarial Value of Benefit
Obligations:
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Retirees -18915 -18957
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Fully Eligible Plan Participants -6301 -5529
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Other Active Participants -11975 -11318
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Total Accumulated Other -37191 -35804
Postretirement Benefits
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Unrecognized net Loss -2848 -2238
- ----------------------------------- --------------------- ---------------------
- ----------------------------------- --------------------- ---------------------
Other Post retirement Liabilities -40039 -38042
- ----------------------------------- --------------------- ---------------------
<PAGE>
The components of the net periodic post-Retirement benefit cost reported in
operations are summarized as follows:
- ----------------------------------- -------------------------------------------
December 31(in thousands)
- ----------------------------------- -------------------------------------------
- ----------------------------------- ------------------- -----------------------
1996 1995
- ----------------------------------- ------------------- -----------------------
- ----------------------------------- ------------------- -----------------------
Service benefits earned 1385 1354
- ----------------------------------- ------------------- -----------------------
- ----------------------------------- ------------------- -----------------------
Interest cost on benefit 2771 3063
obligation
- ----------------------------------- ------------------- -----------------------
- ----------------------------------- ------------------- -----------------------
Actual return on plan assets 0 0
- ----------------------------------- ------------------- -----------------------
- ----------------------------------- ------------------- -----------------------
Net amortization and deferral 0 0
- ----------------------------------- ------------------- -----------------------
- ----------------------------------- ------------------- -----------------------
Net periodic postretirement 4156 4417
benefit cost
- ----------------------------------- ------------------- -----------------------
The discount rate used in determining the accumulated post-Retirement benefit
obligation was 8.0 percent for 1996 and 1995, 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.
<PAGE>
Note 6. Synopsis of Statutory Financial Results
The accompanying financial statements differ from those prepared in accordance
with statutory accounting practices prescribed or permitted by regulatory
authorities. The more significant differences are as follows: (a) certain
acquisition costs of new business are deferred and amortized rather than being
charged to operations as incurred; (b) the liabilities for future certificate
benefits and expenses are based on reasonably conservative estimates of expected
mortality, interest, withdrawals and future maintenance and settlement expenses
rather than using statutory rates for mortality and interest; (c) certain
assets, principally cost in excess of net assets acquired, furniture, equipment
and agents' debit balances are reported as assets rather than being charged to
certificate owners' surplus and excluded from the balance sheet; (d) the
interest maintenance reserve and asset valuation reserve are reported as part of
certificate owners' surplus rather than as a liability; and (e) revenues for
universal life and investment-type contracts include mortality, expense and
surrender charges levied against the certificate owners' accounts rather than
including as revenues the premiums received on these certificates. Expenses
include interest added to the certificate owners' accounts rather then reserve
changes related to the investment portion of these policies. Summarized
statutory-basis financial information for Aid Association for Lutherans
Fraternal Benefit Society on an unconsolidated basis is as follows:
- ----------------------------------- ------------------------------------------
December 31(in thousands)
- ----------------------------------- ------------------------------------------
- ----------------------------------- --------------------- --------------------
1996 1995
- ----------------------------------- --------------------- --------------------
- ----------------------------------- --------------------- --------------------
Assets 16671018 15442524
- ----------------------------------- --------------------- --------------------
- ----------------------------------- --------------------- --------------------
Liabilities 15577883 14499841
- ----------------------------------- --------------------- --------------------
- ----------------------------------- --------------------- --------------------
Unassigned Funds 1093135 942683
- ----------------------------------- --------------------- --------------------
- ----------------------------------- --------------------- --------------------
Total Liabilities and Unassigned 16671018 15442524
Funds
- ----------------------------------- --------------------- --------------------
- ----------------------------------- ------------------------------------------
December 31(in thousands)
- ----------------------------------- ------------------------------------------
- ----------------------------------- ------------------- ----------------------
1996 1995
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Premium Income and Certificate 1663403 1665995
Proceeds
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Net Investment Income 1162629 1110545
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Other Income 23647 17179
- ----------------------------------- ------------------- ----------------------
- ----------------------------------- ------------------- ----------------------
Total Income 2849679 2793719
- ----------------------------------- ------------------- ----------------------
<PAGE>
- ----------------------------------- ------------------------------------------
December 31(in thousands)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------- ----------------------
1996 1995
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Reserve increase 741518 1078575
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
certificate owners' benefits 1285702 1112138
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Surplus refunds 107472 102772
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Commissions and operating costs 367155 338908
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Other 226097 48955
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Total benefits and expenses 2727944 2681348
- ----------------------------------- -------------------- ----------------------
<PAGE>
Note 7. Fair Value of Financial Instruments
- ----------------------------------- -------------------- ----------------------
Net Gain from Operations 121735 112371
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Net Realized Cap Begins 7967 2095
- ----------------------------------- -------------------- ----------------------
- ----------------------------------- -------------------- ----------------------
Net Income 129702 114466
- ----------------------------------- -------------------- ----------------------
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the accompanying balance sheets for these
instruments approximate their fair values.
Investment Securities
Fair values for fixed maturity securities are based on quoted market prices
where available, or are estimated using values obtained from independent pricing
services. All fixed maturity 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 equity
securities 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
The carrying amounts reported in the accompanying balance sheets 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
accompanying balance sheets.
<PAGE>
The cost and estimated fair value of AAL's financial instruments are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------- -------------------- --------------------- --------------------- --------------------
1996 Cost 1996 Estimated Fair 1995 Cost 1995 Estimated
Value Fair Value
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------------------------------------------------------------------------
(Thousands)
- ---------------------- -------------------------------------------------------------------------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Financial Assets
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Fixed maturities 11362776 11518170 10752845 11202027
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Equity Securities 396788 539113 364732 453398
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Mortgage Loans 3298335 3633788 2952533 3511314
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Cash and Cash 106568 106568 166020 166020
equivalents
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Certificate loans 501263 501263 500306 500306
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Financial Liabilities
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Deferred Annuities 7393259 7291815 7169742 7047240
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
other 521632 519688 471120 469475
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
Note 8. 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.
<PAGE>
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 are included
in Part B:
Report of Independent Auditors
Statement of Net Assets as of December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for the year ended December 31, 1996
and the period from June 15, 1995 to December 31, 1995
Notes to Financial Statements
Aid Association for Lutherans The following audited financial
statements of Aid Association for Lutherans ("Depositor") are
included in Part B:
Report of Independent Auditors
Statement of Financial Position as of December 31, 1996
Statement of Operations for the years ended December 31, 1996 and 1995
Statement of Changes in Certificateholders' Contingency Reserves for
the years ended December 31, 1996 and 1995
Statements of Cash Flow for the years ended December 31, 1996 and 1995
Notes to Financial Statements
(b) Exhibits:
Except as noted below, all required exhibits have been previously filed and are
incorporated by reference from Registrant's prior Registration Statement, as
amended.
1. Resolution of the Board of Directors of the Depositor authorizing the
establishment of AAL Variable Annuity Account I.
3. (a) Principal Underwriting and Servicing Agreement by and between the
Depositor and AAL Capital Mangement Corp. as amended 10/28/96
4. Individual Certificate Forms:
(a) Adult Certificate
(b) Juvenile Certificate (excluding variation page applicable to
section 3.4)
<PAGE>
6. (a) Articles of Incorporation of Depositor
(b) Bylaws of Depositor
8. (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.
(b)(i) Participation Agreement by and between Depositor and Aegon USA
(c) Trade Name/Service Mark Licensing Agreement by and between
Depositor and AAL Variable Product Series Fund, Inc.
(d)(i) Administrative Services Agreement by and between Depositor and
AAL Capital Management
9. Opinion of Counsel as to the legality of Securities being registered
(including written consent).
10. (a) Consent of Independent Auditors
(b) Opinion of Counsel as to materiality of Amendment
12. Agreement or Understanding providing Initial Capital (Stock
Subscription Agreement).
14. A Financial Data Schedule meeting the requirement 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. (d) Powers of Attorney for the following:
Herbert J. Arkebauer James W. Hanson
Raymond G. Avischious Robert H. Hoffman
Richard E. Beumer Robert E. Long
Kenneth Daly Robert B. Peregrine
Elizabeth A. Duda Roger G. Wheeler
Edward A. Engel Marlene Wilson
Gary J. Greenfield Thomas R. Zehnder
Richard L. Gunderson
27. Financial Data Schedule
<PAGE>
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:
Name and Principal Positions and Offices
Business Address with Depositor
Richard Gunderson Chairman of the Board
10801 E. Happy Valley Rd. #67
Scottsdale, AZ 85255
John O. Gilbert
4321 North Ballard Road Director, President and
Appleton, WI 54919 Chief Executive Officer
Herbert J. Arkebauer
Professor
Speech and Hearing Science
Southwest State University
Springfield, MO 65802 Director
Raymond G. Avischious
formerly President & General Manager
Shurfine-Central 4200 Oaksbury Lane
Rolling Meadows, IL 60008 Director
Richard E. Beumer
President
Sverdrup Corporation
2545 Trevor Lane
Colorado Springs, CO 80919 Director
Kenneth Daly
Partner
KPMG Peat Marwick
1600 Market Street
Philadelphia, PA 19103-7201 Director
Elizabeth A. Duda
2450 Mikler Road
Oviedo, FL 32765 Director
Edward A. Engel
President
Edward A. Engel & Associates
P.O. Box 2039
Birmingham, MI 48012 Director
Gary J. Greenfield
President
Wisconsin Lutheran College
8830 West Bluemound Road
Milwaukee, WI 53226 Director
<PAGE>
James W. Hanson
formerly Chief Economist
Exxon Corporation New York
505 High Point Drive
Mount Dora, FL 32757 Director
Robert H. Hoffman
Vice President
Taylor Corporation
1725 Roe Crest Drive
P.O. Box 3728 Director
North Mankato, MN 56002-3728
Rev. Thomas R. Zehnder
President Lutheran Ministry Center
Lutheran Church Missouri Synod
7207 Monetary Drive
Orlando, FL 32809-5724 Director
Robert E. Long
Senior Vice President Administration
Park Bank
7540 West Capitol Drive
Milwaukee, WI 53216 Director
Robert B. Peregrine
President
Peregrine Law Offices, S.C.
633 West Wisconsin Avenue
Milwaukee, WI 53203 Director
Kathi P. Seifert
Group President
Kimberly Clark Corporation
Neenah, WI 54956 Director
Roger G. Wheeler
President
Wheel-Air Charter, Inc.
8891 Airport Road
Minneapolis, MN 55449 Director
E. Marlene Wilson
President
Volunteer Management Associates
1113 Spruce Street, Suite 406
Boulder, CO 80302 Director
<PAGE>
Roger J. Johnson Executive Vice President,
4321 North Ballard Road Chief Financial Officer
Appleton, WI 54919 and Treasurer
Woodrow E. Eno, Esq. Senior Vice President,
4321 North Ballard Road Secretary and General
Appleton, WI 54919 Counsel
Ronald G. Anderson
4321 North Ballard Road Senior Vice President and
Appleton, WI 54919 Chief Investment Officer
Jerry Laubenstein
4321 North Ballard Road
Appleton, WI 54919 Senior Vice President
Steven A. Weber
4321 North Ballard Road
Appleton, WI 54919 Senior Vice President
Fred Ohlde
4321 North Ballard Road
Appleton, WI 54919 Senior Vice President
Carl Rudolph
4321 North Ballard Road Vice President and
Appleton, WI 54919 Controller
James H. Abitz
222 West College Avenue
Appleton, WI 54919 Vice President
James Jawort
4321 North Ballard Road
Appleton, WI 54919 Second Vice President
Gary Mounce
4321 North Ballard Road
Appleton, WI 54919 Assistant Vice President
Mark Mahoney
222 West College Avenue Second Vice President
Appleton, WI 54911
Dan Shinnick
4321 North Ballard Road Second Vice President
Appleton, WI 54919
<PAGE>
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 Portfolio 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 this Portfolio's 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, 1997, there were approximately 11,519 qualified and 10,096
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.
<PAGE>
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
Capital Growth, Mid Cap Stock, Small Cap Stock, International,
Utilities, Bond, Municipal Bond, High Yield Bond, Money Market Funds
(Class A and Class B) and 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 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.
<PAGE>
Name and Principal Positions and Offices
Business Address with Underwriter
Steven A. Weber Director
Jerome Laubenstein Director
Woodrow E. Eno Director
James H. Abitz Director
Ronald G. Anderson Director and President
Robert G. Same Chief Operating Officer
Executive Vice President,
Secretary and Director
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 Senior Vice President
Stanley H. Herman Senior Vice President
1427 Hidden Oaks Circle
Corinth, TX 76205
Murray Ruffell Vice President
1193 Salt Marsh Circle
Ponte Veda Beach, FL 32082
Lori Richardson Vice President
Joseph Wreschnig Assistant Vice President
125 North Superior Street and Assistant Secretary
Appleton, WI 54911
Paul Stadler Assistant Vice President
Charles Gariboldi Assistant Vice President
Byron Vielehr Assistant Vice President
Charles Friedman Assistant Vice President
Wendy Schmidt Assistant Vice President
<PAGE>
(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, 222 West
College Avenue, Appleton, Wisconsin 54911, 125 North Superior Street, 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.
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.
(d) The Depository insurance company represents that the fees and charges
deducted under the contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Depositor.
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).
<PAGE>
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.
<PAGE>
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 17th day of April,
1997.
AAL VARIABLE ANNUITY ACCOUNT I
(Registrant)
By: Aid Association for Lutherans
(Depositor, on behalf of itself and Registrant)
By: /s/John O. Gilbert
President and
Chief Executive Officer
As required by the Securities Act of 1933, this amended Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated:
/s/ John O. Gilbert President
John O. Gilbert and Chief Executive Officer
(Principal Executive Officer) April 17, 1997
/s/ Ronald G. Anderson Chief Financial Officer
Ronald G. Anderson (Principal Financial Officer,
Principal Accounting Officer) April 17, 1997
All of the Board of Directors:
Herbert J. Arkebauer John O. Gilbert Robert E. Long
Raymond G. Avischious Gary J. Greenfield Robert B. Peregrine
Richard E. Beumer Richard L. Gunderson Kathi P. Seifert
Kenneth Daly James W. Hanson Roger B. Wheeler
Elizabeth A. Duda Robert H. Hoffman E. Marlene Wilson
Edward A. Engel Rev. Thomas Zehnder
John O. Gilbert, 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 duty executed by such persons.
/s/ John O. Gilbert April 17, 1997
- --------------------------------
John O. Gilbert
Attorney-in-Fact
<PAGE>
AAL VARIABLE ANNUITY ACCOUNT I
INDEX TO EXHIBITS
Exhibit
Number Exhibit
1 Resolution of the Board of Directors of the Depositor
3(a) Principal Underwriting and Servicing Agreement
4(a) Adult Certificate
4(b) Juvenile Certificate
6(a) Articles of Incorporation
6(b) Bylaws
8(b) Participation Agreement by and between AAL and the AAL Variable
Product Series Fund, Inc.
8(b)(i) Participation Agreement between AAL and Aegon USA
8(c) Trade Name/Service Mark Licensing Agreement
8(d)(i) First Amendment to the Administrative Services Agreement
9 Opinion of Counsel as to the legality of Securities being registered
(including written consent)
10(a) Consent of Independent Auditors
10(b) Opinion of Counsel as to materiality of Amendment
12 Stock Subscription Agreement
15(d) Power of Attorney
27 Financial Data Schedule
CERTIFICATE OF CORPORATE RESOLUTION
I, William R. Heerman, being the duly constituted Secretary of Aid
Association for Lutherans, a corporation organized and existing under and by
virtue of the laws of the State of Wisconsin (hereinafter called the
Corporation), do hereby certify that the following is a true and complete copy
of resolutions duly adopted at a meeting of the Board of Directors of this
Corporation, duly called and held on February 10, 1994, at which a quorum was
present and voting that said resolution is still in full force and effect and
has not been rescinded; and that said resolution is not in conflict with the
charter or bylaws of this Corporation.
I further certify that there is no provision in the Articles of
Incorporation or Bylaws of Aid Association for Lutherans limiting the power of
the Board of Directors to pass the foregoing resolution, and that the same is in
conformity with the provisions of the Articles of Incorporation and Bylaws of
the Corporation and within its corporate and lawful powers, and
I further certify that the officers signing the documents to which this
certificate is attached have been duly elected to their respective offices by
the Board of Directors of Aid Association for Lutherans, that they are officers
to whom the above resolution pertains, and that they are duly qualified and are
now acting as such officers.
IN WITNESS WHEREOF, I have hereunto affixed by name as Secretary, and
have caused the corporate seal of said Corporation to be hereto affixed this day
of July 22, 1994.
/s/ W. R. Heerman
--------------------------------------
(Corporate Seal)
<PAGE>
RESOLUTION
AMENDING BYLAWS TO ADD AUTHORIZATION
FOR SEPARATE ACCOUNT AND VARIABLE CONTRACTS
WHEREAS, Aid Association for Lutherans (AAL) intends to develop, sell and
administer variable contracts;
WHEREAS, it is required by law for the implementation of this plan that a
separate account be established within AAL to provide a funding medium to
support reserves under variable contracts;
WHEREAS, Section 614.24 of Wisconsin statutes permits AAL to establish a
separate account for this purpose;
WHEREAS, AAL's bylaws do not currently contain authority to establish a separate
account;
NOW THEREFORE BE IT RESOLVED, that the bylaws of AAL are hereby amended by
renumbering the existing section 10 of the bylaws, as section 11, by renumbering
subsequent sections of the bylaws, and by adding a new section 10, entitled
SEPARATE ACCOUNTS AND VARIABLE CONTRACTS, to read as follows:
SEPARATE ACCOUNTS AND VARIABLE CONTRACTS
Section 10. The Board of Directors may provide for the establishment and
operation of one or more separate accounts in accordance with applicable law.
AAL may issue contracts on a variable basis that provide for the dollar amount
of benefits or other contractual payments or values to vary so as to reflect the
investment results of such separate accounts. The Board of Directors may adopt
special procedures or create legal entities necessary or appropriate for the
conduct of the business and affairs of any variable contract and separate
account. Any provisions of the AAL bylaws that are inconsistent with the
provisions of this bylaw shall not apply to any variable contract or separate
account.
<PAGE>
RESOLUTIONS
WHEREAS, Aid Association for Lutherans (AAL) desires to develop, sell, issue and
administer variable annuity contracts, and to establish and operate such
separate accounts as may be necessary or appropriate for AAL's planned variable
annuity contracts;
WHEREAS, the Board of Directors of AAL intends to authorize AAL management to
proceed with the development of this plan and to obtain the necessary state and
federal authorities and approvals in connection with the contracts and the
separate accounts;
NOW THEREFORE BE IT RESOLVED, that AAL shall make all necessary state insurance
department filings necessary to obtain authority and approvals to issue variable
annuity contracts, including but not limited to, amending its certificate of
authority with the states to permit the sale of variable contracts, and filing
with state insurance departments the form of the Certificate of Membership and
Annuity.
RESOLVED, that pursuant to authority granted under Section 614.24 of Wisconsin
Statutes, AAL hereby establishes a separate account to provide a funding medium
to support reserves under variable annuity contracts issued by AAL, under the
name of "AAL Variable Annuity Account I" (the "Account"), under which income,
gains and losses, whether or not realized, from assets allocated to the Account,
are, in accordance with the applicable contract, credited to or charged against
the Account without regard to other income, gains or losses of AAL, with assets
attributable to contracts to be held and applied exclusively for the benefit of
the contract owners; under which contracts any accumulation or value of the
contracts, or any portion thereof, or any unit of interest or participation
therein, either prior or subsequent to annuitization, or both, varies according
to the investment experience of the Account; the assets of which Account shall
be legally segregated from the general account assets of AAL and shall, at the
time during the year that adjustments in the reserves are made, have a value at
least equal to the reserves and other contract liabilities with respect to the
Account, and at all other times, shall have a value approximately equal to or in
excess of such reserves and liabilities; and that portion of such assets having
a value equal to, or approximately equal to, such reserves and contract
liabilities shall not be chargeable with liabilities arising out of any other
business which AAL may conduct.
RESOLVED, that any Chief Executive Officer, President, Senior or Executive Vice
President, Vice President, Secretary, Assistant Secretary, Treasurer, or
Assistant Treasurer of AAL ("Officers") is hereby authorized, for and on behalf
of AAL, and with respect to the Account, to execute and file with the Securities
Exchange Commission (SEC): a notification of registration on Form N-8A, and a
registration statement on Form N-4, or other applicable form, to provide for the
registration of the Account as a unit investment trust investment company under
the Investment Company Act of 1940 (1940 Act); any application or applications
for exemptions from provisions of the 1940 Act and/or rules thereunder which
application of applications may be on behalf of any other separate account
established by AAL or any affiliated company of AAL, now or in the future; a
registration statement on Form N-4, or other applicable form to register the
contracts or interests thereunder (which may be in an indefinite amount) from
time to time under the Securities Act of 1933, as amended (1933 Act), all in
such form as such Officers may approve and amendments, exhibits and other
supporting documents thereto,
RESOLVED, that the above AAL Officers are hereby authorized to establish
sub-accounts in the
<PAGE>
Account; to provide that allocations may be made thereto pursuant to contract
provisions and contract owner instructions; to add, remove, consolidate or
otherwise modify sub-accounts of the Account; and to change the name of the
Account.
RESOLVED, that the above AAL Officers are hereby authorized to create,
establish, and provide the funds and administrative services for one or more
separate investment companies; that the Account shall invest in shares of such
investment companies established for this purpose (underlying mutual funds) as
the Officers may designate, now or in the future, consistent with the contracts
and applicable law; that given sub-accounts of the Account shall invest in only
one company or one series of a company; that the contracts issued by AAL may
include a provision for investment in AAL's general account, in which case the
values shall be combined with other AAL assets and shall be subject to the
maintenance of solvency and other provisions applicable to the general account.
RESOLVED, that the above AAL Officers are hereby authorized, for and on behalf
of AAL, with respect to the Account, to assist the underlying investment company
or companies in preparing and filing with the SEC, a notification of
registration on Form N-8A, and a registration statement on Form N-4, or other
applicable form, to provide for the registration of the company or companies as
an investment company or companies under the 1940 Act and to register the shares
of the company or companies as securities under the 1933 Act, and amendments,
exhibits and other supporting documents thereto, all in such form as such
Officers may approve, and in passing through to contract owners voting rights or
privileges for shares of the company or companies in such form as such Officers
may approve in accordance with applicable law.
RESOLVED, that the above AAL Officers are hereby authorized to cause AAL to act
as Investment Advisor with respect to the underlying investment company or
companies and to execute and file with the SEC a registration statement on Form
ADV, or other applicable forms for registration of AAL as an investment advisor,
and amendments, exhibits and other supporting documents thereto all in such form
as such Officers may approve.
RESOLVED, that William R. Heerman, the general counsel of AAL, or his successor,
is hereby designated as the person authorized to receive notices and
communications from the SEC with respect to such registration statements to be
filed under the 1933 Act, with the powers conferred upon him as such person by
the 1933 Act and the rules and regulations of the SEC issued thereunder, as well
as with respect to any other filing made under any state or federal law.
RESOLVED, that the above AAL Officers (and such other officers and employees of
AAL as the President of AAL may designate), and each of them, are hereby
authorized, for and on behalf of AAL, now and in the future, to take such other
and further action and to execute such other and further instruments,
amendments, exhibits, and other supporting documents (including, without
limitation, a distribution agreement with a principal underwriter in compliance
with the Securities Exchange Act of 1934, with respect to sale of the
contracts), as they, or any of them, may deem necessary or appropriate to carry
out the purposes of the foregoing resolutions or to comply with applicable law.
PRINCIPAL UNDERWRITING AND SERVICING AGREEMENT
BY AND BETWEEN
AAL CAPITAL MANAGEMENT CORPORATION
AND
AID ASSOCIATION FOR LUTHERANS
DATED
NOVEMBER 23, 1994,
AS AMENDED OCTOBER 28 , 1996
<PAGE>
TABLE OF CONTENTS
Page
1. Appointment of DISTRIBUTOR......................................... 3
2. Underwriting Responsibilities of DISTRIBUTOR...................... 3
3. Additional Services to be Provided by DISTRIBUTOR.................. 4
3.1 Preparation of Sales Literature and Advertising Materials... 4
3.2 Licensing of Field and Home Office Staff.................... 5
3.3 Regulatory Compliance....................................... 5
3.4 Field Training.............................................. 5
3.5 Confirmations............................................... 6
4. Responsibilities of AAL............................................ 6
4.1 Sales Commissions........................................... 6
4.2 Sales Credits and Field Expenses............................ 7
4.3 Registrations of Securities and Investment Adviser.......... 7
4.4 Books and Records........................................... 7
4.5 Duty to Keep Informed....................................... 7
4.6 Transfer Agent and Management............................... 7
5. Joint Procedures for Communications with the Public and with
Registered Representatives....................................... 8
6. Fees to be Paid to DISTRIBUTOR by AAL............................... 8
6.1 Variable Annuity Services ................................... 8
6.2 Determination of Charge/Expense Formulas for VA Services..... 8
6.3 Preparation and Negotiation of Final Annual Budget for
VA Services.................................................. 9
6.4 Accounting Procedures....................................... 9
7. Independent Contractor............................................. 10
8. Indemnification.................................................... 10
8.1 Indemnification of AAL...................................... 10
8.2 Indemnification of DISTRIBUTOR............................. 11
9. Authorized Representations......................................... 11
10. Amendment or Assignment of Agreement............................... 12
11. Termination of Agreement........................................... 12
12. Miscellaneous...................................................... 12
13. Definition of Terms................................................ 12
14. Compliance with Securities Laws.................................... 12
15. Regulatory Examinations............................................ 12
16. Notices............................................................ 13
17. Governing Law...................................................... 13
Schedule A: Schedule of Sales Commissions
<PAGE>
PRINCIPAL UNDERWRITING AND SERVICING AGREEMENT
This PRINCIPAL UNDERWRITING AND SERVICING AGREEMENT made and entered
this 23rd day of November, 1994, amended October 28, 1996, by and between AAL
CAPITAL MANAGEMENT CORPORATION, a corporation organized and existing under the
laws of the State of Delaware, ( "DISTRIBUTOR" or "AALCMC") and AID ASSOCIATION
FOR LUTHERANS, a fraternal benefit society organized and existing under the laws
of the State of Wisconsin ("AAL"), on its own behalf and on behalf of AAL
Variable Annuity Account I (the "VARIABLE ACCOUNT").
RECITALS
AAL and its VARIABLE ACCOUNT, a separate unit investment trust
investment account registered under the Investment Company Act of 1940 (the
"1940 Act"), propose to offer for sale certain flexible premium deferred
variable annuity contracts (the "Certificates"), interests under which are
registered with the Securities and Exchange Commission (the "SEC") as securities
under the Securities Act of 1933 (the "1933 Act"), the 1940 Act, and the laws of
some states;
Premiums received from owners of Certificates will be deposited at the
owner's designation in the VARIABLE ACCOUNT and/or in the AAL General Account.
The VARIABLE ACCOUNT will invest solely in shares of the AAL Variable Product
Series Fund, Inc. (the "FUND").
DISTRIBUTOR is a wholly-owned indirect subsidiary of AAL, is registered
as a broker-dealer with the SEC under the Securities Exchange Act of 1934 (the
"1934 Act") and with state securities authorities in all 50 states, is a member
of the National Association of Securities Dealers, Inc. ("NASD"), and is
authorized to offer and sell mutual funds and variable insurance products, and
acts as DISTRIBUTOR of The AAL Mutual Funds, a registered investment company.
AAL and DISTRIBUTOR intend to enter into an agreement by which
DISTRIBUTOR will act as the principal underwriter in a continuous offering of
the Certificates for AAL, to begin on the effective date of the registration
statement in connection with the Certificates under the 1933 Act, and state
securities and insurance registrations. This Agreement pertains to the sale of
Certificates by Registered Representatives licensed with DISTRIBUTOR, and not to
the sale of Certificates by any other party and/or broker-dealer who may be
authorized by AAL to sell Certificates or who may have a separate Distribution
or Selling Agreement with AAL or DISTRIBUTOR.
THEREFORE, in consideration of the covenants and mutual promises of the
parties and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, DISTRIBUTOR and AAL agree as
follows:
AGREEMENT
1. Appointment of DISTRIBUTOR
AAL hereby appoints DISTRIBUTOR as the principal underwriter for the
Certificates during the term of this Agreement in each state or other
jurisdiction where the Certificates may legally be sold. The Certificates may
also be sold by representatives of other broker-dealer firms with which AALCMC
has executed a selling agreement. In addition, AAL may retain other firms to
serve as principal underwriters of the Certificates. Anything in this Agreement
to the contrary notwithstanding, AAL retains the ultimate right to suspend sales
in any jurisdiction or jurisdictions, or to refuse to sell a Certificate to any
applicant for any reason whatsoever.
2. Underwriting Responsibilities of DISTRIBUTOR
<PAGE>
DISTRIBUTOR agrees to offer and sell the Certificates, as agent for AAL,
from time to time during the term of this Agreement upon the terms described in
the Certificate Prospectus. As used in this Agreement, the term "Prospectus"
shall mean the Prospectus and the Statement of Additional Information included
as part of the Registration Statement for AAL and the VARIABLE ACCOUNT, as such
Prospectus and Statement of Additional Information may be amended or
supplemented from time to time. The term "Registration Statement" shall mean the
Registration Statement, as amended from time to time and filed by AAL and the
VARIABLE ACCOUNT with the SEC, and effective under the 1933 Act and/or the 1940
Act.
After the effective date of the Registration Statement for the
Certificates, DISTRIBUTOR will hold itself out to receive applications,
satisfactory to DISTRIBUTOR, for the purchase of the Certificates and will
promptly transmit applications and premiums received for the Certificates which
it accepts to AAL or to the AAL Service Center c/o Continuum Inc., 301 West 11th
Street, Kansas City, MO 64105, as directed by AAL.
All purchases shall be deemed effective at the time and in the manner
set forth in the Prospectus. All applications, when accepted by DISTRIBUTOR and
by AAL, shall designate the allocation of premiums by the purchaser among the
separate investment options represented by the sub-accounts of the VARIABLE
ACCOUNT and the AAL General Account, as defined and described in the Certificate
Prospectus. All premiums from purchasers shall be deposited by AAL in either the
VARIABLE ACCOUNT, to be promptly allocated among the sub-accounts of the
VARIABLE ACCOUNT, or to the AAL General Account, as designated by the purchaser.
Premiums allocated to the sub-accounts of the VARIABLE ACCOUNT shall be
expressed as "accumulation units" of the Certificate as that term is defined in
the Prospectus. The above allocation statements are subject to any specific
allocation of premium requirements that may be set forth in the Certificate
pertaining to allocations during the free look period and allocations in
connection with incomplete applications.
DISTRIBUTOR agrees to be solely responsible for the operation of its
business as a registered broker-dealer in connection with all its underwriting
activities under this Agreement, and shall operate such business in accordance
with all applicable laws and regulations. All sales of the Certificates by
DISTRIBUTOR shall be made through Registered Representatives who are "Associated
Persons" ("Associated Persons" as defined by the 1934 Act) of DISTRIBUTOR, and
who are also District Representatives of AAL. DISTRIBUTOR shall be responsible
for selling only through Registered Representatives who are properly licensed to
sell Certificates in jurisdictions where offers and sales take place.
DISTRIBUTOR is responsible for certain services relating to the
distribution of all prospectus(es) of the VARIABLE ACCOUNT and Fund used by its
Registered Representatives in the marketing of the Certificates. These services
include, but are not limited to design, layout, printing, mailing or other
delivery services.
3. Additional Services to be Provided by DISTRIBUTOR
In addition to the underwriting responsibilities of DISTRIBUTOR
described in paragraph 2 above, DISTRIBUTOR agrees to provide the following
additional services to AAL:
3.1 Preparation of Sales Literature and Advertising Materials
DISTRIBUTOR will be responsible for the initiation, preparation,
printing and distribution of all public sales literature and advertising
materials, as well as all training and marketing materials distributed
to its Registered Representatives as "broker-dealer only" materials
under the NASD rules, which are used by DISTRIBUTOR and its Registered
Representatives, in connection with the sale of the Certificates. AAL
will, in a timely manner, provide DISTRIBUTOR with any and all materials
and information necessary to enable DISTRIBUTOR to fulfill its
obligations set forth in this section regarding sales literature and
advertising materials. AAL will provide DISTRIBUTOR with the names of
AAL employees who will review and approve the materials described in
this subsection. DISTRIBUTOR will coordinate and provide copies of such
materials to designated employees of AAL during the development process
and all advertising and sales
<PAGE>
literature will be approved by both AAL and DISTRIBUTOR prior to use.
DISTRIBUTOR will complete all of the necessary filings and approvals
with the NASD and state securities authorities prior to the public use
of such sales material and advertising. DISTRIBUTOR will provide copies
of all materials to AAL. AAL will file and obtain approval of all such
sales material and advertising with State Insurance Commissioners where
such filing is required by state laws. AAL will promptly advise
DISTRIBUTOR when such filings and approvals are completed. Materials
will only be made available for public use or Registered Representative
use after all securities and insurance filings and approvals are
completed and AAL has given approval for materials to be used.
DISTRIBUTOR will be responsible for maintaining an inventory and
approval history of all of its sales literature, advertising and
"broker-dealer only" materials, and for the distribution of such
materials to its Registered Representatives and to the public.
3.2 Licensing of Field and Home Office Staff
DISTRIBUTOR will be responsible for managing the licensing of all
of its Registered Representatives in connection with the sale of the
Certificates, and will directly handle all licensing by the NASD and
state securities authorities that is necessary for the sale of the
Certificates. AAL will be responsible for obtaining the necessary
insurance licenses with state insurance authorities for the offer and
sale of the Certificates.
AAL and DISTRIBUTOR shall develop a joint electronic data base
and reporting system to consolidate securities and insurance licensing
information for their District Representatives and Registered
Representatives, respectively. The system will provide controls
satisfactory to DISTRIBUTOR in the processing of Variable Annuity
applications to assure that all of its Registered Representatives are
properly licensed when offering and selling the Certificates. The system
shall be kept current by (i) DISTRIBUTOR providing securities licensing
data to AAL; and (ii) AAL providing insurance licensing data to a
database that shall be maintained by AAL. The system described herein
shall be equally accessible to AAL and DISTRIBUTOR.
DISTRIBUTOR and AAL will cooperate to assure the appropriate
licensing of AAL and DISTRIBUTOR's home office employees (including
DISTRIBUTOR's wholesalers) who require securities or insurance licenses
in connection with their work on the Certificates. DISTRIBUTOR will
arrange for pre-licensing study and training to assist such persons in
obtaining their securities licenses as requested by AAL. All AAL
employees who are Associated Persons of DISTRIBUTOR as a result of being
licensed as securities Registered Representatives will be subject to
compliance procedures and supervision of DISTRIBUTOR in connection with
all work related to the Certificates in the same manner as all other
Associated Persons.
3.3 Regulatory Compliance
DISTRIBUTOR will have responsibility for compliance by all of its
Registered Representatives who are Associated Persons of DISTRIBUTOR
(including employees of AAL) with all securities laws and regulations in
connection with the offer and sale of the Certificates. Compliance
supervision shall include, but not be limited to, the following matters:
acceptance of new business; suitability determinations (as made in
accordance with NASD rules or other applicable SEC or self-regulatory
organizations' rules and regulations); field training, supervision and
sales practices; books and records requirements; approval and use of all
advertising, sales literature and broker-dealer only materials;
supervision of confirmation terms and processing; the payment of
commissions; and compliance with the written supervisory procedures of
DISTRIBUTOR.
3.4 Field Training
Immediately after the effective date of the Registration
Statement for the Certificates, DISTRIBUTOR shall be responsible for
conducting field training of all of its associated Registered
Representatives in those states where the Certificates are approved for
sale. The training program shall be developed and conducted
<PAGE>
by DISTRIBUTOR. DISTRIBUTOR will coordinate with AAL concerning those
AAL employees who will be involved in the development of the training
program and in its execution. The training program shall be approved by
both AAL and DISTRIBUTOR prior to implementation.
3.5 Confirmations
DISTRIBUTOR shall be responsible to assure that all purchases,
sales or other transactions occurring in the account of an owner of a
Certificate sold by its Registered Representatives shall be confirmed to
the owner in writing in a form and manner which complies with the
requirements of the 1934 Act, state laws and regulations, and the
disclosure requirements of the NASD. Such confirmations will be
furnished by the broker-dealer to all owners of Certificates in
accordance with securities laws, will reflect the facts of the
transaction, and will show that they are being sent by AAL on behalf of
DISTRIBUTOR acting in the capacity of agent for AAL. The parties agree
that the form and the manner of use of confirmations in connection with
transactions occurring in such accounts shall be supervised by
DISTRIBUTOR. AAL agrees that AAL and its agent, Continuum Inc., will
prepare and distribute such confirmations in accordance with
DISTRIBUTOR's instructions. AAL agrees that AAL will make no changes or
variations in either the form or the manner of distribution of such
confirmations without the written approval of DISTRIBUTOR and shall
cause such confirmations to be issued as directed by DISTRIBUTOR and on
behalf of DISTRIBUTOR.
4. Responsibilities of AAL
4.1 Sales Commissions
AAL will pay DISTRIBUTOR a sales commission on Variable Annuity
sales pursuant to the Schedule A attached hereto. DISTRIBUTOR intends to
reallocate commissions to its Registered Representatives (including
General Agent and General Manager Registered Representatives) for the
sale of Certificates in accordance with a written fee schedule agreement
between DISTRIBUTOR and its associated Registered Representatives.
DISTRIBUTOR, for its convenience, authorizes AAL as agent for
DISTRIBUTOR, to make commission payments due to DISTRIBUTOR directly to
its Registered Representatives.
All commissions for the sale of the Certificates due to
DISTRIBUTOR from AAL shall be reflected on DISTRIBUTOR's financial
records as a receipt from AAL and a disbursement to DISTRIBUTOR'S
Registered Representatives, notwithstanding the direct payment of such
commissions by AAL to such Registered Representatives. AAL agrees to pay
commissions directly to such Registered Representatives as a convenience
to DISTRIBUTOR and recognizes that this agreement to pay is purely
ministerial in nature and not discretionary. The financial records
maintained by or for DISTRIBUTOR shall properly reflect such payments.
Notwithstanding the foregoing, it is agreed that AAL shall have
the right in the payment of such commissions to treat such commissions
as part of AAL employee compensation to such Registered Representatives
for the purpose of calculation of AAL benefits programs and withholding
taxes; provided however, that AAL will provide DISTRIBUTOR in advance
with a written, signed opinion of outside counsel, who shall have
acceptable expertise in securities laws, stating that the payment of
commissions pursuant to this Agreement (1) shall not require AAL to
register as a broker-dealer under federal law, or state laws (if
ascertainable), and (2) shall not violate DISTRIBUTOR's obligation to
supervise and directly pay commissions to its Registered Representatives
under applicable SEC and NASD rules.
AAL will maintain and provide records and reports reflecting the
calculation of all commissions paid to, and any other cash and non-cash
compensation (collectively "Commissions"), received by DISTRIBUTOR'S
Registered Representatives and the details of the transactions upon
which such Commissions are based, and will respond to any inquiries
about Commission payments, pursuant to this
<PAGE>
paragraph. DISTRIBUTOR shall designate to AAL the records required and
such records shall be maintained subject to the provisions of Paragraph
4.3 below.
4.2 Sales Credits and Field Expenses
Any expenses or charges for AAL field services for the
Certificates will be paid directly by AAL. Sales credits for sales of
the Certificates will be based on gross premiums received for the
Certificates, subject to any exceptions that may exist or be developed
with respect to internal transfers of funds among AAL and affiliated
companies.
4.3 Registrations of Securities and Investment Adviser
AAL shall be solely responsible, at its expense, for registration
of the Variable Annuity Certificate, the VARIABLE ACCOUNT, the FUND, and
for the registration of AAL as an investment adviser of the FUND, with
all required state and federal authorities. AAL agrees to maintain such
registration statements in effect at all times during the term of this
Agreement, and to file such amendments, reports and other documents as
may be necessary to assure that there will be no untrue statement of
material fact in any Registration Statement and that there shall be no
omission to state a material fact in the Registration Statement or Form
ADV, which omission would make the statements therein misleading. AAL
may direct DISTRIBUTOR, and DISTRIBUTOR shall perform, any or all of the
services described in this paragraph.
4.4 Books and Records
AAL agrees to maintain all books and records required and
designated by DISTRIBUTOR under the securities laws in connection with
the offer and sale of the Certificates by its Registered
Representatives, as specifically required by Section 17 of the 1934 Act,
Rule 17a-3 and 17a-4 under the 1934 Act or as required by the NASD and
such other or further books or records as may be required by rule or
regulation of any other federal or state regulatory organization or
self-regulatory organization, to the extent such requirements are
applicable to the variable annuity operations, as mutually determined
for purposes of this Agreement by DISTRIBUTOR and AAL. AAL shall
maintain such books and records as agent on behalf of DISTRIBUTOR who
shall be the owner thereof. AAL agrees that such books and records will
be open and available to DISTRIBUTOR at all times, shall be surrendered
promptly on request, without charge, to DISTRIBUTOR, and shall be
subject to inspection by the SEC in accordance with Section 17 of the
1934 Act, and by the NASD or other self-regulatory organization, at any
time. The parties represent and warrant that DISTRIBUTOR has provided a
schedule to AAL that describes the books and records to be maintained by
AAL, on behalf of DISTRIBUTOR.
4.5 Duty to Keep Informed
AAL shall at its expense keep distributor fully informed on a
current basis of any changes or other material matters affecting the
Certificates or the FUND. AAL will use its best efforts to provide
advance notice to DISTRIBUTOR of any proposed changes in the
Certificates or FUND and to discuss such matters with DISTRIBUTOR prior
to taking any action. AAL shall furnish DISTRIBUTOR copies of all
information, financial statements, books and records and other papers
which DISTRIBUTOR may reasonably request in connection with its due
diligence inquiry or for use in connection with the distribution of
Certificates.
4.6 Transfer Agent and Management
AAL shall be solely responsible for the selection and supervision
of a Transfer Agent for the Certificates; management of all Certificate
accounts, including the sub-accounts and the underlying portfolios
(series) of the FUND; establishing and maintaining account records and
processing; and the receipt and disbursement of all monies related to
the Certificates. Notwithstanding its responsibility for these matters,
<PAGE>
AAL shall keep DISTRIBUTOR currently informed, through reports requested
by DISTRIBUTOR, of all activities related to the Certificates and the
FUND. AAL will also keep DISTRIBUTOR informed and consult with
DISTRIBUTOR in advance of any changes to the procedures for the
management or administration of the Certificates or to any of the
underlying records or documents related thereto. AAL recognizes that any
communications with Certificate owners, or prospective Certificate
owners, related to the Certificates sold by DISTRIBUTOR'S Registered
Representatives subject to securities regulations and must be approved
in advance by AAL and DISTRIBUTOR and may require filing with and
approval by the NASD and state securities authorities. Such
communications include but are not limited to: correspondence statement
stuffers, newspaper or magazine articles, confirmation messages and
other similar written materials.
5. Joint Procedures for Communications with the Public and with Registered
Representatives
The parties recognize that all written materials which are provided to
AAL members or prospective members in connection with the Certificates sold by
DISTRIBUTOR'S Registered Representatives are required to meet specific standards
established by securities and insurance regulatory authorities. Such materials
will include advertising and sales materials, correspondence, magazine articles,
newspaper articles, press releases and any other written public communication.
To assure compliance with all applicable rules and laws, it is agreed that
DISTRIBUTOR will manage and coordinate the distribution of all public written
materials related to the Certificates sold by DISTRIBUTOR'S Registered
Representatives, including materials related to the FUND. No public materials
will be released without the prior written approval of both AAL and DISTRIBUTOR,
and both parties shall cooperate in the preparation and review of such
materials. AAL will provide DISTRIBUTOR with the names of its employees
designated to give approval for such written materials.
All non-public written communications with DISTRIBUTOR'S Registered
Representatives and to employees of AAL or DISTRIBUTOR, related to the
Certificates shall be reviewed and approved by both AAL and DISTRIBUTOR prior to
use. Such materials include, without limitation, field updates, "broker-dealer
only" materials, training materials, compliance information, and administrative
forms sent to owners. AAL and DISTRIBUTOR will establish internal policies to
insure that all such materials are appropriately and timely reviewed and shall
cooperate with each other in establishing such procedures.
6. Fees to be Paid to DISTRIBUTOR by AAL
6.1 Variable Annuity Services
DISTRIBUTOR shall perform certain services, as requested by AAL,
in connection with DISTRIBUTOR's role as principal underwriter in AAL's
continuous offering of the Certificates ("VA Services"). VA Services
shall be initially designated as "Marketing Services", "Broker-Dealer
Administration", "Licensing", "Regulatory Compliance", "Field Training",
and "Consulting".
The parties represent and warrant that AAL and DISTRIBUTOR have
mutually agreed to the definition and composition of each of the
foregoing VA Services. AAL and DISTRIBUTOR agree that the definition and
composition of each of the foregoing VA Services, and additional
services to be rendered in connection with the sale of the Certificates,
shall be reaffirmed or amended, as the case may be, on an annual basis
in connection with the preparation and negotiation of the "Final Annual
Budget" (as that term is defined in Paragraph 6.3, infra) for VA
Services for such year.
6.2 Determination of Charge/Expense Formulas for VA Services
The parties represent and warrant that DISTRIBUTOR and AAL agree
on the methods to determine and calculate the amount of VA Services to
be charged by DISTRIBUTOR as an expense to AAL (the "Charge/Expense
Formulas"). Charge/Expense Formulas shall be initially determined and
defined as "Sales Credit Charges", "Direct Expenses", and "Per Hour
Charges". AAL and DISTRIBUTOR covenant and
<PAGE>
agree that (i) Charge/Expense Formulas shall be reaffirmed or amended,
as the case may be, on an annual basis in connection with the
preparation and negotiation of the Final Annual Budget for VA Services
for such year; and (ii) Charge/Expense Formulas shall include a portion
of DISTRIBUTOR's general overhead expenses as specifically stated in the
underlying detail schedules for Charge/Expense Formulas ("Detail
Schedules"). DISTRIBUTOR and AAL affirm and agree that the Detail
Schedules were reviewed by representatives of both AAL and DISTRIBUTOR
in the due diligence process prior to the completion of the 1995 Final
Annual Budget.
The parties represent and warrant that DISTRIBUTOR and AAL agree
on the allocation of dollar amounts of VA Services to the various
categories of Charge/Expense Formulas ("VA Services Allocation"). VA
Services Allocation shall be initially determined as set forth in the
Final Annual Budget for the 1995 calendar year. AAL and DISTRIBUTOR
covenant and agree that VA Services Allocation shall be reaffirmed or
amended, as the case may be, on an annual basis in connection with the
preparation and negotiation of the Final Annual Budget for VA Services
for such year.
6.3 Preparation and Negotiation of Final Annual Budget for VA Services
Each successive year that this Agreement is in effect,
DISTRIBUTOR shall prepare a projected annual budget for the successive
year (the " Projected Annual Budget") and deliver the Projected Annual
Budget to a designated representative of AAL. Each successive year that
this Agreement is in effect, AAL shall provide comments to DISTRIBUTOR
on the content of the Projected Annual Budget. AAL and DISTRIBUTOR
covenant and agree that (i) a final, agreed form of the Projected Annual
Budget (the "Final Annual Budget") shall be determined on or before the
deadline date set forth for the submission of annual budgets pursuant to
AAL budget policies; and (ii) the policies, definitions and operating
procedures (including but not limited to "Billing Process", and
"Billable Items") set forth in P.O.P. 251 - "Subsidiary and Affiliate
Billing", shall be followed in connection with the preparation and
negotiation of the Projected Annual Budget and the Final Annual Budget.
6.4 Accounting Procedures
DISTRIBUTOR and AAL covenant and agree that (A) payroll & expense
records and procedures; (B) invoicing procedures; and (C) the time and
manner of charge/expense payment for the VA Services set forth in this
Agreement shall be determined by reference to certain AALCMC accounting
manuals and procedures. Notwithstanding the foregoing, the parties
covenant and agree that the provisions of this Agreement pertaining to
books and records (e.g. Paragraph 4.4 hereof) shall apply to all
transactions relating to VA Services and the offering and sale of
Certificates by DISTRIBUTOR The parties agree that because of the
sensitive and confidential nature of these records and procedures, such
records and procedures shall not be disclosed nor disseminated except to
authorized accounting and management personnel of AAL and DISTRIBUTOR.
DISTRIBUTOR and AAL acknowledge that unanticipated conditions may
materially change the Final Annual Budget. DISTRIBUTOR and AAL agree
that the nature of these unanticipated conditions can be characterized
as either a "permanent change" or a "temporary change". For example, a
permanent change is the elimination of a VA Service that DISTRIBUTOR
provides pursuant to this Agreement and a temporary change is AAL's
assumption of a VA Service, pursuant to DISTRIBUTOR's request.
DISTRIBUTOR and AAL covenant and agree that the accounting treatment for
permanent changes shall be redetermined on an annual basis and the
accounting treatment for a temporary change shall be as set forth
herein. In the event a temporary change occurs, DISTRIBUTOR and AAL
covenant and agree that AAL shall be permitted a payment credit towards
any outstanding charges/expenses for VA Services performed by
DISTRIBUTOR, for certain services rendered by AAL employees and agents
in connection with the offering and sale of the Certificates (e.g. legal
or accounting services) ("VA Services Offset"). The relevant terms and
conditions of this Agreement shall apply to the VA Services Offset (e.g.
determination for Final Annual Budget, accounting procedures).
<PAGE>
On a monthly basis during the term of this Agreement, (A)
DISTRIBUTOR shall provide written documentation to AAL for VA Services;
and (B) AAL shall provide written documentation to DISTRIBUTOR for VA
Services Offset rendered during the preceding calendar month
(collectively, the "Accounting Statements"). The Accounting Statements
shall reasonably itemize and detail the VA Services and VA Services
Offset provided by each of the parties during the proceeding month. The
format for the Accounting Statements shall follow certain CMC accounting
procedures.
7. Independent Contractor
In performing its duties hereunder, DISTRIBUTOR shall be an independent
contractor and neither DISTRIBUTOR, nor any of its officers, directors,
employees, or Registered Representatives is, or shall be, an employee of AAL in
the performance of DISTRIBUTOR's duties hereunder. DISTRIBUTOR shall be
responsible for the employment, control, and conduct of its officers, agents and
employees and for injury to such agents or employees or to others through its
agents or employees. DISTRIBUTOR assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all employee taxes
thereunder.
8. Indemnification
8.1 Indemnification of AAL
DISTRIBUTOR agrees to indemnify and hold harmless AAL and each of
its present or former directors, officers, employees, representatives
and each person, if any, who controls or previously controlled AAL
within the meaning of Section 15 of the 1933 Act, against any and all
losses, liabilities, damages, claims or expenses (including the
reasonable costs of investigating or defending any alleged loss,
liability, damage, claims or expense and reasonable legal counsel fees
incurred in connection therewith) to which AAL or any such person may
become subject under the 1933 Act, under any other statute, at common
law, or otherwise, arising out of the acquisition of any Certificate by
any person which (i) may be based upon any wrongful act by DISTRIBUTOR
or any of DISTRIBUTOR's directors, officers, employees or
representatives, or (ii) may be based upon any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, shareholder report or other information covering
the Certificates filed or made public by AAL or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made
in reliance upon information furnished to AAL by DISTRIBUTOR.
In no case (i) is DISTRIBUTOR's indemnity in favor of AAL, or any
person indemnified to be deemed to protect AAL or such indemnified
person against any liability to which AAL or such person would otherwise
be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of his obligations and duties under this Agreement, or (ii) is
DISTRIBUTOR to be liable under its indemnity agreement contained in this
Paragraph with respect to any claim made against AAL or any person
indemnified unless AAL or such person, as the case may be, shall have
notified DISTRIBUTOR in writing of the claim within a reasonable time
after the summons or other first written notification giving information
of the nature of the claim shall have been served upon AAL or upon such
person (or after AAL or such person shall have received notice to such
service on any designated agent). However, failure to notify DISTRIBUTOR
of any such claim shall not relieve DISTRIBUTOR from any liability which
DISTRIBUTOR may have to AAL or any person against whom such action is
brought otherwise than on account of DISTRIBUTOR's indemnity agreement
contained in this Paragraph.
DISTRIBUTOR shall be entitled to participate, at its own expense,
in the defense, or, if DISTRIBUTOR so elects, to assume the defense of
any suit brought to enforce any such claim, but, if DISTRIBUTOR elects
to assume the defense, such defense shall be conducted by legal counsel
chosen by DISTRIBUTOR and satisfactory to AAL and to the defendant or
defendants who are entitled to such indemnification. In the event that
DISTRIBUTOR elects to assume the defense of any suit and retain legal
<PAGE>
counsel, AAL and the defendant or defendants who are entitled to such
indemnification, shall bear the fees and expenses of any additional
legal counsel retained by them. If DISTRIBUTOR does not elect to assume
the defense of any such suit, DISTRIBUTOR will reimburse AAL and the
defendant or defendants entitled to such indemnification for the
reasonable fees and expenses of any legal counsel retained by them.
DISTRIBUTOR agrees to promptly notify AAL of the commencement of any
litigation or proceedings against it or any of its officers, employees
or representatives in connection with the issue or sale of the
certificates.
8.2 Indemnification of DISTRIBUTOR
AAL agrees to indemnify and hold harmless DISTRIBUTOR and each of
its present or former directors, officers, employees, representatives
and each person, if any, who controls or previously controlled
DISTRIBUTOR within the meaning of Section 15 of the 1933 Act, under any
other statute, at common law, or otherwise, arising out of the
acquisition, or with regard to the terms and conditions, of any
Certificates by any person that (i) may be based upon any wrongful act
by AAL or any of AAL's directors, officers, employees or representatives
(other than DISTRIBUTOR) or any other broker/distributors who are
selling Certificates for AAL, (ii) may be based upon any untrue
statement or alleged untrue statement or a material fact contained in a
registration statement, prospectus, shareholder report or other
information covering the Certificates or FUND filed or made public by
AAL or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
unless such statement or omission was made in reliance upon information
furnished to AAL by DISTRIBUTOR.
In no case (i) is AAL's indemnity in favor of DISTRIBUTOR, or any
person indemnified to be deemed to protect DISTRIBUTOR or such
indemnified person against any liability to which DISTRIBUTOR or such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason
of his reckless disregard of his obligations and duties under this
Agreement, or (ii) is AAL to be liable under its indemnity agreement
contained in this Paragraph with respect to any claim made against
DISTRIBUTOR or person indemnified unless DISTRIBUTOR, or such person, as
the case may be, shall have notified AAL in writing of the claim within
a reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served
upon DISTRIBUTOR or upon such person (or after DISTRIBUTOR or such
person shall have received notice of such service on any designated
agent). However, failure to notify AAL of any such claim shall not
relieve AAL from any liability which AAL may have to DISTRIBUTOR or any
person against whom such action is brought otherwise than on account of
AAL's indemnity agreement contained in this Paragraph.
AAL shall be entitled to participate, at its own expense, in the
defense, or, if AAL so elects, to assume the defense of any suit brought
to enforce any such claim, but if AAL elects to assume the defense, such
defense shall be conducted by legal counsel chosen by AAL and
satisfactory to DISTRIBUTOR and to the defendant or defendants entitled
to such indemnification. In the event that AAL elects to assume the
defense of any suit and retain legal counsel, DISTRIBUTOR and the
defendant or defendants entitled to such indemnification, shall bear the
fees and expenses of any additional legal counsel retained by them. If
AAL does not elect to assume the defense of any such suit, AAL will
reimburse DISTRIBUTOR and the defendant or defendants entitled to such
indemnification for the reasonable fees and expenses of any legal
counsel retained by them. AAL agrees to promptly notify DISTRIBUTOR of
the commencement of any litigation or proceedings against it or any of
its trustees, officers, employees, or representatives in connection with
the issue or sale of the Certificates.
<PAGE>
9. Authorized Representations
DISTRIBUTOR is not authorized by AAL to give on behalf of AAL any information or
to make any representations in connection with the sale of Certificates other
than the information and representations contained in a Registration Statement
filed with the SEC under the 1933 Act and/or the 1940 Act, covering the
Certificates, the VARIABLE ACCOUNT, or the FUND, as such Registration Statements
may be amended or supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on behalf of AAL for
DISTRIBUTOR's use. This shall not be construed to prevent DISTRIBUTOR from
preparing and distributing advertising and sales literature or other material as
it may deem appropriate, subject to the requirements of Paragraph 5 above.
10. Amendment or Assignment of Agreement
This Agreement may not be amended or assigned except by written
agreement of both parties.
11. Termination of Agreement
This Agreement may be terminated by either party hereto, without the
payment of any penalty, on 90 days prior notice in writing to the other party.
12. Miscellaneous
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Nothing herein contained shall be deemed to require AAL to take any
action contrary to its Charter or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Board of Directors of AAL of responsibility for and
control of the conduct of the affairs of AAL.
13. Definition of Terms
Any questions of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1933 Act, the 1934 Act or the 1940 Act shall be resolved by reference to
such term or provision and to interpretation thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations or orders of the SEC validly issued pursuant to such Act.
14. Compliance with Securities Laws
AAL represents that it is registered as an investment adviser under the
Advisers Act and agrees that it will comply with all the provisions of the Act
and of the rules and regulations thereunder. AAL and DISTRIBUTOR each agree to
comply with all of the applicable terms and provisions of the 1933 Act, the 1934
Act, the 1940 Act, the Advisers Act, and all applicable state laws.
Each party hereto shall advise the other promptly of (a) any action of
the SEC or any authorities of any state or territory, of which it has knowledge,
affecting the registration or qualification of the VARIABLE ACCOUNT or the
Certificates, or the right to offer the Certificates for sale or (b) the
happening of any event which makes untrue any statement, or which requires the
making of any change in any Registration Statement or any current prospectus or
statement of additional information, in order to make the statements therein not
materially misleading.
<PAGE>
15. Regulatory Examinations
DISTRIBUTOR and AAL agree to cooperate fully in any insurance regulatory
examination, investigation, or proceeding or any judicial proceeding arising in
connection with the Certificates. DISTRIBUTOR and AAL further agree to cooperate
fully in any securities regulatory examination, investigation or proceeding or
any judicial proceeding with respect to AAL, DISTRIBUTOR, their affiliates and
their agents or representatives, to the extent that such examination,
investigation or proceeding is in connection with Certificates distributed under
this Agreement. DISTRIBUTOR shall furnish applicable Federal and state
regulatory authorities with any information or reports in connection with its
services under this Agreement which such authorities may request in order to
ascertain whether AAL's operations are being conducted in a manner consistent
with any applicable laws or regulations.
16. Notices
Any notice required to be given pursuant to this Agreement shall be
deemed duly given if delivered or mailed by registered mail, postage prepaid, to
DISTRIBUTOR or to AAL at 222 West College Avenue, Appleton, Wisconsin,
54919-0007.
17. Governing Law
This Agreement shall be governed and construed in accordance with the
laws of the State of Wisconsin.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives and their respective corporate
seals to be hereunto affixed, as of the day and year first above written.
AID ASSOCIATION FOR LUTHERANS
By: /s/ John O. Gilbert
------------------------------------
John O. Gilbert
President and
Chief Executive Officer
By: /s/ Woodrow E. Eno
------------------------------------
Woodrow E. Eno
Senior Vice President
Secretary and General Counsel
AAL CAPITAL MANAGEMENT CORPORATION
By: /s/ H. Michael Spence
------------------------------------
H. Michael Spence
President
By: /s/ Robert G. Same
------------------------------------
Robert G. Same
Secretary
<PAGE>
SCHEDULE A
(Commissions)
JOHN E. DOE
JANUARY 01, 1996
01234567
AID ASSOCIATION FOR LUTHERANS
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
- - Flexible premiums
- - Annuity proceeds on annuity commencement date
- - Death proceeds before annuity commencement date
- - Participating
ACCUMULATED VALUES AND DEATH PROCEEDS UNDER THIS CERTIFICATE, WHEN BASED ON THE
PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE DAILY. THEY ARE
NOT GUARANTEED AS TO DOLLAR AMOUNT.
This is your certificate of membership and flexible premium deferred variable
annuity with Aid Association for Lutherans (AAL). It is a legal contract between
you and AAL.
AAL will apply the annuity proceeds to provide you with annuity payments if the
annuitant is alive on the annuity commencement date. AAL will pay the death
proceeds to the beneficiary if the annuitant dies before the annuity
commencement date. The annuity proceeds and death proceeds will be paid
according to the provisions of this certificate.
This certificate is issued in consideration of the application and the payment
of the first premium.
NOTICE OF TEN DAY RIGHT TO CANCEL CERTIFICATE READ THIS CERTIFICATE CAREFULLY.
Within 10 days after you receive this certificate, you may cancel it for any
reason. The certificate must be delivered or mailed with a written request to
your AAL district representative or AAL's service center. Within 10 day's after
AAL receives your request for cancellation, AAL will refund the accumulated
value of this certificate. If returned, this certificate will be void from the
beginning.
Signed for Aid Association for Lutherans at the home office, 4321 North Ballard
Road, Appleton, Wl 54919.
/s/ Woodrow E. Eno /s/ John O. Gilbert
Secretary President
4460
<PAGE>
TABLE OF CERTIFICATE PROVISIONS
1. General Provisions
1.1 .......................................................Definitions
1.2 ...................................................Entire Contract
1.3 . . .................................Statements In The Application
1.4.................................................Change Of Contract
1.5................................Change Of Annuity Commencement Date
1.6 ..................................................Incontestability
1.7 .......................................................Age And Sex
1.8 ...........................................Maintenance Of Solvency
1.9......................................................Annual Report
2. Membership, Ownership, And Assignment
2.1 ........................................................Membership
2.2 ..................................Ownership Facilities Confinement
2.3..............................................Transfer Of Ownership
2.4....................................................Successor Owner
2.5..............................................Collateral Assignment
3. Premiums
3.1................................................Payment Of Premiums
3.2 ....................................................Premium Notice
3.3...............................................Premium Restrictions
3.4................................................Premium Allocations
4. Accumulated Certificate Values
4.1 .................................................Accumulated Value
4.2 ....................................Certificate Maintenance Charge
4.3.................................Minimum Accumulated Value Required
4.4 ..........................Surplus Refunds For The Annuity Proceeds
5. Fixed And Variable Accounts
5.1 .....................................................Fixed Account
5.2................................Crediting Interest To Fixed Account
5.3.................................................. Variable Account
5.4 ......................................Number Of Accumulation Units
5.5............................................Accumulation Unit Value
5.6.....................................Transfer Of Accumulated Values
5.7...........................Change Of Portfolio Or Investment Policy
6. Withdrawals And Surrender
6.1 .......................................................Withdrawals
6.2 .........................................................Surrender
6.3...................................Withdrawal And Surrender Charges
6.4...............................................10% Free Withdrawals
6.5...................Waiver Of Charges If Settlement Option Selected
6.6..................................Waiver Of Charges For Health Care
6.7...................................................Delay Of Payment
7. Beneficiary
7.1............................................Beneficiary Designation
7.2...................................................Order Of Payment
7.3..................................Change Of Beneficiary Designation
8. Payment Of Certificate Proceeds
8.1...................................................Annuity Proceeds
8.2 ....................................................Death Proceeds
8.3...............................................Filing A Death Claim
9. Settlement Options
9.1 .............Choosing A Settlement Option For The Annuity Proceeds
9.2................Choosing A Settlement Option For The Death Proceeds
9.3.................................................Settlement Options
9.4 ....................Guaranteed Interest Rate On Settlement Options
9.5...............................................Settlement Agreement
A copy of the application follows Section 9.
<PAGE>
CERTIFICATE SPECIFICATIONS
ANNUITANT JOHN E DOE
ISSUE DATE JANUARY 1, 1996
CERTIFICATE 01234567
ISSUE AGE AND SEX 35 MALE
ANNUITY COMMENCEMENT DATE JANUARY 1, 2031
PREMIUM INTERVAL ANNUAL
ANNUAL BILLED PREMIUM $600.00
FIRST PREMIUM $600.00
FIRST PREMIUM ALLOCATION DATE JANUARY 1, 1996
CERTIFICATE MAINTENANCE CHARGE $25.00
CURRENT MORTALITY AND EXPENSE
RISK CHARGE 1.25 PERCENT
GUARANTEED MINIMUM FIXED
ACCOUNT EFFECTIVE INTEREST RATE 3.5 PERCENT
- --------------------------------------------------------------------------------
*** TABLE OF WITHDRAWAL AND SURRENDER CHARGES ***
DURING CERTIFICATE YEAR PERCENTAGE
1 7
2 6
3 5
4 4
5 3
6 2
7 1
8 OR LATER 0
- --------------------------------------------------------------------------------
*** VARIABLE ACCOUNT INFORMATION ***
EACH SUBACCOUNT OF THE AAL VARIABLE ANNUITY ACCOUNT I CURRENTLY INVESTS IN A
SPECIFIC PORTFOLIO OF THE AAL VARIABLE PRODUCT SERIES FUND, INC. SUBACCOUNTS OF
THE VARIABLE ACCOUNT AND THE PORTFOLIOS IN WHICH THEY INVEST ARE AS FOLLOWS:
*** SUBACCOUNT *** *** PORTFOLIO ***
LARGE COMPANY STOCK AAL VARIABLE PRODUCT LARGE COMPANY STOCK
SMALL COMPANY STOCK AAL VARIABLE PRODUCT SMALL COMPANY STOCK
BOND AAL VARIABLE PRODUCT BOND
BALANCED AAL VARIABLE PRODUCT BALANCED
MONEY MARKET AAL VARIABLE PRODUCT MONEY MARKET
<PAGE>
CERTIFICATE SPECIFICATIONS CONTINUED
CERTIFICATE NUMBER 01234567
THE CURRENT LOCATION OF AAL's SERVICES CENTER IS:
ALL VARIABLE ANNUITY SERVICE CENTER
P. O. BOX 419108
KANSAS CITY, MO 64141-6108
TELEPHONE: 1-800-778-1762
<PAGE>
1. GENERAL PROVISIONS
1.1 DEFINITIONS
As used in this certificate:
"AAL" means Aid Association for Lutherans.
"AAL's service center" is the location where administration of
this certificate will occur.
"Accumulation unit" is an accounting unit of measure. It is used
to calculate the accumulated value for this certificate in each
subaccount prior to the annuity commencement date.
"Annuitant" means the person named as annuitant on page 3.
"Annuity commencement date" means the date on which the annuity
proceeds are applied to a settlement option. The annuity
commencement date is shown on page 3.
"Certificate year" means the 12 month periods following the issue
date of this certificate. The first certificate year starts on
the certificate issue date. Each succeeding certificate year
starts on the anniversary of the certificate issue date.
"Fixed account" is part of AAL's general account which includes
all of AAL's assets other than those in any separate account of
AAL.
"Fund" means the AAL Variable Product Series Fund, Inc. The fund
has portfolios that correspond to each of the subaccounts of the
variable account. The current portfolios are shown on page 3.
"Net asset value" means the value of any fund port folio as
computed for any valuation period as described in the fund
prospectus.
"Proof of death" means 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.
"Subaccount" means a subdivision of the variable account. Each
subaccount invests exclusively in the shares of a corresponding
portfolio of the fund. The current subaccounts are shown on page
3.
<PAGE>
"Valuation date" means every day the New York Stock Exchange is
open for regular trading and AAL is open for business.
"Valuation period" means the period of time from the end of one
valuation date to the end of the next valuation date.
"Variable account" means the AAL Variable Annuity Account I. It
is a separate account of AAL.
"Written request" means a written request signed by you that is
satisfactory in form and content to AAL.
"You" or "your" means the owner of this certificate.
1.2 ENTIRE CONTRACT
The entire contract is made up of:
This certificate, including any attached endorsements or
amendments;
The attached application; and
The AAL Articles of Incorporation and Bylaws which are in force
on the issue date of this certificate.
1.3 STATEMENTS IN THE
APPLICATION
Statements made in the application will be treated as
representations and not warranties. No statement wii1 be used by
AAL to void the contract or to deny a claim unless it appears in
the application.
1.4 CHANGE OF CONTRACT
No representative of AAL except the president or the secretary
may change any part of this certificate on behalf of AAL. To
continue treatment of this certificate as an annuity, AAL
reserves the right to amend this certificate at any time without
your consent if AAL determines that such amendment is necessary
for the certificate to comply with the provisions of the Internal
Revenue Code or any regulation or ruling thereunder, or with any
other applicable federal or state law, rule or regulation.
1.5 CHANGE OF ANNUITY
COMMENCEMENT DATE
You may change the annuity commencement date at any time before
the annuity commencement date by sending a written request to
AAL's service center. Any change in the annuity commencement date
is subject to approval by AAL.
<PAGE>
1.6 INCONTESTABILITY
This certificate will be incontestable after it has been in
effect during the lifetime of the annuitant for 2 years from its
issue date.
1.7 AGE AND SEX
The issue age is the age nearest birthday of the annuitant on the
issue date. This is based on the date of birth given in the
application. The issue age is shown on page 3.
The annuity age equals the issue age plus the number of completed
years from the issue date. The annuity age increases each year on
the anniversary of the issue date.
The values of this certificate are based on the annuitant's age
and sex on the date of issue. If the date of birth or sex of the
annuitant is incorrect as shown in the application, AAL will
adjust any amount payable to conform to the correct date of birth
or sex on the date of issue.
1.8 MAINTENANCE OF
SOLVENCY
This provision applies only to values in the fixed account.
If AAL's reserves for any class of certificates become impaired,
you 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 this certificate with interest at a rate of 5% per year,
compounded annually. You may choose an equivalent reduction in
benefits instead of or in combination with the payment or
indebtedness.
Any indebtedness and interest charged against this certificate,
or any agreement for a reduction in benefits, shall have priority
over the interest of any owner, beneficiary, or collateral
assignee under this certificate.
1.9 ANNUAL REPORT
AAL will send you a report at least once each certificate year.
The report will show the accumulated value of this certificate
and any additional information required by law.
<PAGE>
2. MEMBERSHIP, OWNERSHIP, AND ASSIGNMENT
2.1 MEMBERSHIP
The person who applied for this certificate is a benefit member
of AAL. This membership can not be transferred. The privileges of
membership are stated in the AAL Articles of Incorporation and
Bylaws.
2.2 OWNERSHIP
The person who applied for this certificate is the owner, unless
ownership has been transferred. While the annuitant is alive and
before the annuity commencement date, the owner of this
certificate may exercise every right and enjoy every benefit
provided in this certificate.
2.3 TRANSFER OF OWNERSHIP
You may transfer ownership of this certificate by sending a
written request to AAL's service center. AAL will provide a form
for you to use to make this request. Your written request must be
received and approved at AAL's service center before it is
effective. Once approved, the transfer will take effect as of the
date you signed the request, 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 of any transfer of ownership.
2.4 SUCCESSOR OWNER
If you are not the annuitant, you may designate a successor owner
who will become the new owner of this certificate if you die
before the annuitant. If you do not designate a successor owner,
or if no successor owner survives you, and you die before the
annuitant, your estate will become the new owner.
You may designate or change a successor owner by sending a
written request. to AAL's service center. AAL will provide a form
for you to use to make this request. Your written request must be
received and approved at AAL's service center before it is
effective . Once approved, the designation or change will take
effect as of the date you signed the request, 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.
<PAGE>
If ownership is transferred to a successor owner because you die
before the annuitant, the cash surrender value will be paid
within 5 years after your death. However, if the successor owner
is a natural person, the cash surrender value may be paid under a
settlement option described in Section 9.3 provided payments
begin within 1 year after your 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 your surviving spouse is the sole successor
owner.
2.5 COLLATERAL ASSIGNMENT
You may assign this 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
of any assignment.
The interest of any beneficiary will be subject to any collateral
assignment.
3. PREMIUMS
3.1 PAYMENT OF PREMIUMS
The amount of the first premium is shown on page 3 Premiums may
be paid at any time before the annuity commencement date and in
any amount, subject to the restrictions described in Section 3.3.
Upon request, AAL will furnish a receipt for premiums paid.
3.2 PREMIUM NOTICE
AAL will send you premium notices based on the billed premium and
premium interval you selected as shown on page 3. The amount of
the billed premium or the premium interval, of both, may be
changed at any time upon written request to AAL's service center.
Premiums may be billed at any premium interval offered by AAL.
3.3 PREMIUM RESTRICTIONS
Each premium payment must be at least $50.
AAL reserves the right to limit the total amount of all premium
payments it will accept on this certificate to $1 million.
<PAGE>
3.4 PREMIUM ALLOCATIONS
Premiums are allocated to the subaccounts and fixed account
according to the premium allocation percent ages you select for
this certificate. The initial premium allocation percentages you
selected are specified in the application. If you do not
designate premium allocation percentages, the entire premium
will be allocated to the money market subaccount. Your first
premium will be allocated at the end of the valuation period
during which your premium is received at AAL's service center or
AAL approves your application, whichever is later. All subsequent
premiums will be allocated at the end of the valuation period
during which they are received at AAL's service center.
The dollar amount of any premium allocation to a subaccount or
the fixed account may not be less than $50. Each premium
allocation percentage must be a whole percent. The sum of the
premium allocation percentages must be 100%. AAL reserves the
right to adjust your allocation to eliminate fractional percent
ages.
You may change your premium allocation percentages by sending a
written request to AAL's service center. AAL will provide a form
for you to use to make this request. The change will be effective
on the date your written request is received at AAL's service
center. The change will apply to premium payments received at
AAL's service center on or after the effective date of the
change.
4. ACCUMULATED CERTIFICATE VALUES
4.1 ACCUMULATED VALUE
The accumulated value of this certificate at any time before the
annuity commencement date is equal to the sum of the accumulated
values for this certificate in the subaccounts and in the fixed
account.
The accumulated value for this certificate in each subaccount on
a valuation date is equal to:
The number of accumulation units for this certificate in that
subaccount multiplied by the accumulation unit value for that
subaccount.
The accumulated value for any day that is not a valuation date
will be determined on the next valuation date.
<PAGE>
The accumulated value for this certificate in the fixed account
on any day is equal to:
The sum of all premiums allocated to the fixed account, any
accumulated value transferred to the fixed account from a
subaccount, and all interest credited;
Less
The sum of any withdrawals from the fixed account, any
accumulated value transferred from the fixed account to a
subaccount, and any withdrawal charges or certificate maintenance
charges applied against the fixed account.
4.2 CERTIFICATE
MAINTENANCE CHARGE
A certificate maintenance charge will be deducted from the
accumulated value of this certificate on the last day of each
certificate year, or upon surrender of this certificate, if
earlier. This charge will not be deducted if the sum of premiums
received by AAL less the sum of any withdrawals and withdrawal
charges from this certificate is $5,000 or more at the time the
deduction would otherwise be made. This charge will not apply on
or after the annuity commencement date. The amount of the
certificate maintenance charge is shown on page 3.
The portion of the certificate maintenance charge applied against
each subaccount and the fixed account will be determined
according to the ratio that the accumulated value in the
subaccount or fixed account of this certificate bears to the
total accumulated value of this certificate at the time of
deduction.
4.3 MINIMUM ACCUMULATED
AAL will terminate this certificate on any anniversary VALUE
REQUIRED of the certificate issue date and pay you the
accumulated value of this certificate if:
The accumulated value of this certificate is less than $600; and
No premium payment has been received at AAL's service center for
at least 36 months.
4.4 SURPLUS REFUNDS
This is a participating certificate. It will share in any surplus
refunds declared annually by the AAL Board of Directors. Surplus
refunds, if any, will be credited to the accumulated value of
this certificate.
<PAGE>
5. FIXED AND VARIABLE ACCOUNTS
5.1 FIXED ACCOUNT
Premiums allocated to the fixed account and transfers of
accumulated value from a subaccount to the fixed account become
part of the general account assets of AAL. The general account
includes all of AAL's as sets, except those assets segregated in
the variable account or any other separate account of AAL.
5.2 CREDITING INTEREST
TO FIXED ACCOUNT
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
effective annual interest 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 that allocation or transfer
for at least 12 months from the date of the allocation or
transfer. After the initial 12 month guarantee period, AAL can
change the effective annual interest rate 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. AAL guarantees that
the effective annual interest rate credited will never be less
than 3 1/2%.
Any withdrawals, withdrawal charges or certificate maintenance
charges applied against the fixed account, or any transfers of
accumulated value from the fixed account to a subaccount, will be
taken from premium allocations or accumulated value transferred
to the fixed account, and interest credited on such allocations
or transfers, on a first-in, first- out basis. For purposes of
making this determination, all interest credited on any premium
allocation or accumulated value transferred to the fixed
account, including compounded interest, will be deemed to have
been credited on the date of such allocation or transfer.
<PAGE>
5.3 VARIABLE ACCOUNT
The AAL Variable Annuity Account I is a separate investment
account established by AAL under Wisconsin law. The variable
account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of
1940.
AAL uses the assets of the variable account to buy shares in the
AAL Variable Product Series Fund, Inc. The fund is registered
with the Securities and Ex change Commission under the Investment
Company Act of 1940 as a diversified open-end management
investment company. The variable account has subaccounts which
are invested in corresponding specific portfolios of the fund.
These subaccounts and portfolios are shown on page 3.
AAL, consistent with then applicable law, may:
Combine with another separate account, operate as a management
investment company, de-register as an investment company or
modify the variable account;
Add, delete, combine or modify subaccounts;
Invest the assets of any new subaccount in a new portfolio of the
fund, a different investment company or in any other
investment; and
Make any new subaccount available to you on a basis to be
determined by AAL.
AAL owns the assets of the variable account and keeps them
legally segregated from the assets of the general account. The
assets of the variable account shall, at the time during the year
that adjustments in the reserves are made, have a value at least
equal to the reserves and other contract liabilities with respect
to the variable account and, at all other times, shall have a
value approximately equal to or in excess of such reserves and
liabilities, and shall not be charge able with liabilities
arising out of any other business AAL may conduct, except to the
extent that the as sets of the variable account exceed the
reserves and other contract liabilities of the variable account
arising under the certificates supported by the variable account.
<PAGE>
Income, gains and losses, whether or not realized, from the
assets in each subaccount are credited to or charged against that
subaccount without regard to any of AAL's other income, gains or
losses. The value of the assets in the variable account is
determined at the end of each valuation date.
5.4 NUMBER OF
ACCUMULATION UNITS
The number of accumulation units for this certificate in any
subaccount may increase or decrease at the end of each valuation
period prior to the annuity commencement date 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 when
the following transactions occur during the valuation period:
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 when
the following transactions occur during the valuation period:
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.
5.5 ACCUMULATION UNIT
For each subaccount, the accumulation unit value was VALUE set
when the subaccount was established. The accumulation unit value
may increase or decrease from one valuation period to the next.
The accumulation unit value for a subaccount for any valuation
period is equal to:
<PAGE>
The net asset value of the corresponding fund portfolio 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. This mortality
and expense risk charge is guaranteed not to exceed, on an annual
basis, 1.25% of the daily value of the subaccount;
Plus or minus any cumulative charge or credit for taxes reserved
which is determined by AAL to have resulted from the operation of
the portfolio;
Divided by the total number of accumulation units held in the
subaccount at the end of the valuation period before any of the
transactions described in Section 5.4 have occurred.
5.6 TRANSFER OF
ACCUMULATED VALUES
At any time before the annuity commencement date and while the
annuitant is alive, you may transfer all or a portion of the
accumulated value of this certificate among the subaccounts and
the fixed account by sending a written request to AAL's service
center. AAL will provide a form for you to use. The transfer will
be effective at the end of the valuation period during which your
written request is received at AAL's service center. Transfers
are subject to the following:
The total dollar amount of any transfer cannot be less than the
smaller of $500 or the accumulated value of the subaccount or
fixed account from which the transfer is being made at the time
of transfer.
The dollar amount of any transfer to a subaccount or the fixed
account may not be less than $50.
<PAGE>
You may make 2 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 in the certificate
_ year will be subject to a $10 transfer charge, which will be
applied against the subaccounts from which transfers are being
made according to the ratio that the amounts transferred from
each subaccount bear to the total amount transferred from the
subaccounts.
You may make only 1 transfer 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. This transfer will not be subject to a transfer
charge.
AAL may delay making transfers subject to the same conditions
described in Section 6.7.
5.7 CHANGE OF PORTFOLIO
OR INVESTMENT POLICY
AAL may determine that a portfolio of a fund is no longer
desirable for investment by a subaccount or the shares of a
portfolio are no longer available for investment. If that occurs,
AAL has the right to substitute another portfolio of the fund, or
to invest in another investment company. This change would be
subject to any required prior approval by the Securities and
Exchange Commission and the insurance supervisory officials in
the state where this certificate is delivered.
Any change in the investment policy of the variable account will
be subject to any required prior approval by the insurance
supervisory officials of the state of Wisconsin. AAL will notify
you of any material change in investment policy.
6. WITHDRAWALS AND SURRENDER
6.1 WITHDRAWALS
At any time before the annuity commencement date and while the
annuitant is alive, you may withdraw part of the accumulated
value of this certificate by sending a written request to AAL's
service center. The withdrawal will be effective at the end of
the valuation period during which your written request is
received at AAL's service center.
Each withdrawal must be at least $25.
<PAGE>
Withdrawals and withdrawal charges will be taken from each
subaccount and the fixed account according to the ratio that the
accumulated value in the subaccount or fixed account of this
certificate bears to the total accumulated value of this
certificate at the time of the withdrawal.
You may choose to have withdrawals taken from other subaccounts
or the fixed account 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.
6.2 SURRENDER
You may surrender this certificate at any time before the annuity
commencement date and while the annuitant is alive. A written
request must be sent to AAL's service center. The surrender will
be effective at the end of the valuation period during which your
written request is received at AAL's service center. AAL will pay
you the cash surrender value which is the accumulated value of
this certificate at the time of surrender less any surrender
charge and less any certificate maintenance charge. Upon payment
of the cash surrender value, this certificate will terminate.
The cash surrender value is equal to or greater than the minimum
value required by law.
6.3 WITHDRAWAL AND
SURRENDER CHARGES
A withdrawal or surrender charge will be subtracted from the
accumulated value of this certificate if the withdrawal or
surrender is made during the first 7 certificate years. The
withdrawal charge is a percent age of the accumulated value of
this certificate that is withdrawn. The surrender charge is a
percentage of the accumulated value of this certificate at the
time of surrender. Withdrawal and surrender charges are shown on
the Table of Withdrawal and Surrender Charges on page 3. However,
at no time will the total of all withdrawal and surrender charges
applied under this certificate exceed 7.5% of the total premiums
paid on this certificate.
6.4 10% FREE WITHDRAWALS
In each certificate year, you may make free withdrawals of up to
10% of the accumulated value of this certificate existing at the
time of the first withdrawal in the certificate year. A free
withdrawal is a withdrawal on which no withdrawal charge is
applied. The free withdrawal amount available on any withdrawal
is:
<PAGE>
The accumulated value of this 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.
If you surrender this 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 this
certificate existing at the time of surrender. If any free
withdrawals were made during the certificate year, the amount of
the accumulated value of this certificate not subject to
surrender charges is:
The accumulated value of this 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.
6.5 WAIVER OF CHARGES IF
SETTLEMENT OPTION
SELECTED
Withdrawal or surrender charges will be waived if:
The withdrawal or surrender is made more than 3 years after the
issue date; and
The value is applied to settlement option 4 or 5 under Section
9.3.
6.6 WAIVER OF CHARGES FOR
HEALTH CARE FACILITIES
CONFINEMENT
Withdrawal or surrender charges will be waived if:
You, or your spouse, are confined as an inpatient of a licensed
hospital, nursing home facility, and/or hospice facility for at
least 30 consecutive days; and
The withdrawal or surrender is made while confined or within 90
days after discharge from the facility; and
Written proof of confinement satisfactory to AAL is sent to AAL's
service center.
<PAGE>
6.7 DELAY OF PAYMENT
Payment of any withdrawal value or cash surrender value will
normally be made within 7 days after your 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:
The New York Stock Exchange is closed for trading other than
customary weekend and holiday closings;
Trading on the New York Stock Exchange is restricted; An
emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the variable account
or to fairly determine their value; or
The Securities and Exchange Commission by order permits the delay
for the protection of security holders.
AAL may delay payment of any withdrawal value or cash surrender
value from the fixed account for up to 6 months after your
written request is received at AAL's service center.
7. BENEFICIARY
7.1 BENEFICIARY DESIGNATION
You may designate one or more beneficiaries to receive the death
proceeds as defined in Section 8.2. The beneficiary designation
is made at the time of application. The Bylaws of AAL list those
eligible to be beneficiaries. Beneficiaries are designated as
first, second or third class.
7.2 ORDER OF PAYMENT
Unless you indicate otherwise in the beneficiary designation, AAL
will pay the death proceeds as follows:
Equally to the beneficiaries in the first class who survive the
annuitant. If none in the first class survive the annuitant,
then;
Equally to the beneficiaries in the second class who survive the
annuitant. If none in the second class survive the annuitant,
then;
<PAGE>
Equally to the beneficiaries in the third class who survive the
annuitant, however;
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.
If no beneficiary has been designated or survives the annuitant,
AAL will pay the death proceeds to you, if living, otherwise to
your estate.
7.3 CHANGE OF BENEFICIARY
DESIGNATION
You may change the beneficiary designation by sending a written
request to AAL's service center. AAL will provide a form for you
to use to make this request. Your written request must be
received and approved at AAL's service center before it is
effective. Once approved, the change will take effect as of the
date you signed the request, or the date it was received at AAL's
service center if no date appears on the request, provided the
request was mailed or actually delivered to AAL's service center
while the annuitant was alive. AAL is not liable for any payment
made or action taken by it before receiving and approving the
change at AAL's service center.
8. PAYMENT OF CERTIFICATE PROCEEDS
8.1 ANNUITY PROCEEDS
AAL will apply the annuity proceeds to the settlement option in
effect under Section 9 on the annuity commencement date if the
annuitant is alive on that date. The annuity proceeds are the
cash surrender value on the annuity commencement date.
8.2 DEATH PROCEEDS
AAL will pay the beneficiary the death proceeds as provided in
Section 9, upon receiving proof that the annuitant died before
the annuity commencement date. Except as otherwise provided in
Section 9.2, the amount of the death proceeds are calculated on
the death proceeds calculation date, which is the later of:
The date that proof of death of the annuitant is received at
AAL's service center; or
The date a written request from the beneficiary to receive the
death proceeds as provided under Section 9.2 is received at AAL's
service center. The request must include a completed claim form
and such other information AAL may require for processing the
claim.
<PAGE>
If the annuitant dies before attaining age 80, the amount of the
death proceeds is the greatest of:
The accumulated value of this certificate on the death proceeds
calculation date;
The sum of all premiums paid less the sum of any withdrawals as
of the death proceeds calculation date; or
The accumulated value of this certificate on the minimum death
proceeds valuation date preceding the death proceeds calculation
date, plus the sum of all premiums paid since that minimum death
proceeds valuation date, less the sum of any withdrawals 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 this certificate
on the death proceeds calculation date.
The death proceeds are equal to or greater than the: minimum
value required by law.
If the annuitant's spouse is the owner and sole first
beneficiary, this 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 5 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 Section 9.3 provided payments begin within 1 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.
<PAGE>
If the annuitant was the owner and the annuitant's spouse is the
sole first beneficiary, the spouse may elect to continue this
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 as provided
in Section 9.2 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.
8.3 FILING A DEATH CLAIM
Written notice of death must be given to AAL at AAL's service
center. Notice should include the annuitant's name and the
certificate number. Help may be obtained through an AAL district
representative.
A claim form will be sent upon receiving the death claim notice.
Complete the claim form and send it to AAL's service center along
with a certified copy of the death certificate or other proof of
death. Processing of the claim will begin as soon as these items
are received.
9. SETTLEMENT OPTIONS
9.1 CHOOSING A SETTLEMENT
OPTION FOR THE
ANNUITY PROCEEDS
You may choose or change a settlement option for the annuity
proceeds while the annuitant is alive, and before the annuity
commencement date. AAL will provide a form for you to use. If you
do not choose a settlement option before the annuity commencement
date, the automatic settlement option is Option 4, Life Income
With A 10 Year Guaranteed Payment Period.
9.2 CHOOSING A SETTLEMENT
OPTION FOR THE
DEATH PROCEEDS
The beneficiary may choose to receive the death proceeds in a
lump sum payment or under any settle ment option, unless the
owner has chosen a man datory method of payment in the
beneficiary designa tion that does not allow the beneficiary to
change it, or unless otherwise restricted under Section 8.2. AAL
will provide a form for you to use.
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.
<PAGE>
If a written request from the beneficiary to receive the death
proceeds as provided in this Section 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 amount of the
death proceeds will then be calculated and applied to the
settlement option designated as Option 1, Interest.
9.3 SETTLEMENT OPTIONS
The minimum amount that may be applied to any one settlement
option is $1,000. Payments may be received on a monthly,
quarterly, semiannual, or annual basis 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.
Settlement options 2, 3, 4 and 5 are fixed annuity options. This
means that annuity payments are guaranteed as to minimum amount
and are not dependent on the investment experience of the
variable account.
The settlement options are as follows:
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.
OPTION 2 - SPECIFIED AMOUNT INCOME
The proceeds are used to make payments at regular intervals for 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 - FIXED PERIOD INCOME
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. Guaranteed payments are
shown in the table below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
Number Number
of Monthly of Monthly
Years Payment Years Payment
- --------------------------------------------------------
2 $42.96 17 $6.24
3 $29.06 18 $5.98
4 $22.12 19 $5.74
5 $17.95 20 $5.53
6 $15.18 21 $5.33
7 $13.20 22 $5.16
8 $11.71 23 $5.00
9 $10.56 24 $4.85
10 $ 9.64 25 $4.72
11 $ 8.88 26 $4.60
12 $ 8.26 27 $4.49
13 $ 7.73 28 $4.38
14 $ 7.28 29 $4.28
15 $ 6.89 30 $4.19
16 $ 6.54
OPTION 4 - LIFE INCOME WITH GUARANTEED PAYMENT 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 end of tha
period. A period of 10 or 20 years may be elected. The amount of
the, payments depends on the age and sex of the payee at the time
AAL issues the settlement agreement. Guaranteed payments are
shown in the table below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
10 YEAR 20 YEAR
GUARANTEED GUARANTEED
PAYMENT PAYMENT
PERIOD PERIOD
Age Male Female Male Female
- --------------------------------------------------------------
50 $4.53 $4.19 $4.38 $4.13
51 $4.61 $4.26 $4.44 $4.18
52 $4.69 $4.32 $4.50 $4.24
53 $4.77 $4.39 $4.56 $4.29
54 $4.85 $4.45 $4.62 $4.35
55 $4.93 $4.52 $4.68 $4.40
56 $5.03 $4.61 $4.74 $4.46
57 $5.14 $4.70 $4.80 $4.53
58 $5.24 $4.78 $4.87 $4.59
59 $5.35 $4.87 $4.93 $4.66
60 $5.45 $4.96 $4.99 $4.72
61 $5.58 $5.07 $5.05 $4.79
62 $5.71 $5.18 $5.11 $4.86
63 $5.85 $5.30 $5.18 $4.93
64 $5.98 $5.41 $5.24 $5.00
65 $6.11 $5.52 $5.30 $5.07
66 $6.27 $5.67 $5.35 $5.14
67 $6.43 $5.82 $5.40 $5.20
68 $6.59 $5.96 $5.44 $5.27
69 $6.75 $6.11 $5.49 $5.33
70 $6.91 $6.26 $5.54 $5.40
71 $7.09 $6.44 $5.57 $5.44
72 $7.26 $6.63 $5.60 $5.49
73 $7.44 $6.81 $5.62 $5.53
74 $7.61 $7.00 $5.65 $5.58
75 $7.79 $7.18 $5.68 $5.62
76 $7.95 $7.38 $5.69 $5.64
77 $8.12 $7.58 $5.71 $5.66
78 $8.28 $7.78 $5.72 $5.69
79 $8.45 $7.98 $5.74 $5.71
80 $8.61 $8.18 $5.75 $5.73
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENT
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 end of that period. A period of 10 or 20
years may be elected. The amount of the payments depends upon the
age and sex of the payees at the time AAL issues the settlement
agreement. Guaranteed payments are shown in the tables below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
PAYMENTS GUARANTEED FOR 10 YEARS
Male Female Ages
Ages 50 55 60 65 70 75 80
------------------------------------------------------------------------
50 $3.91 $4.05 $4.18 $4.29 $4.38 $4.45 $4.49
55 $3.99 $4.17 $4.36 $4.53 $4.67 $4.78 $4.86
60 $4.06 $4.28 $4.53 $4.77 $5.00 $5.19 $5.32
65 $4.11 $4.37 $4.67 $5.00 $5.34 $5.64 $5.87
70 $4.14 $4.43 $4.79 $5.20 $5.66 $6.11 $6.48
75 $4.17 $4.48 $4.86 $5.34 $5.91 $6.52 $7.07
80 $4.18 $4.50 $4.91 $5.44 $6.09 $6.83 $7.56
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
PAYMENTS GUARANTEED FOR 20 YEARS
Male Female Ages
Ages 50 55 60 65 70 75 80
------------------------------------------------------------------------
50 $3.90 $4.03 $4.16 $4.25 $4.32 $4.36 $4.38
55 $3.98 $4.15 $4.32 $4.47 $4.58 $4.64 $4.67
60 $4.04 $4.25 $4.47 $4.68 $4.84 $4.94 $4.98
65 $4.08 $4.32 $4.59 $4.85 $5.07 $5.21 $5.28
70 $4.11 $4.37 $4.67 $4.97 $5.24 $5.42 $5.50
75 $4.12 $4.39 $4.70 $5.04 $5.34 $5.55 $5.64
80 $4.12 $4.40 $4.72 $5.07 $5.38 $5.60 $5.71
OTHER OPTIONS
AAL also has other settlement options which may be chosen.
Information about these options may be obtained from an AAL
district representative or AAL's service center.
9.4 GUARANTEED INTEREST
RATE ON SETTLEMENT
OPTIONS
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 "1983 Table a"
annuitant mortality table.
9.5 SETTLEMENT AGREEMENT
AAL will issue a separate settlement agreement whenever proceeds
are applied to any settlement option. The settlement agreement
will be issued to the payee. The payee is the person named to
receive the payments.
If the payee dies on or after the annuity commencement date and
before the entire interest in the settle- ment agreement has been
paid, the remaining portion of such interest will be paid at
least as rapidly as under the method of payment in effect as of
the date of the payee's death.
<PAGE>
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY
- Flexible premiums
- Annuity proceeds on annuity commencement
date
- Death proceeds before annuity commencement
date
- Participating
[AAL LOGO]
AID ASSOCIATION FOR
LUTHERANS
4321 N. Ba11ard Road, Appleton, W1 54919-0001
JOHN E. DOE
JANUARY O1, 1996
O1234567
AID ASSOCIATION
FOR LUTHERANS
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY
- - Flexible premiums
- - Annuity proceeds on annuity
commencement date
- - Death proceeds before annuity
commencement date
- - Participating
ACCUMULATED VALUES AND DEATH PROCEEDS UNDER THIS CERTIFICATE, WHEN BASED ON THE
PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE DAILY. THEY ARE
NOT GUARANTEED AS TO DOLLAR AMOUNT.
This is your certificate of membership and flexible premium deferred variable
annuity with Aid Association for Lutherans (AAL). It is a legal contract between
you and AAL.
AAL will apply the annuity proceeds to provide you with annuity payments if the
annuitant is alive on the annuity commencement date. AAL will pay the death
proceeds to the beneficiary if the annuitant dies before the annuity
commencement date. The annuity proceeds and death proceeds will be paid
according to the provisions of this certificate.
This certificate is issued in consideration of the application and the payment
of the first premium.
NOTICE OF TEN DAY RIGHT TO CANCEL - CERTIFICATE READ THIS CERTIFICATE CAREFULLY.
Within 10 days after you receive this certificate, you may cancel it for any
reason. The certificate must be delivered or mailed with a written request to
your AAL district representative or AAL's service center. Within 10 days after
AAL receives your request for cancellation, AAL will refund the accumulated
value of this certificate. If returned, this certificate will be void from the
beginning.
Signed for Aid Association for Lutherans at the home office, 4321 North Ballard
Road, Appleton, Wl 54919.
/s/ Woodrow E. Eno John O. Gilbert
------------------ ---------------
Secretary President
4461
<PAGE>
TABLE OF CERTIFICATE PROVISIONS
1. General Provisions
1.1........................................................Definitions
1.2....................................................Entire Contract
1.3......................................Statements In The Application
1.4.................................................Change Of Contract
1.5................................Change Of Annuity Commencement Date
1.6...................................................Incontestability
1.7 .......................................................Age And Sex
1.8............................................Maintenance Of Solvency
1.9 .....................................................Annual Report
2. Membership, Ownership, And Assignment
2.1 ........................................................Membership
2.2..............................................Ownership and Control
2.3..............................................Transfer Of Ownership
2.4....................................................Successor Owner
2.5..............................................Collateral Assignment
3. Premiums
3.1................................................Payment Of Premiums
3.2 ....................................................Premium Notice
3.3...............................................Premium Restrictions
3.4................................................Premium Allocations
4. Accumulated Certificate Values
4.1..................................................Accumulated Value
4.2.....................................Certificate Maintenance Charge
4.3................................ Minimum Accumulated Value Required
4.4 ..........................Surplus Refunds For The Annuity Proceeds
5. Fixed And Variable Accounts
5.1......................................................Fixed Account
5.2................................Crediting Interest To Fixed Account
5.3...................................................Variable Account
5.4.......................................Number Of Accumulation Units
5.5............................................Accumulation Unit Value
5.6.....................................Transfer Of Accumulated Values
5.7...........................Change Of Portfolio Or Investment Policy
6. Withdrawals And Surrender
6.1 .......................................................Withdrawals
6.2 .........................................................Surrender
6.3...................................Withdrawal And Surrender Charges
6.4...............................................10% Free Withdrawals
6.5....................Waiver Of Charges If Settlement Option Selected
6.6...........Waiver Of Charges For Health Care Facilities Confinement
6.7...................................................Delay Of Payment
<PAGE>
7. Beneficiary
7.1............................................Beneficiary Designation
7.2...................................................Order Of Payment
7.3..................................Change Of Beneficiary Designation
8. Payment Of Certificate Proceeds
8.1...................................................Annuity Proceeds
8.2 ....................................................Death Proceeds
8.3...............................................Filing A Death Claim
9. Settlement Options
9.1..............Choosing A Settlement Option For The Annuity Proceeds
9.2................Choosing A Settlement Option For The Death Proceeds
9.3.................................................Settlement Options
9.4.....................Guaranteed Interest Rate On Settlement Options
9.5.............................................. Settlement Agreement
A copy of the application follows Section 9.
<PAGE>
CERTIFICATE SPECIFICATIONS
ANNUITANT JOHN E DOE
ISSUE DATE JANUARY 1, 1996
CERTIFICATE 01234567
ISSUE AGE AND SEX 00 MALE
ANNUITY COMMENCEMENT DATE JANUARY 1, 2066
PREMIUM INTERVAL ANNUAL
ANNUAL BILLED PREMIUM $600.00
FIRST PREMIUM $600.00
FIRST PREMIUM ALLOCATION DATE JANUARY 1, 19956
CERTIFICATE MAINTENANCE CHARGE $25.00
CURRENT MORTALITY AND EXPENSE
RISK CHARGE - 1.25 PERCENT
GUARANTEED MINIMUM FIXED
ACCOUNT EFFECTIVE INTEREST RATE 3.5 PERCENT
- --------------------------------------------------------------------------------
*** TABLE OF WITHDRAWAL AND SURRENDER CHARGES ***
DURING CERTIFICATE YEAR PERCENTAGE
1 7
2 6
3 5
5 4
6 2
7 1
8 OR LATER 0
- --------------------------------------------------------------------------------
*** VARIABLE ACCOUNT INFORMATION ***
EACH SUBACCOUNT OF THE AAL VARIABLE ANNUITY ACCOUNT I CURRENTLY INVESTS IN A
SPECIFIC PORTFOLIO OF THE AAL VARIABLE PRODUCT SERIES FUND, INC. SUBACCOUNTS OF
THE VARIABLE ACCOUNT AND THE PORTFOLIOS IN WHICH THEY INVEST ARE AS FOLLOWS:
*** SUBACCOUNT *** *** PORTFOLIO ***
LARGE COMPANY STOCK AAL VARIABLE PRODUCT LARGE COMPANY STOCK
SMALL COMPANY STOCK AAL VARIABLE PRODUCT SMALL COMPANY STOCK
BOND AAL VARIABLE PRODUCT BOND
BALANCED AAL VARIABLE PRODUCT BALANCED
MONEY MARKET AAL VARIABLE PRODUCT MONEY MARKET
<PAGE>
CERTIFICATE SPECIFICATIONS CONTINUED
CERTIFICATE NUMBER 01234567
THE CURRENT LOCATION Of AAL'S SERYICES CENTER IS:
AAL VARIABLE ANNUITY SERVICE CENTER
P. O. BOX 419108
KANSAS CITY, MO 64141-6108
TELEPHONE: 1-800-778-1762
<PAGE>
1. GENERAL PROVISIONS
1.1 DEFINITIONS
As used in this certificate:
"AAL" means Aid Association for Lutherans.
"AAL's service center" is the location where administration of
this certificate will occur.
"Accumulation unit" is an accounting unit of measure. It is used
to calculate the accumulated value for this certificate in each
subaccount prior to the annuity commencement date.
"Annuitant" means the person named as annuitant on page 3.
"Annuity commencement date" means the date on which the annuity
proceeds are applied to a settlement option. The annuity
commencement date is shown on page 3.
"Certificate year" means the 12 month periods following the issue
date of this certificate. The first certificate year starts on
the certificate issue date. Each succeeding certificate year
starts on the anniversary of the certificate issue date.
"Fixed account" is part of AAL's general account which includes
all of AAL's assets other than those in any separate account of
AAL.
"Fund" means the AAL Variable Product Series Fund, Inc. The fund
has portfolios that correspond to each of the subaccounts of the
variable account. The current portfolios are shown on page 3.
"Net asset value" means the value of any fund portfolio as
computed for any valuation period as described in the fund
prospectus.
"Proof of death" means 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.
"Subaccount" means a subdivision of the variable account. Each
subaccount invests exclusively in the shares of a corresponding
portfolio of the fund. The current subaccounts are shown on page
3.
<PAGE>
"Valuation date" means every day the New York Stock Exchange is
open for regular trading and AAL is open for business.
"Valuation period" means the period of time from the end of one
valuation date to the end of the next valuation date.
"Variable account" means the AAL Variable Annuity Account I. It
is a separate account of AAL.
"Written request" means a written request signed by you that is
satisfactory in form and content to AAL.
"You" or "your" means the owner of this certificate.
1.2 ENTIRE CONTRACT
The entire contract is made up of:
This certificate, including any attached endorsements or
amendments;
The attached application; and
The AAL Articles of Incorporation and Bylaws which are in force
on the issue date of this certificate.
1.3 STATEMENTS IN THE
APPLICATION
Statements made in the application will be treated as
representations and not warranties. No statement will be used by
AAL to void the contract or to deny a claim unless it appears in
the application.
1.4 CHANGE OF CONTRACT
No representative of AAL except the president or the secretary
may change any part of this certificate on behalf of AAL.
To continue treatment of this certificate as an annuity, AAL
reserves the right to amend this certificate at any time without
your consent if AAL determines that such amendment is necessary
for the certificate to comply with the provisions of the Internal
Revenue Code or any regulation or ruling thereunder, or with any
other applicable federal or state law, rule or regulation.
1.5 CHANGE OF ANNUITY
COMMENCEMENT
You may change the annuity commencement date at DATE any time
before the annuity commencement date by sending a written request
to AAL's service center. Any change in the annuity commencement
date is subject to approval by AAL.
<PAGE>
1.6 INCONTESTABILITY
This certificate will be incontestable after it has been in
effect during the lifetime of the annuitant for 2 years from its
issue date.
1.7 AGE AND SEX
The issue age is the age nearest birthday of the annuitant on the
issue date. This is based on the date of birth given in the
application. The issue age is shown on page 3.
The annuity age equals the issue age plus the number of completed
years from the issue date. The annuity age increases each year on
the anniversary of the issue date.
The values of this certificate are based on the annuitant's age
and sex on the date of issue. If the date of birth or sex of the
annuitant is incorrect as shown in the application, AAL will
adjust any amount payable to conform to the correct date of birth
or sex on the date of issue.
1.8 MAINTENANCE OF
SOLVENCY
This provision applies only to values in the fixed account.
If AAL's reserves for any class of certificates become impaired,
you 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 this certificate with interest at a rate of
5% per year, compounded annually. You may choose an equivalent
reduction in benefits instead of or in combination with the
payment or indebtedness.
Any indebtedness and interest charged against this certificate,
or any agreement for a reduction in benefits, shall have priority
over the interest of any owner, beneficiary, or collateral
assignee under this certificate.
1.9 ANNUAL REPORT
AAL will send you a report at least once each certificate year.
The report will show the accumulated value of this certificate
and any additional information required by law.
<PAGE>
2. MEMBERSHIP, OWNERSHIP, AND ASSIGNMENT
2.1 MEMBERSHIP
The annuitant will become a benefit member of AAL on the
anniversary of the issue date of this certificate 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.
2.2 OWNERSHIP AND CONTROL
While the annuitant is alive and before the annuity commencement
date, the owner of this certificate may exercise every right and
enjoy every benefit provided in this certificate. The annuitant
shown on page 3 is the owner of this certificate. However,
because of age, the annuitant can not exercise the rights of
ownership in this certificate. Therefore, the person who applied
for this certificate will have control of it. Control means
having the ability to exercise the rights of ownership on behalf
of the annuitant. The person who has control may transfer control
to another eligible person as determined by AAL, but can not
transfer ownership.
The annuitant will obtain control of this certificate on the
earliest of the following dates:
On the date of death of the person who has control if that person
dies after the anniversary; of the issue date of this certificate
on or following the annuitant's 16th birthday; or
On the date the person who has control transfers it in writing to
the annuitant, after the anniversary of the issue date of this
certificate on or following the annuitant's 16th birthday; or
On the anniversary of the issue date of this certificate on or
following the annuitant's 21st birthday.
If the person who has control of this certificate dies before the
annuitant reaches annuity age 16, 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
this certificate may be transferred to some other eligible person
according to the Bylaws of AAL.
<PAGE>
2.3 TRANSFER OF OWNERSHIP
When you obtain control of this certificate, you may transfer
ownership of this certificate by sending a written request to
AAL's service center. AAL will provide a form for you to use to
make this request. Your written request must be received and
approved at AAL's service center before it is effective. Once
approved, the transfer will take effect as of the date you signed
the request, or the date it was received at AAL's service center
if no date appears on the re quest. 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 of any transfer of ownership.
2.4 SUCCESSOR OWNER
If you are not the annuitant, you may designate a successor owner
who will become the new owner of this certificate if you die
before the annuitant. If you do not designate a successor owner,
or if no successor owner survives you, and you die before the
annuitant, your estate will become the new owner.
You may designate or change a successor owner by sending a
written request to AAL's service center. AAL will provide a form
for you to use to make this request. Your written request must be
received and approved at AAL's service center before it is
effective . Once approved, the designation or change will take
effect as of the date you signed the request, 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 you die
before the annuitant, the cash surrender value will be paid
within 5 years after your death. However, if the successor owner
is a natural person, the cash surrender value may be paid under a
settlement option described in Section 9.3 provided payments
begin within 1 year after your 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 your surviving spouse is the sole successor
owner.
<PAGE>
2.5 COLLATERAL ASSIGNMENT
You may assign this 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
of any assignment.
The interest of any beneficiary will be subject to any collateral
assignment.
3. PREMIUMS
3.1 PAYMENT OF PREMIUMS
The amount of the first premium is shown on page 3. Premiums may
be paid at any time before the annuity commencement date and in
any amount, subject to the restrictions described in Section 3.3.
Upon request, AAL will furnish a receipt for premiums paid.
3.2 PREMIUM NOTICE
AAL will send you premium notices based on the billed premium and
premium interval you selected as shown on page 3. The amount of
the billed premium or the premium interval, or both, may be
changed at any time upon written request to AAL's service center.
Premiums may be billed at any premium interval offered by AAL.
3.3 PREMIUM RESTRICTIONS
Each premium payment must be at least $50.
AAL reserves the right to limit the total amount of all premium
payments it will accept on this certificate to $1 million.
3.4 PREMIUM ALLOCATIONS
Premiums are allocated to the subaccounts and fixed account
according to the premium allocation percent ages you select for
this certificate. The initial premium allocation percentages you
selected are specified in the application. If you do not
designate premium allocation percentages, the entire premium
will be allocated to the money market subaccount. Your first
premium will be allocated at the end of the valuation period
during which your premium is received at AAL's service center or
AAL approves your application, whichever is later. All subsequent
premiums will be allocated at the end of the valuation period
during which they are received at AAL's service center.
<PAGE>
The dollar amount of any premium allocation to a subaccount or
the fixed account may not be less than $50. Each premium
allocation percentage must be a whole percent. The sum of the
premium allocation percentages must be 100%. AAL reserves the
right to adjust your allocation to eliminate fractional
percentages.
You may change your premium allocation percentages by sending a
written request to AAL's service center. AAL will provide a form
for you to use to make this request. The change will be effective
on the date your written request is received at AAL's service
center. The change will apply to premium payments received at
AAL's service center on or after the effective date of the
change.
4. ACCUMULATED CERTIFICATE VALUES
4.1 ACCUMULATED VALUE
The accumulated value of this certificate at any time before the
annuity commencement date is equal to the sum of the accumulated
values for this certificate in the subaccounts and in the fixed
account.
The accumulated value for this certificate in each subaccount on
a valuation date is equal to:
The number of accumulation units for this certificate in that
subaccount multiplied by the accumulation unit value for that
subaccount.
The accumulated value for any day that is not a valuation date
will be determined on the next valuation date.
The accumulated value for this certificate in the fixed account
on any day is equal to:
The sum of all premiums allocated to the fixed account, any
accumulated value transferred to the fixed account from a
subaccount, and all interest credited;
Less
The sum of any withdrawals from the fixed account, any
accumulated value transferred from the fixed account to a
subaccount, and any withdrawal charges or certificate
maintenance charges applied against the fixed account.
<PAGE>
4.2 CERTIFICATE
MAINTENANCE CHARGE
A certificate maintenance charge will be deducted from the
accumulated value of this certificate on the last day of each
certificate year, or upon surrender of this certificate, if
earlier. This charge will not be deducted if the sum of premiums
received by AAL less the sum of any withdrawals and withdrawal
charges from this certificate is $5,000 or more at the time the
deduction would otherwise be made. This charge will not apply on
or after the annuity commencement date. The amount of the
certificate maintenance charge is shown on page 3.
The portion of the certificate maintenance charge applied against
each subaccount and the fixed account will be determined
according to the ratio that the accumulated value in the
subaccount or fixed account of this certificate bears to the
total accumulated value of this certificate at the time of
deduction.
4.3 MINIMUM ACCUMULATED
VALUE REQUIRED
AAL will terminate this certificate on any anniversary of the
certificate issue date and pay you the accumulated value of this
certificate if:
The accumulated value of this certificate is less than $600; and
No premium payment has been received at AAL's service center for
at least 36 months.
4.4 SURPLUS REFUNDS
This is a participating certificate. It will share in any surplus
refunds declared annually by the AAL Board of Directors. Surplus
refunds, if any, will be credited to the accumulated value of
this certificate.
5. FIXED AND VARIABLE ACCOUNTS
5.1 FIXED ACCOUNT
Premiums allocated to the fixed account and transfers of
accumulated value from a subaccount to the fixed account become
part of the general account assets of AAL. The general account
includes all of AAL's as sets, except those assets segregated in
the variable account or any other separate account of AAL.
<PAGE>
5.2 CREDITING INTEREST
TO FIXED ACCOUNT
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
effective annual interest 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 that allocation or transfer
for at least 12 months from the date of the allocation or
transfer. After the initial 12 month guarantee period, AAL can
change the effective annual interest rate 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. AAL guarantees that the effective annual interest rate
credited will never be less than 3 1/2%.
Any withdrawals, withdrawal charges or certificate maintenance
charges applied against the fixed account, or any transfers of
accumulated value from the fixed account to a subaccount, will be
taken from premium allocations or accumulated value transferred
to the fixed account, and interest credited on such allocations
or transfers, on a first-in, first- out basis. For purposes of
making this determination, all interest credited on any premium
allocation or accumulated value transferred to the fixed
account, including compounded interest, will be deemed to have
been credited on the date of such allocation or transfer.
5.3 VARIABLE ACCOUNT
The AAL Variable Annuity Account I is a separate investment
account established by AAL under Wisconsin law. The variable
account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of
1940.
<PAGE>
AAL uses the assets of the variable account to buy shares in the
AAL Variable Product Series Fund, Inc. The fund is registered
with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a diversified open-end management
investment company. The variable account has subaccounts which
are invested in corresponding specific portfolios of the fund.
These subaccounts and portfolios are shown on page 3.
AAL, consistent with then applicable law, may:
Combine with another separate account, operate as a management
investment company, de-register as an investment company or
modify the variable account;
Add, delete, combine or modify subaccounts;
Invest the assets of any new subaccount in a new portfolio of the
fund, a different investment company or in any other investment;
and
Make any new subaccount available to you on a basis to be
determined by AAL.
AAL owns the assets of the variable account and keeps them
legally segregated from the assets of the/ general account. The
assets of the variable account shall, at the time during the year
that adjustments in the reserves are made, have a value at least
equal to the reserves and other contract liabilities with respect
to the variable account and, at all other times, shall have a
value approximately equal to or in excess of such reserves and
liabilities, and shall not be chargeable with liabilities arising
out of any other business AAL may conduct, except to the extent
that the assets of the variable account exceed the reserves and
other contract liabilities of the variable account arising under
the certificates supported by the variable account.
Income, gains and losses, whether or not realized, from the
assets in each subaccount are credited to or charged against that
subaccount without regard to any of AAL's other income, gains or
losses. The value of the assets in the variable account is
determined at the end of each valuation date.
<PAGE>
5.4 NUMBER OF
ACCUMULATION UNITS
The number of accumulation units for this certificate in any
subaccount may increase or decrease at the end of each valuation
period prior to the annuity commencement date 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 when
the following transactions occur during the valuation period:
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 when
the following transactions occur during the valuation period:
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.
5.5 ACCUMULATION UNIT
VALUE
For each subaccount, the accumulation unit value was set when the
subaccount was established. The accumulation unit value may
increase or decrease from one valuation period to the next.
The accumulation unit value for a subaccount for any valuation
period is equal to:
<PAGE>
The net asset value of the corresponding fund portfolio 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. This mortality
and expense risk charge is guaranteed not to exceed, on an annual
basis, 1.25% of the daily value of the subaccount;
Plus or minus any cumulative charge or credit for taxes reserved
which is determined by AAL to have resulted from the operation of
the portfo1io;
Divided by the total number of accumulation units held in the
subaccount at the end of the valuation period before any of the
transactions described in Section 5.4 have occurred.
5.6 TRANSFER OF
ACCUMULATED VALUES
At any time before the annuity commencement date and while the
annuitant is alive, you may transfer all or a portion of the
accumulated value of this certificate among the subaccounts and
the fixed account by sending a written request to AAL's service
center. AAL will provide a form for you to use. The transfer will
be effective at the end of the valuation period during which your
written request is received at AAL's service center. Transfers
are subject to the following:
The total dollar amount of any transfer cannot be less than the
smaller of $500 or the accumulated value of the subaccount or
fixed account from which the transfer is being made at the time
of transfer.
The dollar amount of any transfer to a subaccount or the fixed
account may not be less than $50.
<PAGE>
You may make 2 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 in the certificate
year will be subject to a $10 transfer charge, which will be
applied against the subaccounts from which transfers are being
made according to the ratio that the amounts transferred from
each subaccount bear to the total amount transferred from the
subaccounts.
You may make only 1 transfer 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. This transfer will not be subject to a transfer
charge.
AAL may delay making transfers subject to the same conditions
described in Section 6.7.
5.7 CHANGE OF PORTFOLIO
OR INVESTMENT POLICY
AAL may determine that a portfolio of a fund is no longer
desirable for investment by a subaccount or the shares of a
portfolio are no longer available for investment. If that occurs,
AAL has the right to substitute another portfolio of the fund,
or to invest in another investment company. This change would be
subject to any required prior approval by the Securities and
Exchange Commission and the insurance supervisory officials in
the state where this certificate is delivered.
Any change in the investment policy of the variable account will
be subject to any required prior approval by the insurance
supervisory officials of the state of Wisconsin. AAL will notify
you of any material change in investment policy.
6. WITHDRAWALS AND SURRENDER
6.1 WITHDRAWALS
At any time before the annuity commencement date and while the
annuitant is alive, you may withdraw part of the accumulated
value of this certificate by sending a written request to AAL's
service center. The withdrawal will be effective at the end of
the valuation period during which your written request is
received at AAL's service center.
Each withdrawal must be at least $25.
<PAGE>
Withdrawals and withdrawal charges will be taken from each
subaccount and the fixed account according to the ratio that the
accumulated value in the subaccount or fixed account of this
certificate bears to the total accumulated value of this
certificate at the time of the withdrawal.
You may choose to have withdrawals taken from other subaccounts
or the fixed account 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.
6.2 SURRENDER
You may surrender this certificate at any time before the annuity
commencement date and while the annuitant is alive. A written
request must be sent to AAL's service center. The surrender will
be effective at the end of the valuation period during which your
written request is received at AAL's service center. AAL will pay
you the cash surrender value which is the accumulated value of
this certificate at the time of surrender less any surrender
charge and less any certificate maintenance charge. Upon payment
of the cash surrender value, this certificate will terminate.
The cash surrender value is equal to or greater than the minimum
value required by law.
6.3 WITHDRAWAL AND
SURRENDER CHARGES
A withdrawal or surrender charge will be subtracted from the
accumulated value of this certificate if the withdrawal or
surrender is made during the first 7 certificate years. The
withdrawal charge is a percent age of the accumulated value of
this certificate that is withdrawn. The surrender charge is a
percentage of the accumulated value of -this certificate at the
time of surrender. Withdrawal and surrender charges are shown on
the Table of Withdrawal and Surrender Charges on page 3. However,
at no time will the total of all withdrawal and surrender charges
applied under this certificate exceed 7.5% of the total premiums
paid on this certificate.
6.4 10% FREE WITHDRAWALS
In each certificate year, you may make free withdrawals of up to
10% of the accumulated value of this certificate existing at the
time of the first withdrawal in the certificate year. A free
withdrawal is a withdrawal on which no withdrawal charge is
applied. The free withdrawal amount available on any withdrawal
is:
<PAGE>
The accumulated value of this 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.
If you surrender this 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 this
certificate existing at the time of surrender. If any free
withdrawals were made during the certificate year, the amount of
the accumulated value of this certificate not subject to
surrender charges is:
The accumulated value of this 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.
6.5 WAIVER OF CHARGES IF
SETTLEMENT OPTION
SELECTED
Withdrawal or surrender charges will be waived if:
The withdrawal or surrender is made more than 3 years after the
issue date; and
The value is applied to settlement option 4 or 5 under Section
9.3.
6.6 WAIVER OF CHARGES FOR
HEALTH CARE FACILITIES
CONFINEMENT
Withdrawal or surrender charges will be waived if:
You, or your spouse, are confined as an inpatient of a licensed
hospital, nursing home facility, and/or hospice facility for at
least 30 consecutive days; and
The withdrawal or surrender is made while confined or within 90
days after discharge from the facility; and
Written proof of confinement satisfactory to AAL is sent to AAL's
service center.
<PAGE>
6.7 DELAY OF PAYMENT
Payment of any withdrawal value or cash surrender value will
normally be made within 7 days after your 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:
The New York Stock Exchange is closed for trading other than
customary weekend and holiday closings;
Trading on the New York Stock Exchange is restricted;
An emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the variable
account or to fairly determine their value; or
The Securities and Exchange Commission by order permits the
delay for the protection of security holders.
AAL may delay payment of any withdrawal value or cash surrender
value from the fixed account for up to 6 months after your
written request is received at AAL's service center.
7. BENEFICIARY
7.1 BENEFICIARY DESIGNATION
You may designate one or more beneficiaries to receive the death
proceeds as defined in Section 8.2. The beneficiary designation
is made at the time of application. The Bylaws of AAL list those
eligible to be beneficiaries. Beneficiaries are designated as
first, second or third class.
7.2 ORDER OF PAYMENT
Unless you indicate otherwise in the beneficiary designation,
AAL will pay the death proceeds as follows:
Equally to the beneficiaries in the first class who survive the
annuitant. If none in the first class survive the annuitant,
then;
Equally to the beneficiaries in the second class who survive the
annuitant. If none in the second class survive the annuitant,
then;
<PAGE>
Equally to the beneficiaries in the third class who survive the
annuitant, however;
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.
If no beneficiary has been designated or survives the annuitant,
AAL will pay the death proceeds to you, if living, otherwise to
your estate.
7.3 CHANGE OF BENEFICIARY
DESIGNATION
You may change the beneficiary designation by sending a written
request to AAL's service center. AAL will provide a form for you
to use to make this request. Your written request must be
received and approved at AAL's service center before it is
effective . Once approved, the change will take effect as of the
date you signed the request, or the date it was received at AAL's
service center if no date appears on the request, provided the
request was mailed or actually delivered to AAL's service center
while the annuitant was alive. AAL is not liable for any payment
made or action taken by it before receiving and approving the
change at AAL's service center.
8. PAYMENT OF CERTIFICATE PROCEEDS
8.1 ANNUITY PROCEEDS
AAL will apply the annuity proceeds to the settlement option in
effect under Section 9 on the annuity commencement date if the
annuitant is alive on that date. The annuity proceeds are the
cash surrender value on the annuity commencement date.
8.2 DEATH PROCEEDS
AAL will pay the beneficiary the death proceeds as provided in
Section 9, upon receiving proof that the annuitant died before
the annuity commencement date. Except as otherwise provided in
Section 9.2, the amount of the death proceeds are calculated on
the death proceeds calculation date, which is the later of:
The date that proof of death of the annuitant is received at
AAL's service center; or
The date a written request from the beneficiary to receive the
death proceeds as provided under Section 9.2 is received at AAL's
service center. The request must include a completed claim form
and such other information AAL may require for processing the
claim.
<PAGE>
If the annuitant dies before attaining age 80, the amount of the
death proceeds is the greatest of:
The accumulated value of this certificate on the death proceeds
calculation date;
The sum of all premiums paid less the sum of any withdrawals as
of the death proceeds calculation date; or
The accumulated value of this certificate on the minimum death
proceeds valuation date preceding the death proceeds calculation
date, plus the sum of all premiums paid since that minimum death
proceeds valuation date, less the sum of any withdrawals 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 this certificate
on the death proceeds calculation date.
The death proceeds are equal to or greater than the minimum value
required by law.
If the annuitant's spouse is the owner and sole first
beneficiary, this 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 5 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 Section 9.3 provided payments begin within 1 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.
<PAGE>
If the annuitant was the owner and the annuitant's spouse is the
sole first beneficiary, the spouse may elect to continue this
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 as provided
in Section 9.2 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.
8.3 FILING A DEATH CLAIM
Written notice of death must be given to AAL at AAL's service
center. Notice should include the annuitant's name and the
certificate number. Help may be obtained through an AAL district
representative.
A claim form will be sent upon receiving the death claim notice.
Complete the claim form and send it to AAL's service center along
with a certified copy of the death certificate or other proof of
death. Processing of the claim will begin as soon as these items
are received.
9. SETTLEMENT OPTIONS
9.1 CHOOSING A SETTLEMENT
OPTION FOR THE
ANNUITY PROCEEDS
You may choose or change a settlement option for the annuity
proceeds while the annuitant is alive and before the annuity
commencement date. AAL will provide a form for you to use. If you
do not choose a settlement option before the annuity commencement
date, the automatic settlement option is Option 4, Life Income
With A 10 Year Guaranteed Payment Period.
9.2 CHOOSING A SETTLEMENT
OPTION FOR THE
DEATH PROCEEDS
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 under Section 8.2. AAL
will provide a form for you to use.
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.
<PAGE>
If a written request from the beneficiary to receive the death
proceeds as provided in this Section 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 amount of the
death proceeds will then be calculated and applied to the
settlement option designated as Option 1, Interest.
9.3 SETTLEMENT OPTIONS
The minimum amount that may be applied to any one settlement
option is $1,000. Payments may be received on a monthly,
quarterly, semiannual, or annual basis 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.
Settlement options 2, 3, 4 and 5 are fixed annuity options. This
means that annuity payments are guaranteed as to minimum amount
and are not dependent on the investment experience of the
variable account.
The settlement options are as follows:
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 with- drawn upon request.
OPTION 2 - SPECIFIED AMOUNT INCOME The proceeds are used to make
payments at regular intervals for 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 - FIXED PERIOD INCOME 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. Guaranteed payments are shown in the table below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
Number Number
of Monthly of Monthly
Years Payment Years Payment
- --------------------------------------------------------------------------------
2 $42.96 17 $6.24
3 $29.06 18 $5.98
4 $22.12 19 $5.74
5 $17.95 20 $5.53
6 $15.18 21 $5.33
7 $13.20 22 $5.16
8 $11.71 23 $5.00
9 $10.56 24 $4.85
10 $ 9.64 25 $4.72
11 $ 8.88 26 $4.60
12 $ 8.26 27 $4.49
13 $ 7.73 28 $4.38
14 $ 7.28 29 $4.28
15 $ 6.89 30 $4.19
16 $ 6.54
OPTION 4 - LIFE INCOME WITH GUARANTEED PAYMENT 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 end of that period. A
period of 10 or 20 years may be elected. The amount of the
payments depends on the age and sex of the payee at the time AAL
issues the settlement agreement. Guaranteed payments are shown in
the table below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
10 YEAR 20 YEAR
GUARANTEED GUARANTEED
PAYMENT PAYMENT
PERIOD PERIOD
Age Male Female Male Female
-----------------------------------------------------------------------
50 $4.53 $4.19 $4.38 $4.13
51 $4.61 $4.26 $4.44 $4.18
52 $4.69 $4.32 $4.50 $4.24
53 $4.77 $4.39 $4.56 $4.29
54 $4.85 $4.45 $4.62 $4.35
55 $4.93 $4.52 $4.68 $4.40
56 $5.03 $4.61 $4.74 $4.46
57 $5.14 $4.70 $4.80 $4.53
58 $5.24 $4.78 $4.87 $4.59
59 $5.35 $4.87 $4.93 $4.66
60 $5.45 $4.96 $4.99 $4.72
61 $5.58 $5.07 $5.05 $4.79
62 $5.71 $5.18 $5.11 $4.86
63 $5.85 $5.30 $5.18 $4.93
64 $5.98 $5.41 $5.24 $5.00
65 $6.11 $5.52 $5.30 $5.07
66 $6.27 $5.67 $5.35 $5.14
67 $6.43 $5.82 $5.40 $5.20
68 $6.59 $5.96 $5.44 $5.27
69 $6.75 $6.11 $5.49 $5.33
70 $6.91 $6.26 $5.54 $5.40
71 $7.09 $6.44 $5.57 $5.44
72 $7.26 $6.63 $5.60 $5.49
73 $7.44 $6.81 $5.62 $5.53
74 $7.61 $7.00 $5.65 $5.58
75 $7.79 $7.18 $5.68 $5.62
76 $7.95 $7.38 $5.69 $5.64
77 $8.12 $7.58 $5.71 $5.66
78 $8.28 $7.78 $5.72 $5.69
79 $8.45 $7.98 $5.74 $5.71
80 $8.61 $8.18 $5.75 $5.73
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENT
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 end of that period. A period of
10 or 20 years may be elected. The amount of the payments depends
upon the age and sex of the payees at the time AAL issues the
settlement agreement. Guaranteed payments are shown in the tables
below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
PAYMENTS GUARANTEED FOR 10 YEARS
Male Female Ages
-----------
Ages 50 55 60 65 70 75 80
-------------------------------------------------------------------
50 $3.91 $4.05 $4.18 $4.29 $4.38 $4.45 $4.49
55 $3.99 $4.17 $4.36 $4.53 $4.67 $4.78 $4.86
60 $4.06 $4.28 $4.53 $4.77 $5.00 $5.19 $5.32
65 $4.11 $4.37 $4.67 $5.00 $5.34 $5.64 $5.87
70 $4.14 $4.43 $4.79 $5.20 $5.66 $6.11 $6.48
75 $4.17 $4.48 $4.86 $5.34 $5.91 $6.52 $7.07
80 $4.18 $4.50 $4.91 $5.44 $6.09 $6.83 $7.56
MONTHLY PAYMENTS FOR EACH $ 1,000 OF
PROCEEDS
PAYMENTS GUARANTEED FOR 20 YEARS
Male Female Ages
Ages 50 55 60 65 70 75 80
-------------------------------------------------------------------
50 $3.90 $4.03 $4.16 $4.25 $4.32 $4.36 $4.38
55 $3.98 $4.15 $4.32 $4.47 $4.58 $4.64 $4.67
60 $4.04 $4.25 $4.47 $4.68 $4.84 $4.94 $4.98
65 $4.08 $4.32 $4.59 $4.85 $5.07 $5.21 $5.28
70 $4.11 $4.37 $4.67 $4.97 $5.24 $5.42 $5.50
75 $4.12 $4.39 $4.70 $5.04 $5.34 $5.55 $5.64
80 $4.12 $4.40 $4.72 $5.07 $5.38 $5.60 $5.71
OTHER OPTIONS AAL also has other settlement options which may be
chosen. Information about these options may be obtained from an
AAL district representative or AAL's service center.
9.4 GUARANTEED INTEREST
RATE ON SETTLEMENT
OPTIONS
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 "1983 Table a"
annuitant mortality table.
9.5 SETTLEMENT AGREEMENT
AAL will issue a separate settlement agreement whenever proceeds
are applied to any settlement option. The settlement agreement
will be issued to the payee. The payee is the person named to
receive the payments.
If the payee dies on or after the annuity commencement date and
before the entire interest in the settlement agreement has been
paid, the remaining portion of such interest will be paid at
least as rapidly as under the method of payment in effect as of
the date of the payee's death.
<PAGE>
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY
- Flexible premiums
- Annuity proceeds on annuity commencement date
- Death proceeds before annuity commencement date
- Participating
AID ASSOCIATION FOR LUTHERANS
4321 N. Ballard Road, Appleton, WI 54919-0001
Articles of Incorporation
as amended January 1, 1986
I. Name
The name of this fraternal benefit society shall be "Aid Association for
Lutherans."
II. Place of Business
The principal office of this fraternal benefit society shall be at Appleton,
Wisconsin.
III. Powers
For the purposes set forth in these articles, Aid Association for Lutherans, a
Wisconsin corporation organized and operating under the laws governing
Fratemals, shall have all the powers granted by law.
IV. Purpose
The purpose of Aid Association for Lutherans is to associate Lutherans and their
families and thereby enable them through membership in this fraternal benefit
society to aid themselves and others with programs of-.
1. Insurance and other benefits permissible under the laws governing Fratemals;
and
2. Fraternal and benevolent activities in local branches; and
3. Assistance to Lutheran congregations and their institutions;and
4. Assistance to such other lawful social, intellectual, educational,
charitable, benevolent, moral, fraternal, patriotic or religious endeavors as
the board of directors may detcmiine,
Supreme Governing Body
The supreme governing body shall be a board of directors made up of benefit
members of this fraternal benefit society. The board shalt consist of 12
elective directors, such appointive directors as the board may appoint in a
manner proscribed in the bylaws and not more than than two principal officers of
the society designated by the board from time to time. The elective directors
shall be elected by the benefit members in a manner proscribed by the bylaws and
shall constitute a majority of the board in number.
VI. Membership
1. Classes of members. There shall be the following classes of members:
A. Benefit member. A benefit member is a person of age 16 or more who has been
accepted for membership in accordance with eligibility rules as determined by
resolution of the board of directors and who is issued a by virtue of such
certificate of membership and insurance, or who receives a settlement agreement
benefit by virtue of insurance. When more than one person in a family is covered
in a single certificate only the applicant is a benefit member. Benefit members
may patticioate in the affairs and activities of the local branch in which they
are members and may also hold office therein. Benefit members shall also have
the right to vote in the corporate and insurance affairs of this fraternal
benefit society according to the articles and bylaws.
<PAGE>
B. Associate member. An associate member is a person age 16 or more who has been
accepted for membership in accordance with eligibility rules as determined by
resolution of the board of directors and who has been issued a certificate of
membership. Associate members may participate in the affairs and activities of
the local branch in wfiich they are members, and may hold office therein, but
shall not have the right to vote in the corporate and insurance affairs of this
fraternal benefit society.
2. Juvenfles. This fraternal benefit society. may insure the lives or disability
of children younger than the minimum age for benefit membership but otherwise
eligible for benefit membership. Such insurance shall be issued upon the
application of some adult person who shall not by reason thereof, nor by reason
of any benefit providing waiver of premium become a benefit member, At age 16
the insured juvenile shall become a benefit member.
vii
Branches
Local branches may Iv chartered by die board of directors in a manner prescribed
in the bylaws, and shall have such powers as the board of directors shall
determine.
VII
Bylaws
The board of directors shall have power to make bylaws, and to repeal or amend
them, Notice of changes to the bylaws shall be given to benefit members and
applicants for juvenile insurance in a manner prescribed in the bylaws.
lx
Amendments
These articles may be amended or repeated in whole or in part by a majority of
the votes cast by benefit members. Before submitting such changes to a vote of
the benefit members, the board of directors shall approve such changes by an
affirmative vote of a majority of the full board. upon adoption by the benefit
members such changes shall be filed with the Commissioner of Insurance of die
state of Wisconsin and shall be published in the official publication in a
manner prescribed in the bylaws.
Bylaws
As amended November 7, 1996
Definitions
Section 1. Wherever the term "the Association" appears in these bylaws, it means
"Aid Association for Lutherans." Wherever the term "board" appears in these
bylaws, it means "board of directors."
Wherever the term "home office" appears in these bylaws, it means "principal
office."
Application for Membership
Section 2. Application for benefit membership shall he upon a form in use by the
Association. It shall be accompanied by evidence of insurability (if required)
which is acceptable to the Association under its rules and regulations.
Application for associate membership, if such be authorized by the board, shall
be upon a form in use by the Association.
INSURANCE
Section 3. Application for juvenile insurance shall be upon a form in use by the
Association and shall be accompanied by evidence of insurability (if required)
which is acceptable to the Association under its rules and regulations. Juvenile
certificates shall be under the control of the applicant for the period provided
in the certificate. If it be in the best interest of the juvenile as determined
by the Association, the applicant may be divested of control of a juvenile
certificate. If the applicant has been divested of control of the juvenile
certificate or if the applicant has died, control shall be vested in the legally
appointed guardian of the juvenile. If a guardian is not appointed, control
shall he vested in some person who shall appear to the Association to be
equitably entitled to it by reason of being responsible for the support and
maintenance of such juvenile, or by reason of relationship.
FRATERNAL CONTRACT
Section 4. The certificate of membership and insurance, together with any riders
or endorsements attached to it, the application, the declaration of insurability
(if any) signed by the applicant, the articles of incorporation and bylaws and
all amendments to them, constitute the entire contract when it is issued. Any
subsequent changes to the articles of incorporation or bylaws shall be binding
upon the member, beneficiaries or other persons affected, and shall govern and
control in all respects, except that no changes shall destroy or diminish
benefits promised in the certificate when it was issued.
Beneficiaries
Section 5. Any of the following persons may be designated as beneficiary: the
applicant benefit member, wife, husband, child, parent or other person related
to the benefit member by blood, marriage or legal adoption, foster parents of
the benefit member; betrothed of the benefit member; dependents of the benefit
member; or, where not prohibited by law, the estate of the benefit member. With
the consent of the Association, any of the following may also be designated as
beneficiary: a charitable institution; church or church organization;
educational institution; a nonprofit corporation-, any corporation, community
chest, fund or foundation described in section 501(c)(,3) of the Internal
Revenue Code of 1954 and its subsequent amendments, and operated exclusively for
religious, charitable, scientific, literary or educational purposes; or a
person, corporation, partnership or other legal entity which has an interest in
the benefit member, provided that the proceeds are for the benefit, direct or
indirect, of the benefit member or the benefit member's family or dependents.
Wherever the applicable laws conflict with the above, only beneficiaries
permitted by state laws may be designated.
<PAGE>
Section 6. Unless the beneficiary designation calls for some other method of
distribution, if some beneficiaries of the same class die before the insured,
the death benefit proceeds shall be paid in full to the surviving beneficiaries
of the same class. Each shall share equally the portion of the death benefit
proceeds not otherwise disposed of in the certificate. If all beneficiaries,
however designated, are dead when the insured die, the death benefit proceeds
where not otherwise required by law shall be paid to the owner or to the owner's
estate. A beneficiary shall not have or acquire any claim against the
Association whatever until the insured dies unless otherwise provided by law.
Section 7. No beneficiary change shall take effect unless received by the
Association at its home office. When it is received, any change shall take
effect as of the date the request for beneficiary change was signed, as long as
the request for change was mailed or actually delivered to the Association while
the insured was alive. Such beneficiary change shall be null and void where the
Association has made a good faith payment of the proceeds or has taken other
action before receiving the change.
Settlement Options
Section 8. In addition to the settlement options offered in the certificate, the
Association may offer any other manner of settlement made available by the
Association at the time certificate proceeds are to be paid.
Maintenance of Solvency
Section 9. If the Association's reserves for any class of certificates become
impaired, the board may require that benefit members pay the Association an
equitable amount to eliminate the deficiency. If the amount is not paid, it
shall be charged as an indebtedness against the certificate and shall draw
interest at the lower rate of either what is specified in the certificate for
certificate loans or what is specified in the certificate under the maintenance
of solvency provision. if the owner of the certificate agrees, an equivalent
reduction in benefits can be chosen instead of the payment or indebtedness
charged against the certificate.
Separate Accounts and Variable Contract
Section 10. The board of directors may provide for the establishment and
operation of one or more separate accounts in accordance with applicable law.
AAL may issue contracts on a variable basis that provide for the dollar amount
of benefits or other contractual payments or .,values to vary so as to reflect
the investment results of such separate accounts. The board of directors may
adopt special procedures or create legal entities necessary or appropriate for
the conduct of the business and affairs of any variable contract and separate
account. Any provisions of the AAL Bylaws that are inconsistent with the
provisions of this bylaw shall not apply to any variable contract or separate
account.
TAXES
Section 11. If any jurisdiction requires the Association to pay any sum as a tax
on its operations, the board may determine an equitable apportionment of the
full amount of the taxes paid and make a levy of such amount upon the benefit
members and insureds residing in that jurisdiction. Notice of the levy including
the manner in which it is to be paid, shall be given to those affected. If the
amount levied not paid ,after 60 days from the date of the notice, the amount
shall be charged is an indebtedness against the certificate and accrue interest
at 5 percent per annum compounded annually.
<PAGE>
RIGHT OF ACTION
Section 12. No court action may be started on any claim arising out of a
certificate of insurance unless the action is started within the time allowed by
the laws of the jurisdiction in which the cause of action arises. In the absence
of any such laws, the court action must be started within three years from the
date the claim arises.
RECEIPT OF PAYMENT NOT A WAIVER
Section 13. If the Association receives and temporarily holds a payment or
premium, this shall not constitute a waiver of any of its defenses. if a
certificate has lapsed or been forfeited, or if the Association has received a
notice of cancellation, the payment of any premium for the certificate shall not
revive or continue the certificate, whether made on notice of premium due or
otherwise, and tile payment shall he returned to the person making it.
BOARD OF DIRECTORS
Section 14. The affairs of the Association shall be, managed under the direction
of the board. The board shall meet quarterly at times to be set by the board.
All meetings shall be held at the home office of the Association unless some
other piece is designated by the executive officer or board. Regular or special
meetings of the board of directors, or it:, committees may also be conducted by
other means of communication, as prescribed by Wisconsin law, if so designated
by the board, the chairman of the board, the chief executive officer, or
chairman of a committee of the board with respect to committee meetings. Special
meetings may be called by the chief executive officer or upon written request to
the secretary by at least five members of the board. The chief executive officer
or secretary shall notify board members, in writing or by personal delivery, of
the purpose, time and place of special meetings at least seven calendar days
before the date of the meetings. Except in the case of removal of a director
from office for cause, board members may waive their right to receive notice
individually and the board, by unanimous vote of the full board, may suspend the
requirement to give such notice.
Section 15. The board shall elect a chairman of the board and vice chairman of
the board from among its members for a term of up to one year. The chairman
shall preside at all meetings of the board and perform such other duties as may
be designated by the board. if the chairman of the board is a principal officer
of the Association, he or she shall be responsible only to the board. The vice
chairman shall preside at meetings of the board in the absence of the chairman.
Section 16. A majority of the members of the board shall constitute a quorum to
transact all business unless otherwise required in the articles of incorporation
or bylaws of the Association.
Election or Appointment of Directors
Section 17. Twelve benefit members shall be elected to the board for terms of
office of four years each, three members being elected each year in the
following manner: 'Me board, as well as each branch, shall have the right to
nominate benefit members as candidates for director. All nominations must be
reported to the secretary of the Association at the home office within the-time
specified by the board. The secretary shall report the nominations to the board.
The board shall then direct the secretary to prepare the ballot and give notice
of the election, specifying the time and Procedures for election. Each branch
shall conduct an election meeting within the time specified at which a vote
shall he taken on the candidates and shall be reported in the manner and within
the time specified in the notice of election. Those elective directors whose
terms do not expire with the current election shall constitute the Election
Committee. The tabulation of results of the election shall be. done by an
independent certified public accounting firm selected by the board to report to
the Election Committee. The Election Committee shall declare three candidates
receiving the highest number of valid votes to be duly elected for a term
beginning with the first quarterly meeting of the board in the beginning with
the first year following election.
<PAGE>
Section 18. Vacancies in elective directorship positions shall be filled is soon
as possible by an affirmative vote of a majority of the remaining elective
director,. Such directors shall fill the unexpired terms and shall be considered
elective directors.
Section 19. Except as provided in Section 20, benefit members of the Association
shall not be eligible for election to the board for an initial term if they
shall have passed their 60th birthday on the first day of January of the year in
which their term would begin. No employee of the Association shall be eligible
for election to the board nor shall any former employee be eligible for election
to the board until the expiration of two years from the date of termination of
employment.
Section 20. The board may appoint up to three benefit members of the Association
to serve as appointive directors for a term of office of one year. The board may
also appoint not more than two principal officers of the Association to serve as
directors as the board shall from little to time determine to be in the
Association's best interest. Any appointment or reappointment shall require the
affirmative vote of a majority of the elective directors. An appointive director
shall be eligible for election pursuant to Section 17 or appointment pursuant to
Section 18 if the date of initial appointment as an appointive director preceded
such director's 60th birthday.
Section 21. No elective, ,appointive or principal officer director shall serve
beyond December 31 of the year in which age 70 is attained. A director may be
removed from office for cause by an affirmative vote of a majority of the full
board at a meeting of the board called for that purpose.
Committees of Directors
Section 22. Tile board by resolution adopted by a majority of the full board may
designate an executive committee and one or more additional committees of
directors. Each committee shall consist of three or more directors who serve by
appointment of the board. Each committee shall have such authority as delegated
to it by the board. A majority of the members of each committee of directors
shall constitute a quorum for the transaction of all committee business.
Vacancies occurring on committees of directors shall be filled by the board as
soon as possible.
Officers of the Association
Section 23. The principal officers of the Association shall be the chairman of
the board, the chief executive officer, president, secretary, treasurer and all
vice presidents except second vice presidents and assistant vice presidents.
Principal officers shall be elected by the board and shall serve at the pleasure
of the board. Officers other than principal officers shall be appointed by the
chief executive officer.
Section 24. The board shall elect the person who shall serve as chief executive
officer of the Association. The chief executive officer shall be responsible
only to the board, All other officers and employees of the Association shall be
under the chief executive officer's supervision and control. Subject to the
control and direction of the board, all activities and operations of the
Association shall be under the chief executive officer's supervision and
control.
Section 25. The board shall fix reasonable compensation for director-, and
principal officers. The chief executive officer shall fix compensation for
officers other than principal officers, in accordance with policies established
by the board.
<PAGE>
Official Publication
Section 26. The official publication of the Association shall be called
Correspondent. Any notice, report or statement required by law, including notice
of election, may be published in Correspondent. If Association records show that
two or more benefit members or applicants for juvenile insurance have the same
mailing address, a Correspondent mailed to one of them is deemed mailed to all
of them at the same address unless a specific copy is requested. All amendments
to the Articles of Incorporation and Bylaws of the Association shall be
published in Correspondent not later than four months after the date of filing
such amendments with the Commissioner of Insurance of the state of Wisconsin. An
affidavit by the secretary of the Association certifying that Correspondent was
mailed in accordance with this section shall be submitted to the board at its
next meeting after publication of any notice, report or statement required by
law. The affidavits shall be filed in the records of the secretary's office.
Fiscal year
Section 27. The fiscal year of the Association shall begin on the first day of
January and end on the last day of December.
Annual Report
Section 28. An annual statement of the transactions of each fiscal year shall be
prepared and published in Correspondent within six months following the close of
each fiscal year.
Local Branches
Section 29. Branches shall be created and maintained to foster voluntary
activity for aiding such lawful social, intellectual, educational, charitable,
benevolent, moral, fraternal, patriotic or religious endeavors as the branch
determines in accord with policies of the board; to provide members with the
opportunity to take part in benevolent and charitable activities of the
Association; and to provide benefit members with the opportunity to exercise
their right to vote in the corporate and insurance affairs of the Association.
Section 30. Branches shall be chartered by resolution of the board upon petition
to it, of 10 benefit members who live in the same general locality. The petition
shall indicate acceptance of the Articles of Incorporation and Bylaws of the
Association and the constitution for local branches. Petitions for branch
charters by groups of less than 10 benefit members may be specially considered
by the board, and charters may be issued pursuant to such petitions when the
board finds that the circumstances are justified. Charters may be withdrawn when
the board determines it to be in the best interests of the Association. The form
of petition, charter and constitution for local branches shall be adopted by the
board.
Section 31. Regular meetings of the branches shall be held at least monthly,
Meetings for election of directors and branch officers shall be held according
to procedures and during the time prescribed by the board.
Section 32. Branches may voluntarily join together to form regional groupings of
branches to assist each other in the performance of their fraternal and
benevolent activities, subject to the supervision and control of the board.
Indemnification and Fidelity Bonds
Section 33. The Association shall indemnify any person who is or was a director,
officer or employee against liability for acts or omissions in the performance
of their duties. The Association shall also indemnify any person who is or was
serving at the request of the Association is a director, officer or trustee of
another corporation, partnership, joint venture, trust or other enterprise, or
any director, officer or employee who is or was serving in a fiduciary capacity
with regard to any employee benefit plan, against liability for acts or
omissions in the performance of their duties, The Association may purchase and
maintain insurance on behalf of an individual who is an employee, agent,
director or officer of the corporation against liability asserted against and
incurred by the individual in his or her capacity as an employee, agent,
director or officer, or arising from his or her status as an employee, agent,
director or officer, regardless of whether the Association is required or
authorized to indemnify or allow expenses to the individual against the same
liability. If such insurance is purchased, the amounts shall be as determined by
resolution of the board. The Association shall maintain fidelity bonds on the
officers and employees as determined by resolution of the board.
<PAGE>
Amendment
Section 34. These bylaws may be repealed or amended, or new bylaws may be
adopted, at any regular meeting of the board or at any special meeting called
for that purpose. Notice of the proposed change shall be mailed or personally
delivered to board members at least 30 calendar days before the date of the
meeting. Board members may waive their right to receive notice individually and
the board, by unanimous vote of the full board, may suspend the requirement to
give such notice. The number of votes required to repeal or amend these bylaws,
or adopt new bylaws, shall be an affirmative vote of a majority of the full
board. Such changes shall be, effective from the date of passage or at such
other date as stipulated by the board and shall be filed promptly after adoption
with the Commissioner of Insurance of the state of Wisconsin. After filing, the
changes shall be published in the official publication as prescribed in these
bylaws.
PARTICIPATION AGREEMENT
BY AND BETWEEN
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE ACCOUNT I
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. Sale of FUND Shares........................................... 3
2. Representations and Warranties................................ 4
3. Prospectus and Proxy Statements: Voting....................... 5
4. Sales Material and Information................................ 6
5. Fees and Expenses............................................. 7
6. Diversification............................................... 8
7. Indemnification............................................... 8
8. Term and Termination Of This Agreement........................ 11
9. Notices....................................................... 13
10. Miscellaneous................................................. 13
<PAGE>
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT, is made and entered into as of this 27th
day of September, 1994, by and among AID ASSOCIATION FOR LUTHERANS ("AAL"), on
its own behalf and on behalf of AAL VARIABLE ANNUITY ACCOUNT I (the "ACCOUNT"),
and AAL VARIABLE PRODUCT SERIES FUND, INC. (the "FUND"), (collectively the
"Parties").
WITNESSETH:
WHEREAS, AAL is a fraternal benefit society organized under the laws of
the State of Wisconsin engaged in the writing of life insurance, annuity
contracts, and other insurance products, and serves as sponsor and depositor of
the ACCOUNT and as investment adviser of the FUND;
WHEREAS, the ACCOUNT is a legally segregated asset account of AAL,
established pursuant to the laws of the State of Wisconsin, and currently
consists of five subaccounts (the "Subaccounts"), for the purpose of funding
certain variable annuity contracts (the "Certificates");
WHEREAS, the FUND, which currently consists of five Portfolios (the
"Portfolios"), is registered with the Securities and Exchange Commission (the
"SEC"), as a diversified, open-end management investment company under the
Investment Company Act of 1940 (the "1940 Act"), and its shares are registered
with the SEC under the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, to the extent permitted by applicable insurance, tax and other
laws and regulations, AAL intends to purchase shares in the FUND on behalf of
the ACCOUNT to fund the Certificates and on behalf of the ACCOUNT or on its own
behalf for related purposes, and the FUND is authorized to sell such shares to
the ACCOUNT and to AAL at net asset value;
WHEREAS, the FUND has entered into an Investment Advisory Agreement with
AAL, dated 27th day of September, 1994, wherein AAL has agreed to serve as
investment adviser to the FUND, and to accept certain obligations of the FUND as
set forth herein, i.e., to compute the daily net asset value and the net asset
value per share for each Portfolio and to comply with Subchapter M and Section
817(h) of the Internal Revenue Code of 1986 (the "Code");
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
1. Sale of FUND Shares
1.1 The Certificates funded through the ACCOUNT will provide for the
allocation of net amounts among certain Subaccounts for investment in
such shares of the Portfolios as may be offered from time to time in the
prospectus of the ACCOUNT for the Certificates. The selection of the
particular Subaccount is to be made by the Certificate owner, and such
selection may be changed in accordance with the terms of the
Certificates.
1.2 The FUND will sell to AAL those shares of each available Portfolio
that AAL orders based on transactions under Certificates, effecting such
orders on a daily basis at the Portfolio's net asset
<PAGE>
value per share computed as of the close of business on the Business Day
immediately prior to the date the order is received by the FUND.
Business Day shall mean any day on which the Portfolio calculates its
net asset value pursuant to rules of the SEC and as described in FUND's
prospectus. Any orders to purchase shares of an available Portfolio not
based on transactions under Certificates will be effected at the
Portfolio's net asset value per share next computed after the order is
received by the FUND.
1.3 The Board of Directors of the FUND (the "Board") may refuse to sell
shares of any Portfolio to AAL, or suspend or terminate the offering of
shares of any Portfolio, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of the Board, acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of the FUND.
1.4 The FUND agrees that its shares will be sold only to AAL. No shares
of any Portfolio will be sold to the general public or to any life
insurance company other than AAL.
1.5 The FUND will redeem for cash from AAL those full or fractional
shares of each Portfolio that AAL requests based on transactions under
Certificates, effecting such requests on a daily basis at the
Portfolio's net asset value per share computed as of the close of
business on the Business Day immediately prior to the date the order is
received by the FUND. Any orders to redeem shares of an available
Portfolio not based on transactions under Certificates will be effected
at the Portfolio's net asset value per share next computed after the
order is received by the FUND.
1.6 Issuance and transfer of the FUND's shares will be by book entry
only. Stock certificates will not be issued to AAL. Shares ordered from
the FUND will be recorded in an appropriate title for AAL.
1.7 The FUND shall furnish notice promptly to AAL of any income,
dividends or capital gain distributions payable on the shares of any
Portfolio. AAL hereby elects to receive all such income, dividends and
capital gain distributions as are payable on FUND shares in additional
shares of that Portfolio. AAL reserves the right to revoke this election
and to receive all such income, dividends and capital gain distributions
in cash. The FUND shall notify AAL of the number of shares so issued as
payment of such income, dividends and distributions.
1.8 The FUND shall make the net asset value per share for each Portfolio
available to AAL on a daily basis, as soon as reasonably practical after
the net asset value per share is calculated.
1.9 The FUND may establish additional Portfolios to provide additional
funding media for the Certificates, or delete, combine, or modify
existing Portfolios. The shares of any additional Portfolio may be made
available to the ACCOUNT by the FUND, pursuant to the terms of this
Agreement, and any applicable reference to any Portfolio, the FUND or
its shares herein shall include a reference to any such Portfolio.
2. Representations and Warranties
2.1 AAL represents and warrants that interests in the ACCOUNT under the
Certificates are or will be registered under the 1933 Act to the extent
required by the 1933 Act, that the Certificates will be issued and sold
in compliance in all material respects with all applicable federal and
state
<PAGE>
laws and that the sale of the Certificates will comply in all material
respects with state insurance suitability requirements. AAL further
represents and warrants that it is a fraternal benefit society organized
under the laws of the State of Wisconsin and engaged in the writing of
life insurance, annuity contracts, and other insurance products; that it
has legally and validly established its ACCOUNT as a segregated asset
account under Wisconsin insurance law; and that it has registered or
will register the ACCOUNT as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a segregated investment
account for the Certificates, to the extent required by the 1940 Act.
2.2 AAL represents and warrants that any interests in the ACCOUNT being
offered for sale under the Certificates are or will be registered under
the 1933 Act to the extent required by the 1933 Act, that the
Certificates will be issued and sold in compliance in all material
respects with all applicable federal and state laws, and that the sale
of the Certificates will comply in all material respects with state
insurance law, NASD, and other applicable suitability requirements.
2.3 The FUND represents and warrants that its shares sold pursuant to
this Agreement are or will be registered under the 1933 Act to the
extent required by the 1933 Act, duly authorized for issuance and sold
in compliance with the laws of the state of Maryland and all applicable
federal securities laws and that the FUND is or will be registered under
the 1940 Act to the extent required by the 1940 Act. The FUND will amend
the registration statement for its shares under the 1933 Act, as well as
its registration statement under the 1940 Act, as required in order to
effect the continuous offering of its shares. The FUND will register and
qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the FUND.
2.4 AAL represents and warrants that its Certificates are currently
treated as annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment.
2.5 The FUND makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses) complies
with the insurance laws or regulations of the various states. The FUND
intends to comply with the insurance laws of any relevant state
regarding any Portfolio's investment objectives, policies and
restrictions to the extent that AAL advises the FUND, in writing, of
such laws or any change in such laws.
2.6 The FUND represents and warrants that each of its Portfolios will
qualify as a regulated investment company under Subchapter M of the Code
and that the investments of each of its Portfolios will comply with the
diversification requirements of Section 817(h) of the Code and the
regulations thereunder, and that it will notify AAL immediately upon
having a reasonable basis for believing that it has ceased to so qualify
or that it might not so qualify in the future.
3. Prospectus and Proxy Statements: Voting
3.1 The FUND will provide such documentation (including a final copy of
any new prospectus, statement of additional information ("SAI"), or
supplement) and other assistance as is reasonably necessary in order for
AAL or its designee to timely distribute the current FUND prospectus,
SAI and any supplement thereto, or, in the alternative, to have the
prospectus of the ACCOUNT for the Certificates and the FUND's prospectus
printed together in one document once each year (or more
<PAGE>
frequently if the prospectus for the FUND is amended) (such printing to
be at the FUND's expense, as provided in Section 5.1).
3.2 The FUND will provide such documentation (including a final copy of
any proxy material, report to shareholders, and other communication to
shareholders) and other assistance as is reasonably necessary for AAL or
its designee to timely distribute the proxy material, report to
shareholders, and other communication (such printing and distribution to
be at AAL's expense, as provided in Section 5.2).
3.3 If, and to the extent required by law, AAL shall, at AAL's expense,
as provided in Section 5.2:
(a) solicit voting instructions from Certificate owners;
(b) vote Portfolio shares in accordance with instructions
received from Certificate owners;
(c) vote Portfolio shares for which no instructions have been
received, as well as Portfolio shares attributable to AAL other
than under Certificates, in the same proportion as shares of such
Portfolio for which instructions have been received, so long as
and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges. AAL reserves the
right to vote Portfolio shares held in any segregated asset
account or in its general account in its own right, to the extent
permitted by law.
3.4 The FUND reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the FUND
solely upon the authorization of its Board.
4. Sales Material and Information
4.1 AAL or its designee will furnish, or will cause to be furnished, to
the FUND or its designee, each piece of sales literature or other
promotional material in which the FUND or AAL is named, at least fifteen
(15) days prior to its intended use. No such material will be used if
the FUND or its designee objects to such intended use within fifteen
(15) days after receipt of such material.
4.2 AAL will not give any information or make any representation or
statement, or cause such information to be given or representation to be
made, on behalf of the FUND or concerning any Portfolio in connection
with the sale of the Certificates other than the information or
representations contained in the registration statement, prospectus, and
SAI for FUND shares, as such registration statement, prospectus, and SAI
may be amended or supplemented from time to time, or in reports or proxy
materials for the FUND, or in sales literature or other promotional
material approved by the FUND or its designee, except with the
permission of the FUND or its designee.
4.3 The FUND or its designee will furnish, or will cause to be
furnished, to AAL or its designee, each piece of sales literature or
other promotional material of the FUND in which AAL and/or its ACCOUNT
is named, at least fifteen (15) days prior to its intended use. No such
material will be used if AAL or its designee objects to such intended
use within fifteen (15) days after receipt of such material.
<PAGE>
4.4 The FUND will not give any information or make any representations
or statements, or cause such information to be given or representations
to be made, on behalf of AAL or concerning AAL, its ACCOUNT or its
Certificates other than the information or representations contained in
a registration statement or prospectus for such Certificates, as such
registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for the ACCOUNT that are in
the public domain or approved by AAL for distribution to owners, or in
sales literature or other promotional material approved by AAL or its
designee, except with the permission of AAL or its designee .
4.5 The FUND will provide to AAL one complete copy of all registration
statements, prospectuses, SAIs, reports, proxy material, sales
literature and other promotional material, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the FUND or its shares, contemporaneously with the filing
of such document with the SEC or other regulatory authorities.
4.6 AAL will provide to the FUND one complete copy of all registration
statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional material,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the ACCOUNT or its
Certificates, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
5. Fees and Expenses
5.1 The FUND will pay all expenses incident to the FUND's performance
under this Agreement. In addition to the investment advisory fee,
subject to the expense reimbursement arrangement discussed below, each
Portfolio will bear all of its operating expenses that are not
specifically assumed by AAL, including the following: (i) interest and
taxes (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses for those Directors who are not "interested"
persons under Section 2(a)(19) of the Act; (v) independent legal and
audit expenses; (vi) fees and expenses of the FUND's custodian,
shareholder servicing or transfer agent and accounting services agent;
(vii) expenses incident to the issuance of its shares, including stock
certificates and issuance of shares on the payment of, or reinvestment
of dividends; (viii) fees and expenses incident to the registration
under Federal or state securities laws of the FUND or its shares; (ix)
FUND or portfolio organizational expenses; (x) fund expenses of
preparing, printing and mailing reports and notices, proxy material and
prospectuses to shareholders of the FUND; (xi) all other expenses
incidental to holding meetings of the FUND's shareholders; (xii) dues or
assessments of or contributions to the Investment Company Institute or
any successor or other industry association; (xiii) such non-recurring
expenses as may arise, including litigation affecting the FUND and the
legal obligations which the FUND may have to indemnify its officers and
Directors with respect thereto; and (xiv) cost of daily evaluation of
each of the Portfolio's securities and net asset value per share.
5.2 AAL will pay all expenses incident to AAL's performance under this
Agreement. In addition, AAL will bear the expenses of printing and
distributing to its Certificate owners the FUND proxy materials, proxy
cards and voting instruction forms (collectively "proxy information"),
tabulating the results of proxy solicitations to its Certificate owners,
printing and distributing to its Certificate owners the FUND prospectus,
SAI, supplement, proxy material, report to shareholders, and other
communication to shareholders, and any expenses associated with
administration of its Certificates.
<PAGE>
6. Diversification
6.1 The Portfolios will at all times invest money from the Certificates
in such a manner as to ensure that the Certificates will be treated as
variable annuity contracts under the Code and the regulations thereunder
insofar as such investment is required for such treatment. Without
limiting the scope of the foregoing, the Portfolios will at all times
comply with Section 817(h) of the Code and Treasury Regulations Section
1.817-5 relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations.
6.2 The FUND shall furnish to AAL on a regular basis reports of all of
the investments of each Portfolio in a form sufficient to permit AAL to
determine whether each Portfolio is in compliance with the
diversification requirements of Section 817(h) of the Code and the
Regulations thereunder and shall take immediate action, on learning
through its own monitoring, or on advice from AAL, that any Portfolio is
not in compliance with such requirements, to return to compliance with
such requirements.
6.3 If any Portfolio is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace
period allowed under the Regulations, the FUND shall take all
appropriate efforts immediately to restore any such Portfolio to
compliance and shall fully cooperate with AAL in any effort to correct
such diversification failure under procedures established by the
Internal Revenue Service, including those set forth in Revenue Procedure
92-25.
7. Indemnification
7.1 Indemnification By AAL
(a) AAL will indemnify and hold harmless the FUND and each of its
directors, officers, and employees and each person, if any, who
controls the FUND within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of AAL) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and
which:
(i) arise out of or are based upon any failure by AAL to
perform the duties or assume the general business
responsibilities of AAL with respect to the design,
drafting, state approvals, issuance, servicing and
administration of the Certificates, or the establishment
and maintenance of the ACCOUNT; or
(ii) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus, or
SAI for the Certificates, or the ACCOUNT, or contained in
the Certificates or sales literature for the Certificates
(or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to
indemnify will not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission
<PAGE>
was made in reliance upon and in conformity with
information furnished in writing to AAL by or on behalf of
the FUND for use in the registration statement,
prospectus, or SAI for the Certificates or the ACCOUNT or
in the Certificates or sales literature (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Certificates or FUND shares; or
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by AAL, or
persons under its control) or wrongful conduct of AAL or
persons under its control, or failure to supervise persons
under AAL's control or entities or individual with which
AAL contracts, with respect to the sale or distribution of
the Certificates or FUND shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to the FUND by or on behalf of AAL;
or
(v) arise out of or result from any failure by AAL to
provide the services and furnish the materials
contemplated by this Agreement; or
(vi) arise out of or result from any material breach of
any representation and/or warranty made by AAL in this
Agreement or arise out of or result from any other
material breach of this Agreement by AAL, as limited by
and in accordance with the provisions of Sections 7.1(b).
and 7.1(c) hereof.
(b) AAL will not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or whichever is applicable.
(c) AAL will not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified AAL in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify AAL of any such
claim will not relieve AAL from any liability that it may have to
the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
AAL shall be entitled to participate, at its own expense, in the
defense thereof. AAL also will be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from AAL to such party of AAL's election to
assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and
AAL will not be liable to such party under this
<PAGE>
Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify AAL of the
commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
7.2 Indemnification By the FUND
(a) The FUND will indemnify and hold harmless AAL and each of its
directors, officers and employees and each person, if any, who
controls AAL within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of FUND) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, regulation at common law or otherwise, and
which:
(i) arise out of or are based upon any failure by the FUND
to perform the duties or assume the general business
responsibilities of the FUND with respect to the sale of
shares of the FUND to AAL;
(ii) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the sales literature for the FUND and/or the
Certificates, or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this Agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
the FUND by or on behalf of AAL for use in the
registration statement, prospectus, or SAI for use in the
sales literature or otherwise for use in connection with
the sale of Portfolio shares;
(iii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI,
or sales literature of the FUND not supplied by the FUND,
or persons under its control) or wrongful conduct of the
FUND or persons under its control, or failure to supervise
persons under the FUND's control or entities or individual
with which the FUND contracts, with respect to the sale or
distribution of the Certificates or FUND shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished in writing to AAL by or on behalf of AAL; or
<PAGE>
(v) arise out of or result from any failure by the FUND
to provide the services and furnish the materials
contemplated by this Agreement; or
(vi) arise out of or result from any material breach of
any representation and/or warranty made by the FUND in
this Agreement or arise out of or result from any other
material breach of this Agreement by the FUND, except to
the extent provided in Section 7.2(b) and 7.2(c) hereof.
(b) The FUND will not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the FUND, whichever is
applicable.
(c) The FUND will not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the FUND
in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the FUND of any such
claim will not relieve the FUND from any liability that it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
the FUND shall be entitled to participate, at its own expense, in
the defense thereof. The FUND also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in
the action. After notice from the FUND to such party of the
FUND's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel
retained by it, and the FUND will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify the FUND of the
commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
8. Term and Termination Of This Agreement
8.1 This Agreement will terminate:
(a) as to any party hereto, at the option of that party, upon
prior written notice to the other party as provided in Section
8.3 herein; or
(b) at the option of the FUND in the event that formal
administrative proceedings are instituted against AAL by the
NASD, the SEC, any insurance commissioner or any other regulatory
body regarding AAL's duties under this Agreement or related to
the sale of the Certificates, the operation of the ACCOUNT, or
the purchase of FUND shares, provided,
<PAGE>
however, that the FUND determines, in its sole judgment exercised
in good faith, that any such administrative proceedings will have
a material adverse effect upon the ability of AAL to perform its
obligations under this Agreement; or
(c) at the option of AAL in the event that formal administrative
proceedings are instituted against the FUND by the NASD, the SEC,
or any state securities or insurance commission or any other
regulatory body, regarding the FUND's duties under this Agreement
or related to the sale of FUND shares or the operation of the
FUND, provided, however, that AAL determines, in its sole
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability
of the FUND to perform its obligations under this Agreement; or
(d) at the option of AAL with respect to the ACCOUNT, upon
requisite authority to substitute the shares of another
investment company for shares of the FUND in accordance with the
terms of the Certificates or in accordance with the ACCOUNT's
investment policy or standards of conduct; or
(e) at the option of a AAL, in the event any of the FUND's shares
are not registered, issued, or sold in accordance with applicable
federal and any state law or such law precludes the use of such
shares as the underlying investment media of the Certificates
issued or to be issued by AAL; or
(f) at the option of a AAL, if the FUND fails to meet the
requirements specified in Section 2.6 hereof; or
(g) at the option of the FUND, if the investments of the ACCOUNTs
fail to satisfy the diversification requirements of the Code and
the regulations thereunder.
8.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 8.1(a) may be exercised for
any reason or for no reason.
8.3 Notice Requirement for Termination. No termination of this Agreement
will be effective unless and until the party terminating this Agreement
gives prior written notice to the other party to this Agreement of its
intent to terminate, and such notice shall set forth the basis for such
termination. Furthermore,
(a) in the event that any termination is based upon the
provisions of Section 8.1(a) hereof, such prior written notice
shall be given at least one hundred eighty (180) days in advance
of the effective date of termination as required by such
provision;
(b) in the event that any termination is based upon the
provisions of Section 8.1(b) or Section 8.1(c) hereof, such prior
written notice shall be given at least ninety (90) days in
advance of the effective date of termination;
(c) in the event that any termination is based upon the
provisions of Section 8.1(d) hereof, AAL will give at least sixty
(60) days prior written notice to the FUND of the date of any
proposed action to substitute FUND shares, including the filing
of any applicable exemptive
<PAGE>
application under the 1940 Act relating to the ACCOUNT; and AAL
will provide the FUND with a copy of any such exemptive
application; and
(d) in the event that any termination is based upon the
provisions of Section 8.1(e), Section 8.1(f), or Section 8.1(g)
hereof, such prior written notice shall be given as soon as
possible within twenty-four (24) hours after the terminating
party learns of the event causing termination to be required.
8.4 Partial Termination. It is also understood that this Agreement may
be terminated with regard to a specific Portfolio or Portfolios of the
FUND, or the entire FUND at the discretion of the terminating party.
Notwithstanding any termination of this Agreement, the FUND shall, at
the option of AAL, continue to make available additional shares of the
FUND pursuant to the terms and conditions of this Agreement, for all
Certificates in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Certificates").
Specifically, without limitation, the owners of the Existing
Certificates shall be permitted to transfer or reallocate investments
under the Certificates, redeem investments in the FUND and/or invest in
the FUND upon the making of additional purchase payments under the
Existing Certificates.
9. Notices
Any notice will be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to AAL: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: William R. Heerman
If to the FUND: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: D. Charles DeVries
10. Miscellaneous
10.1 This Agreement will be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Maryland, where the sale of any FUND share shall be deemed to have been
made; provided, however, that if such laws or any of the provisions of
this Agreement conflict with applicable Provisions of the 1940 Act, the
latter shall control.
10.2 If any provision of this Agreement will be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement will not be effected thereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 27th day of
September, 1994.
AID ASSOCIATION FOR LUTHERANS and
AAL VARIABLE ACCOUNT I
By: /s/ R. L. Gunderson
---------------------------------------------
Richard L. Gunderson
President and Chief Executive Officer
By: /s/ W. R. Heerman
--------------------------------------------
William R. Heerman
Senior Vice President
Secretary and General Counsel
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ D. Charles DeVries
--------------------------------------------
D. Charles DeVries
President
By: /s/ Mark J. Mahoney
--------------------------------------------
Mark J. Mahoney
Secretary
PARTICIPATION AGREEMENT
THIS AGREEMENT dated as of the 30th day of September, 1996, by and between Aid
Association for Lutherans, a fraternal benefit society located in Appleton,
Wisconsin ("AAL"), and AEGON USA, Inc., an insurance holding company located in
Cedar Rapids, Iowa ("AEGON").
RECITALS
WHEREAS, AAL desires to explore distribution methods that would supplement its
existing methods of distributing fixed and variable annuity products issued by
AAL ("Annuity Products") to AAL members in select territories;
WHEREAS, AUSA Direct, a telemarketing service of the AEGON Insurance Group, has
capabilities to act as an agent and registered representative through AEGON USA
Securities, Inc. to develop customer relationships and make Annuity Products
sales directly with eligible prospects; and
WHEREAS, AAL wishes to utilize, on an experimental basis, the telemarketing
services of AUSA Direct as a supplemental means of distributing its Annuity
Products to AAL members in select territories, and AUSA Direct has agreed to
provide such service.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations and warranties of the parties set forth below, the parties
hereto agree as follows:
1. JOINT VENTURE
AAL and AEGON will enter into a joint venture which will be conducted
in the following manner:
A. AEGON USA Securities, Inc. will enter into a general agent agreement
with AAL and a selected broker agreement with AAL Capital Management
Corporation to market Annuity Products through the AEGON telemarketing
services known as AUSA Direct.
B. AAL shall provide AEGON with a list of not less than fifteen
thousand (15,000) names and valid telephone numbers of AAL members, all
of which are age 40 or older and none of which are older than AAL's
maximum annuity issue age ("Eligible Persons"), for purposes of
conducting the telemarketing services.
C. AUSA DIRECT shall conduct telemarketing services with respect to
such Eligible Persons from 8:00 A.M until 4:00 P.M CST from Monday
through Friday of every week (except legal holidays). AUSA Direct shall
make every reasonable effort to contact each Eligible Person at least
three to four times per year.
D. AUSA DIRECT shall perform the following telemarketing activities
with respect to Eligible Persons:
<PAGE>
1. Solicit and procure the sale of Annuity Products and the
payment of additional premiums on existing Annuity Products
pursuant to the General Agent Agreement and Selected Broker
Agreement described in Section 2 of this Agreement.
2. Provide customer service on Annuity Products in accordance
with the General Agent Agreement and Selected Broker Agreement
described in Section 2 of this Agreement.
3. Solicit and refer any inquiries regarding the sale or
service of other products issued by AAL or offered by its
subsidiary to a specific person(s) or department(s) designated
by AAL.
E. AAL shall pay AEGON USA Securities, Inc. for the sale of Annuity
Products and for the payment of additional premiums on existing Annuity
Products (together with assets under management fees on certain of this
business), all in accordance with the General Agent Agreement described
in Section 2 of this Agreement.
F. If any Eligible Person makes request to AAL or AUSA DIRECT that they
do not wish to be called or otherwise contacted by AEGON, that person's
name shall be removed from the list of Eligible Persons. AUSA DIRECT
shall immediately notify AAL of such action.
G. All names and telephone numbers of Eligible Persons provided to AUSA
DIRECT by AAL shall be the exclusive property of AAL and cannot and
will not be used, directly or indirectly, by AUSA DIRECT or AEGON
except for the express purpose of this Agreement. AEGON agrees that
these names and telephone numbers will be held in strict confidence and
will not be disclosed to any third party. This provision shall survive
termination of this Agreement.
2. SUBSIDIARY AGREEMENTS
To implement the components of the joint venture described in Section
1, the parties or their affiliated companies shall enter into this
Agreement and the following "Subsidiary Agreements", each of which
shall be deemed a part of this Agreement and all of which shall be
effective and dependent upon the others for the implementation of the
entire joint venture.
A. A Non-Disclosure Agreement between AEGON USA, Inc. and AAL dated
June 3, 1996, and attached hereto as EXHIBIT 2A.
B. A General Agent Agreement between AAL and AEGON USA Securities, Inc.
of even date herewith and attached hereto as EXHIBIT 2B.
C. A Selected Broker Agreement between AAL Capital Management
Corporation and AEGON USA Securities, Inc. of even date herewith and
attached hereto as EXHIBIT 2C.
Unless otherwise specifically agreed in writing by the parties, in the
event this Agreement or any one of the Subsidiary Agreements is
terminated for any reason whatsoever, the remaining agreements (except
the Non-Disclosure Agreement) shall also be concurrently terminated.
The
<PAGE>
obligations and rights under the Non-Disclosure Agreement shall survive
the termination of this Agreement and the termination of any of the
Subsidiary Agreements.
3. TERMINATION
The following provisions shall govern the termination of this
Agreement:
A. From September 30, 1996 through September 29, 1997 AAL may terminate
this Agreement unilaterally on 30 days written notice to AEGON if AAL
reasonably determines that the joint venture is substantially adversely
affecting its relationship with its field staff or members in the areas
served by AEGON. In such event, AAL shall reimburse AEGON for
unrecovered costs as defined in SCHEDULE 3B attached hereto and made a
part of this provision by reference.
B. AAL may terminate this Agreement unilaterally from September 30,
1997 through September 29, 1999 on 60 days written notice to AEGON for
any reason. Upon termination pursuant to this section, unless AEGON
otherwise agrees, AAL shall reimburse AEGON for unrecovered costs as
defined in SCHEDULE 3B attached hereto and made a part of this
provision by reference and pay any employee redeployment compensation
fee that may be due pursuant to section 3D.
C. Either party may terminate this Agreement unilaterally upon 60 days
written notice to the other party after September 29, 1999. In the
event that AAL terminates the Agreement after September 29, 1999, AAL
shall not be required to reimburse AEGON for unrecovered costs defined
in SCHEDULE 3B, but shall be required to pay any employee redeployment
compensation fee that may be due pursuant to section 3D.
D. If AAL terminates this Agreement pursuant to sections A, B, or C, of
this "TERMINATION" section of this Agreement, but provides AEGON with
less than twelve (12) months prior written notice of termination, then
AAL shall pay AEGON an employee redeployment compensation fee as
defined in SCHEDULE 3C attached hereto and made a part of this
provision by reference. Any amount per month per employee shall be
pro-rated for any employee who is not entirely devoted to the joint
venture, according to the average amount of such employee's time that
was devoted to the joint venture during the 30 day period preceding the
receipt of the notice of termination by AEGON. AEGON will have no more
than three (3) full time employees or their equivalent devoted to the
joint venture at any time unless AAL provides prior written approval
for additional staff.
E. AEGON may not terminate this Agreement unilaterally before September
30, 1999.
F. If AAL is required to make payments to AEGON in connection with
termination of this Agreement as provided in this section, such
payments shall be made by AAL in full on the effective date of
termination of this Agreement.
G. Notwithstanding the above provisions, this Agreement may be
terminated, at the option of a party, if the other party has materially
breached this Agreement or any Subsidiary Agreement, and such breach is
not cured within 30 days after notice. For this purpose, a material
breach shall include, but not be limited to, failure to comply with all
applicable laws
<PAGE>
or regulations of any federal, state or other governmental body having
jurisdiction over the sale of insurance or securities, loss of
authority to conduct the business of the joint venture, or failure to
comply with the marketing, compensation, confidentiality, or
non-compete provisions of this Agreement or any Subsidiary Agreement. A
failure to elect to terminate this Agreement by reason of a material
breach shall not operate as a waiver of the provision as to future
action.
In the event of termination of this Agreement due to a material breach,
the provision of Sections 3A through 3F of this Agreement shall not
apply with respect to the party who has elected to terminate the
Agreement due to the material breach by the other party.
H. AEGON agrees that all records, materials, membership lists, or other
information obtained or developed by AEGON or AUSA DIRECT by reason of
or as a result of this Agreement or the Subsidiary Agreements are the
exclusive property of AAL and shall be promptly returned to AAL at the
time of termination of this Agreement.
4. COVENANTS NOT TO COMPETE
A. AAL and AEGON agree not to knowingly hire or attempt to hire each
other's employees who are involved in this joint venture for a period
of one (1) year following termination of the joint venture.
B. AUSA DIRECT and AEGON agree that AAL has a proprietary interest in
AAL's relationship with its members and in the list of names,
addresses, and telephone numbers of such members. AUSA Direct and
AEGON's subsidiaries agree not to knowingly solicit or attempt to
solicit any business of any kind from the AAL members that AAL
authorizes AUSA Direct to solicit and service during the term of this
Agreement, or after termination of this Agreement. AEGON agrees that
this provision may be enforced by an action for an injunction, as well
as or in addition to an action for damages. However, solicitation of
any of these members who come to AUSA Direct or AEGON subsidiaries
attention through means other than this joint venture is not
prohibited.
5. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
A. AAL hereby represents and warrants as follows:
1. Organization. AAL is a Wisconsin corporation duly organized,
validly existing and in good standing under the laws of the
State of Wisconsin. AAL has corporate power to carry on its
business as it is now being conducted.
2. Approval of Agreement. The execution and delivery of this
Agreement and the Subsidiary Agreements and the consummation
of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action on the
part of AAL, or any AAL affiliated company which is a party
to any Subsidiary Agreement ("AAL affiliate"), and this
Agreement and the Subsidiary Agreements upon execution and
delivery will be valid and binding obligations of AAL and
AAL affiliates.
<PAGE>
3. No Conflict With Other Instruments. Subject to the receipt
of all required regulatory approvals and compliance with all
applicable federal and state laws and regulations, neither
the execution and delivery of this Agreement or the
Subsidiary Agreements, nor the consummation of the
transactions provided for therein, will violate any material
agreement to which AAL or any AAL affiliate is a party or by
which it is bound, or any law, order, or decree or any
provision of its articles of incorporation or bylaws. AAL
and AAL affiliates have full power, authority, and legal
right to enter into this Agreement and the Subsidiary
Agreements and, to consummate the transactions provided for
therein.
4. Litigation or Adverse Events. There is no suit, action, or
legal or administrative proceeding pending, or to the
knowledge of AAL threatened, against AAL or any AAL
affiliate which, if adversely determined, would delay or
prevent the transactions contemplated by this Agreement or
would materially and adversely affect the financial
condition or properties of AAL or any AAL affiliate, or the
conduct of its business.
B. AEGON hereby represents and warrants as follows:
1. Organization. AEGON is an Iowa corporation duly organized,
validly existing and in good standing under the laws of the
State of Iowa. AEGON has corporate power to carry on its
business as it is now being conducted.
2. Approval of Agreement. The execution and delivery of this
Agreement and the Subsidiary Agreements and the consummation
of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action on the
part of AEGON, or any AEGON affiliated company which is a
party to any Subsidiary Agreement ("AEGON affiliate"), and
this Agreement and the Subsidiary Agreements upon execution
and delivery will be valid and binding obligations of AEGON
and AEGON affiliates.
3. No Conflict With Other Instruments. Subject to the receipt
of all required regulatory approvals and compliance with all
applicable federal and state laws and regulations, neither
the execution and delivery of this Agreement or the
Subsidiary Agreements, nor the consummation of the
transactions provided for therein, will violate any material
agreement to which AEGON or any AEGON affiliate is a party
or by which it is bound, or any law, order, or decree or any
provision of its articles of incorporation or bylaws. AEGON
and AEGON affiliates have full power, authority, and legal
right to enter into this Agreement and the Subsidiary
Agreements and, to consummate the transactions provided for
therein.
4. Litigation or Adverse Events. There is no suit, action, or
legal or administrative proceeding pending, or to the
knowledge of AEGON threatened, against AEGON or any AEGON
affiliate which, if adversely determined, would delay or
prevent the transactions contemplated by this Agreement or
would materially and adversely affect the financial
condition or
<PAGE>
properties of AEGON or any AEGON affiliate, or the conduct of its
business.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND INDEMNIFICATION
A. The representations and warranties of AAL and AEGON contained in or
made pursuant to this Agreement shall be deemed to have been
repeated and reaffirmed as of the effective date of this Agreement
and shall survive such effective date.
B. AAL and AEGON shall indemnify and hold harmless each other against
any loss, damage, liability, or expense, including reasonable
attorney's fees (collectively hereinafter the "Loss"), and the Loss
is the result of any breach of the representations, warranties or
covenants of AAL or AEGON contained in this Agreement or the
Subsidiary Agreements, and written notice of the discovery of such
breach which results in the Loss is provided to the other party
prior to any claim for indemnification. This indemnification
obligation shall continue for the term of this Agreement and for a
period of three years following the later of the termination of this
Agreement or any Subsidiary Agreements.
7. DUE DILIGENCE REVIEW
A. Within thirty days after the date of this Agreement, each
party and their representatives shall complete their initial
examination of the other party to determine to their
satisfaction the accuracy of representations of the party
contained in this Agreement. Such examination may include
consultation with applicable regulatory authorities regarding
the existence of this Agreement. Any breach, noncompliance,
errors, omissions, or misrepresentations discovered in such
examination shall be corrected to the satisfaction of the
examining party within thirty (30) days after such notice or
the examining party shall be entitled to terminate this
Agreement without regard to the provisions of Section 3 of
this Agreement.
B. During the term of this Agreement each party shall allow the
other or their representatives, access to the party's books,
records, employees and information necessary to carry out the
terms and conditions of this Agreement at reasonable times and
upon reasonable notice.
AAL shall have the right to perform audits, at AEGON's
offices, or the offices of its affiliates, of AEGON's or its
affiliates performance under this Agreement or the Subsidiary
Agreements. AAL shall provide AEGON with notice of its intent
to conduct an audit and the parties shall mutually agree on
the specific dates for audits which shall not be later than 25
days after the date of written notice from AAL of its
intention to conduct an audit.
8. MISCELLANEOUS
A. Waivers. Any of the terms or conditions of this Agreement or
the Subsidiary Agreements may be waived at any time by any
party thereto, by action evidenced by a writing executed by a
duly authorized officer of the party.
<PAGE>
B. Amendment. To the extent permitted by law, this Agreement and
the Subsidiary Agreements may be amended or supplemented at
any time by a writing executed by duly authorized officers of
the parties thereto.
C. Assignment. This Agreement, or any of the rights, obligations,
or duties hereunder, shall not be assigned by either party
without consent of the other party.
D. Entire Contract. This Agreement, the Subsidiary Agreements,
and the instruments referred to therein constitute the entire
contract among the parties and supersede all other and prior
understandings, written or oral, with respect to the subject
matter hereof.
E. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but
all of which together shall be deemed one and the same
Agreement, and shall become binding on the parties hereto when
one or more counterparts have been signed by each of the
parties and delivered to the other parties.
F. Notices. All notices, demands, or communications which are
permitted or required under this Agreement or the Subsidiary
Agreements shall be made in writing, and shall be sent by
United States certified mail, return receipt requested.
All notices, demands, or communications directed to AAL shall
be addressed as follows:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attn: D. Charles DeVries
All notices, demands, or communications directed to AEGON
shall be addressed as follows:
AEGON USA, Inc.
Financial Markets Division
4333 Edgewood Road NE
Cedar Rapids, Iowa, 52499-0001
Attn: Ronald L. Ziegler
G. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Wisconsin, and the parties agree that the courts of the State
of Wisconsin shall have jurisdiction to hear and determine any
suit, action or proceeding and to settle any disputes which
may arise out of or in connection with this Agreement, and,
for such purposes, each party irrevocably submits to the non-
exclusive jurisdiction of such courts.
<PAGE>
H. Headings. The descriptive headings of the several articles,
sections, and paragraphs of this Agreement are inserted for
convenience only and do not constitute a part of this
Agreement.
IN WITNESS WHEREOF, AAL and AEGON have caused this Agreement to be signed by
their respective officers thereunto duly authorized, all effective as of the
date first above written.
Aid Association for Lutherans AEGON USA, Inc.
By: /s/ D. Charles DeVries By: /s/ William L. Busler
Title: Vice President Title: President, Financial Markets Division
<PAGE>
SCHEDULE 3B
Expense Recovery upon termination by AAL prior to September 30, 1999.
Start-up Expenses $30,000
On-going Monthly Expenses $7,000
Recovery Formula
The above expenses shall be accumulated at an effective annual rate of 15% and
shall be reduced by 5% of each premium payment made under the products sold.
Accumulation of the start-up and monthly expenses will begin on September 30,
1996. The net accumulated amount of unrecovered costs shall be determined on a
monthly basis, taking into account accrued interest during the month along with
on-going monthly expenses and premium payments made during the month.
<PAGE>
SCHEDULE 3C
Employee Redeployment Compensation Fee Schedule upon termination by AAL with
less than 12 full calendar months prior written notice.
Number of Full Fee per full-time
Calendar Months Employee
Notice
12 $ -0-
11 $ 1,000
10 $ 2,000
9 $ 3,000
8 $ 5,000
7 $ 7,000
6 $ 9,000
5 $12,000
4 $15,000
3 $18,000
2 $22,000
1 $26,000
0 $30,000
TRADE NAME/SERVICE MARK LICENSING AGREEMENT
BY AND BETWEEN
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.
<PAGE>
TRADE NAME/SERVICE MARK LICENSING AGREEMENT
This TRADE NAME/SERVICE MARK LICENSING AGREEMENT made and entered on the 27th
day of September, 1994, by and between AID ASSOCIATION FOR LUTHERANS, a
fraternal benefit society incorporated under the laws of the State of Wisconsin,
and having its principal place of business at 4321 North Ballard Road, City of
Appleton, County of Outagamie, State of Wisconsin, hereafter referred to as
LICENSOR, and AAL VARIABLE PRODUCT SERIES FUND, INC., a corporation organized
under the laws of the State of Maryland, and having its principal place of
business at 4321 North Ballard Road, City of Appleton, County of Outagamie,
State of Wisconsin, hereafter referred to as LICENSEE.
RECITALS
LICENSOR has used the trade name/service mark "AAL" for the marketing of
insurance, mutual fund, fraternal and other related services since 1917, and the
name is associated with and represents LICENSOR and the quality of services it
provides, and all the goodwill associated with it. LICENSOR has a valid federal
service mark for said name, registered with The United States Patent & Trademark
Office, encompassing the services offered by LICENSEE. LICENSOR will have the
non-exclusive right to use and license others to use such trade name/service
mark for mutual fund services marketed only to AAL Variable Annuity Account I,
AAL and/or AAL Benefit Members (or those eligible for membership), and employees
and their immediate families of AAL, its subsidiaries and affiliates.
Consideration for this agreement shall be $1.00 in United States
currency, receipt of which by LICENSOR shall be acknowledged by the signing of
this agreement, and the mutual promises herein.
Nothing in this agreement shall be construed in any way to create a
partnership, agency or subsidiary relationship between the parties involved
herein.
LICENSEE desires to obtain a license, under the terms and conditions
provided herein, to utilize said trade name/service mark in association with the
marketing, servicing and provision of only the services agreed to in this
licensing agreement, only to AAL Variable Annuity Account I, AAL, AAL benefit
members and employees and their immediate families of AAL, its subsidiaries and
affiliates.
LICENSOR is willing to grant a limited license to LICENSEE to use such
trade name/service mark under the terms and conditions provided herein.
AGREEMENT
In consideration of the mutual covenants contained in this agreement, and
other good and valuable consideration as stated above, the parties agree:
1. DEFINITIONS
As used in this agreement, the following terms shall have the following
meanings:
<PAGE>
"Mutual Fund Services" shall mean the establishment, marketing, sales and
servicing of mutual fund shares and accounts and other products and services
approved for mutual funds.
"Contract Year" shall mean one year periods, the first beginning from the
date this agreement is signed, and running until the following calendar year,
ending on midnight the day before the one year anniversary of the signing of
this agreement. (For example, if signed on November 1, the contract period shall
be from November 1 until midnight October 31 of the next calendar year.)
"Licensor" shall mean Aid Association for Lutherans, its successors, and
assigns.
"Licensee" shall mean AAL Variable Product Series Fund, Inc., its
successors, and assigns.
"Member" shall mean a Benefit Member of LICENSOR, or one eligible for
Benefit Membership.
"Service Mark" shall mean the designation of AAL(R), which was adopted
and used in the sale or advertising of services to identify the services of
LICENSOR, or the business which it conducts, and which has also come to be used
by others, and through its' association with such services or business, the name
has acquired a special significance or goodwill.
"Trade name" shall mean the designation of "AAL", which was adopted and
used in trade by LICENSOR to designate the services which it renders, or
business which it conducts, and which has also come to be used by others, and
through its' association with such services or business, the name has acquired a
special significance and goodwill.
2. INTEREST GRANTED
Subject to the terms and conditions specified in this agreement, LICENSOR
hereby grants to LICENSEE the non-exclusive right to use the trade name/service
mark in connection with the marketing, sales, servicing and operation of its
Mutual Fund Services to AAL Members and employees of AAL, its subsidiaries and
affiliates, and immediate family members of each.
3. SUPERVISION OF LICENSEE
LICENSOR shall have the right to review the production and marketing of
all materials or written or oral solicitations of customers with which the AAL
trade name/service mark will be used. LICENSEE agrees to furnish any necessary
information or records LICENSOR may require for this purpose, and permit
LICENSOR'S authorized personnel to enter LICENSEE's premises at all reasonable
times, with or without advanced notice, in order to carry out said review.
LICENSOR reserves the right to such review for the purpose of protecting
and maintaining the standards of quality, integrity and goodwill established by
the LICENSOR for all services and/or products offered under said trade
name/service mark.
4. SUB-LICENSING OF SERVICE MARK BY LICENSEE
LICENSEE shall not directly or indirectly license or attempt to license
or assign, whether orally or in writing, any other person or company the right
to use the trade name/service mark herein. However,
<PAGE>
this does not preclude LICENSEE from using agents for the performance of the
obligations under this Agreement.
5. DEFICIENCIES
If LICENSOR at any time finds the Mutual Fund Services as offered and
provided by LICENSEE to be deficient in quality of service, or marketed or sold
in a misleading or deceptive manner, or otherwise prepared, advertised, marketed
or sold in a manner in violation of this agreement, then LICENSOR may notify
LICENSEE in writing of such deficiency or deficiencies, and if LICENSEE fails to
correct or eliminate such deficiency or deficiencies within 30 days after
receipt of such notice, LICENSOR may at its' election declare this licensee
terminated.
6. ADVERTISING AND MARKETING
All sales literature, descriptive material, advertising and stationary or
paperwork of any kind containing the trade name/service mark shall be developed
by LICENSEE through its own channels, and shall be subject to LICENSOR'S
approval. Insofar as possible, standard programs will be established for
advertising and promotional work, and routine matters handled in accordance with
approved programs need not be submitted for prior approval; all advertising copy
must be approved by LICENSOR before dissemination to the public.
7. INDEMNIFICATION OF LICENSOR BY LICENSEE
LICENSEE agrees to indemnify LICENSOR for any and all expenses, fines,
attorney's fees, penalties, judgments, settlement costs, or any cost whatsoever
related to any claim, suit, allegations or charges against LICENSOR arising out
of LICENSEE's use or misuse of said trade name/service mark. LICENSEE agrees to
assist LICENSOR in the prosecution or defense of lawsuits or claims identified
herein, by providing such evidence and expert assistance as LICENSEE may have
within its control, and, to the extent permitted by law, LICENSEE shall have the
right to intervene at its own expense in any legal proceeding affecting the
rights acquired by LICENSEE under this agreement.
8. TERMINATION
This agreement shall continue in full force and effect for one year from
the date hereof, unless sooner terminated as provided in section five herein, or
if LICENSEE terminates its Investment Advisory Agreement with LICENSOR.
This agreement shall be automatically renewed annually under the same
terms as herein, unless either party gives 30 days notice to the other party,
prior to the end of the present contract year.
Upon termination of this agreement for any reason, LICENSEE shall
immediately discontinue use of all labels, stationary or paperwork, and
advertising materials of any kind using the trade name/service mark.
9. SEVERABILITY
If any provision of this contract shall be construed to be illegal or
invalid, it shall not affect the legality or validity of any other provisions
herein, and the illegal or invalid provisions shall be deemed
<PAGE>
stricken and deleted from this contract to the same extent and effect as if
never incorporated herein, but all other provisions herein shall remain
unaffected by this.
10. AMENDMENT
The parties to this agreement hereby agree that this contract shall not
be altered or amended except in writing executed by the parties, and that this
agreement contains the whole of the covenants agreed to by the LICENSOR and
LICENSEE.
11. GOVERNING LAW
The construction of this agreement shall be governed by the laws of the
State of Wisconsin.
<PAGE>
12. NON-WAIVER
Any failure by LICENSOR to exercise any right hereunder, or otherwise
waive or condone any delay or failure by LICENSEE to comply with any of the
terms or conditions of this agreement shall not constitute a waiver of any such
requirement or provisions of LICENSOR'S right to terminate, or any rights of
LICENSOR hereunder.
In witness whereof, parties hereby execute this agreement at Appleton,
Wisconsin, on this 27th day of September, 1994.
AID ASSOCIATION FOR LUTHERANS
By: /s/Richard L. Gunderson
--------------------------------------------
Richard L. Gunderson
President and
Chief Executive Officer
By: /s/ William R. Heerman
--------------------------------------------
William R. Heerman
Senior Vice President
Secretary and General Counsel
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/ D. Charles DeVries
--------------------------------------------
D. Charles DeVries
President
By: /s/ Mark J. Mahoney
--------------------------------------------
Mark J. Mahoney
Secretary
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
AAL CAPITAL MANAGEMENT CORPORATION
AND
AID ASSOCIATION FOR LUTHERANS
Dated August 28, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. Services. ............................................... 4
--------
2. Rate of Payment for the Services......................... 5
--------------------------------
2.1 Contract Price. .............................. 5
--------------
2.2 Reimbursement for Expenses. .................... 5
---------------------------
3. Employees. .............................................. 5
---------
4. AALCMC's Use of the Services of Others. ................. 5
---------------------------------------
5. Ownership of Records. ................................... 5
--------------------
6. Reports to AAL or the Fund by AALCMC. ................... 6
------------------------------------
7. Services to Other Clients. .............................. 6
-------------------------
8. Limitation of Liability of AALCMC. ...................... 6
---------------------------------
9. Term of Agreement. ...................................... 7
------------------
10. Termination of Agreement. ............................... 7
-------------------------
11. Miscellaneous............................................ 8
--------------
11.1 Captions. ...................................... 8
---------
11.2 Interpretation. ................................ 8
---------------
11.3 Definitions. ................................... 8
-----------
11.4 Governing Law. ................................. 8
-------------
11.5 Amendment. ..................................... 8
----------
11.6 Notices. ....................................... 8
-------
11.7 Entire Agreement. .............................. 9
----------------
11.8 Enforceability. ................................ 9
--------------
11.9 Scope of Agreement. ......................... 9
-------------------
Schedule A Portfolios of the AAL Variable Product Series Fund, Inc.
Schedule B Services to be performed by AALCMC
Schedule C Contract Price Accounting/Pricing Fee Schedule
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and
entered into as of this twenty-eighth day of August, 1996 by and between AAL
CAPITAL MANAGEMENT CORPORATION, ("AALCMC") a Delaware corporation and AID
ASSOCIATION FOR LUTHERANS,
( "AAL") a Wisconsin corporation, (collectively, the "Parties").
WHEREAS, AAL is a fraternal benefit society organized under the laws of
the State of Wisconsin engaged in the writing of life insurance, annuity
contracts, and other insurance products; AAL serves as sponsor and depositor of
AAL VARIABLE ANNUITY ACCOUNT I (the "Variable Account") a legally segregated
asset account of AAL, established pursuant to the laws of the State of Wisconsin
and registered as a unit investment trust in accordance with the provisions of
the Investment Company Act of 1940 (the "1940 Act"), to serve as a segregated
investment account for the purpose of funding certain flexible premium deferred
variable annuity certificates (the "Certificates") AAL and its Variable Account
propose to offer for sale the Certificates, interests of which are registered
with the Securities and Exchange Commission ("SEC") as securities under the
Securities Act of 1933 (the "1933 Act"), the 1940 Act, and the laws of certain
states.
WHEREAS, AAL VARIABLE PRODUCT SERIES FUND, INC. (the "Fund") a Maryland
Corporation, is a diversified open-end management investment company registered
with the SEC under the 1940 Act and the Fund's shares are registered with the
SEC under the 1933 Act; the Fund is a series type investment company, with each
Portfolio having its own investment objectives, policies and restrictions; the
Fund currently consists of five (5) portfolios identified in Schedule A attached
hereto (each portfolio is hereinafter referred to singularly as the "Portfolio"
and collectively as the "Portfolios").
WHEREAS, AALCMC is a wholly-owned indirect subsidiary of AAL; AALCMC is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934 (the "1934 Act") and with state securities authorities in all fifty (50)
states; AALCMC is a member of the National Association of Securities Dealers,
Inc. ("NASD") and is authorized to offer and sell mutual funds and variable
insurance products; and AALCMC acts as the "DISTRIBUTOR" pursuant to that
certain Principal Underwriting and
<PAGE>
Servicing Agreement, dated November 23rd, 1994, by and between AAL and AALCMC,
whereby AALCMC is the exclusive principal underwriter in a continuous offering
of the Certificates.
WHEREAS, the Fund appointed AAL to act as investment adviser to the
Fund, with respect to the Portfolios, pursuant to that certain Investment
Advisory Agreement, dated September 27, 1994, by and between the Fund and AAL;
such Investment Advisory Agreement provides, in part, that (i) AAL as "Adviser"
to the Fund, may engage at the Adviser's cost and under the Adviser's
supervision, on behalf of the Fund or any Portfolio, the services of a
Subadviser, or an agent to perform certain administrative services; and (ii) AAL
shall administer the affairs of the Fund by providing, in part, the services of
individuals competent to perform all of the Fund's executive, administrative,
compliance and clerical functions where such services are not performed by or
through the Fund's employees or other people or agents engaged by the Fund.
WHEREAS, AAL desires AALCMC to render the services to the Fund in the
manner and on the terms and conditions hereinafter set forth with respect to
each of the Fund's Portfolios identified on Schedule A attached hereto, as
modified from time to time by the mutual consent of the Parties.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:
1. Services.
AAL hereby engages AALCMC, and AALCMC accepts such engagement, to perform
administrative, accounting and pricing services for AAL, on behalf of the Fund,
as set forth in Schedule B, as the same may be modified from time to time by the
mutual consent of the Parties. These services are to be performed according to
the Fund Accounting Performance Standards as may be agreed to by the parties.
AAL agrees that AALCMC shall have ready access to AAL's and the Fund's agents,
books, records, financial information, management and resources, at such times
and for such periods as AALCMC deems necessary to perform the Services.
<PAGE>
2. Rate of Payment for the Services.
2.1 Contract Price.
AAL agrees to pay AALCMC for the Services at such rate as set forth in
Schedule C (the "Contract Price"). The Contract Price shall be payable
monthly within ten (10) days of the date of invoice. The Contract Price
shall be reviewed annually, or at such other times as agreed to by the
Parties, and shall be modified by mutual consent of the Parties.
2.2 Reimbursement for Expenses.
Subject to AAL's prior approval, AALCMC may be paid by AAL for
extraordinary expenses and costs incurred by AALCMC in the performance
of services under this Agreement.
3. Employees.
All personnel assigned by AALCMC to perform the Services will be employees of
AALCMC or its affiliates. AALCMC will be considered for all purposes, an
independent contractor, and it will not, directly or indirectly, act as an
agent, servant or employee of AAL or the Fund, or make any commitments or incur
any liabilities on behalf of AAL or the Fund, without AAL's prior written
consent.
4. AALCMC's Use of the Services of Others.
AALCMC may at its cost employ, retain or otherwise avail itself of the services
or facilities of other persons or organizations for the purpose of providing to
AAL, on behalf of the Fund, with such information or Services as it may deem
necessary, appropriate or convenient for the discharge of AALCMC's obligations
hereunder, or in the discharge of AALCMC's overall responsibilities with respect
to the Services to be provided to AAL.
5. Ownership of Records.
All records required to be maintained and preserved by AAL or the Fund, pursuant
to the provisions of rules or regulations of the SEC under Section 31(a) of the
1940 Act, and maintained and preserved by
<PAGE>
AALCMC on behalf of AAL or the Fund, are the property of AAL and will be
surrendered by AALCMC to AAL promptly on request by AAL or the Fund.
6. Reports to AAL or the Fund by AALCMC.
AALCMC shall provide AAL or the Fund, at such times as AAL or the Fund may
reasonably require, with reports relating to the Services provided by AALCMC
under this Agreement. Such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by AAL or the Fund.
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of AALCMC or any affiliated
person of AALCMC to render investment advice or corporate administrative
services to other investment companies, to act as investment adviser or
investment counselor to other persons, firms or corporations, or to engage in
other business activities.
8. Limitation of Liability of AALCMC.
8.1 Neither AALCMC, nor any of its officers, directors, or employees,
nor any person performing administrative or other functions for AAL in
connection with AALCMC's discharge of its obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for
any error of judgment or mistake of law or for any loss suffered by AAL
or the Fund in connection with the matters to which this Agreement
relates, except for loss resulting from willful misfeasance, bad faith,
or negligence in the performance of its or their duties on behalf of
AAL or the Fund, or from reckless disregard by AALCMC or any such
person of the duties of AALCMC under this Agreement.
8.2 AALCMC shall not be liable or responsible for delays or errors
occurring by reason of circumstances beyond its control, including acts
of civil or military authority, natural or state emergencies, fire,
flood or catastrophe, acts of God, insurrection, war, riots or failure
of transportation, communication or power supply.
8.3 In the event of a mechanical breakdown beyond its control, AALCMC
shall take all reasonable steps to minimize service interruptions for
any period that such interruption continues
<PAGE>
beyond AALCMC's control. AALCMC will make every reasonable effort to
restore any lost or damaged data and the correcting of any errors
resulting from such a breakdown will be at the expense of AALCMC.
AALCMC agrees that it shall at all times have reasonable contingency
plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of AAL shall be
entitled to inspect AALCMC's premises and operating capabilities at any
time during regular business hours of AALCMC, upon reasonable notice to
AALCMC.
8.4 The indemnification provided by this Section 8, includes any act,
omission to act, or delay by AALCMC in reliance upon, or in accordance
with, any written or oral instruction it receives from any duly
authorized officer of AAL.
8.5 AAL will notify AALCMC of any balancing or control error caused by
AALCMC within three (3) business days after receipt of any reports
rendered by AALCMC to AAL, or within three (3) business days after
discovery of any error or omission not covered in the balancing or
control procedure, or within three (3) business days of receiving
notice from any Certificate Owner.
9. Term of Agreement.
The term of this Agreement shall begin, with respect to any Portfolio of the
Fund, on the date first above written, or the first offering of any additional
Portfolio(s), if later. Once effective with respect to any Portfolio, this
Agreement will continue in effect from year to year with respect to such
Portfolio, subject to the termination provisions and all other terms and
conditions hereof. AALCMC shall furnish to AAL promptly upon AAL's request, such
information as may reasonably be necessary to evaluate the terms of this
Agreement or any extension, renewal or amendment hereof.
10. Termination of Agreement.
This Agreement may be terminated, with respect to each Portfolio, by either
party hereto without the payment of any penalty, upon sixty (60) days prior
written notice to the other party. This Agreement shall automatically and
immediately terminate in the event of its assignment.
<PAGE>
11. Miscellaneous.
11.1 Captions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
11.2 Interpretation.
Nothing herein contained shall be deemed to require AAL or the Fund to
take any action contrary to their respective Articles of Incorporation
or By-Laws, or any applicable statutory or regulatory requirement to
which AAL or the Fund are subject or by which AAL or the Fund are
bound, or to relieve or deprive the board of directors of AAL or the
Fund of their respective responsibility for and control of the conduct
of the affairs of AAL or the Fund.
11.3 Definitions.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term
or provision of the 1940 Act and to interpretations thereof, if any, by
the United States courts or, in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC validly
issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the SEC, whether
of special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
11.4 Governing Law.
This Agreement shall be construed and governed by the laws of the state
of Wisconsin.
11.5 Amendment.
This Agreement, including the Schedules hereto, may be amended by
mutual consent of the Parties.
11.6 Notices.
<PAGE>
All communications or notices required or permitted by this Agreement
shall be in writing and shall be deemed to have been given at the
earlier of the date when actually delivered to an officer of a party or
when deposited in the United States Mail, certified or registered mail,
postage prepaid, return receipt requested, and addressed to the
principal place of business of such party, unless and until any of such
Parties notifies the other Parties to this Agreement, Parties in
accordance with this section, of a change of address.
11.7 Entire Agreement.
This Agreement together with the Schedules hereto constitutes the
entire Agreement between AAL and AALCMC with respect to the subject
matter hereof. There are no restrictions, promises, warranties,
covenants or undertakings other than those expressly set forth herein.
This Agreement supersedes all prior negotiations, agreements and
undertakings between the Parties with respect to the subject matter
stated herein.
11.8 Enforceability.
The invalidity or unenforceability of any provision hereof shall not
affect or impair any other provisions of this Agreement.
11.9 Scope of Agreement.
If the scope of any of the provisions of this Agreement is too broad in
any respect whatsoever, to prevent enforcement to its full extent, then
such provisions shall be enforced to the maximum extent permitted by
law, and the Parties hereto consent and agree that such scope may be
judicially modified accordingly and that the whole of such provisions
of this Agreement shall not hereby fail, but that the scope of such
provisions shall be limited only to the extent necessary to conform to
the law.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.
AID ASSOCIATION FOR LUTHERANS ("AAL")
By: /s/ John O. Gilbert
--------------------------------------------
John O. Gilbert
President and Chief Operating Officer
By: /s/ Carl J. Rudolph
--------------------------------------------
Carl J. Rudolph
Vice President and Controller
By: /s/ Woodrow E. Eno
--------------------------------------------
Woodrow E. Eno
Secretary and General Counsel
AAL CAPITAL MANAGEMENT CORPORATION ("AALCMC")
By: /s/ H. Michael Spence
--------------------------------------------
H. Michael Spence
President
By: /s/ Terrance P. Gallagher
--------------------------------------------
Terrance P. Gallagher
Senior Vice President and Chief Financial Officer
<PAGE>
SCHEDULE A
Portfolios of the AAL Variable Product Series Fund, Inc.
The AAL Variable Product Large Company Stock Portfolio
The AAL Variable Product Small Company Stock Portfolio
The AAL Variable Product Bond Portfolio
The AAL Variable Product Balanced Portfolio
The AAL Variable Product Money Market Portfolio
s:\variable\agmt\adminsvc.aal
August 28,1996
<PAGE>
SCHEDULE B
Services to be performed by AALCMC:
1. Portfolio Accounting Services.
AALCMC shall provide the following portfolio accounting and reporting services
for each Portfolio covered by this Agreement.
1.1 Maintain daily portfolio records for each Portfolio on a trade date
basis using security trade information obtained by AAL, as Investment
Adviser to the Fund;
1.2 On each business day record the prices of the Portfolio positions
from a source approved by the Fund's Board of Directors;
1.3 Record interest and dividend accrual balances each business day on
the securities of each Portfolio and calculate and record each
Portfolios' gross earnings on investments for that day;
1.4 Determine gains and losses on Portfolio securities' sales on a
daily basis for each Portfolio and identify such gains and losses as
short-short, short or long-term. Account for periodic distributions of
gain to Certificate Owners of each Portfolio and maintain undistributed
gain or loss balances as of each business day; and
1.5 Provide each Portfolio with Portfolio-based reports on the
foregoing on a periodic basis as mutually agreed upon between AAL and
AALCMC.
<PAGE>
2. Expense Accrual.
AALCMC shall provide accounting and reporting services relating to the accrual
of expenses as described below for each Portfolio of the Fund covered by this
Agreement:
2.1 On each business day, calculate the amounts of expense accrual for
each Portfolio according to the methodology, rate or dollar amount
specified by AAL;
2.2 Account for expenditures and maintain expense accrual balances for
each Portfolio at a level of accounting detail specified by AAL;
2.3 Conduct periodic expense accrual reviews for each series as
requested by AAL comparing actual expenses to accrual amounts; and
2.4 Issue periodic reports for each Portfolio detailing expense
accruals and payments at the times requested by AAL.
3. Valuation and Financial Reporting Services.
AALCMC shall provide accounting and reporting services relating to the net asset
value of each Portfolio of the Fund covered by this Agreement as described
below:
3.1 Account for purchases, sales, exchanges, transfers, dividend
reinvestment and other activity relating to the shares of each
Portfolio as reported by the Fund's Transfer Agent on a daily basis;
3.2 Provide AAL, as Investment Adviser, with a daily report of cash
reserves available for short-term investing;
3.3 Record daily the net investment income (earnings) for each
Portfolio. Account for periodic distributions of earnings to
Certificate Owners of each
<PAGE>
Portfolio and maintain undistributed net investment income balances as
of each business day;
3.4 Maintain a general ledger for each Portfolio in the form specified
by AAL and produce a set of financial statements for each Portfolio as
requested from time to time by AAL;
3.5 On each business day of the Fund determine the net asset value of
each Portfolio in accordance with the accounting policies and
procedures described in the current Prospectus of the Fund;
3.6 On each business day of the Fund, calculate the per share net asset
value, per share net earnings and other per share amounts reflective of
the operations of each Portfolio on the basis of the number of shares
outstanding as reported by the Transfer Agent;
3.7 Issue daily reports detailing such per share information of each
Portfolio to such persons (including the Transfer Agent and the
Investment Adviser (AAL) and the distributor (AALCMC)), as directed by
AAL;
3.8 Issue to AAL, monthly reports that document the adequacy of the
accounting detail necessary to support month-end ledger balances for
each Portfolio; and
4. Tax Accounting Services.
AALCMC shall provide the following tax accounting services for each Portfolio of
the Fund covered by this Agreement:
4.1 Maintain tax accounting records for the investment portfolio of
each Portfolio necessary to support Internal Revenue Service tax
reporting requirements for regulated investment companies;
<PAGE>
4.2 Maintain tax lot detail for the investment portfolio of each
Portfolio;
4.3 Calculate taxable gains and losses on sales of Portfolio securities
for each Portfolio using the tax cost basis defined for the particular
Portfolio;
4.4 Issue reports to the Transfer Agent of each Portfolio detailing the
taxable components of income and capital gains distributions as
necessary to assist such Transfer Agent in issuing reports to AAL and
the Certificate Owners; and
4.5 Provide any other reports relating to tax matters for each
Portfolio as reasonably requested from time to time by AAL.
<PAGE>
SCHEDULE C
Contract Price
Accounting/Pricing Fee Schedule
Pursuant to Section 2.1, the "Contract Price" shall be determined annually. For
the year beginning September 1, 1996 the annual rate will be Thirty-Five
Thousand dollars ($35,000) for each Portfolio.
<PAGE>
1996-1997 FUND ACCOUNTING PERFORMANCE STANDARDS
The following is a listing of the fund accounting activities performed
on a daily or periodic basis by AAL Capital Management Corporation, that will be
specifically identified to measure the quality and timeliness of the fund
accounting services provided to AAL by AALCMC pursuant to the Administrative
Services Agreement between the parties dated August 28, 1996.
Daily:
1. Supply the daily cash availability report to the AAL Investment
Department in good form by 8:30 A.M. CST each business day.
2. Meet all industry and SEC guidelines and standards related to:
A. Accounting for the daily portfolio trading activities.
B. Update the general ledger accounts for each portfolio.
3. Supply the NAV proof report to AAL accounting by 8:00 A.M. the next
business day.
4. Obtain the daily fund prices in a timely manner from IDC, by 4:00
P.M.
5. Calculate an accurate daily fund NAV by 4:30 P.M. each business day.
6. Communicate each fund's NAV to Continuum Vantage the transfer agent
by 5:00 P.M. each business day.
Periodic:
1. Supply the month-end trial balances and the two sets of the
Portfolio Analysis for each fund to AAL accounting by the first
business day of the following month.
<PAGE>
2. Supply the Semi-Annual and Annual financial statements and each
corresponding schedule of investments for all the funds by the
fifteenth day of the following month.
3. Supply the monthly SEC Yield Calculation for the Bond and Balanced
portfolios to AAL accounting by the first business day of the next
month.
4. Supply the weekly Money Market portfolio amortized cost versus
market value analysis report to AAL accounting by the next business
day.
5. Supply other accounting information to AAL as requested in a timely
manner.
[AAL LOGO]
[AAL LETTERHEAD]
Board of Directors
Aid Association for Lutherans
4321 North Ballard Road
Appleton, WI 54919
Subject: Opinion of counsel -- Variable Annuity registration of Certificates
Board Members:
This opinion is furnished in connection with the filing of a registration
statement on Form N-4 ("Registration Statement") under the Securities Act of
1933, as amended, (the "1933 Act") and the Investment Company Act of 1940, by
Aid Association for Lutherans ("AAL") and AAL Variable Annuity Account I (the
"Variable Account"). The securities being registered under the Registration
Statement are units of interest ("Units") to be issued by the Variable Account
pursuant to certain individual flexible premium deferred variable annuity
contracts ("Certificates") described in the Registration Statement.
I am Assistant General Counsel and Assistant Secretary of AAL, and in such
capacity, I am familiar with AAL's Articles of Incorporation and Bylaws and have
reviewed all statements, records, instruments and documents which I have deemed
it necessary to examine for the purpose of this opinion. I have examined the
form of the Registration Statement to by filed with the Securities and Exchange
Commission in connection with the registration under the 1933 Act, of an
indefinite number of Units to be issued by the Variable Account in connection
with the Certificates. I am familiar with the proceedings taken and proposed to
be taken in connection with the authorization, issuance and sale of the Units.
Based upon a review of those documents and such laws that I consider
appropriate, I am of the opinion that:
1. AAL is a fraternal benefit society organized under the laws of the
State of Wisconsin;
2. the Variable Account is duly organized under the provisions of the
Wisconsin Insurance Code, under which income, gains, or losses,
whether realized or unrealized, from assets allocated to the Variable
Account, are, in accordance with the terms of the Certificates,
credited to or charged against the Variable Account without regard to
the income, gains, or losses to AAL;
3. the portion of the assets to be held in the Variable Account equal to
reserves and other liabilities under the Certificates will not be
chargeable with liabilities arising out of any other business AAL may
conduct; and
4. the Certificates have been duly authorized by AAL and, when issued in
the manner contemplated by the Registration Statement, the Units
thereunder will constitute legal, validly issued and binding
obligations of AAL in accordance with the terms of the Certificates.
<PAGE>
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and the reference to me under the caption "Legal Matters" in the
Statement of Additional Information contained in the Registration Statement. In
giving this consent, I do not thereby admit that I come within the category of
persons whose consent is required under section 7 of the 1933 Act or the rules
and regulations of the Securities and Exchange Commission.
Respectfully submitted,
/s/ Mark J. Mahoney
Mark J. Mahoney
Assistant General Counsel
and Assistant Secretary
July 19, 1994
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements
and Experts" and to the use of our report dated March 14, 1997 with respect
to Aid Association for Lutherans, and to the incorporation by reference of our
report dated January 29, 1997, with respect to AAL Variable Annuity Account I
in this Post-Effective Amendment No. 3 to Form N-4 Registration Statement under
the Securities Act of 1933 (No. 33-82056) and this Amendment No. 4 to the
Registration Statement under the Investment Company Act of 1940
(No.811-8662) and related Prospectus of AAL Variable Annuity Account I dated
May 1, 1997.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 17, 1997
April 17, 1997
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: AAL Variable Annuity Account I (the "Registrant")
1933 Act Registration No. 33-82054
1940 Act File No. 811-8660
CIK #0000927649
Post-Effective Amendment No. 3 to Form N-4
Filed in Accordance with Rules 485(b) and 497(j)
Ladies and Gentlemen:
This letter relates to the Registrant's filing, pursuant to Rule 485(b) under
the Securities Act of 1933 (the "1933 Act"), of Post-Effective Amendment No. 3
under the 1933 Act and Amendment No. 4 under the Investment Company Act of 1940
(the "Amendment") to its Registration Statement on Form N-4 (the "Registration
Statement"). As legal counsel to the Registrant, we assisted in the preparation
of the Amendment and we certify that the Amendment does not contain any
disclosures that would render it ineligible to become effective automatically on
May 1, 1997 pursuant to Rule 485(b) under the 1933 Act.
Please direct any questions or comments regarding this filing to the undersigned
at (414)277-5309.
Sincerely yours,
/s/ Quarles & Brady
Quarles & Brady
Fredrick G. Lautz
STOCK SUBSCRIPTION AGREEMENT
Agreement between AAL Variable Product Series Fund, Inc., a Maryland corporation
and open-end investment company (hereinafter the "FUND"), and Aid Association
for Lutherans, a Wisconsin corporation (hereinafter "AAL").
In consideration of the mutual promises set forth herein, and other good and
valuable consideration, the parties agree as follows:
1. The FUND agrees to sell to AAL, and AAL agrees to purchase, shares
equal to the following dollar amount for each portfolio:
AAL Variable Product Money Market Portfolio $2,000,000.00
AAL Variable Product Bond Portfolio $5,000,000.00
AAL Variable Product Balanced Portfolio $12,500,000.00
AAL Variable Product Large Company Stock Portfolio $7,500,000.00
AAL Variable Product Small Company Stock Portfolio $5,000,000.00
2. The initial net asset value per share for each of the portfolios (other
than the AAL Variable Product Money Market Portfolio) will be $10.00.
The initial net asset value per share for the AAL Variable Product
Money Market Portfolio will be $1.00.
3. AAL hereby represents that it is purchasing the shares solely for its
own account and solely for investment purposes without any present
intent of distributing or reselling said shares. AAL further represents
that disposition of said shares will only be by direct redemption to or
repurchase by the FUND.
4. AAL acknowledges that the shares will not have been registered under
any state or federal securities laws at the time of the transaction and
that, therefore, the Fund will be relying on certain exemptions therein
from such registration requirements, including exemptions dependent on
the intent of the undersigned in acquiring the shares.
5. AAL hereby agrees that the FUND shares purchased pursuant to this
Agreement will not be redeemed until the occurrence of either of the
following events: (1) the passage of one year from the date of AAL's
investment; or (2) such time as the total net assets for each portfolio
equal or exceed the amounts specified below:
AAL Variable Product Money Market Portfolio $25,000,000.00
AAL Variable Product Bond Portfolio $50,000,000.00
AAL Variable Product Balanced Portfolio $100,000,000.00
AAL Variable Product Large Company Stock Portfolio $50,000,000.00
AAL Variable Product Small Company Stock Portfolio $50,000,000.00
AAL further agrees to provide the applicable portfolio with at least 10
days' advance written
<PAGE>
Stock Subscription, page 2
notice of any intended redemption and agree that it will work with the
portfolio with respect to the amount of such redemption so as not to
place a burden on the portfolio and to facilitate normal portfolio
management of the portfolio.
In witness whereof, the parties hereto have executed this Agreement by their
duly authorized representatives this 6th day of October, 1994.
AAL VARIABLE PRODUCT SERIES FUND, INC. AID ASSOCIATION FOR LUTHERANS
/s/ D. Charles DeVries /s/ Richard L. Gunderson
- -------------------------------------- --------------------------------------
D. Charles DeVries Richard L. Gunderson
President President and Chief Executive Officer
Attest /s/ Anne T. Ertel-Sawasky Attest /s/ W. R. Heerman
------------------------------ ------------------------------
Anne T. Ertel-Sawasky W.R. Heerman
Assistant Secretary Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Herbert J. Arkebauer
Herbert J. Arkebauer
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Raymond G. Avischious
Raymond G. Avischious
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ R. Beumer
Richard E. Beumer
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Kenneth Daly
Kenneth Daly
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Elizabeth Duda
Elizabeth A. Duda
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Edward A. Engel
Edward A. Engel
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson and Woodrow E. Eno 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 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.
/s/ John O. Gilbert
John O. Gilbert
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 John O.
Gilbert and Woodrow E. Eno 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 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.
/s/ Gary J. Greenfield
Gary J. Greenfield
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ R. L. Gunderson
Richard L. Gunderson
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ James W. Hanson
James W. Hanson
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Robert H. Hoffman
Robert H. Hoffman
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Robert E. Long
Robert E. Long
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Robert B. Peregrine Sr.
Robert B. Peregrine Sr.
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Kathi P. Seifert
Kathi P. Seifert
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Roger G. Wheeler
Roger G. Wheeler
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Marlene Wilson
Marlene Wilson
Director
AID ASSOCIATION FOR LUTHERANS
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS 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 Richard L.
Gunderson, John O. Gilbert and Woodrow E. Eno 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
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.
/s/ Thomas R. Zehnder
Rev. Thomas Zehnder
Director
AID ASSOCIATION FOR LUTHERANS
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