1933 Act Registration No. 33-82054
1940 Act Registration No. 811-8660
As filed with the Securities and Exchange Commission on
December 29, 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. 4 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 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):
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
X on March 1, 1998 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>
Item No. Caption Location
- -------- ------- --------
Part A
- ------
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Expense Table; Summary
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, AAL, The Accounts and The Fund
Depositor, and Portfolio Companies Voting Privileges
6. Deductions Charges and Deductions
7. General Description of Variable Annuity The Certificate; General Information;
Contracts Rights Reserved by AAL
8. Annuity Period Annuity Phase
9. Death Benefit Death Benefit before the Annuity
Commencement Date, Death Benefit after the
Annuity Commencement Date
10. Purchases and Contract Value The Certificate -Application and Purchase,
Allocation of Premium Payments,
Certificate Valuation, Dollar Cost
Averaging Plan
11. Redemptions The Certificates --Withdrawal or Surrender
Charges, Free Look Period
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
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
<PAGE>
AAL VARIABLE ANNUITY ACCOUNT I
PROSPECTUS
for the
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATES
offered by
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, Wisconsin 54919
(920) 734-5721
(800) 225-5225
dated March 1, 1998
This Prospectus describes the individual flexible premium deferred
variable annuity certificate (the Certificate) offered by Aid Association for
Lutherans (AAL, we, us, our). We are a fraternal benefit society organized under
the laws of the State of Wisconsin. We are offering the Certificates to people
(you, your) who are eligible for membership in AAL. The Certificate allows you
to accumulate money on a tax-deferred basis for retirement or other long-term
purposes. There are two phases to the contract: the accumulation phase and the
annuity phase. You can make Premiums only in the accumulation phase, however,
you may take distributions in either the accumulation or annuity phase, subject
to certain restrictions of the contract.
Premiums under the Certificate are flexible. The minimum initial Premium
is $600. Although if you choose to receive contribution notices (a premium
billing), your initial Premium may be $100. Subsequent Premiums may be more or
less than the amount on the contribution notice as long as the payment is at
least $50 per Subaccount. The Certificate is available to individuals as well as
to certain retirement plans that qualify for special federal income tax
treatment under the Code.
You may direct Premiums to accumulate on a fixed basis, variable basis,
or a combination fixed and variable basis. If you direct Premiums to accumulate
on a fixed basis in the Fixed Account, those payments are mixed with our other
general assets. Premiums allocated to the Fixed Account will accumulate at fixed
rates of interest. The interest rates are declared monthly by us. Premiums under
the Certificate accumulating on a variable basis will be allocated to one or
more subaccounts (the Subaccounts) of AAL Variable Annuity Account I (the
Variable Account). Each Subaccount correspondingly invests in mutual fund
portfolios (the Portfolios) of the AAL Variable Product Series Fund, Inc. (the
Fund). The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund
currently offers seven Portfolios:
the AAL Variable Product Money Market Portfolio
the AAL Variable Product Small Company Stock Portfolio
the AAL Variable Product Bond Portfolio
the AAL Variable Product High Yield Bond Portfolio
the AAL Variable Product Balanced Portfolio
the AAL Variable Product International Stock Portfolio
the AAL Variable Product Large Company Stock Portfolio
The Certificate's Accumulated Value in the Subaccounts will vary with the
investment performance of the Portfolios you select. The Certificate is not
considered a deposit or other obligation of any bank, credit union or any
affiliated entity. The Federal Deposit Insurance Corporation (FDIC) nor any
other agency does not insure or protect the Certificates. You risk the loss of
principal if you invest in the Certificates.
This Prospectus sets forth information about the Variable Account and the
Certificate that you ought to know before you invest. A Prospectus for the AAL
Variable Product Series Fund, Inc. accompanies this Prospectus. Please read both
Prospectuses carefully and keep them for future reference. You can get more
information about AAL, the Variable Account, and the Certificate in the
Statement of Additional Information dated March 1, 1998. The Statement of
Additional Information is filed with the Securities and Exchange Commission and
is incorporated by reference into this Prospectus. It is available upon request
without charge by writing to us at the above address. The Table of Contents for
the Statement of Additional Information is included at the end of this
Prospectus.
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
TABLE OF CONTENTS
Glossary
Summary
The Certificate
Purchase Of The Certificate And Subsequent Premiums
Investment Options
Charges And Deductions
Free Look Period
Withdrawals And Surrenders
Transfers
Annuity Payments
Federal Tax Treatment
Expense Tables
Condensed Financial Information
Performance Information
AAL, The Accounts And The Fund
The Certificate
Application And Purchase
Allocation Of Premiums
Free Look Period
Owners And Annuitants
Adult And Juvenile Certificates
Beneficiaries
Assignments Of Ownership
Accumulation Phase
Certificate Valuation
Dollar Cost Averaging Plan
Member Convenience Account
Transfers Among Subaccounts And/Or The Fixed Account
Distributions From The Certificate
Automatic Payout Option
Death Proceeds Before The Annuity Commencement Date
Annuity Phase
Annuity Commencement Date
Settlement Option Annuity Payments
Distributions During The Annuity Phase
Death Of Payee After The Annuity Commencement Date
Charges And Deductions
Withdrawal Or Surrender Charges
<PAGE>
10% Free Withdrawal
Waiver Of Withdrawal And Surrender Charges
Certificate Maintenance Charge
Mortality And Expense Risk Charge
Investment Advisory Fee Of The Fund
Taxes
General Information About The Certificates
Federal Tax Status
Other Information
Legal Matters
Financial Statements And Experts
Further Information
The Certificate is not available in all States.
We have not authorized any person to give you any information or to make any
representations other than those contained in this prospectus and the related
Statement of Additional Information (or any sales literature approved by us) 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.
<PAGE>
GLOSSARY
AAL, we, us, our: Aid Association for Lutherans, a fraternal benefit society
owned by and operated for its members. AAL is organized under the laws of the
State of Wisconsin. AAL is the issuer of the Certificates.
AALCMC: AAL Capital Management Corporation, principal underwriter of the
Certificates. AALCMC is an indirect subsidiary of Aid Association for Lutherans
and a registered broker-dealer.
AAL Representative: An authorized sales representative licensed by state
insurance department officials and registered to sell variable annuities.
Accumulated Value: The total of the amounts in a Certificate's Subaccounts and
Fixed Account at any time prior to the Annuity Commencement Date.
Accumulation Phase: The period during which Premiums can be invested in the
Certificate. This phase stops at the earlier of the death of the annuitant or
the Annuity Commencement Date.
Accumulation Unit: A 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.
Annuitant: The person on whose life or life expectancy the Annuity Payments are
based.
Annuity Commencement Date: The date on which the annuity proceeds are applied to
a Settlement Option for the benefit of the payee. This is also known as the
maturity date.
Annuity Payment: One of a series of payments after the Annuity Commencement Date
made under the Settlement Option.
Annuity Phase: The period of the contract after the Annuity Commencement Date
when Annuity Payments are made.
Beneficiary: The person who you have chosen to receive the Death Proceeds upon
the Annuitant's death.
Certificate: The contract between you and us providing the individual flexible
premium deferred variable annuity.
Certificate Anniversary: The same date in each year as the Certificate Issue
Date.
Certificate Year: A period beginning on a Certificate Anniversary and ending on
the day immediately preceding the next Certificate Anniversary.
Code: The Internal Revenue Code, as amended.
Death Benefit: See Death Proceeds.
Death Proceeds: the Certificate's Accumulated Value less any applicable charges
and deductions paid upon the death of the Annuitant to the Beneficiary. Death
Proceeds are commonly referred to as a Death Benefit.
Death Proceeds Calculation Date: The date used to calculate the Death Proceeds
in the event of an annuitant's death before the Annuity Commencement Date. The
date used for the calculation is the later of:
1. the date we receive proof of death of the annuitant, or;
2. the date we receive a request in writing from the Beneficiary
selecting the method of payment.
Excess Amount: An amount in excess of the amount that may be withdrawn or
surrendered without charge.
Fixed Account: Part of the general account of AAL that is not part of the
Variable Account. Any payments you allocate to the Fixed Account are entitled to
a minimum specified rate of interest.
Free Look Period: The period of time during which you may cancel the
Certificate.
Fund: AAL Variable Product Series Fund, Inc., an open-end, diversified
investment company. The Variable Account purchases shares of the Fund to provide
benefits as outlined by the Certificate.
Home Office: Our principal executive office located at 4321 North Ballard Road,
Appleton, Wisconsin 54919-0001. The toll-free number is 800-225-5225, locally
734-5721.
Issue Date: The effective date of the Certificate, generally the date on which
you sign the application.
Member: Generally, you must be Lutheran, profess to be Lutheran or be a spouse
or child of such person. You apply for membership by completing a membership
application at the time you complete an application for the AAL Variable Annuity
or other AAL insurance product. Associate Members do not have to buy an
insurance product but the other requirements apply.
Net Asset Value: Once each business day we determine each Portfolio's share's
value. At the close of regular trading on the New York Stock Exchange (currently
4:00 p.m. Eastern Time). We add together the closing market value of all the
securities in a Portfolio and add other assets such as cash. Then we subtract
all outstanding liabilities and divide the results by the total number of
outstanding shares for that Portfolio.
Owner, you, your, yours: The person or entity who owns the Certificate.
Typically, the Owner is the Annuitant, but the Owner may be an employer, a trust
or any other individual or entity specified in the application.
Payee: The person you designate to receive payment of annuity proceeds under a
Settlement Option.
Portfolio: One of a 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.
Premium: Any new payment you invest in the Certificate. A transfer between the
Fixed Account and the Subaccounts or among the Subaccounts is not considered a
Premium. You may make Premiums only during the Accumulation Phase.
Qualified Plan: A retirement plan which receives favorable tax treatment under
Section 401, 403(b) or 408 of the Code.
Service Center: The AAL Variable Annuity Service Center located at 4321 North
Ballard Road, Appleton, Wisconsin, 54919-0001. The toll-free telephone number is
800-225-5225, locally 734-5721.
Settlement Option: One of several types of methods of receiving Annuity
Payments.
Subaccount: The portion of the Variable Account that invests in shares of the
Fund's Portfolios. Each Subaccount only invests in a single Portfolio. The
investment performance of each Subaccount is linked directly to the investment
performance of its corresponding Portfolio.
Sub-Advisers: For the International Stock Portfolio and the High Yield Bond
Portfolio, we have hired Sub-Advisers. For the International Stock Portfolio,
Oechsle International Advisors, L.P. at One International Place, Boston,
Massachusetts, 02110, is the Sub-adviser. For the High Yield Bond Portfolio, AAL
Capital Management Corporation (AALCMC) at 222 West College Avenue, Appleton,
Wisconsin, 54911 is the Sub-Adviser. Together they are referred to as the
Sub-Advisers.
Telephone Request: A request by you via telephone concerning your Certificate.
Authorization to make telephone requests must be completed in advance of any
request. You must complete the Telephone Transaction Authorization section of
your application or the Variable Annuity Option Selection Form and submit the
request to our Service Center.
Valuation Date: The date we are open for business and the New York Stock
Exchange is open for regular trading.
Valuation Period: The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
Variable Account: AAL Variable Annuity Account 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.
SUMMARY
This summary only gives you a brief overview of the more significant
aspects of the Certificate. Please refer to the remainder of this Prospectus for
more detailed information. The Certificate along with any riders or endorsements
constitute the entire agreement between you and us. Please retain them as part
of your permanent records.
The Certificate
The Certificate is an individual flexible premium deferred annuity that
allows you to save for retirement or some other long term goal. You may choose
to use the Certificate as an individual nonqualified plan or as a retirement
plan that qualifies for special federal tax treatment. Some of the types of
Qualified Plans that can be funded with the Certificate include: Individual
Retirement Annuity (IRA), SEP-IRA, SIMPLE IRA, Roth IRA, pension or
profit-sharing plan, or a tax-sheltered annuity (TSA).
Purchase of the Certificate and Subsequent Premiums
You may purchase the Certificate for a minimum initial premium of $600.
However, you may purchase the Certificate for $100 if you choose a premium
billing of at least $50 per Subaccount. The Certificate is completely flexible,
you may make more or less than your billed Premium amount as long as it is at
least $50 per Subaccount. For those Certificates that are not billed, a payment
may be made at any time. If no Premium has been received at our Service Center
for the past 36 consecutive months and the Accumulated Value of the Certificate
is below $600, AAL will terminate the Certificate and pay you the Accumulated
Value, less any applicable charges.
Investment Options
The Certificate allows you to make payments that accumulate on a fixed or
variable basis. You may allocate Premiums among seven different Subaccounts
and/or to the Fixed Account. The Accumulation Value of your Subaccounts will
increase or decrease depending on the investment performance of the underlying
Portfolio. You bear all of the investment risk as to the value of the
Subaccounts. However, we bear the risk as to the value of the Fixed Account.
Under the Fixed Account option we pay an effective annual interest rate of at
least 3 1/2 %.
There are several investment options on the variable side of the
Certificate. Each Portfolio underlying a corresponding Subaccount has its own
specific investment objective. The Portfolios include the following:
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<S> <C>
AAL Variable Product Money Market Portfolio AAL Variable Product Small Company Stock Portfolio
AAL Variable Product Bond Portfolio AAL Variable Product High Yield Bond Portfolio
AAL Variable Product Balanced Portfolio AAL Variable Product International Stock Portfolio
AAL Variable Product Large Company Stock Portfolio
</TABLE>
Charges and Deductions
There is an annual Certificate maintenance charge of $25 to reimburse us
for general administrative expenses. We also may impose a withdrawal charge
(deferred sales load) of anywhere from 7% to 1% for withdrawals from your
Certificate if it has not been in force for more than seven years. However, you
may make free withdrawals of up to 10% of the value of your Certificate during a
Certificate Year without incurring this withdrawal charge. We may also waive
withdrawal charges in certain circumstances. Under certain circumstances we may
charge a fee for transfers between Subaccounts.
There are other indirect charges that occur on the Variable Account level
and the Fund level. We impose a charge at an annual rate of 1.25% from the
Variable Account for the mortality and expense risk we take in issuing the
Certificates. Finally, the Net Asset Value of the Portfolios underlying each
Subaccount reflects the investment advisory fee charged by the Fund. See the
accompanying Fund Prospectus for more information concerning the investment
advisory fee.
Free Look Period
You may cancel your Certificate within 10 days starting on the day you
receive it. This 10-day period is called the free look period. Some states
require that we provide you a longer free look period. In some states we
restrict the initial premium allocation to the AAL Variable Product Money Market
Subaccount during the free look period.
Withdrawals and Surrenders
You may make a withdrawal or surrender the Certificate before the Annuity
Commencement Date and while the Annuitant is alive. Such distributions may be
subject to certain withdrawal charges as described above. Some Qualified Plans
restrict the availability of the Certificate's value to the plan participant.
There may be a 10% penalty tax for taking a distribution before age 59 1/2.
Transfers
You may transfer all or a part of your Certificate's Value among the
Subaccounts or the Fixed Account subject to certain limitations. There are
certain restrictions on the amounts that can be transferred. For more than two
transfers from Subaccounts we will impose a $10 transfer charge. We will not
transfer any amount less than $50.
Annuity Payments
We determine the Annuity Commencement Date based on your age at the time
we issue the Certificate. However, you may elect to change this date. At the
time of your Annuity Commencement Date, you must begin receiving Annuity
Payments. We offer five different Settlement Options that provide Annuity
Payments on a fixed basis.
Federal Tax Treatment
Generally, there should be no federal income tax payable on increases in
Accumulated Value until there is a distribution. A portion of every distribution
or Annuity Payment (except under the Interest Settlement Option) will be taxable
as ordinary income. The taxable portion of most distributions will be subject to
withholding unless the Payee elects otherwise. There may be tax penalties if you
make a distribution before reaching age 59 1/2.
<PAGE>
EXPENSE TABLES
These Expense Tables describe all of the expenses that you would incur
as a Certificate Owner. The purpose of these tables is to help you in
understanding the various costs and expenses that you would bear directly or
indirectly under the Certificate. No sales charge (load) is paid upon the
purchase of the Certificate. However, we may impose a charge if any portion of
the Certificate is withdrawn before the Certificate has been in force for seven
years. The tables reflect all expenses for both the Variable Account and the
Fund. For a complete discussion of Certificate costs and expenses see Charges
and Deductions. For more information regarding the expenses of the Fund, see the
attached Fund Prospectus.
Certificate Owner Transaction Expenses:
Certificate Year 1 2 3 4 5 6 7 8+
- ------------------ ------- ------- ------- ------- ------- ------- ------- -----
- ------------------ ------- ------- ------- ------- ------- ------- ------- -----
Withdrawal Charge 7% 6 5 4 3 2 1 0
(as a percentage of Accumulated Value)
Sales Charge on Premiums NONE
Transfer Fee $10
Annual Certificate Fees:
Certificate Maintenance Charge $25
(Applies to accounts with less
than $5,000 in net premiums)
Variable Account Annual Expenses
Mortality and Expense Risk Charges 1.25%
Administrative Charge NONE
Total Variable Account Annual Expense 1.25%
(as a percentage of average Accumulated Value):
AAL Variable Product Series Fund, Inc. Annual Expenses:
(as a percentage of average net assets of each Portfolio):
Other Expenses
Investment Advisory After Expense Total Annual
Portfolio Fees Reimbursement Expenses
- --------- ---- ------------- --------
Money Market .35% 0% .35%
Bond .35 0 .35
Balanced ---
Large Company Stock ---
Small Company Stock .35 0 .35
High Yield Bond .40 0 .40
International Stock .80 0 .80
<PAGE>
Examples
The following examples illustrate the expenses that you would incur on a $1,000
investment and a 5% return on assets. (The AAL Money Market, Bond, Balanced,
Large Company Stock and Small Company Stock Portfolios)
A) If you surrender your Certificate at the end of the periods shown:
1 year $ 82
3 years 101
5 years 121
10 years 194
B) If you do not surrender your Certificate at the end of the periods
shown:
1 year $ 17
3 years 52
5 years 89
10 years 194
The following examples illustrate the expenses you would incur on a $1,000
investment and a 5% return on assets (High Yield Bond Portfolio)
A. If you surrender your Certificate at the end of the periods shown:
1 year $89
3 years $107
B. If you do not surrender your Certificate at the end of the periods
shown:
1 year $17
3 years $52
The following examples illustrate the expenses you would incur on a $1,000
investment and a 5% return on assets (International Stock Portfolio)
A. If you surrender your Certificate at the end of the periods shown:
1 year $93
3 years $119
B. If you do not surrender your Certificate at the end of the periods
shown:
1 year $2117
3 years $64
Notes to Expense Tables and Examples
1. The Certificates are not currently subject to state premium taxes.
2. You can withdraw up to 10% of the Accumulated Value of the Certificate
without a withdrawal charge each Certificate Year. Note that some
retirement plans may restrict your access to Accumulated Values. See
Charges and Deductions for more information.
3. You can make two transfers from Subaccounts without a charge in any
Certificate Year. We will charge a $10 fee for any subsequent transfers.
See Transfers for more information on this charge and the restrictions on
transfers from the Fixed Account.
4. If your net Premiums exceed $5,000 in the Certificate, we will waive the
Certificate Maintenance Charge. Net Premiums are the sum of all Premiums
less withdrawals.
5. We have agreed to pay on behalf of the Fund or to reimburse the Fund for
its operating expenses in excess of .35% for the Money Market, Bond,
Balanced, Large Company Stock and Small Company Stock Portfolios, .40% for
the High Yield Bond Portfolio and .80% for the International Stock
Portfolio. We can reduce or terminate this voluntary reimbursement upon
30-days written notice to the Fund. Absent the expense reimbursement, the
total Portfolio expenses would have been:
Portfolio Actual Expenses
Money Market Portfolio %
Bond Portfolio
Balanced Portfolio
Large Company Stock Portfolio
Small Company Stock Portfolio
High Yield Bond Portfolio*
International Stock Portfolio*
6. The examples above assumes an average Certificate size of $16,000.
Therefore, the calculation of expenses does not include the Certificate
Maintenance Charge.
These examples are purely hypothetical and should not be considered
representative of past or future expenses or performance. Actual expenses may be
more or less than those shown. Past or future annual returns may be more or less
than the assumed return.
(*) Since the International Stock Portfolio and the High Yield Bond Portfolios
are first being offered with this Prospectus, no historical expense
information is available. The information presented in the table for those
two Portfolios reflect our projections.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The table below shows the historical performance of Accumulation Unit
Values and numbers of Accumulation Units for each of the 10 years (or shorter
period for which the relevant Subaccount has been in existence) in the period
ended December 31, 1997. You should read this information along with the
Variable Account's and AAL's financial statements and notes which are included
in the Statement of Additional Information.
Note that the unit value of each Subaccount of the Variable Account will
not be the same on any given day as the Net Asset Value per share of the
underlying Portfolio of the Fund in which that Subaccount invests. One reason
for this deviation is that each unit value consists of the underlying
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.
Accumulation Unit Values for the years ended:
Commencement Date*
Subaccount 1997 1996 1995
- ---------- ---- ---- ----
Money Market $ 1.06 $ 1.02 $ 1.00
Bond 10.72 10.53 10.00
Balanced 12.41 11.06 10.00
Large Company Stock 13.93 11.53 10.00
Small Company Stock 12.78 10.95 10.00
High Yield Bond N/A N/A N/A 10.00
International Stock N/A N/A N/A 10.00
* The first five Subaccounts commenced operations on June 15, 1995; the last
two Subaccounts commenced operations on March 1, 1998.
Number of Accumulation Units outstanding at the end of the period:
Subaccount 1997 1996 1995
- ---------- ---- ---- ----
Money Market 14,226,261 4,931,298
Bond 1,185,965 402,927
Balanced 8,992,900 1,364,855
Large Company Stock 7,868,532 1,258,237
Small Company Stock 5,003,533 928,755
High Yield Bond N/A N/A N/A
International Stock N/A N/A N/A
<PAGE>
PERFORMANCE INFORMATION
From time to time, we calculate and advertise performance information for
different historical periods of time by quoting yields or total returns to
inform you of the performance of a Subaccount. Advertised yield and total
returns include all charges and expenses attributable to the Certificate.
Including these fees has the effect of decreasing the advertised performance of
a Portfolio. Therefore, a Portfolio's performance will not be directly
comparable to that of an ordinary mutual fund or any index used as a benchmark.
Past performance does not indicate future performance.
Expense and performance information for the Portfolios may be compared in
advertising, sales literature, and other communications to that of other
variable products tracked by Lipper Analytical Services, Inc. (Lipper), Variable
Annuity Research Data Service (VARDS), Morningstar, Inc. (Morningstar) and other
services. In addition, the performance of the Portfolios is compared to the S&P
500 Index, the S&P SmallCap 600 Index, the Wilshire Small Cap Index, the Lehman
Bond Index, the Dow Jones Industrial Average, and other widely recognized
indices. Unmanaged indices assume the reinvestment of dividends, if any, but do
not reflect any deduction for fund expenses. We periodically report performance
ratings in financial publications such as Forbes, Barron's, Fortune, Money
Magazine, Business Week, Financial Planning, The New York Times, and The Wall
Street Journal.
We may also report other information concerning the effect of
tax-deferred compounding on a Subaccount's returns which may be illustrated by
tables, graphs, or charts. All income and capital gains derived from Subaccount
investments are reinvested and lead to substantial long-term accumulation of
assets, provided that the underlying Portfolio's investment experience is
positive.
See the Fund Prospectus and Statement of Additional Information for a
more complete description of the methods used to calculate a Portfolio's yield
and total return.
AAL, THE ACCOUNTS AND THE FUND
AAL
AAL is a fraternal benefit society owned by and operated for its members.
AAL's mission is to bring Lutheran people together to pursue quality living
through financial security, volunteer action and help for others. AAL was
founded in 1902 under the laws of the State of Wisconsin as a non-stock,
non-profit corporation. As of December 31, 1997, AAL has approximately X.X
million members and is the world's largest fraternal benefit society in terms of
assets (over $XX.X billion) and life insurance in force ($XX.X 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 all states except Mississippi, New Jersey, and New York.
The Variable Account
We established the Variable Account as a separate account under the laws
of the State of Wisconsin on February 10, 1994. The Variable Account is
registered as a unit investment trust with the Securities and Exchange
Commission (the SEC) under the Investment Company Act of 1940 (the 1940 Act).
The Variable Account meets the definition of a separate account under the
Federal securities laws. The SEC does not supervise the management or investment
practices or policies of the Variable Account.
We have established another separate account known as the AAL Variable
Life Account I to accommodate interests in another product we offer, AAL
Variable Universal Life Insurance. Both this account and the Variable Account
use the Fund as the investment vehicle for their respective Subaccounts.
The Variable Account is divided into Subaccounts. A Premium flows through
the Certificate to either the Variable Account or the Fixed Account according to
your instructions. From the Variable Account, the premiums flow to the
Subaccounts in the amounts or percentages you allocate. In turn, the Subaccounts
invest in shares of one of the corresponding Portfolios of the Fund. The
Portfolios and their investment objectives are described below. We make no
assurance that the Portfolios will meet their investment objectives.
You bear all the investment risk for Premiums allocated to the
Subaccount. The Accumulated Value will vary with the performance of the
Subaccounts.
Under Wisconsin law, the assets of the Variable Account that are equal to
the reserves and other contract liabilities of the Variable Account are not
chargeable with liabilities arising out of any other business we may conduct. We
will maintain an amount of assets in the Variable Account that always has a
value approximately equal to or in excess of the amount of Accumulated Values
allocated to the Variable Account under the Certificates. Income gains and
losses, whether or not realized, are, in accordance with the Certificates,
credited to or charged against the Variable Account without regard to other
income, gains or losses of ours.
Obligations arising under the Certificates are obligations of ours.
The Fixed Account
Amounts allocated to Fixed Account under the Certificate are part of our
general account which support annuity and insurance obligations. The assets not
included in our general account are those assets segregated in separate accounts
(currently the AAL Variable Annuity Account I and the AAL Variable Life Account
I). Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933, and the Fixed
Account has not been registered as an investment company under the 1940 Act. The
SEC has advised us that it has not reviewed the disclosure relating to the Fixed
Account. However, disclosures regarding the Fixed Account may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements in prospectuses.
You may choose to deposit some or none of your money in the Fixed Account
portion of the Certificate. Interest will be credited on the Accumulated Values
within the Fixed Account at a declared rate of interest for 12 months from the
time of deposit. The guaranteed minimum interest is compounded daily resulting
in an effective annual interest rate of a minimum of 3.5%. We may declare higher
interest rates at our sole discretion. You bear the risk that interest credited
on the Accumulated Values within the Fixed Account may not exceed 3.5% for any
12-month period.
Each month we declare the effective annual interest rates that apply to
the Fixed Account. This new rate applies to new Premiums or amounts newly
transferred from a Subaccount (new money) for the 12-month period beginning at
the time of your deposit to the Fixed Account. After that period expires, the
deposits are considered existing money and will earn interest at the most
recently declared rate for another 12 months. This process continues for each
lot of existing deposits at the end of each 12-month period.
The rate of interest in effect at any time for new money may differ from
the rate or rates in effect for any lots of existing money in the Fixed Account.
Interest on Existing money may vary depending on when the new money was first
deposited in the Fixed Account. For purposes of crediting future interest, we
will take any withdrawals or transfers from the oldest deposits and accumulated
interest in the Fixed Account.
Owners have no voting rights in the Variable Account with respect to
Fixed Account Values.
The Fund
You make Premiums or transfer Accumulated Values to one or more of the
Subaccounts. The Subaccounts, in turn, invest in a corresponding Portfolio of
the AAL Variable Product Series Fund, Inc. (the Fund) at Net Asset Value. 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 to two separate accounts of
ours: the AAL Variable Annuity Account I and the AAL Variable Life Account I.
These shares fund benefits payable under the Variable Annuity and Variable Life
Certificates. We may also purchase Fund shares directly.
We serve as investment adviser to the Fund and are registered as such
under the Investment Advisers Act of 1940. We also have hired two Sub-Advisors
for the International Stock Portfolio and the High Yield Bond Portfolio.
Oechsle International Advisors, L.P. (Oechsle), with principal offices at
One International Place, Boston, Massachusetts 02210, serves as sub-adviser to
the AAL Variable Product International Stock Portfolio. Oechsle is a Delaware
limited partnership. The general partner of Oechsle is Oechsle Group, L.P., and
the managing general partner of Oechsle Group, L.P. is Walter Oechsle. As of
November 30, 1997, Oechsle had discretionary management authority with respect
to approximately $9.967 billion of assets. We have a sub-advisory agreement with
Oechsle that ensures Oechsle will provide services in accordance with the
Portfolio's investment objectives, policies and restrictions. Unless sooner
terminated by The Adviser or Board of Directors upon sixty days' written notice,
the sub-advisory agreement will continue in effect from year to year as long as
such continuance is approved at least annually as described above.
AAL Capital Management Corporation (AALCMC), a Delaware corporation
organized in 1986, is the Sub-adviser for The AAL Variable Product High Yield
Bond Portfolio. We have a sub-advisory agreement with the AALCMC. AALCMC will
provide services under this agreement in accordance with the Portfolio's
investment objectives, policies and restrictions. Unless sooner terminated by
the Adviser or Board of Directors upon sixty days' written notice, the
sub-advisory agreement will continue in effect from year to year as long as such
continuance is approved at least annually as described above. As of November 30,
1997, AALCMC managed about $4.4 billion. We indirectly own all the outstanding
stock in AALCMC.
The Variable Account will purchase and redeem shares from the Fund at Net
Asset Value without any sales or redemption charge. We will redeem shares to the
extent necessary to collect charges under the Certificates, to make 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 you. 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.
You should periodically consider the allocation among the Subaccounts in
light of current market conditions and the investment risks that go along with
investing in the Fund's Portfolios. For more information about the Fund see the
accompanying Fund Prospectus.
Portfolio Objectives:
The AAL Variable Product Money Market Portfolio seeks to provide maximum
current income to the extent consistent with liquidity and a stable Net Asset
Value of $1.00 per share by investing in a diversified portfolio of
high-quality, short-term money market instruments.
The AAL Variable Product Bond Portfolio seeks to achieve investment
results that approximate the total return of the Lehman Brothers Aggregate Bond
Index by investing primarily in bonds and other debt securities included in the
Index.
The AAL Variable Product Balanced Portfolio seeks to achieve investment
results that reflect investment in common stocks, bonds and money market
instruments, each of which will be selected consistent with the investment
policies of the AAL Variable Product Large Company Stock Portfolio, Bond
Portfolio and Money Market Portfolio, respectively.
The AAL Variable Product Large Company Stock Portfolio seeks to achieve
investment results that approximate the performance of the Standard & Poor's 500
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 S&P SmallCap 600
Index by investing primarily in common stocks included in the Index.
The AAL Variable Product International Stock Portfolio seeks to achieve
long-term capital growth by investing primarily in a diversified portfolio of
foreign stocks.
The AAL Variable Product High Yield Bond Portfolio seeks to achieve high
current income and secondarily capital growth by investing primarily in a
diversified portfolio of high risk, high yield bonds commonly referred to as
"junk bonds." The Portfolio actively seeks to achieve a secondary objective of
capital growth to the extent it is consistent with the primary objective of high
current income.
THE CERTIFICATE
Application and Purchase
The Certificate is an individual flexible premium deferred variable
annuity. It provides an excellent vehicle to save for retirement or some other
long-term goal on a tax deferred basis. We offer the Certificates to members,
people who are eligible for membership, and employees of AAL who reside in
Wisconsin (including employees of our subsidiaries and affiliates). In order to
become a member, you must meet our eligibility requirements.
The Certificate is issued as 1) a nonqualified annuity, 2) a Qualified
Plan, 3) an Individual Retirement Annuity (IRA), or 3) Tax-Sheltered Annuity
(TSA). We do not issue joint Certificates or group Certificates.
You may apply for the Certificate by completing a traditional paper
application or by capturing application data in the computer file through a
portable computer used by your Registered Representative. If you choose to
submit your application via computer, you will be asked to verify the data by
signing a pre-printed form accompanying the application. The data will then be
transmitted electronically to us. We will attach a copy of this form to your
Certificate if the Certificate can be issued.
The minimum amount we will accept on an initial purchase is $600.
However, if you choose to receive contribution notices, the minimum initial
premium we allow is $100. The minimum amount we will accept for subsequent
premiums to any one Subaccount is $50. We reserve the right to limit the total
amount of all Premiums to $1 million.
If you choose to receive contribution notices, we will send them
according to the amount, allocation and interval you choose as shown on the
specification page of your Certificate. You can change the amount, allocation,
and interval at any time by submitting a request to our Service Center.
If on your Certificate Anniversary, the Accumulated Value of your
Certificate is below $600 and you have made no Premium for the past 36
consecutive months, we will terminate your Certificate and pay you the
Accumulated Value of the Certificate less any applicable surrender charges.
If your application is in good order, we will allocate the Premium to
your chosen Subaccount(s) and/or Fixed Account (or, in certain states, to the
Money Market Subaccount as discussed below) within two days of receipt of the
completed application and Premium. If we determine that the application is not
in good order, we will attempt to complete the application within five business
days. If the application is not complete at the end of this period, we will
inform the applicant of the reason for the delay and that the initial premium
will be returned within 15 days from the Date of Receipt.
Certain provisions of the Certificates may vary from state to state in
order to conform with the law of the state in which you reside. This Account
Prospectus describes generally applicable provisions. You should refer to your
Certificate for any specific variations.
Allocation of Premiums
You may allocate your Premium to any Subaccount of the Variable Account
and/or the Fixed Account. Your allocation must be in whole percentages provided
that the sum of the allocation percentages are 100%. We reserve the right to
adjust allocation percentages to eliminate fractional percentages. You may not
allocate less than $50 to either the Subaccount or the Fixed Account.
We will allocate your initial premium according to your allocation
instructions on your application. If you do not designate premium allocation
percentages, the entire premium will be allocated to the Money Market
Subaccount.
You should send subsequent Premiums to the AAL Service Center. For
subsequent premiums, we will allocate Premiums among the Subaccounts and/or the
Fixed Account in the same proportion as your initial premium on the day we
receive it. For the Variable Account, we use the Accumulation Unit Value
computed at the end of the Valuation Period.
You may change your allocation for future premiums at any time by
submitting a request to our Service Center. Subsequent to your change request,
we will allocate your Premiums according to your last instructions.
Free Look Period
Generally, you may return your Certificate for cancellation within 10
days after you initially receive it. However some states require that this free
look period be longer. Please review your Certificate to determine your free
look period. In order to return your Certificate, you must deliver or mail the
Certificate along with a Written Request to your AAL Representative or to our
Service Center. Upon cancellation, the Certificate will be void as of the
Certificate Issue Date and you will receive the amount equal to the
Certificate's Accumulated Value as of the date you notify us or the date your
cancellation request is received by our Service Center, whichever is earlier.
You will receive your money within 7 days after we receive your request for
cancellation.
Certain states require a full refund of premiums paid if a Certificate is
returned during the free look period. In these situations we reserve the right
to allocate all premiums to the Money Market Subaccount until the free look
period expires plus an additional five-day period to allow for your receipt of
the certificate by mail. After this period, we will allocate the Accumulated
Value of your Certificate to the Subaccount(s) and/or Fixed Account according to
your original instructions. In all such states, we will refund the greater of
premiums paid or the Accumulated Value. If we issued your Certficate as an IRA
and you decide to return it, we will refund your Premium within seven days.
Owners and Annuitants
The Annuitant is typically the recipient of any distributions under the
Certificate while the Annuitant is alive. The Owner of the Certificate is
usually, but not necessarily, the Annuitant. The Owner can name Beneficiaries,
assign the Certificate and designate who receives any Annuity Payments or
distributions under the Certificate. In the event the Annuitant dies, any
proceeds remaining (the Death Proceeds) in the Certificate are payable to the
named Beneficiary. If there is effectively no Beneficiary, the Death Proceeds
are payable to the Owner. It is the Annuitant whose life is used to determine
the Annuity Commencement Date of the Certificate and the amount of Annuity
Payments under the Life Income Option Settlement Options. In the case of a
qualified retirement plan, the Annuitant is the plan participant, the Owner is
the retirement plan.
Under certain circumstances other entities, such as trusts, may purchase
AAL products but are not eligible for membership.
Adult and Juvenile Certificates
We issue two basic forms of Certificate: Adult and Juvenile. We issue
Adult Certificates to applicants age 16 or older who become benefit members of
AAL. We issue Juvenile Certificates when the proposed Annuitant is younger than
age 16 , but is otherwise eligible for benefit membership.
In the case of the Adult Certificate, the Annuitant must be 16 years of
age or older. Typically, the applicant of the Certificate is the Owner and
Annuitant of the Certificate, unless ownership is transferred. 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 applies for the Certificate becomes a benefit member
of AAL upon our approval of the application. This membership cannot be
transferred. The privileges of membership are stated in the our Articles of
Incorporation and Bylaws.
For the Juvenile Certificate, a Juvenile is named as the Annuitant and
Owner of the Certificate. However, because of age, the Juvenile cannot exercise
the rights of ownership. Therefore, an adult must apply on behalf of the
Juvenile and retain control over the Certificate. The applicant exercises
certain rights of ownership on behalf of the Juvenile Annuitant. These rights
are described in the Certificate. The applicant may transfer control to another
eligible person, but cannot transfer ownership of the Certificate.
Transfer of ownership to the Juvenile Annuitant will take place at the
first Certificate Anniversary Date following the earlier of:
the Annuitant's 21st birthday; or
the Annuitant's 16th birthday after control is transferred to the
Annuitant in writing; or if the person who has control dies after
the Annuitant's 16th birthday.
If the person who has control of the Certificate dies before the
Annuitant gains control, control will be vested in an eligible person according
to the Bylaws of AAL. If AAL determines that it is best for the Annuitant,
control of the Certificate may be transferred to some other eligible person
according to our Bylaws.
The Juvenile Annuitant will become a benefit member of AAL on the
anniversary of the Certificate Issue Date on or following the Annuitant's 16th
birthday.
Beneficiaries
The Owner may name one or more Beneficiaries to receive the Death
Proceeds payable under the Certificate. If no Beneficiary has been named or the
Beneficiary does not survive the Annuitant, the Death Proceeds 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 Proceeds will be
distributed in the following order to Beneficiaries:
1. equally to the Beneficiaries in the first class. If none are living, then;
2. equally to the Beneficiaries in the second class. If none are living, then;
3. equally to the Beneficiaries in the third class.
If a Beneficiary dies up to 15 days after the Annuitant, we will consider the
Beneficiary to have died before the Annuitant for purposes of paying the Death
Proceeds.
The Owner of the Certificate may change the designation of
Beneficiaries by sending a Written Request to our Service Center. We will give
you a special form to make this request. We must approve any change in
Beneficiary designation. Any such change is effective on the date the Written
Request was dated, or the date received at our Service Center if no date appears
on the request. A change in Beneficiary designation is only effective if the
request was mailed or delivered to us while the Annuitant is alive. We are not
liable for any payments made or actions taken by us before we receive and
approve changes in Beneficiary designations.
Assignments of Ownership
Absolute Assignment
To effect an Absolute Assignment, you must submit a Written Request to
our Service Center. For this type of assignment, you may not assign a Juvenile
Certificate or a Certificate issued in connection with Qualified Plans. To
assign your Certificate as collateral for a loan, you must submit a Written
Request to our Service Center. You may not assign a Certificate issued in
connection with a Qualified Plan for collateral. For both types of assignments,
we will give you a form on which to make these requests. We must receive and
approve any request before it is effective. Once we approve it, the assignment
will take effect as of the date the Owner signs the request, or the date we
receive at the AAL Service Center if no date appears on the request. We are not
liable for any payment we make or action we take before we receive and approve
an assignment. We are not responsible for the validity or tax consequences of
any transfer of ownership.
Before you consider assigning, selling, pledging or transferring your
Certificate, you should consider the tax implications. Generally speaking, these
transactions are treated as complete distributions (surrenders) from a deferred
annuity contract and are taxable that way. See Additional Tax Considerations for
more information.
The interest of any Beneficiary will be subject to any collateral
assignment. Any indebtedness and interest charged against your 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.
Successor Owners
When a Certificate is owned by someone other than the Annuitant, the
Owner may designate a Successor Owner to receive the Certificate in the event of
the Owner's death. If there is no Successor Owner, the Owner's estate will
become the new Owner. The Owner may designate or change a Successor Owner by
submitting a Written Request to the our Service Center. We will give you a form
on which to make these requests. We must receive and approve any request before
it is effective. Once we approve it, the designation will take effect as of the
date the Owner signs the request, or the date we receive at our Service Center
if no date appears on the request. We are not liable for any payment we make or
action we take before we receive and approve the designation. We are not
responsible for the validity of any designation or change of a Successor Owner.
If the Owner of a Certificate dies, we are required to distribute the
cash surrender value within five years of the Owner's death. However, if the
Successor Owner is a natural person (as opposed to an entity), the cash
surrender value may be paid under certain Settlement Options as long as payments
begin within one year after the Owner's death. The Settlement Option must be one
of the Settlement Options that pays based upon the life of the Successor Owner
or over a period not exceeding the life expectancy of the Successor Owner. This
distribution requirement does not apply in the event that the Successor Owner is
solely the spouse.
Certificates Issued in Connection with Qualified Plans
If the Certificate is used in a Qualified Plan and the Owner is the
plan administrator, 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.
ACCUMULATION PHASE
There are two phases in the Certificate: the accumulation and annuity
phases. The accumulation phase is the period prior to the Annuity Commencement
Date when you invest Premiums in the Variable and/or Fixed Account under the
Certificate. Premiums add to the Accumulated Value. In addition, the performance
of the Subaccounts underlying the Variable Account and/or the Fixed Account will
effect the Accumulated Value as well. The Certificate may increase or decrease
in value depending on the performance of the Variable Account. Generally, any
increase in the Certificate's value grows tax-deferred until you request a
distribution. Distributions from the Certificate during the Accumulation Phase
are distinguished from Annuity Payments made through a Settlement Option during
the Annuity Phase. All distributions are taxable when we pay them to you.
Certificate Valuation
During the Accumulation Phase, we refer to your Certificate's value as
the Accumulated Value. The Accumulated Value is the total of:
1. the Fixed Account value; and
2. the Variable Account value (the total of all your Subaccounts).
The Accumulated Value of your Certificate is determined on each
Valuation Date (each day that both AAL and the New York Stock Exchange are open
for business). We calculate the value of each Subaccount by multiplying the
number of Accumulation Units attributable to that Subaccount by the Accumulation
Unit Value for the Subaccount. Any amounts allocated to a Subaccount will be
converted into Accumulation Units of the Subaccount. The investment experience
of the Portfolio underlying each Subaccount will cause the Accumulation Unit
Value to increase or decrease. In addition, we assess a mortality and expense
risk charge which effectively reduces the value of the Subaccount. We make no
guarantee as to the value in any Subaccount. You bear all the investment risk on
the performance of the Portfolios underlying the corresponding Subaccounts you
choose. Because of all of the variables effecting a Subaccount's performance,
the Subaccount's value cannot be predetermined However, we do guarantee a
minimum effective annual interest rate on any allocations to the Fixed Account.
Please see The Fixed Account for more information.
In addition to your investment experience, any Premiums you make or any
surplus refund we credit will positively affect your Accumulated Value. Any
withdrawals and any associated withdrawal charges will decrease your Accumulated
Value.
When we established each Subaccount we set the Accumulation Unit Value
at $10 ($1 for the Money Market Subaccount). The Accumulation Unit Value of a
Subaccount increases or decreases from one Valuation Period to the next
depending on the investment experience of the underlying Portfolio as well as
the daily deduction of charges. The deduction of charges occurs at both the Fund
level and the Variable Account level.
The Accumulation Unit Value of a Subaccount for any Valuation Period is
equal to:
1. the Net Asset Value of the corresponding Fund Portfolio attributable
to the Accumulation Units at the end of the Valuation Period;
2. plus the amount of any income or capital gain distribution made by the
Fund Portfolio during the Valuation Period;
3. minus the dollar amount of the mortality and expense risk charge we
deduct for each day in the Valuation Period;
4. plus or minus any cumulative credit or charge for taxes reserved which
we determine has resulted from the operation of the Subaccount; and
5. divided by the total number of Accumulation Units outstanding at the
end of the Valuation Period.
Dollar Cost Averaging Plan
You may make regular transfers of predetermined amounts by establishing a
Dollar Cost Averaging Plan. Under the plan, you may authorize automatic
transfers from your Money Market Subaccount to any or all of the other
Subaccounts. You may use 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 request. Dollar Cost Averaging is generally
suitable for you if you wish to make a substantial deposit in your Certificate
or wish to transfer into other Subaccounts. This approach allows you to spread
investments over time to reduce the risk of investing at the top of the market
cycle. You may establish a Dollar Cost Averaging Plan by obtaining an
application and full information concerning the plan, and its restrictions, from
our Service Center. Transfers under Dollar Cost Averaging are not subject to the
charges applicable to transfers, described below. Dollar cost averaging does not
ensure a profit or protect against a loss during declining markets. Because such
a program involves continuous investment regardless of changing share prices,
you should consider your ability to continue the program through times when the
share prices are low.
Member Convenience Account
We offer a plan that allows you to make Premiums to your Certificate on
a regularly scheduled basis by having money sent directly from your checking or
savings account. You can allocate the amounts that should be applied to your
Subaccounts or Fixed Account. To set up the Member Convenience Account (MCA) you
can complete the applicable section on the Application.
Transfers among Subaccounts and/or the Fixed Account
Except for certain restrictions mentioned below, you may transfer your
Accumulated Value among the Subaccounts and the Fixed Account. Such transfers
must take place during the Accumulation Phase. We will process requests for
transfers that we receive before 3:00 p.m. Central Time on any Valuation Date
using your Accumulated Value as of the close of business of that Valuation Date.
We will process requests we receive after that time using your Accumulated Value
as of the close of business of the following Valuation Date. To accomplish a
transfer from a Subaccount, we will redeem the Accumulation Units in that
Subaccount and reinvest that value in Accumulation Units of the other
Subaccounts and/or the Fixed Account as you direct.
We apply the following restrictions on transfers.
1. You must provide your instructions by submitting a request to our
Service Center.
2. You must transfer out at least $500 or, if less, the total value of
the Subaccount or Fixed Account from which you are making the
transfer.
3. You must transfer in a minimum amount of $50 to any Subaccount or to
the Fixed Account.
4. You 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. After that, we will charge you $10 for each subsequent
transfer. We deduct the transfer charge from the total value of the
Subaccount from which the transfer was made. When transfers are from
two or more Subaccounts, we apply the $10 transfer charge among such
Subaccounts in proportion to the amounts you transfer from your
Subaccounts.
5. You may make only one transfer from the Fixed Account in each
Certificate Year. The transfer may not exceed the greater of $500 or
25% of the total value of the Fixed Account at the time of transfer.
Transfers from the Fixed Account are not subject to a transfer charge.
If you want to transfer from the Fixed Account, we redeem the value
you wish to transfer from the Fixed Account and reinvest that value in
Accumulation Units of the Subaccount or Subaccounts you have selected.
Distributions from the Certificate
You may make a request to receive all or part of your Accumulated Value
during the Accumulation Phase and only if the Annuitant is living. We refer to
these requests as a withdrawal and a surrender respectively.
To make a withdrawal you may make a request to our Service Center. If
you make a Telephone Request for a withdrawal, we are required to withhold 10%
for federal taxes. To surrender your Certificate and receive the Accumulated
Value you must submit a Written Request to our Service Center, we will not
accept Telephone Requests. We must receive a withdrawal or surrender request by
3:00 p.m. Central Standard Time on a Valuation Date in order to process it on
the same day.
We will pay you the requested withdrawal or surrender amount within
seven days of our receipt of your request. You will receive the Accumulated
Value less any applicable withdrawal or surrender charge or any applicable
Certificate Maintenance Charge. Please see Charges and Deductions for more
information. In certain cases we may postpone payment of your withdrawal or
surrender beyond the seven days. Please see Postponement of Payments for more
information.
You may select the source of a withdrawal by specifically indicating
the Subaccount or Fixed Account. However, we must approve of any such selection.
If you request a withdrawal and do not specify the source of the withdrawal (the
specific Subaccount or Fixed Account) then we will take the withdrawal on a pro
rata basis from each Subaccount and Fixed Account. The minimum amount that you
may withdraw at one time is $25.
There may be restrictions on withdrawals from 403(b) Certificates (also
known as Tax Sheltered Annuities). We may only distribute those amounts
attributable to salary reduction and their earnings only:
1. after you attain age 59 1/2; or
2. separate from service; or
3. if you die;
4. if you become disabled; or
5. in certain cases of hardship (not including any earnings).
Certificates issued as Qualified Plans under section 401 of the Code may
also restrict certain distributions. See you plan document for more information.
If on your Certificate Anniversary the Accumulated Value of your
Certificate is below $600, and you have made no Premium for the past 36
consecutive months, we will terminate your Certificate and pay you the
Accumulated Value of the Certificate less any applicable withdrawal charges.
You should consider the tax implications of any withdrawal or surrender
request. Most withdrawals and surrenders prior to age 59 1/2 are subject to a
10% penalty tax on taxable gain distributed from the Certificate.
See Taxation of Annuities in General.
Automatic Payout Option
The Automatic Payout Option is a series of partial withdrawals from
your Certificate based on the payment method you select. Each distribution is
taxable to the extent there is a taxable gain in the Certificate. This
distribution plan is distinguished from receiving Annuity Payments under a
Settlement Option after the Annuity Commencement Date. You may only establish
the Automatic Payout Option during the Accumulation Phase. This distribution
plan can be set up by contacting your Registered Representative.
Death Proceeds before the Annuity Commencement Date
If the Annuitant of the Certificate dies before the entire interest in
the Certificate is distributed, the value of the Certificate must be distributed
to the Beneficiary.
In the event of the Annuitant's death, the Beneficiary receives the Death
Proceeds from the Certificate. However, there are certain distribution
requirements. Generally:
1. we must distribute the entire Death Proceeds within five years of
death; or
2. the Beneficiary must select a Settlement Option under which payments
must begin within one year of death. The Annuity Payments in the
selected Settlement Option must be made over the life of the
Beneficiary but cannot extend beyond that period.
If the Beneficiary is the Owner's spouse, the surviving spouse may continue the
Certificate as the new Owner and Annuitant. If the Beneficiary is a not a
natural person, we must pay out the Death Proceeds within five years of the
death of the Annuitant. It is possible, however, that we may have to distribute
the Death Proceeds according to a method of payment mandated by the Owner of the
Certificate that does not allow the Beneficiary to change it.
Before we can process any Death Proceeds, we must receive:
1. proof that the Annuitant or Owner died before the Annuity Commencement
Date;
2. a completed claim form; and
3. any other information that we require
within 60 days after we receive the Proof of Death. If we do not receive any
such information from the Beneficiary within this time, we will:
1. treat the spouse as the new Annuitant and the Certificate will remain
in force if the Certificate was not issued in connection with a
Qualified Plan and the spouse is the sole first beneficiary, or
2. apply the Death Proceeds to Settlement Option 1, Interest.
We calculate the Death Proceeds on the Death Proceeds Calculation Date
which is the later of the date we receive Proof of Death or the date on which we
receive a request in writing in good order from the Beneficiary as to the method
of payment they choose. The Beneficiary may elect to receive the Death Proceeds
as a lump sum in order to satisfy the distribution requirements. If the
Beneficiary requests payments of the Death Proceeds in a lump sum we will pay it
within seven days after 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. After that, 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. If the Owner is
not the Annuitant, the Death Proceeds are the Accumulated Value of the
Certificate on the Death Proceeds Calculation Date.
ANNUITY PHASE
The next phase after the Accumulation Phase of the Certificate is the
Annuity Phase. The Annuity Phase is the period when you begin receiving Annuity
Payments (periodic payments), based on the amounts you accumulated under your
Certificate. This phase begins when you select a Settlement Option and we make
Annuity Payments beginning on the Annuity Commencement Date. You may choose a
Settlement Option for all, part or none of your Certificate. Currently, we offer
Settlement Options only on a fixed basis, however, we may choose to make other
Settlement Options available in the future. Like the Accumulation Phase, any
amounts remaining in your Certificate during the annuity phase are tax-deferred
until the payment is received.
Annuity Commencement Date
The Annuity Commencement Date is the date we apply the Accumulated
Value to a Settlement Option for the benefit of a designated Payee. The Annuity
Commencement Date is sometimes referred to as a maturity date or annuity date.
We cannot make any Annuity Payments under a Settlement Option if you previously
surrendered your Certificate or if we have paid out all of the Death Proceeds to
your Beneficiary. We determine the Annuity Commencement Date at the time we
issue your Certificate. You may change your Annuity Commencement Date by
submitting a Written Request to our Service Center. The Annuity Commencement
Date must be within your life expectancy and is subject to our approval.
If we issued your Certificate in connection with a Qualified Plan, your
plan, Certificate endorsement or applicable law may restrict your choice of an
Annuity Commencement Date or the Settlement Option available to you.
If we issue a Certificate in Pennsylvania, we will use the following
maturity ages (based on your Annuity Commencement Date):
PENNSYLVANIA TEXAS
Age at Maximum Age at Maximum
Date of Issue Maturity Age Date of Issue Maturity Age
0-70 85 0-75 80
71-75 86 76-80 85
76-80 88 81-85 88
81-85 90 86-87 90
86-90 93 88-89 92
91-93 96 90-91 93
94-95 98 92-93 95
96 99 94-95 97
96-97 98
98 99
For purposes of the Pennsylvania requirement, the maturity age is defined as the
last birthday of the Annuitant on the Certificate Anniversary on or immediately
prior to the Annuity Commencement Date. For the Texas requirement, the maturity
age is your age on the Annuity Commencement Date.
Settlement Option Annuity Payments
If you select a Settlement Option (annuitize the Certificate), we will
transfer your Accumulated Value on your Annuity Commencement Date to our Fixed
Account, which supports our insurance and annuity obligations. We call the
resulting value your Annuity Proceeds. We will pay the Annuity Proceeds to the
Payee that you designated on your Certificate. You may choose yourself as a
Payee. The following Settlement Options are generally available under the
Certificate:
Option 1-Interest
You leave the Annuity Proceeds with us to earn interest. You may elect
to receive the interest that you earn at regular intervals or you may leave the
interest to accumulate. You may withdraw all or part of the Annuity Proceeds and
the interest earned by submitting a request to our Service Center. Funds held in
this Option are not tax-deferred. Any taxable gains which accumulated and any
earnings attributable to your Accumulated Value will be taxable in the year in
which you elect to begin Annuity Payments under this Option.
Option 2-Specified Amount Income
We make payments at regular intervals of a specified amount until all
of the Annuity Proceeds plus the interest earned have been paid. The payment
period may not be less than 13 months or exceed 30 years. You may withdraw any
of the Annuity Proceeds that remain in this Option by submitting a request to
our Service Center.
Option 3-Fixed Payment Period Income
We make payments at regular intervals for a fixed number of payments,
not to exceed 30 years. At the end of the period, all of the Annuity Proceed
plus any interest earned will be paid. The Payee may withdraw any of the Annuity
Proceeds that remain in this Option by submitting a request to our Service
Center. Annuity Payments paid under this Option are guaranteed as a minimum
dollar amount.
Option 4-Life Income with Guaranteed Payment Period
We make Annuity Payments at regular intervals for the lifetime of the
Payee. If the Payee dies during the guaranteed period, we will continue payments
to the Payee's named Beneficiary to the end of the guaranteed period. The Payee
may choose a guaranteed payment period of 0, 5, 10, 15, or 20 years at the time
this Option is set up. The amount of the payments depends upon the age and,
where permitted, sex of the Payee at the time we issue the Settlement Option.
Annuity Payments paid under this Option are guaranteed as to minimum dollar
amount during the Guaranteed Payment Period.
Option 5-Joint and Survivor Life Income with Guaranteed Period
We make Annuity Payments at regular intervals for the lifetime of both
Payees. Upon the death of one of the Payees, we will continue payments for the
lifetime of the surviving Payee. If both Payees die during the guaranteed
period, we will continue payments to the Payees' named Beneficiary to the end of
that period. The Payee may choose a period of 0, 5, 10, 15, or 20 years at the
time this Option is set up. The amount of the payments depends upon the age and,
where permitted, sex of the Payees at the time we issue the Settlement Option.
Annuity Payments paid under this Option are guaranteed as to minimum dollar
amount during the Guaranteed Payment Period.
AAL also has other Settlement Options which may be chosen. Information
about these options may be obtained from an AAL Representative or our Service
Center.
If you do not select a Settlement Option before your Annuity
Commencement Date, we will select Option 4, the Life Income with 10-Year
Guaranteed Payment Period fixed annuity Settlement Option for you.
Before your Annuity Commencement Date, you may elect to receive a
single sum rather than payments under the Settlement Option by surrendering the
Certificate in full. We will deduct a surrender charge from the Accumulated
Value of your Certificate, if applicable.
If you die before your Annuity Commencement Date, your Beneficiary may
choose to receive the Death Proceeds in a lump sum payment or a Settlement
Option (depending on certain circumstances and choices may be limited), 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. We will provide a form for this purpose. On lump sum
payments, we will pay interest on the Death Proceeds at a rate required by law
from the Death Proceeds Calculation Date until the date of payment.
Under the Settlement Options, you may select payments on a monthly,
quarterly, semiannual, or annual basis, provided each payment is at least $25.
We will make the first payment under the Settlement Option on the first business
day following the end of the payment interval you choose. 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, we may pay the Accumulated Value in a single sum
and we will cancel your Settlement Option. We determine the amount of your
Annuity Payments by applying the Accumulated Value to be applied to the
Settlement Option at the Annuity Commencement Date, less any fees or charges
due, to the annuity table in the Certificate for the Settlement Option selected.
We show the amount of the Annuity Payments for each $1000 in a Settlement Option
in the table in your Certificate. The values of the Settlement Options are based
on the Payee's age and sex on the Annuity Commencement Date. If there is an
error as to the date of birth or sex of the Payee, we will adjust any amount
payable to conform to the correct date of birth or sex.
With respect to each Annuity Payment under a Settlement Option , we may
pay more than the amount of the guaranteed payment. However, we 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.
We will not assess a surrender charge at the time of annuitization if
Annuity Payments begin more than three years after your Issue Date and you
choose a Settlement Option that provides a life income with a guaranteed payment
period (such as Option 4 or Option 5 above). We will take into account the 10%
free withdrawal provision and the maximum 7 1/2% limitation described under
Withdrawal and Surrender Charges.
We will also deduct any applicable Certificate Maintenance Charge at
the Annuity Commencement Date upon commencement of a Settlement Option or
receipt of a lump sum.
Subject to minimums set forth in the Certificate, our Board of
Directors declare interest rates applicable to Settlement Options at least
annually. Our Board of Directors consider numerous factors, including the
earnings of the general or special accounts, expenses, and mortality charges and
experience.
Distributions During the Annuity Phase
During the Annuity Phase, you may make withdrawals and surrenders under
certain circumstances. If you have chosen a Settlement Option that does not
involve a life contingency (a calculation of Annuity Payments based upon your
life expectancy), we may permit you to make a withdrawal or surrender. In such
cases, the amount you may withdraw or surrender is the commuted value of any
unpaid annuity installments, computed on the basis of the assumed interest rate
incorporated in such Annuity Payments. However, we may charge a withdrawal or
surrender charge. Please see Charges and Deductions. If you make a withdrawal
and elect another Settlement Option for the remaining balance, the new
Settlement Option will be based on current interest rates.
Death of Payee After the Annuity Commencement Date
If a Payee dies on or after the Annuity Commencement Date and before
all of the Annuity proceeds have been paid, we must pay any remaining Annuity
Proceeds under the Settlement Option at least as rapidly as payments were being
paid under that Settlement Option on the date of death.
CHARGES AND DEDUCTIONS
Withdrawal or Surrender Charges
There is no sales expense deducted from your Premiums. However, if some
or all of the Accumulated Value of the Certificate is withdrawn or surrendered
before the Certificate has been in force for seven full Certificate Years, the
following charges apply:
Certificate Year 1 2 3 4 5 6 7 8+
- ------------------------- ----- ------ ------ ------ ------ ------ ------ ------
- ------------------------- ----- ------ ------ ------ ------ ------ ------ ------
Charge as Percentage of 7% 6 5 4 3 2 1 0
Excess Amount Withdrawn
or Surrendered(1)
(1) The withdrawal or surrender charge is a percentage of the excess amount. We
define the excess amount 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 you pay under the Certificate.
If withdrawal or surrender charges are not sufficient to cover sales
expenses, we will bear the loss. But, if the amount of such charges are
more than sufficient, we will retain the excess. We do not believe that the
withdrawal and surrender charges imposed will cover the expected sales
expenses for the Certificates.
Certain withdrawals and surrenders are subject to a 10% federal tax penalty
on the amount of taxable income withdrawn, in addition to ordinary income
tax on any such taxable income. See Federal Tax Status for more
information.
10% Free Withdrawal
In each Certificate year, you 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 without a withdrawal charge.
To determine the free withdrawal amount we take 10% of the Accumulated Value of
the Certificate at the time of the first withdrawal in the Certificate Year.
Then we subtract any previous free withdrawals made during the Certificate Year.
This right is not cumulative from Certificate Year to Certificate Year, so each
Certificate Year you are only ever allowed to take a total of up to 10% from
your Accumulated Value without incurring a withdrawal charge.
Waiver of Withdrawal and Surrender Charges
We will waive the withdrawal or surrender charge under the following
circumstances:
1. If you or your spouse are confined to a nursing home, a licensed hospital,
or a hospice for at least 30 consecutive days, and your withdrawal or
surrender occurred during your confinement or within 90 days of your
confinement. We must receive satisfactory written proof at our Service
Center. This is only allowed under certain State's laws.
2. If you begin Annuity Payments more than three years after the Issue Date
and you choose a life income with a guaranteed period (such as Option 4 or
5 of the Settlement Options).
3. Upon the death of the Annuitant.
Certificate Maintenance Charge
During the Accumulation Phase, we annually deduct a $25 Certificate
Maintenance Charge. We deduct the charge on the last day of each Certificate
Year or upon surrender of the Certificate if that is earlier. We deduct the
charge from your Accumulated Value in proportion to the amounts in your
Subaccounts and the Fixed Account. The purpose of this charge is to reimburse us
for administrative expenses relating to the Certificate.
We do not deduct this charge if your total net premiums are $5,000 or
more at the end of your Certificate Year or at surrender. Net premiums are your
Premiums less any withdrawals and any associated withdrawal charges. We do not
expect to profit from this charge. We will not increase the charge for
administrative expenses regardless of its actual expenses.
Mortality and Expense Risk Charge
We assume several mortality risks under the Certificates.
First, we assume a mortality risk by our contractual obligation to pay
Death Proceeds to the Beneficiary if the Annuitant under a Certificate dies
during the Accumulation Phase. We assume the risk that the Annuitant may die
prior to the Annuity Commencement Date at a time when the Death Proceeds
guaranteed by the Certificate may be higher than the Accumulated Value of the
Certificate.
Second, we assume a mortality risk arising from the fact that the
Certificates do not impose any surrender charge on the Death Proceeds. The net
surrender value is lower for Certificates under which a withdrawal or surrender
charge remains in effect, while the amount of the Death Proceeds under such
Certificates is unaffected by the withdrawal or surrender charge. Accordingly,
our mortality risk is higher under such Certificates than it would be under
otherwise comparable Certificates that impose the surrender charge upon payment
of Death Proceeds.
Third, we assume a mortality risk by our 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 affect on the Annuity Payments received under a Certificate. This
relieves the Payee from the risk of outliving the amounts accumulated for
retirement.
Fourth, we assume a mortality risk under our annuity purchase rate
tables which are guaranteed for the life of a Certificate. Options 1, 2, and 3
are based on a guaranteed effective annual interest rate of 3%. Options 4 and 5
are based on a guaranteed effective annual interest rate of 3 1/2% using the
Commissioner's 1983 Table A "Annuitant Mortality Table."
In addition to the above mentioned mortality risks, we 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 Premiums, 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 us for assuming these mortality and expense risks, we
deduct a daily mortality and expense risk charge from the net assets of each
Subaccount in the Variable Account. We impose a mortality and expense risk
charge at an annual rate of 1.25% of the average daily net assets of such
Subaccount in the Variable Account for the mortality and expense risks it
assumes under the Certificates.
If the mortality and expense risk charge and other charges under a
Certificate are insufficient to cover the actual mortality costs and
administrative expenses incurred by us, we will bear the loss. Conversely, if
the mortality and expense risk charge proves more than sufficient, we will keep
the excess for any proper corporate purpose including, among other things,
payment of sales expenses. We expect to make a profit from this charge.
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. Since we are also the
Adviser to the underlying Fund, the Fund pays us a daily fee for our investment
management services. We pay sub-advisory fees to Oechsle International Advisors
L.P. and AAL Capital Management Corporation for managing the International Stock
and High Yield Bond Portfolios respectively.
For the Money Market, Bond, Balanced, Large Company Stock and Small
Company Stock Portfolios, the Fund pays us an annual rate of 0.35% of the
aggregate average daily net assets up to $250,000,000 and 0.30% of amounts in
excess of $250,000,000.
For the International Stock Portfolio, the Fund pays us an annual rate of
0.80% of the aggregate average daily net assets. From this amount we pay the
Sub-adviser, Oechsle International Advisors L.P. the following fee based on
assets under management:
Total Assets Annual Fee
First $20 million .54%
Next $30 million .45%
Over $50 million .36%
For the High Yield Bond Portfolio, the Fund pays us an annual rate of
0.40% of the aggregate average daily net assets. From this amount we pay the
Sub-adviser, AAL Capital Management Corporation, an annual fee of 0.25% of
average daily net assets.
See AAL, The Variable Account and 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. We may make such a charge in the
future if income or gains within the Variable Account result in any federal
income tax liability to us or we become subject to state premium taxes. Charges
for any other taxes attributable to the Variable Account may also be made. See
Federal Tax Status.
GENERAL INFORMATION ABOUT THE CERTIFICATES
The Entire Contract
The entire contract between you and us consists of:
1. the Certificate;
2. the application;
3. attached endorsements or amendments, if any; and
4. the AAL Articles of Incorporation and Bylaws in force as of the
Issue Date of your Certificate.
We treat any statements you make in the application as representations
and not warranties. We will not use a statement to void the Certificate or to
deny a claim unless it appears in the application. No representative of ours
except the president or the secretary may change any part of the Certificate on
our behalf. We will not be able to contest the Certificate after it has been in
effect for two years from its Issue Date, provided that the Annuitant is still
living.
Gender Neutral Benefits
Under our Settlement Options, we distinguish between men and women
because of their different life expectancies. However, we do not make any such
distinctions for Certificates that we issue in the state of Montana. This is
because Montana enacted legislation that requires that optional annuity benefits
(i.e. the Annuity Payments under our Settlement Options) not vary based on a
person's sex. 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. We will apply unisex rates to Qualified Plans and those plans
where an employer believes that the Norris decision applies. Employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris, and Title VII generally, and any comparable state laws that
may be applicable, on any employment-related insurance or benefit plan for which
a Certificate may be purchased.
Telephone Transactions
If we receive a signed Telephone Transaction Authorization (found on
the Certificate Application and on the Variable Annuity Option Selection Form),
you may make partial withdrawals, transfers, Premium allocation changes, and
certain other transactions pursuant to your telephone instructions. Such
instruction is a Telephone Request. We have 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, we will honor
telephone instructions from anyone who provides the correct identifying
information, so you risk a possible loss if an unauthorized person uses this
service in your name. The Telephone Transaction Authorization provides that we
are not liable for acting in good faith on any telephone instructions. We may,
however, be liable for our failure to observe reasonable procedures. If several
people want to make Telephone Requests at or about the same time, or if our
recording equipment malfunctions, we may not be able to allow any Telephone
Requests at that time. If this happens, you must submit a Written Request to our
Service Center. If there is a malfunction with the telephone recording system or
the quality of the recording itself is poor, we will not process the
transaction. The phone number for telephone transactions is 800-225-5225,
locally 734-5721.
We will make a good faith effort to satisfy Telephone Requests.
Voting Rights
There are certain voting rights attributable to the Portfolios
underlying the Variable Account portion of the Certificates. As required by law,
we will vote the Portfolio shares held in a Subaccount. We will vote according
to the instructions of Certificate Owners who have interests in any Subaccount
involved in the matter being voted upon. If the 1940 Act or any related
regulation should be amended or if the present interpretation of it should
change, and as a result we determine that we are permitted to vote the Fund
shares in our own right, we may elect to do so.
You only have voting interests with respect to Fund shares during the
Accumulation Phase. During the Annuity Phases (during which you receive Annuity
Payments) you have no interest in the Fund and, therefore, you have no voting
rights.
We determine the number of votes you have the right to cast by applying
your percentage interest in a Subaccount to the total number of votes
attributable to the entire Subaccount. We will count fractional shares. We
determine the number of votes of the Portfolio you have the right to cast as of
the record date. These votes are cast at the meeting of the Fund. We will
solicit voting instructions by writing you before the meeting in accordance with
procedures established by the Fund.
Any Portfolio shares held in a Subaccount for which we do not receive
timely voting instructions we will vote such shares in proportion to the voting
instructions we receive for all Owners participating in that Subaccount. We will
vote any Portfolio shares held by us or our affiliates in proportion to the
aggregate votes of all shareholders in the Portfolio. We will send to everyone
having a voting interest in a Subaccount proxy materials, reports and other
materials relating to the appropriate Portfolio.
Surplus Refunds.
If our Board of Directors declares any surplus refunds to Certificate
Owners, we will pay you such surplus refunds. If we pay any such surplus
refunds, we will credit them to your Subaccounts and/or Fixed Account in the
same proportion that Premiums would be credited.
Reports to Owners
At least annually, we will mail you a report showing the Accumulated
Value of your Certificate as of a date not more than two months prior to the
date of mailing and any further information required by any applicable law. We
will mail reports to you at your last known address of record. We will also
promptly mail a confirmation of each Premium or transfer you make.
Date of Receipt
Unless we state otherwise, the Date of Receipt by us of any Premium
made, Written Request, Telephone Request, or any other communication is the
actual date it is received at our Service Center in proper form. If we receive
them after the close of regular trading on the New York Stock Exchange or on a
date which is not a Valuation Date, we will consider the Date of Receipt to be
the next Valuation Date.
Payment by Check
If you make a Premium by check, we require a reasonable time for that
check to clear your bank before such funds would be available to you. This
period of time will not exceed 15 days.
Postponement of Payments
We will normally make payments of any withdrawal value or cash
surrender value within seven days after we receive your request at our Service
Center. However, we may delay this payment or any other type of payment from the
Variable Account for any period when:
1. the New York Stock Exchange is closed for trading other than customary
weekend and holiday closings;
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists, as a result of which it is not reasonably practicable
to dispose of securities or to fairly determine their value; or
4. the SEC by order permits the delay for the protection of Owners.
We may also postpone transfers and allocations of Accumulated Value among the
Subaccounts and the Fixed Account under these circumstances. We may delay
payment of any withdrawal value or cash surrender value from the Fixed Account
for up to six months after we receive a request at our Service Center.
Certificate Inquiries
Inquiries regarding a Certificate may be made by writing or calling our
Service Center. The address for the Service Center is: AAL Variable Annuity
Service Center, 4321 North Ballard Road, Appleton, Wisconsin, 54919-0001. The
toll-free telephone number is 800-225-5225, locally 734-5721.
FEDERAL TAX STATUS
These discussions of tax matters and those in the Statement of
Additional Information are not intended as tax advice. 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 qualified retirement plan, upon the tax and employment
status of the individual concerned. This discussion is based on our
understanding of federal income tax laws, as currently interpreted. We make no
representation regarding whether the Internal Revenue Service will continue its
current interpretations of these laws. We do not make any guarantee regarding
the tax status of any Certificate. Please consult with a qualified tax adviser
for your particular tax situation.
Variable Account Tax Status
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, we anticipate no tax liability resulting from
the Certificates, and consequently, no reserve for income taxes is currently
charged against, or maintained by us with respect to the Certificates. We are
currently exempt from most types of state and local taxes. We may make charges
for such taxes if there is a material change in federal, state or local tax laws
attributable to the Variable Account.
Taxation of Annuities in General
Section 72 of the Code governs the federal income taxation of annuities
in general. We do not discuss the impact of estate, gift or state tax
considerations.
Certificates Held by Natural Persons
If you are a natural person, you are 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 Annuity Payments under a Settlement
Option.
Certificates Held by Nonnatural Persons
If you are not a natural person, such as a corporation, estate or
trust, a Certificate will not be treated as an annuity contract for federal
income tax purposes. Any increases under such a Certificate are taxable in the
year received or accrued. This treatment will not apply, however, if you are
acting as an agent for a natural person, if you are an estate which acquired the
Certificate as a result of a death of a natural person, 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 your employer with respect to a terminated Qualified Plan or if the
Certificate is an immediate annuity.
Distributions during the Accumulation Phase
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 your cost basis in the Certificate. Your cost basis is generally the
total of your Premiums. If you use your Certificate as collateral for a loan or
assign your Certificate, other than a gift to the your spouse or incident to a
divorce, your Certificate is treated as a surrender for tax purposes.
Distributions during the Annuity Phase
For Annuity Payments under a Settlement Option, the taxable portion is
determined by applying 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.
Distributions from Qualified Plans
For certain Qualified Plans involving pre-tax contributions, there may
be no cost basis in the Certificate. In such event, the total payments received
may be taxable. You, the Annuitant and any Beneficiaries for your Certificate
should seek qualified tax and financial advice about the tax consequences of
distributions under the Qualified Plans in connection with which such
Certificates are purchased.
Penalty Tax on Premature Distributions
Generally, withdrawals, surrenders and assignments of a Certificate
before you attain age 59 1/2 will result in an additional federal income tax
penalty of 10% of the amount distributed that is includible in your gross
income. The penalty tax will not apply if the distribution is made under one of
the following circumstances:
(1) made to the Beneficiary or Successor Owner on or after your death, or
(2) made to you if you are 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
your life or your life expectancy or the joint lives or joint life
expectancies of you and your Beneficiary made not less frequently than
annually (we will calculate this for you through our Early Advantage
Program). For this purpose, if there is a modification of the payment
schedule before you attain age 59 1/2, or before the expiration of
five years from the time of the annuity starting date, your income
will be increased by the amount of tax and deferred interest that you
otherwise would have incurred, or
(5) made under an immediate annuity (currently not available under the
Certificate), or
(6) from a Certificate purchased by your 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 if you are the Annuitant of a Qualified Plan Certificate.
Additional exemptions apply if you are the Owner of a Traditional or Roth IRA
Certificate.
Federal Income Tax 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, but only by Written Request.
Death Proceeds
Generally, distributions received from your Certificate by your
Beneficiary because of your death are taxable to your Beneficiary in the year in
which they are received. Your Beneficiary will be taxed on the distributions in
the same manner that you would have been taxed. The 10% premature distribution
penalty does not apply to these distributions.
Additional Tax Considerations
Multiple Certificates
Section 72(e)(11) of the Code provides that for the purpose of
determining the amount includible in gross income, all nonqualified annuity
Certificates issued by us for you 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 you if you own multiple Certificates
with us and may have the further effect of increasing the portion of income that
will be subject to the 10% penalty tax.
Tax-Free Exchanges (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 us 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 us 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. If you are considering such an exchange, you should consult with
your tax adviser to ensure that the requirements of Section 1035 are met.
Transfers among Subaccounts
Transfers among Subaccounts and between Subaccounts and the Fixed
Account are not taxable events.
Transfers of Ownership
Generally, assignments or transfers of ownership of your Certificate are
treated as complete distributions of a deferred annuity contract and are taxable
as a surrender of your Certificate. If you are assigning your Certificate to
your spouse (or your ex-spouse if the transfer is incident to your divorce), the
assignment is not a taxable transaction. After the assignment, your spouse or
ex-spouse will retain the same cost basis as you had in the Certificate.
Qualified Plans.
You may use the Certificate to fund one of several types of Qualified
Plans. The tax rules that apply to participants in such Qualified Plans vary
according to the type of plan and the terms and conditions of the plan.
Therefore, no attempt is made to provide more than general information about the
use of the Certificates with the various types of Qualified Plans. We caution
Qualified Plan participants, Owners, Annuitants and Beneficiaries that the
rights of any person to any benefits under such Qualified Plan may be subject to
the terms and conditions of the plan itself, regardless of the terms and
conditions of the Certificate issued in connection with the plan. What follows
are brief descriptions of the various types of Qualified Plans and of the use of
the Certificates with respect to them.
Tax-Sheltered Annuities
Section 403(b) of the Code permits certain types of employers
(organizations specified under section 501(c)(3) of the Code such as schools,
churches, etc.) to purchase annuity contracts on behalf of their employees.
Subject to certain limitations, the amounts of Premiums paid by the employers
are taken from the employee's wages and excluded from the employee's gross
income for tax purposes. These annuity contracts are commonly referred to as
tax-sheltered annuities. If you are purchasing a Tax-Sheltered Annuity, you
should seek qualified advice as to eligibility, limitations on the amounts that
you can contribute to the Tax-Sheltered Annuity and the tax consequences on
distribution.
Section 403(b)(11) of the Code requires that distributions from a
Tax-Sheltered Annuity that are attributable to employee contributions made
pursuant to a salary reduction agreement may be paid only when the employee
reaches age 59 1/2, separates from service, dies, 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.)
See Distributions from the Certificate for more information.
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.
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.
Traditional Individual Retirement Annuities (Traditional IRAs)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as a traditional individual retirement
annuity or traditional IRA. Traditional 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 rolled over on a tax-deferred basis into a traditional
IRA. Distributions paid to employees before being rolled over to a traditional
IRA may be subject to a 20% withholding requirement. See Federal Tax Withholding
above. When issued in connection with a traditional IRA, the Certificates will
be specifically amended to conform to the requirements under such plans. Sales
of the Certificates for use with traditional IRAs may be subject to special
requirements imposed by the Internal Revenue Service. If you purchase a
Certificate for such purposes, you will be provided with such supplementary
information as may be required by the Internal Revenue Service or other
appropriate agency.
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 the gross income of the employee and are
deductible by the employer. Any increases earned on the contributions are
tax-deferred until distributed. Employers who use the Certificates in connection
with such a plan should seek qualified advice.
Savings Incentive Match Plan for Employees (SIMPLE)
Section 408(p) of the Code 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.
Roth Individual Retirement Annuity (Roth IRA)
Section 408A permits eligible individuals to an individual retirement
program known as the Roth IRA. Contributions to a Roth IRA are not tax
deductible, but distributions made after five years and one of the following
qualifying events are tax-free. The qualifying events are: attaining age 59 1/2;
your death; becoming disabled, or qualifying as a first time home buyer under
the Code. Roth IRAs are subject to limitations on the amount that may be
contributed, on the persons who may be eligible, on the time when distributions
must commence, and on the time when distributions may be received tax free or
without penalty. Your Traditional IRA Certificate can be converted to a Roth IRA
if you meet the income limitations. Generally, the amount that is converted is
taxable in the year of conversion. Exceptions apply for conversions done in 1998
and for traditional IRAs which contain nondeductible contributions.
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 as 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 above discussion is based upon our understanding of current federal
income tax law. We cannot assess the probability that changes in tax laws,
particularly affecting annuities, will be made. We have not taken into account
estate and gift, state income or other state tax considerations which may be
involved in the purchase of a Certificate or the exercise of elections under the
Certificate. For complete information on such federal and state tax
considerations, you should consult a qualified tax adviser.
OTHER INFORMATION
Rights Reserved By AAL
Subject to applicable law, we reserve the right to make certain changes
if we determine they would serve your interests or if it would be appropriate in
carrying out the purposes of the Certificate. When it is required, we will
obtain your approval or regulatory approval. Some examples of such changes we
may make include:
1. to operate the Variable Account in any form allowed under the 1940 Act or
in any other form allowed by law;
2. To add, delete, combine, or modify Subaccounts in the Variable Account;
3. 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 fund, or any other investment allowed by law; and
4. To make any amendments to the Certificates necessary for the Certificates
to comply with the provisions of the Code or any other applicable federal
or state law.
Maintenance of Solvency
The Certificate contains a maintenance of solvency provision that
applies only to values in the Fixed Account. If our reserves for any class of
Certificates become impaired, you may be required to make an extra payment. Our
Board of Directors will determine the amount of any extra payment based on each
member's fair share of the deficiency. If you do not make the payment, we will
charge it as an indebtedness against your Certificate with interest at a rate of
5% per year, compounded annually. You may choose an equivalent reduction in
benefits instead of or in combination with the payment or indebtedness.
Diversification Requirements
Under Section 817(h)(1) of the Code and related regulations, we are
required to ensure that the assets underlying the Variable Account portion of
the Certificates are adequately diversified. This means that the underlying
Portfolios must have enough distinctly different holdings to satisfy the
requirements. If we would not meet the requirements, The Certificate would not
be treated as an annuity contract, unless the failure to satisfy the regulations
was inadvertent, the failure is corrected, and you or we pay an amount to the
Internal Revenue Service (IRS). If the IRS would disqualify the Certificate as
an annuity contract, the IRS would require you to pay federal income tax on the
earnings of the Certificate during the Accumulation Phase. If we would fail to
diversify and not correct the problem, you would be deemed the Owner of the
underlying securities in the Portfolio and would be taxed on the earnings of
your account.
We believe that the assets underlying the Certificates meet these
diversification standards. We will continually monitor the Fund and the
regulations of the Treasury Department to ensure that the Certificate will
continue to qualify as a variable annuity contract under the Code.
Distribution Arrangements
Under a Principal Underwriting and Servicing Agreement between AAL
Capital Management Corporation (AALCMC) and AAL (on its own behalf and on behalf
of the Variable Account), AALCMC serves as the principal underwriter of the
Certificates. AALCMC is a wholly owned indirect subsidiary of AAL. Principal
offices of AALCMC are located at 222 West College Avenue, Appleton, Wisconsin
54911. 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.
We will pay the AAL Representatives commissions and other distribution
compensation on the sale of Certificates. This will not result in any charge to
you in addition to the charges already described in this Prospectus. We pay AAL
Representatives a commission of not more than 3% of the premiums paid on the
Certificates. In addition to direct compensation, AAL Representatives may be
eligible to receive certain employee benefits from AAL based on the amount of
earned commissions.
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.
Third Party Administrator
We entered into a Service Agreement with The Continuum Company, Inc.
(Continuum), which provided certain services in connection with the Variable
Account including, among other things, application and premium processing. As of
March 6, 1998, Continuum will no longer perform its duties under the contract
with us. We will be assuming those duties ourselves by that time.
Safekeeping Of The Variable Account's Assets
We own the assets of the Variable Account and keep them segregated from
the assets of our general account. We maintain all of the Portfolio shares for
each Subaccount in book entry form rather than certificated form.
Legal Matters
We know of no material legal proceedings pending to which we are or the
Variable Account is a party or which would materially affect the Variable
Account. 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.
Financial Statements And Experts
We placed the audited financial statements of AAL and the Variable
Account in the Statement of Additional Information. Ernst & Young LLP audited
the financial statements of AAL for the years ended December 31, 1997 and 1996,
and the financial statements of the Variable Account for the year ended December
31, 1997. Ernst & Young LLP are independent auditors. We include these audited
financial statements by relying upon Ernst & Young's reports as experts in
accounting and auditing.
Further Information
We filed a Registration Statement under the Securities Act of 1933 with
the SEC with respect to the Certificates which we have been discussing in this
Account Prospectus. This Prospectus and the Statement of Additional Information
do not contain all of the information in the Registration Statement and the
corresponding exhibits. We refer to the Registration Statement for further
information concerning the Variable Account, AAL and the Certificates. You may
obtain this additional information by requesting the information from the SEC.
You may do this by visiting the Securities Exchange Commission's (SEC) website
at www.sec.gov, requesting in writing and upon payment of the fee directly to
the SEC or by visiting in person the principal office of the SEC, located at 450
Fifth Street, N.W., Washington, D.C. 20549 where you may examine the document
without charge. The statements contained in this Prospectus as to the provisions
of the Certificates and other legal documents are summaries, we refer to the
Registration Statements and corresponding documents filed with the SEC for a
complete statement of the provisions.
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
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
__ 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
4321 North Ballard Road
Appleton, WI 54919-0001
<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 Dated May 1, 1997
This Statement of Additional Information ("SAI")is not a prospectus, but should
be read in conjunction with the prospectus dated March 1, 1998 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 - ..................................................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.
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 $974,777.31 to Continuum for its services during 1996 and
$____________ for the year ended December 31, 1997.
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 $5,059,274.35to AALCMC for 1996 and $_____________
for the year ended December 31, 1997. Of these amounts, AALCMC retained $0. For
the year ended December 31, 1997, Aegon received $____________ pursuant to a
selling agreement.
REASONABLENESS OF MORTALITY AND EXPENSE RISK CHARGES
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. 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, 1997, were ____% and _____%, 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, 1997, the one-month yield for the
Bond Subaccount was % and for the Balanced Subaccount was %.
Standardized and Non-Standardized Average Annual Total Return Advertisements for
the Certificates may also include standardized and non-standardized average
annual total return quotations for each Subaccount for 1, 5 and 10-year periods
(or the life of the Subaccount, if less). Standardized average annual total
return quotations are computed in accordance with a standard method prescribed
by the SEC. The average annual total return for a Subaccount for a specific
period is computed by finding the average annual compounded rates of return over
the applicable period that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1 + T)n = ERV
Where:
P = A hypothetical initial payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10-year
periods (or fractional portion thereof).
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 from
inception through December 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual Standardized Average Annual Non-Standardized Total
Name of Subaccount Total Return - Year ended Return Year ended
- ------------------
December 31, 1997* December 31, 1997
----------------- -----------------
Money Market
Bond
Balanced
Large Company Stock
Small Company Stock
</TABLE>
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 through December 31, 1997
were:
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual Standardized Average Annual Non-Standardized Total
Name of Subaccount Total Return - Inception through Return Inception through
- ------------------ --------- ----------
December 31, 1997 December 31, 1997
----------------- -----------------
Money Market
Bond
Balanced
Large Company Stock
Small Company Stock
</TABLE>
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), Morgan Stanley Capital International Europe, Australasia
and Far East (MSCI EAFE) Index, S&P SmallCap 600 Index, 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
[Financial statements for the fiscal year ended December 31, 1997 are to be
included in a subsequent 485(b) filing in January of 1998.] 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, 1997. AAL does not prepare financial
statements more often than annually in the form required to be included in a
prospectus and believes that any incremental benefit to prospective Certificate
Owners that may result from preparing and delivering more current financial
statements, though unaudited, does not justify the additional cost that would be
incurred.
The financial statements for the Variable Account and AAL, and the accompanying
Reports of Independent Auditorsare incorporated by reference from the Report to
shareholders for the fiscal year ended December 31, 1997. You may receive a copy
of the Annual Report without charge by calling 800-225-5225, or locally
734-5721.
<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, 1997 Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets for the year ended December 31, 1997
and 1996 Notes to Financial Statements
Aid Association for Lutherans The following audited financial
statements of Aid Association for Lutherans ("Depositor") as of
December 31, 1997, December 31, 1996 and December 31, 1995, are
included in Part B:
Report of Independent Auditors
Statement of Financial Position as of December 31, 1997 Statement of
Operations for the years ended December 31, 1997 and 1996
Statement of Changes in Certificate Owners' Contingency
Reserves for the years ended December 31, 1997 and 1996
Statements of Cash Flow for the years ended December 31, 1997 and 1996
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.
10. (a) Consent of Independent Auditors to be filed by amendment
pursuant to Rule 485(b) prior to effectiveness of this
Amendment.
14. A Financial Data Schedule meeting the requirements of Rule
483(e) under the Securities Act of 1933 is being filed as Exhibit
27 hereof as dictated by the Commission's Electronic Data
Gathering and Retrieval System ("EDGAR").
<PAGE>
27. Financial Data Schedule.
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 Director, President and
4321 North Ballard Road Chief Executive Officer
Appleton, WI 54919
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
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
Roger J. Johnson Executive Vice President,
4321 North Ballard Road Chief Financial Officer and
Appleton, WI 54919 Treasurer
Woodrow E. Eno, Esq. Senior Vice President,
Secretary and General Counsel
Ronald G. Anderson Senior Vice President and
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
Appleton, WI 54919 Vice President and 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
Appleton, WI 54911 Second Vice President
Dan Shinnick
Second Vice President
4321 North Ballard Road
Appleton, WI 54919
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant
Registrant is a separate account of Depositor, established by the Board of
Directors of Depositor in 1994, pursuant to the laws of the State of Wisconsin.
Depositor is a fraternal benefit society organized under the laws of the State
of Wisconsin and is owned by and operated for its members. It has no
stockholders and is not subject to the control of any affiliated persons.
Depositor controls the following wholly-owned direct and indirect subsidiaries:
(a) AAL Holdings, Inc., a Delaware corporation that is a holding company that
has no independent operations; (b) AALCMC, a Delaware corporation that is a
registered broker-dealer; and (c) North Meadows Investment Ltd., a Wisconsin
corporation organized for the purpose of holding and investing in real estate.
AAL may be deemed to be a control person of the Bond 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 November 30, 1997, there were approximately 18,390 qualified and 16,301
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.
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.
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
Jeffry L. Verhagen Vice President
Robert Roth Senior Vice President
Penny P. Hill
2007 Ridgemont Ct.
Arlington, TX 76012 Regional Vice President
Murray Ruffell Vice President
1193 Salt Marsh Circle
Ponte Veda Beach, FL 32082
Lori Richardson Vice President
Vic Barth Regional Vice President
Paul Gocker Regional Vice President
Michael Woldt Regional Vice President
Joseph Wreschnig Assistant Vice President
125 North Superior Street and Assistant Secretary
Appleton, WI 54911
Paul Stadler Vice President
Charles Gariboldi Assistant Vice President
Byron Vielehr Assistant Vice President
Charles Friedman Assistant Vice President
Wendy Schmidt Assistant Vice President
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of Registrant are located at the offices of the
Depositor at 4321 North Ballard Road, Appleton, Wisconsin 54919, and 222 West
College Avenue, Appleton, Wisconsin 54911, 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 until March 6, 1998.
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).
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 has caused this amended Registration
Statement to be signed on its behalf in the City of Appleton and State of
Wisconsin on this 16th day of December, 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 December 16, 1997
- ----------------------------- and Chief Executive Officer
John O. Gilbert (Principal Executive Officer)
/s/ Ronald G. Anderson Chief Financial Officer December16, 1997
- ----------------------------- (Principal Financial Officer,
Ronald G. Anderson Principal Accounting Officer)
All of the Board of Directors:
Herbert J. Arkebauer
Raymond G. Avischious
Richard E. Beumer
Kenneth Daly
Elizabeth A. Duda
Edward A. Engel
John O. Gilbert
Gary J. Greenfield
Richard L. Gunderson
James W. Hanson
Robert H. Hoffman
Robert E. Long
Robert B. Peregrine
Kathi P. Seifert
Roger B. Wheeler
E. Marlene Wilson
Rev. Thomas R. Zehnder
<PAGE>
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 December 16, 1997
- -----------------------------
John O. Gilbert
Attorney-in-Fact
<PAGE>
AAL VARIABLE ANNUITY ACCOUNT I
INDEX TO EXHIBITS
Exhibit
Number Exhibit
27 Financial Data Schedule.
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