Variable Annuity Account I N-4
1933 Act Registration No. 33-82054
1940 Act Registration No. 811-8660
As filed with the Securities and Exchange
Commission on April 22, 1999
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. 7 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 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: (920) 734-5721
WOODROW E. ENO, ESQ.
Senior Vice President, Secretary and General Counsel of
AID ASSOCIATION FOR LUTHERANS
4321 NORTH BALLARD ROAD
APPLETON, WISCONSIN 54919-0001
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offerings: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b):
X on May 1, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of its securities 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 or before February 28,
1999.
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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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<CAPTION>
<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
May 1, 1999
for the
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATES
This Prospectus describes the individual flexible premium deferred variable
annuity certificate (the certificate) Aid Association for Lutherans (AAL, we,
us, our) offers. We are a fraternal benefit society organized under the laws of
the State of Wisconsin. We offer the certificates to people (you, your) who are
eligible for membership in AAL as well as employees of AAL and its affiliates.
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 invest Premiums only in
the Accumulation Phase, however, you may take distributions in either the
Accumulation or Annuity Phase, subject to certain restrictions of the
certificate.
Premiums under the certificate are flexible. The minimum initial Premium is
$600. Although if you choose to establish a premium billing schedule, 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 may be sold to or issued in connection with
retirement plans, including plans that qualify for special federal income tax
treatment under the Internal Revenue 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). The assets of each Subaccount are invested solely in a
corresponding Portfolio of AAL Variable Product Series Fund, Inc. (the Fund).
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
affliated entity. The Federal Deposit Insurance Corporation (FDIC) nor any other
agency does not insure or protect the certificate. You bear the investment risk
of amounts invested in the Variable Account.
This Prospectus sets forth concisely the information that you should know before
purchasing a certificate, and it should be read and kept for future reference.
We have filed a Statement of Additional Information, bearing the same date,
which contains further information, with the Securities and Exchange Commission
and incorporate by reference the Statement of Additional Information into this
Prospectus. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding registrants
that file electronically with the Securities and Exchange Commission. A copy of
the Statement of Additional Information may be obtained without charge by
calling (800) 225-5225, or by writing AAL at its principal office at 4321 North
Ballard Road, Appleton, Wisconsin, 54919-0001. The Telecommunications Device for
the Deaf (TDD) number is (800)-735-9644. A Table of Contents for the Statement
of Additional Information appears in this Prospectus on page 25.
This Prospectus is not valid unless given with a current prospectus of the AAL
Variable Product Series Fund, Inc.
These Securities have not been approved or
disapproved by the Securities and Exchange Commission
nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
You should read this prospectus carefully and keep it for future reference.
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. You should rely only on the information
contained in this document or that we have referred you to. We have not
authorized anyone to provide you with information that is different.
<PAGE>
TABLE OF CONTENTS Page
TABLE OF CONTENTS
Glossary
Summary
Fee and Expense Tables
Condensed Financial Information
Performance Information
AAL, the Accounts and the Fund
AAL
The Variable Account
The Fixed Account
The Fund
The Certificate
Application and Purchase
Crediting and Allocating Your Premium Payments
Free Look Period
Member Convenience Account
Owners, Payees and Annuitants
Adult and Juvenile Certificates
Beneficiaries
Assignments of Ownership
Accumulation Phase
Certificate Valuation
Dollar Cost Averaging Plan
Transfers Among Subaccounts and/or the Fixed
Account
Telephone Transactions
Surrenders and Withdrawals
Automatic Payout Option
Death of the Owner and/or Annuitant before the
Annuity Commencement Date
Annuity Phase
Annuity Commencement Date
Annuity Payments
Withdrawals and Surrenders During the
Annuity Phase
Death of Payee after the Annuity
Commencement Date
Certificate Fees and Charges
Sales Charge
Premium Tax Charge
Withdrawal or Surrender Charges
10% Free Withdrawal
Waiver of Withdrawal and Surrender Charges
Certificate Maintenance Charge
Mortality and Expense Risk Charge
Miscellaneous
Taxes
General Information about the Certificates
The Entire Contract
Gender Neutral Benefits
Voting Rights
Surplus Refunds
Reports to Owners
Date of Receipt
Payment by Check
Postponement of Payments
Certificate Inquiries
Federal Tax Status
Variable Account Tax Status
Diversification Requirements
Taxation of Annuities in General
Certificates Held by Natural Persons
Certificates Held by Nonnatural Persons
Distributions during the Accumulation Phase
Distributions during the Annuity Phase
Distributions from Qualified Plans
Penalty Tax on Premature Distributions
Federal Income Tax Withholding
Death Proceeds
Multiple Certificates
Tax-Free Exchanges (1035 Exchanges)
Transfers among Subaccounts
Transfer of Ownership
Qualified Plans
Rollover into an IRA
Other Considerations
Other Information
Rights Reserved by AAL
Maintenance of Solvency
Distribution Arrangements
Year 2000 Disclosure
Legal Matters
Financial Statements
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GLOSSARY
AAL, we, us, our: Aid Association for Lutherans, a fraternal benefit society
owned by and operated for its members.
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 certificate is based.
Annuity Commencement Date: The date on which the annuity proceeds are applied to
an Annuity Payment 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 Annuity Payment Option.
Annuity Payment Option: One of several types of methods of receiving payments
after your Annuity Commencement Date.
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 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 of 1986, as amended.
Death Benefit or Death Proceeds: Before the Annuity Commencement Date or the
Annuitant attains age 80, Death Proceeds are the greater of the Accumulated
Value; the Premiums paid less any withdrawals; or the Accumulated Value as of
the last minimum Death Proceeds Valuation Date plus any Premiums paid and minus
any withdrawals since that date. After the Annuitant attains age 80, Death
Proceeds are the Accumulated Value.
Excess Amount: An amount in excess of the amount that may be withdrawn or
surrendered without a withdrawal or surrender charge.
Fixed Account: Part of the general account of AAL that is not part of the
Variable Account.
Free Look Period: The period of time during which you may cancel the
certificate.
Fund: AAL Variable Product Series Fund, Inc.
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
(920) 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 to be eligible for membership. 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 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) for any
Valuation Date.
Owner, you, your, yours: The person or entity who owns the certificate.
Payee: The person you designate to receive payment of annuity proceeds under an
Annuity Payment Option.
Portfolio: One of a series of the Fund currently available for investment
through a corresponding Subaccount of the Variable Account.
Proof of Death: A certified copy of the death certificate or a certified decree
of a court of competent jurisdiction as to the finding of death or other proof
satisfactory to AAL.
Premium: Any new payment you invest in the certificate.
Qualified Plan: A retirement plan which receives favorable tax treatment under
Section 401, 403(b), 408 or 408A of the Code.
Service Center: The AAL Variable Products Service Center located at 4321 North
Ballard Road, Appleton, Wisconsin, 54919-0001. The toll-free telephone number is
(800)-225-5225, locally (920) 734-5721.
Subaccount: A division of the Variable Account that invests exclusively in
shares of a single Portfolio of the Fund.
Valuation Date: Any 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 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 variable 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 invest
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. We will send you a notice at least 30 days before
termination.
Investment Options
You may 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. 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 %. The certificate offers a choice of
seven variable investment options. Each variable investment option or Subaccount
invests in a corresponding Portfolio of the Fund. The Portfolios include the
following:
<TABLE>
<CAPTION>
<S> <C>
o AAL Variable Product Money Market Portfolio o AAL Variable Product Small Company Stock Portfolio
o AAL Variable Product Bond Portfolio o AAL Variable Product International Stock Portfolio
o AAL Variable Product Balanced Portfolio o AAL Variable Product High Yield Bond Portfolio
o AAL Variable Product Large Company Stock Portfolio
</TABLE>
Charges and Deductions
If net Premiums are under $5,000, 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
Accumulated 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.
If you invest in the Variable Account Option, you will incur a mortality and
expense risk charge computed at an aggregate annualized rate of 1.25% on the
average daily net asset value of the Variable Account. A daily charge based on a
percentage of each Portfolio's average daily net asset value is payable by each
Portfolio to its investment adviser.
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 Money Market Subaccount during the free look period.
For more information concerning our procedures, see Free Look Period page 11.
Withdrawals and Surrenders
You may take a withdrawal from 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. If
you take a withdrawal from or surrender the certificate before attaining age
59-1/2, you may be subject to a 10% premature distribution penalty in addition
to ordinary income tax.
Transfers
You may transfer all or a part of your certificate's value among the Subaccounts
or the Fixed Account subject to certain limitations. After the first two
transfers from Subaccounts in a Certificate Year, 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 the Annuitant's age at the
time we issue the certificate. You may elect to change this date subject to
state restrictions. At the time of your Annuity Commencement Date, you must
begin receiving Annuity Payments. We offer five different Annuity Payment
Options, four of which 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 Annuity Payment 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 take a distribution before reaching age 59 1/2. Current tax
laws may change at any time.
<PAGE>
FEE AND EXPENSE TABLES
Certificate Owner Transaction Expenses: (1)
Sales Charge on Premiums NONE
Transfer Fee $10 (2)
Deferred Sales Charge
Certificate Year 1 2 3 4 5 6 7 8+
- ---------------------- ------ ------ ------ ------ ------ ------ ------- -------
Withdrawal Charge 7% 6 5 4 3 2 1 0
(as a percentage of the withdrawal value)
Annual Certificate Fees:
Certificate Maintenance Charge $25 (3)
(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 Expenses 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):
Total Annual Fund
Portfolio Other Expenses Expenses After
Investment Advisory After Expense Expense
Fees Reimbursement Reimbursement (4)
Money Market 0.35% 0% 0.35%
Bond 0.35 0 0.35
Balanced 0.33 0 0.33
Large Company Stock 0.33 0 0.33
Small Company Stock 0.35 0 0.35
International Stock 0.80 0 0.80
High Yield Bond 0.40 0 0.40
<PAGE>
The above tables are intended to assist you in understanding the costs and
expenses that you will bear directly or indirectly and reflect the expenses of
the Variable Account and the Fund. The certificates are not currently subject to
state premium taxes. For a more complete description of the various costs and
expenses, see the Prospectus for the AAL Variable Product Series Fund, Inc. that
accompanies this Prospectus.
Notes to the Fee and Expense Tables
1. 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.
2. You can make two free transfers from the Subaccounts in each Certificate
Year. We will charge a $10 fee for each subsequent transfer. See the
Transfers Among Subaccount and/or the Fixed Account section in this
prospectus for more information on this charge and the restrictions on
transfers from the Fixed Account.
3. 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.
4. We have agreed to pay on behalf of the Fund or to reimburse the Fund for
all expenses in excess of 0.33% for the Balanced and Large Company Stock
Portfolios, 0.35% for the Money Market, Bond, and Small Company Stock
Portfolios, 0.80% for the International Stock Portfolio and 0.40% for the
High Yield Bond 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 for the period ended December
31, 1998 would have been:
Portfolio Other Expenses Total Annual Fund Expenses
Money Market Portfolio .09% 0.44%
Bond Portfolio .17 0.52
Balanced Portfolio .06 0.39
Large Company Stock Portfolio .05 0.38
Small Company Stock Portfolio .08 0.43
High Yield Bond Portfolio* .14 0.54
International Stock Portfolio* .50 1.30
- -----------------
* These figures are based on the period from March 2, 1998 to December 31, 1998,
and are annualized.
Examples
The following examples illustrate the expenses that you would incur on a $1,000
investment with a 5% return on assets.
A. If you surrender or annuitize your certificate using Option 2 or 3 at the
end of the periods shown:
1 Year 3 Years 5 Years 10 Years
Money Market $83 $105 $127 $208
Bond 83 105 127 208
Balanced 83 104 126 206
Large Company Stock 83 104 126 206
Small Company Stock 83 105 127 208
International Stock 87 118 150 256
High Yield Bond 83 107 130 213
B. If you do not surrender your certificate at the end of the period shown:
1 Year 3 Years 5 Years 10 Years
Money Market $18 $56 $96 $208
Bond 18 56 96 208
Balanced 18 55 95 206
Large Company Stock 18 55 95 206
Small Company Stock 18 56 96 208
International Stock 23 70 119 256
High Yield Bond 18 57 98 213
C. If you annuitize your certificate using Options 4 or 5 at the end of the
periods shown:
1 Year 3 Years 5 Years 10 Years
Money Market $83 $56 $96 $208
Bond 83 56 96 208
Balanced 83 55 95 206
Large Company Stock 83 55 95 206
Small Company Stock 83 56 96 208
International Stock 87 70 119 256
High Yield Bond 83 57 98 213
Note to the Examples: The examples should not be considered a representation of
past or future expenses for the Variable Account or for any Portfolio. Actual
expenses may be greater or less than those shown above. Similarly, the 5% annual
rate of return assumed in the example is not an estimate or guarantee of future
investment performance.
<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, 1998. 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 Periods Ended:
<TABLE>
<CAPTION>
Subaccount 1998 1997 1996 1995 Commencement Date*
- ---------- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
Money Market $1.15 $1.10 $ 1.06 $ 1.02 $ 1.00
Bond 12.42 11.57 10.72 10.53 10.00
Balanced 17.57 14.91 12.41 11.06 10.00
Large Company Stock 23.14 18.25 13.93 11.53 10.00
Small Company Stock 15.64 15.82 12.78 10.95 10.00
International Stock 10.93 N/A N/A N/A 10.00
High Yield Bond 9.58 N/A N/A N/A 10.00
</TABLE>
* The first five Subaccounts commenced operations on June 15, 1995; the last two
Subaccounts commenced operations on March 3, 1998.
Number of Accumulation Units Outstanding at the End of the Period:
<TABLE>
<CAPTION>
Subaccount 1998 1997 1996 1995
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Money Market 28,880,399 23,019,814 14,226,261 4,931,298
Bond 3,397,426 1,869,057 1,185,965 402,927
Balanced 31,007,716 20,544,311 8,992,900 1,364,855
Large Company Stock 24,637,221 17,445,874 7,868,532 1,258,237
Small Company Stock 12,646,465 9,660,146 5,003,533 928,755
International Stock 405,358 N/A N/A N/A
High Yield Bond 1,044,323 N/A N/A N/A
</TABLE>
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Variable Account may include in advertisements and other
sales materials several types of performance information for the Subaccounts.
This information may include "average annual total return." The Bond Subaccount,
the Balanced Subaccount and the High Yield Bond Subaccount may also advertise
"yield". The Money Market Subaccount may advertise "yield" and "effective
yield".
The performance information that we may present is not an estimate or guarantee
of future investment performance and does not represent the actual investment
experience of amounts invested by a particular Owner. Additional information
concerning a Subaccount's performance appears in the Statement of Additional
Information.
Total Return and Yield Quotations. Average annual total return figures measure
the net income of a Subaccount and any realized or unrealized gains or losses of
the underlying investments in the Subaccount, over the period stated.
Yield is a measure of the net dividend and interest income earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Subaccount), expressed as a percentage of the value of the Subaccount's
Accumulation Units. Yield is an annualized figure, which means that we assume
that the Subaccount generates the same level of net income over a one-year
period and compound that income on a semi-annual basis. We calculate the
effective yield for the Money Market Subaccount similarly, but include the
increase due to assumed compounding. The Money Market Subaccount's effective
yield will be slightly higher than its yield due to this compounding effect.
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, we may compare the performance of the Portfolios 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, Merrill Lynch High Yield
Master Index 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, 1998, AAL has approximately 1.7 million members
and is the world's largest fraternal benefit society in terms of statutory
assets (over $20 billion) and life insurance in force ($85 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.
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 federal securities laws. The
SEC does not supervise the management or investment practices or policies of the
Variable Account.
The Variable Account is divided into Subaccounts. Your 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 Subaccounts. 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 our other
income, gains or losses. Obligations arising under the certificates are our
obligations.
The Fixed Account
Amounts allocated to Fixed Account under the certificate are part of our general
account which support annuity and insurance obligations. Because of exemptive
and exclusionary provisions, we have not registered interests in the Fixed
Account under the Securities Act of 1933 nor the Fixed Account as an investment
company under the 1940 Act. The SEC 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 have no voting rights with respect to Fixed Account Values.
The Fund
You allocate Premiums or transfer Accumulated Values to one or more of the
Subaccounts. The Subaccounts, in turn, invest in shares of a corresponding
Portfolio of the AAL Variable Product Series Fund, Inc. (the Fund). 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.
The Fund currently offers its shares to three of our separate accounts: the AAL
Variable Annuity Account I and II and the AAL Variable Life Account I as well as
retirement plans including the Aid Association for Lutherans Savings Plan. We
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.
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 you request.
We automatically reinvest any dividends or capital gain distribution amounts
that we receive on shares of the Portfolios held under the certificates. We
reinvest at the Portfolio's net asset value on the date payable. Dividends and
capital gain distribution amounts will reduce the net asset value of each share
of the corresponding Portfolio and increase the number of shares outstanding of
the Portfolio by an equivalent value. However, these dividends and capital gain
distribution amounts do not change your Account Value.
The chart below indicates the names of the Portfolios in which the Subaccounts
invest, as well as the investment objectives, investment adviser and sub-adviser
for each Portfolio.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------- ------------------------------------- --------------------- --------------------------
Investment Investment Investment
Portfolio Objectives Adviser Sub-Adviser
- ---------------------------------- ------------------------------------- -------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
Money Market Portfolio Seeks maximum current income and a AAL Not Applicable
constant Net Asset Value of $1.00 per share
by investing in high-quality, short-term
money market instruments.
- ---------------------------------- ------------------------------------- --------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
Bond Portfolio Strives for investment results AAL Not Applicable
similar to the Lehman Brothers Aggregate Bond
Index by investing primarily in bonds and
other debt securities included in the Index.
- ---------------------------------- ------------------------------------- --------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
Balanced Portfolio Seeks capital growth and income by AAL Not Applicable
investing in a mix of common stocks, bonds
and money market instruments. Securities are
selected consistent with the policies of the
AAL Variable Product Large Company Stock
Portfolio, Bond Portfolio and Money Market
Portfolios.
- ---------------------------------- ------------------------------------- --------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
Large Company Stock Portfolio Strives for
investment results that AAL Not Applicable
approximate the performance of the Standard &
Poor's 500(R)* Composite Stock Price Index by
investing primarily in common stocks of the
Index.
- ---------------------------------- ------------------------------------- --------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
Small Company Stock Portfolio Strives for
investment results that AAL Not Applicable
approximate the performance of the S&P
SmallCap 600(R)* Index by investing primarily in
common stocks of the
Index.
- ---------------------------------- ------------------------------------- --------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
International Stock Portfolio Seeks long-term capital growth by AAL Oechsle International
investing primarily in foreign Advisors, LLC
stocks.
- ---------------------------------- ------------------------------------- --------------------- --------------------------
- ---------------------------------- ------------------------------------- --------------------- --------------------------
High Yield Bond Portfolio Seeks high current income and AAL AAL Capital Management
secondarily capital growth by Corporation
investing primarily in high risk,
high yield bonds commonly referred
to as "junk bonds."
- ---------------------------------- ------------------------------------- --------------------- --------------------------
</TABLE>
- ------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500",
"500", "Standard & Poor's SmallCap 600" and "S&P SmallCap 600" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for
use by AAL. The Fund and the certificates are not sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund. (Please
see the Statement of Additional Information which sets forth certain
additional disclaimers and limitations of liabilities on behalf of S&P.)
Before selecting any Subaccount, you should carefully read the prospectus for
the Fund. The prospectus provides more complete information about the Portfolios
of the Fund in which the Subaccounts invest, including investment objectives and
policies, charges and expenses.
High yielding fixed-income securities, such as those in which the High Yield
Bond Portfolio invests, are subject to greater market fluctuations and risk of
loss of income and principal than investments in lower yielding fixed-income
securities. You should carefully read about this Portfolio in the prospectus and
related statement of additional information for the Fund and consider your
ability to assume the risks of making an investment in the corresponding
Subaccount.
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).
We may issue the certificate as one of the following:
<TABLE>
<CAPTION>
<S> <C>
o A Nonqualified Annuity; o An Annuity for a Savings Incentive Match Plan for
Employees (SIMPLE-IRA);
o An Annuity for a Qualified Plan; o A Roth Individual Retirement Annuity (Roth
IRA); or
o A Traditional Individual Retirement Annuity o A Tax-Sheltered Annuity (TSA).
(Traditional IRA);
o An Annuity for a Simplified Employee Pension
Plan (SEP-IRA);
</TABLE>
You may apply for a certificate by completing and submitting a traditional paper
application or an electronic application available through your AAL
Representative. If you submit an electronic application, you will be asked to
certify the accuracy and completeness of the information in your electronic
application and sign an electronic signature pad. The data will then be
transmitted electronically to us. We will attach a paper copy of the application
to your certificate, if the certificate can be issued. The electronic
application may not be available in your state.
You must give us or arrange to have sent to us a single Premium Payment of at
least $600 along with your application. 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.
Premium payments over $1,000,000 require our prior approval.
If you choose to receive contribution notices, we will send them according to
the amount, allocation and interval you choose. 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 Payment 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. We will send you a notice
at least 30 days before termination.
Certain provisions of the certificate may vary from state to state in order to
conform with the law of the state in which you reside. This prospectus describes
generally applicable provisions. You should refer to your certificate for any
variations required by state law.
Crediting and Allocating Your Premium Payments
You may allocate your Premiums to any Subaccount of the Variable Account and/or
the Fixed Account. Your allocation must be in whole percentages and total 100%
of your Premiums. 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, we will treat your application as not
in good order.
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 you of the reason for the delay and that the initial Premium will be
returned immediately unless you specifically consent to our keeping the initial
Premium until the application is complete.
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 that Valuation Period.
You may make regularly scheduled Premiums through the automatic deduction from
your savings or checking account to the Subaccount(s) or Fixed Account you
select. This can be done through our Member Convenience Account and you may set
it up at the time of your application. When you set this up, you may select the
day of the month that you want the money withdrawn from your account. If the
date you select falls on a date that is not a Valuation Date, such as a weekend
or holiday, we will allocate the Premium as of the closest preceding Valuation
Date. See the section below on Member Convenience Account for more information.
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 most recent instructions. Once each day
that we are open for business, we determine the Net Asset Value (NAV) per share
of the underlying Portfolios at the close of regular trading on the New York
Stock Exchange, currently 4:00 p.m. Eastern Time. We also determine the
Accumulation Unit Value (AUV) of each Subaccount at the end of each day also at
4:00 p.m. Eastern Time. We do not determine the NAV or the AUV on holidays
observed by the Exchange or on holidays observed by AAL.
The Exchange is regularly closed on Saturdays and Sundays and on New Year's Day,
Martin Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. If one of these
holidays falls on a Saturday or Sunday, the Exchange will be closed on the
preceding Friday or the following Monday, respectively. During 1999, AAL will be
closed for business on the Friday following Thanksgiving and the Monday after
Christmas. On those days, we will not purchase or redeem any shares of the Fund
notwithstanding the fact that the New York Stock Exchange will be open. We will
not purchase or redeem any Accumulation Units on any days that AAL is not open
for business.
Free Look Period
Generally, you may return your certificate for cancellation within 10 days after
you initially receive it. However some states require a longer free look period.
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 Issue Date and
you will be entitled to receive an amount equal to the certificate's Accumulated
Value as of the date you notify us or the date we receive your cancellation
request in our Service Center, whichever is earlier. You will receive your money
within seven days after we receive your request for cancellation. However, if
your certificate is an IRA and you decide to cancel it, within seven days from
the receipt of your IRA disclosure we will refund your Premium less any payments
made.
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.
Member Convenience Account
We offer a plan that allows you to make Premium Payments 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.
Owners, Payees and Annuitants
You, as Owner, are 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. As Owner, you can name
Beneficiaries, assign the certificate, transfer allocations between Subaccounts
and the Fixed Account and designate who receives any Annuity Payments or
distributions under the certificate. You will receive all Annuity Payments
during the Annuitant's lifetime, unless you designate another person or entity
as the Payee. Keep in mind that if you designate another person or entity as
Payee, you may still be responsible for any income tax payable on the payments.
In the event the Annuitant dies, the Death Proceeds in the certificate are
payable to the named Beneficiary. If there is effectively no Beneficiary, the
Death Proceeds are payable to you as the Owner. We use the Annuitant's life to
determine the Annuity Commencement Date of the certificate. 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 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 membership application. 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
adult applicant controller exercises certain rights of ownership on behalf of
the Juvenile Annuitant. These rights are described in the certificate. The adult
controller may transfer control to another eligible person, but cannot transfer
ownership of the certificate.
Transfer of control to the Juvenile Annuitant will take place at the first
Certificate Anniversary following the earlier of:
o the Annuitant's 21st birthday;
o the Annuitant's 16th birthday after the adult controller transfers control
to the Annuitant in writing; or
o the death of the adult controller 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 our Bylaws.
If AAL determines that it is best for the Annuitant, we may transfer control of
the certificate to some other eligible person according to our Bylaws.
The Juvenile Annuitant will become a benefit member of AAL on the first
Certificate Anniversary on or following the Juvenile's 16th birthday.
Beneficiaries
You 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 you, if living,
otherwise to your estate. Our Bylaws list persons eligible to be Beneficiaries.
You may designate beneficiaries as either first, second or third class. Unless
otherwise specified, we will distribute Death Proceeds in the following order to
Beneficiaries:
o equally to the Beneficiaries in the first class. If none are living, then;
o equally to the Beneficiaries in the second class. If none are living, then;
o equally to the Beneficiaries in the third class.
If a Beneficiary dies within 15 days after the death of the Annuitant, we will
consider the Beneficiary to have died before the Annuitant for purposes of
paying the Death Proceeds.
You may change 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. Any such change is effective on the date you designate on your
Written Request or the date we receive your Written Request at our Service
Center if no date appears on the request. A change in Beneficiary 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
You may absolutely assign your certificate by sending a Written Request to our
Service Center. You may not absolutely assign a Juvenile Certificate or a
certificate issued in connection with Qualified Plans. You may assign your
certificate as collateral for a loan by sending a Written Request to our Service
Center. You may not assign a certificate issued in connection with a Qualified
Plan as collateral. We will give you a special form to make these requests. We
must receive and approve any assignment request before it is effective. Once we
approve it, the assignment is effective on the date you designated on your
Written Request or the date we receive it 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 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,
assignments are taxable as a complete distribution (surrender) from a deferred
annuity contract. 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
If you are not the Annuitant, you may designate a Successor Owner to receive the
certificate in the event of your death. If you do not designate a Successor
Owner, your estate will become the new Owner upon your death. You may designate
or change a Successor Owner by submitting a Written Request to our Service
Center. We will give you a special form on which to make this request. We must
receive and approve any Successor Owner request before it is effective. Once we
approve it, the successor owner designation is effective on the date you
designated on your Written Request or the date we receive it 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.
Upon your death, we are required to distribute the cash surrender value within
five years. However, if the Successor Owner is a natural person (as opposed to
an entity), the Successor Owner may elect to receive the cash surrender value in
periodic payments over the Successor Owner's life (or over a period not
exceeding the Successor Owner's life expectancy) as long as the payments begin
within one year of your death. If your spouse is the Successor Owner, your
spouse will automatically become the Owner of the certificate and will not be
required to take these distributions.
Certificates Issued in Connection with Qualified Plans
If the certificate is used in a Qualified Plan and the Owner is the plan
administrator, the plan administrator 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. Any
distributions you take from the certificate during the Accumulation Phase are
taxable to the extent there is gain in the certificate. Accumulation Phase
distributions are taxed differently than Annuity Payments. For Annuity Payments
(periodic payments from a Annuity Payment Option during the Annuity Phase), any
cost basis in the certificate is prorated over the length of the Annuity Payment
Option. Therefore, each Annuity Payment will consist partially of cost basis (if
there is any) and partially of taxable gain.
Certificate Valuation
During the Accumulation Phase, we refer to your certificate's value as the
Accumulated Value. The Accumulated Value is the total of:
o the Fixed Account value; and
o 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).
Fixed Account Valuation
You may choose to deposit some or none of your money in the Fixed Account
portion of the certificate. We will credit interest 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 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 rate that applies 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
block 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 blocks 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.
Variable Account Valuation
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.
We credit Accumulation Units to your Subaccount when you allocate Premiums or
transfer amounts to that particular Subaccount. The number of Accumulation Units
we credit is determined by dividing the Premium or other amount credited to the
Subaccount by the Accumulation Unit Value for that Valuation Date. Conversely,
we reduce your Accumulation Units in a Subaccount when you withdraw or transfer
from that Subaccount and by the Certificate Maintenance Charge allocable to your
certificate. 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.
In addition to your investment experience, any Premiums you make or any surplus
refund we credit will positively affect your Accumulated Value. If you make any
withdrawals, your Accumulated Value will decrease by the amount of the
withdrawals and any associated withdrawal charges.
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. We deduct charges on both the Fund level and the
Variable Account level.
The Accumulation Unit Value of a Subaccount for any Valuation Period is equal
to:
o the Net Asset Value of the corresponding Fund Portfolio attributable to the
Accumulation Units at the end of the Valuation Period;
o plus the amount of any income or capital gain distribution made by the Fund
Portfolio during the Valuation Period;
o minus the dollar amount of the mortality and expense risk charge we deduct
for each day in the Valuation Period;
o plus or minus any cumulative credit or charge for taxes reserved which we
determine has resulted from the operation of the Subaccount; and
o 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 high.
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 4:00 p.m. Eastern Time as of the close of
business on that Valuation Date. We will process requests we receive after that
time as of the close of business on 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 specify. We will impose the
following restrictions on transfers:
o 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.
o You must transfer in a minimum amount of $50 to any Subaccount or to the
Fixed Account.
o You may make two free transfers from one or more Subaccounts in each
Certificate Year. 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 you transfer from two or
more Subaccounts, we apply the $10 transfer charge among those Subaccounts
in proportion to the amounts you transfer.
o 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.
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 withdrawals, transfers, Premium allocation changes and certain other
transactions pursuant to your telephone instructions ("Telephone Request"). We
employ 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. We may be liable for losses due to unauthorized
or fraudulent instructions only if we fail 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, or (920)734-5721,
locally. We reserve the right to suspend or limit telephone transactions.
Surrenders and Withdrawals
You may surrender or withdraw from your Accumulated Value during the
Accumulation Phase if the Annuitant is alive. To make a withdrawal you make a
request to our Service Center. If you make a Telephone Request for a withdrawal,
we are required to withhold 10% for federal income 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 4:00 p.m. Eastern 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(s) or Fixed Account. However, we must agree to of any selection. If
you request a withdrawal and do not specify the source of the withdrawal (the
specific Subaccount(s) or Fixed Account) then we will take the withdrawal on a
pro rata basis from each Subaccount and Fixed Account. You may not withdraw less
than $25 at one time.
There are restrictions on withdrawals from 403(b) certificates (also known as
Tax Sheltered Annuities). We may only distribute those amounts attributable to
salary reduction contributions and their earnings only:
o after you attain age 59 1/2; or
o after you resign or are terminated from your job; or
o if you die;
o if you become disabled; or
o in certain cases of hardship (Premiums only can be distributed).
Certificates issued as Qualified Plans under section 401 of the Code may also
restrict certain distributions. See your 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 consult your tax adviser regarding the tax consequences of any
withdrawal or surrender. A withdrawal or surrender made before you attain age 59
1/2 may result in adverse tax consequences, including the imposition of a 10%
federal income tax penalty. See "Federal Tax Considerations" for more details.
Automatic Payout Option
The Automatic Payout Option is a series of partial withdrawals from your
certificate based on the payment method you select. You are taxed on each
distribution to the extent there is taxable gain in the certificate. This
distribution plan is not considered annuitization nor are the payments
considered Annuity Payments under a Annuity Payment Option after the Annuity
Commencement Date. You may only establish the Automatic Payout Option during the
Accumulation Phase. Distributions made as automatic payments under this option
will be subject to withdrawal charges. See "Charges and Deductions" . This
distribution plan can be set up by contacting your AAL Representative.
Death of the Owner and/or Annuitant before the Annuity Commencement Date
Upon the Annuitant's death, we will pay the Death Proceeds to your Beneficiary.
If you are also the Annuitant upon your death, we will pay the entire Death
Proceeds to your Beneficiary. If your spouse is the sole Beneficiary and the
certificate was not issued in connection with a Qualified Plan, your spouse may
elect to continue the certificate as the new Owner and Annuitant.
If you are the Owner, but not the Annuitant, upon your death we will pay the
cash surrender value (not the Death Proceeds) of the certificate to your
Successor Owner. If your spouse is the Successor Owner, your spouse will
automatically continue as the Owner upon your death.
Upon your death, we are required to distribute the Death Proceeds (or cash
surrender value) to either your Beneficiary or Successor Owner (as stated
above):
o within five years of your death; or
o if your Beneficiary or Successor Owner is a natural person (as opposed to
an entity), he or she may select a Annuity Payment Option under which
payments must begin within one year of your death. The Annuity Payments in
the selected Annuity Payment Option must be made over the life of the
Beneficiary but cannot extend beyond that period.
Your Beneficiary's choices of payments may be limited if you designate a
mandatory form of beneficiary designation which does not allow your Beneficiary
to change it.
Before we can process any Death Proceeds, we must receive:
o proof that the Annuitant or Owner died before the Annuity Commencement
Date;
o a completed claim form; and
o any other information that we reasonably require to process the claim.
If we do not receive information from the Beneficiary within 60 days of
receiving proof of death, we will:
o 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
o apply the Death Proceeds to Annuity Payment 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 Written Request 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. Other options for Death
Proceeds are available. See the section on Annuity Payments below. 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 greater of:
o the Accumulated Value of the certificate on the Death Proceeds Calculation
Date;
o the sum of all Premiums paid less the sum of any withdrawals as of the
Death Proceeds Calculation Date; or
o 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 Issue Date. After that,
the minimum Death Proceeds Valuation Date is every seventh anniversary of the
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 you are not the Annuitant, we will pay the cash
surrender value of the certificate to your Successor Owner.
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 Annuity Payment Option and we
make Annuity Payments beginning on the Annuity Commencement Date. Currently, we
offer Annuity Payment Options only on a fixed basis, however, we may choose to
make other Annuity Payment 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 an
Annuity Payment Option. The Annuity Commencement Date is sometimes referred to
as a maturity date or annuity date. We cannot make any Annuity Payments under a
Annuity Payment 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. If the
certificate is nonqualified, age 80 is the earliest maturity age we use. If the
certificate is a qualified certificate, age 70 is the earliest maturity age we
use. For either qualified or nonqualified certificates, if the Annuitant's age
is greater than the earliest maturity age we use, the maturity age and Annuity
Commencement Date will be dependent upon the Annuitant's age at the time we
issue the certificate. In all cases, the latest maturity age we will use is 114.
You may change your Annuity Commencement Date by submitting a Written Request to
our Service Center. The Annuity Commencement Date must be within the Annuitant's
life expectancy and is subject to our approval.
If we issued your certificate in connection with a Qualified Plan, your plan
document, certificate endorsement or applicable law may restrict your choice of
an Annuity Commencement Date or the Annuity Payment Option available.
If we issue a certificate in Pennsylvania or Texas, we will use the following
maturity ages to base your Annuity Commencement Date on:
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
Annuitant's age on the last birthday on the Certificate Anniversary on or
immediately prior to the Annuity Commencement Date. For the Texas requirement,
the maturity age is the Annuitant's age on the Annuity Commencement Date.
Annuity Payments
If you select an Annuity Payment 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. Generally, you or your
Beneficiary is the Payee. The following Annuity Payment 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. You will be taxed on any taxable gains which
accumulated and any earnings attributable to your Accumulated Value in the year
in which you elected this Option. This Option may not be available in your
state.
Option 2-Specified Amount Income
We make Annuity Payments at regular intervals of the amount you selected 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. 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
to a minimum dollar amount.
Option 3-Fixed Period Income
We make Annuity Payments at regular intervals for a fixed number of payments,
not to exceed 30 years. We call this payment period the "Guaranteed Payment
Period". At the end of the Guaranteed Payment Period, all of the Annuity
Payments will be paid, and the certificate will terminate. 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 to 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 Payment Period, we will continue payments
to the Payee's named Beneficiary to the end of the Guaranteed Payment Period.
The Payee may choose a Guaranteed Payment Period of 0 to 20 years at the time
this Option is selected. The amount of the Annuity Payments depends upon the age
and, where permitted, sex of the Payee at the time we issue the Annuity Payment
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 Payment 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 Payment Period,
we will continue payments to the Payees' Beneficiary to the end of that period.
The Payee may choose a Guaranteed Payment Period of 0 to 20 years at the time
this Option is selected. The Payees may also choose to have the Annuity Payments
reduce upon the death of the first Payee. The Annuity Payment may reduce by a
factor of 1/2, 1/3 or 1/4. A higher reduction amount will result in a higher
payment while both Payees are alive. The amount of the payments depends upon the
age and, where permitted, sex of the Payees at the time we issue the Annuity
Payment Option. Annuity Payments paid under this Option are guaranteed as to
minimum dollar amount during the Guaranteed Payment Period.
AAL also has other Annuity Payment 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 an Annuity Payment Option before your Annuity Commencement
Date, we will select Option 4, the Life Income with 10-Year Guaranteed Payment
Period for you.
Before your Annuity Commencement Date, you may elect to receive a single sum
rather than payments under the Annuity Payment Option by surrendering the
certificate. We will deduct a surrender charge from the Accumulated Value of
your certificate, if applicable.
Under the Annuity Payment Options, the Payee 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 Annuity Payment 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 Annuity Payment Option. We determine the
amount of your Annuity Payments by applying the Accumulated Value to be applied
to the Annuity Payment Option at the Annuity Commencement Date, less any fees or
charges due, to the annuity table in the certificate for the Annuity Payment
Option selected. We show the amount of the Annuity Payments guaranteed by us for
each $1000 in an Annuity Payment Option in the table in your certificate. The
values of the Annuity Payment 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 Annuity Payment Option, we may pay
more than the amount of the guaranteed payment. However, we also reserve 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 an
Annuity Payment 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 an Annuity Payment Option or receipt of a
lump sum.
Subject to minimums set forth in the certificate, we declare interest rates
applicable to Annuity Payment Options at least annually. We consider numerous
factors, including the earnings of the general or special accounts, expenses and
mortality charges and experience.
Withdrawals and Surrenders During the Annuity Phase
During the Annuity Phase, you may make withdrawals and surrenders under certain
circumstances. If you have chosen an Annuity Payment 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 Payments. The commuted value is the guaranteed payments
discounted at a guaranteed discount rate at the time you select your Annuity
Payment Option. However, we may charge a withdrawal or surrender charge. Please
see Charges and Deductions. If you make a withdrawal and elect another Annuity
Payment Option for the remaining balance, the new Annuity Payment 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 Annuity Payment Option at least as rapidly as payments were being paid
under that Annuity Payment Option on the date of death.
CERTIFICATE FEES AND CHARGES
Sales Charge
There is no sales charge deducted from your Premium Payments.
Premium Tax Charge
There is currently no premium tax applicable to the certificates.
Withdrawal or Surrender Charges
If you make a withdrawal from or surrender the certificate before the
certificate has been in force for seven full Certificate Years, the charges in
the table shown below will apply. If you annuitize (select an Annuity Payment
Option) before the end of the 7th Certificate Year, we will assess the
applicable surrender charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate Year 1 2 3 4 5 6 7 8+
- ----------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Charge as Percentage of Excess Amount 7% 6 5 4 3 2 1 0
Withdrawn or Surrendered (1)
</TABLE>
- ------------------
(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 is 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 you made the first withdrawal 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 you made the first withdrawal in that Certificate
Year. Any subsequent free withdrawals are subtracted from this amount. This
right is not cumulative from Certificate Year to Certificate Year, so each
Certificate Year you are only 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:
o If you or your spouse is 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.
o 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 Annuity Payment Options).
o 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 (except if you live in South Carolina). 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. We reserve the right to waive this
charge.
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 (and your joint payee in
a joint life income) under Annuity Payment 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 from 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.
Miscellaneous
Each Portfolio pays charges and expenses out of its assets. The prospectus for
the Fund describes the charges and expenses.
We reserve the right to impose charges or establish reserves for any federal or
local taxes that we incur today or may incur in the future and that we deem
attributable to the certificates.
Taxes
Currently, we do not assess a charge 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:
o the certificate;
o the application;
o attached endorsements or amendments, if any; and
o 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 Annuity Payment 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 Annuity Payment Options) not vary based on
a person's sex. In Arizona Governing Committee v. Norris, the U.S Supreme Court
let stand a U.S. Court of Appeals decision which held 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 Annuity Payment 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.
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 Phase (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 in the Variable
Account 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 will be voted by us 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 Subaccount(s) 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, withdrawal, surrender 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, usually 4:00
Eastern Time 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 pay 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:
o the New York Stock Exchange is closed for trading other than customary
weekend and holiday closings;
o trading on the New York Stock Exchange is restricted;
o an emergency exists, as a result of which it is not reasonably practicable
to dispose of securities or to fairly determine their value; or
o 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
You may make inquiries regarding the certificate by writing or calling our
Service Center. The address for the Service Center is: AAL Variable Products
Service Center, 4321 North Ballard Road, Appleton, Wisconsin, 54919-0001. The
toll-free telephone number is (800)-225-5225, locally (920)734-5721.
FEDERAL TAX STATUS
We do not intend these discussions of tax matters and those in the Statement of
Additional Information as tax advice. The ultimate effect of federal income
taxes on a certificate or the economic benefit to the Owner, Annuitant or
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.
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.
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 your
certificate until a distribution occurs, either in the form of a withdrawal,
surrender, Automatic Payout Option, assignment or as Annuity Payments under an
Annuity Payment 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. You will be taxed on any increases under such a certificate in the
year 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), or if the certificate
was purchased by your employer with respect to a terminated Qualified Plan.
Distributions during the Accumulation Phase
Payments from a withdrawal, Automatic Payout Option 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 surrendered for tax
purposes.
Distributions during the Annuity Phase
For Annuity Payments under an Annuity Payment 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. You will be
taxed on the taxable portion at ordinary income tax rates.
Distributions from Qualified Plans
For certain Qualified Plans involving pre-tax contributions, you may have no
cost basis in the certificate. In such event, you may be taxed on the total
payments you receive. 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, Automatic Payout Options, 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 included in your
gross income. The penalty tax will not apply if the distribution is made under
one of the following circumstances:
o made to the Beneficiary or Successor Owner on or after your death;
o made to you if you are considered disabled under section 72(m)(7) of the
Code;
o made under a qualified funding asset (commonly referred to as a structured
settlement plan);
o 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;
o or 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), 408 and 408A of the Code. Exemptions similar to those listed above apply
to the penalty tax for Annuitants of Qualified Plan certificates. 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, by Written Request you can elect not to have federal income tax
withheld.
Death Proceeds
Generally, distributions received from your certificate by your Beneficiary or
Successor Owner due to your death are taxable in the year in which the
distributions are received. Your Beneficiary or Successor Owner 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.
Multiple Certificates
All nonqualified annuity Certificatecertificates we issue to you during any
calendar year shall be treated as one certificate for determining the amount
includible in gross income. Therefore, distributions from one certificate will
be taxable to the extent there is a gain in any certificate issued in the same
year. The total impact of this section is not clear. You will most likely have a
larger amount of taxable gain per distribution if you own multiple certificates
with one insurer. If you are subject to the 10% premature distribution penalty,
the amount subject to that tax would also increase.
Tax-Free Exchanges (1035 Exchanges)
Section 1035 of the Code permits the exchange of certain life insurance,
endowment and annuity contracts for an annuity contract without a taxable event
occurring. If you already own an annuity or life insurance contract issued by
another insurer, you are generally able to exchange that contract for a
certificate issued by us tax-free. There are certain restrictions which apply to
such exchanges, including that the contract surrendered must truly be exchanged
for the certificate and not merely surrendered in exchange for cash. Further,
the Owner of the new certificate must be the same as the Owner of the exchanged
certificate. Careful consideration must be given to compliance with Code
provisions and regulations and rulings relating to exchange requirements. If you
are contemplating an exchange, please be sure that you understand any surrender
charges or loss of benefits which might arise in the exchange of the existing
certificate. 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
tax-free.
Transfers of Ownership
Generally, if you assign or transfer ownership of your certificate, you will be
taxed as if you surrendered the certificate. If you are assigning your
certificate to your spouse (or your ex-spouse if the transfer is incident to
your divorce), you will not be taxed on the assignment. 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, plan administrators 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 salary reduction contributions 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 Surrenders and Withdrawals 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 who intend to purchase the certificates for use with a
retirement plan should seek qualified advice as to the suitability of the
proposed plan document and of the certificates to their specific needs
Traditional Individual Retirement Annuities (Traditional IRAs)
If you are under age 70 1/2 and have earned income, you are eligible to
contribute to a traditional Individual Retirement Annuity or traditional IRA.
You can contribute up to the lessor of $2000 or your earned income each year.
Whether or not you can deduct your contributions on your federal income tax
return depends on your adjusted gross income and you and/or your spouse's
participation in a qualified retirement plan. In addition, if you are eligible
for a distribution from certain other Qualified Plans, you can rollover on a tax
deferred basis your Qualified Plan distribution into a traditional IRA. If your
adjusted gross income is under $100,000, you may elect to convert some or all of
the traditional IRA into a Roth IRA. Generally, unless any of your traditional
IRAs contained non-deductible contributions, you will be taxed on the entire
conversion amount in the year you did the conversion. The 10% premature
distribution penalty does not apply upon a conversion to a Roth IRA, but may
apply if you take a distribution from a conversion Roth IRA within five years of
the conversion.
Unless you made nondeductible contributions to a traditional IRA, you will
generally be taxed on any distributions from a traditional IRA. If you are under
age 59-1/2 when you take the distribution, you may be subject to a 10% federal
premature distribution penalty on the taxable amount. You are required to begin
distributions from traditional IRAs by April 1st of the year following the year
in which you attain age 70 1/2.
Simplified Employee Pension Plans (SEP-IRAs)
Section 408(k) of the Code permits 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, in the year in which they are made. Contributions are generally
limited to 15% of each employee's compensation. Other contribution and
eligibility limits apply. Distribution limits and restrictions similar to those
of traditional IRAs apply to these certificates. Employers who use the
certificates in connection with a SEP-IRA plan should seek qualified tax advice.
Savings Incentive Match Plan for Employees (SIMPLE-IRAs)
Section 408(p) of the Code permits employers with no more than 100 employees to
establish a SIMPLE-IRA retirement plan for their employees. Contributions to
SIMPLE-IRAs consist of nonelective employer contributions and up to $6000 per
year in elective salary reduction contributions. Other contribution and
eligibility requirements apply. Distribution limits and restrictions similar to
those of traditional IRAs apply to these certificates. If you take a
distribution during the first two years of participation, you may be subject to
a 25% premature distribution penalty tax on the taxable amount. Employers who
use the certificates in connection with a SIMPLE-IRA plan should seek qualified
tax advice.
Roth Individual Retirement Annuity (Roth IRA)
If your adjusted gross income is under $160,000, you are eligible to contribute
to a Roth Individual Retirement Annuity or Roth IRA. You can contribute up to
the lessor of $2000 or your earned income per year. You cannot deduct your Roth
IRA contributions on your federal income tax return. If you own a traditional
IRA and your adjusted gross income is under $100,000, you may elect to convert
some or all of the traditional IRA into a Roth IRA. Generally, unless the
traditional IRA contained non-deductible contributions, the entire conversion
amount is taxable as a distribution to you
If you take a distribution after five years of establishing a Roth IRA and have
incurred one of the following triggering events, the distribution will be
tax-free. The triggering events are: attaining age 59 1/2, death, disability or
qualifying as a first time home buyer ($10,000 lifetime limit). If you take a
distribution from a Roth IRA before five years have elapsed and you have
incurred a triggering event, the distribution will be tax-free to the extent you
have cost basis. If you take a distribution in an amount over your cost basis,
the amount over and above your cost basis will be taxable. If you take a taxable
distribution before you attain age 59-1/2, you may also be subject to a 10%
premature distribution penalty tax on the taxable amount. The 10% premature
distribution penalty does not apply upon a conversion to a Roth IRA, but may
apply if you take a distribution from a conversion Roth IRA within five years of
the conversion.
Rollover into an IRA
You may rollover assets from a Qualified Plan into a traditional IRA in two
ways. First, you may directly rollover an eligible rollover distribution to a
traditional IRA. The Qualified Plan administrator sends the funds directly to
the traditional IRA as a direct rollover. Second, the employee may receive the
distribution from the Qualified Plan and rollover the same amount the employee
received within 60 days. 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. Statutory changes in the Code with varying effective dates, and
regulations adopted thereunder may also alter the tax consequences of specific
factual situations. 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:
o To operate the Variable Account in any form allowed under the 1940 Act or
in any other form allowed by law;
o To add, delete, combine or modify Subaccounts in the Variable Account;
o 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
o 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.
Distribution Arrangements
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.
AALCMC 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. AALCMC pays
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.
Year 2000 Disclosure
Year 2000 is approaching and we are addressing potential problems that could
affect our systems and the systems of AAL's other service providers, such as
custodians, telephone companies, etc. If systems are not year 2000 compliant,
systems cannot distinguish the year 2000 from the year 1900 because of the way
the software encodes and calculates dates. In 1995, we formed a project team to
review our systems as well as those of AAL's other service providers to address
the year 2000 problem. We believe that we have devoted and will continue to
devote the appropriate amount of resources necessary to prepare our systems so
that services provided to AAL will continue without material disruption across
the pending change in the millennium. Despite our best efforts, we cannot assure
that this will be sufficient to avoid any adverse impact on AAL.
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
Financial Statements
The audited consolidated financial statements of AAL at December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998, and
the audited financial statements of the Variable Account at December 31, 1998
and for each of the two years in the period ended December 31, 1998 are included
in the Statement of Additonal Information.
<PAGE>
CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION
Page
General Information SAI - 2
Regulation and Reserves SAI - 2
Principal Underwriter SAI - 2
Performance Information SAI - 3
Money Market Subaccount SAI - 3
Other Subaccounts SAI - 3
Performance Comparisons SAI - 5
Financial Statements SAI - 6
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 Products Service Center
4321 North Ballard Road
Appleton, WI 54919-0001
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CERTIFICATE
Offered By:
AID ASSOCIATION FOR LUTHERANS
4321 North Ballard Road
Appleton, Wisconsin 54919
STATEMENT OF ADDITIONAL
INFORMATION
Dated May 1, 1999
This Statement of Additional Information ("SAI")is not a prospectus, but should
be read in conjunction with the Prospectus dated May 1, 1999, 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 AAL (attention: Variable Products
Service Center) at the above address.
TABLE OF CONTENTS
Caption Page
GENERAL INFORMATION........................................................SAI-2
REGULATION AND RESERVES....................................................SAI-2
PRINCIPAL UNDERWRITER......................................................SAI-2
PERFORMANCE INFORMATION....................................................SAI-3
Money Market Subaccount....................................................SAI-3
Other Subaccounts..........................................................SAI-3
Performance Comparisons....................................................SAI-5
FINANCIAL STATEMENTS.......................................................SAI-6
<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 almost 9,800 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.
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 $5,059,274.35 to AALCMC for the year ended December
31, 1996, $7,756,917.58 for the year ended December 31, 1997 and $8,411,562.45
for the year ended December 31, 1998. Of these amounts, AALCMC retained $0.
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, 1998, were 4.30% and 4.39%, 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 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 30-day period ended December 31, 1998, the 30-day yield for the Bond
Subaccount was 3.85%, the Balanced Subaccount was 2.06% and the High Yield Bond
Subaccount was 11.35%.
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, 1998, were as follows:
<TABLE>
<CAPTION>
Average Annual Standardized Average Annual Non-Standardized Total
Name of Subaccount Total Return - Year Ended Return Year Ended
- ------------------
December 31, 1998 December 31, 1998
----------------- -----------------
<S> <C> <C>
Money Market (2.53)% 4.02%
Bond 0.48 7.24
Balanced 10.37 17.79
Large Company Stock 18.78 26.76
Small Company Stock (7.34) (1.11)
International Stock N/A N/A
High Yield Bond N/A N/A
</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 $20,000 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 were:
<TABLE>
<CAPTION>
Average Annual Standardized Average Annual Non-Standardized Total
Name of Subaccount Total Return - Inception through Return Inception through
December 31, 1998(1) December 31, 1998
----------------- -----------------
<S> <C> <C>
Money Market 2.97% 4.04%
Bond 5.20 6.29
Balanced 16.02 17.22
Large Company Stock 25.37 26.68
Small Company Stock 12.29 13.46
International Stock 2.39 9.27
High Yield Bond (10.28) (4.25)
</TABLE>
- ---------------------
(1) The Money Market, Bond, Balanced, Large Company Stock and Small Company
Stock Subaccounts all began June 15, 1995. The International Stock and High
Yield Bond Portfolios began March 3, 1998.
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 500
Composite Stock Price Index, Morgan Stanley Capital International Europe,
Australasia and Far East (MSCI EAFE) Index, S&P SmallCap 600 Index, Merrill
Lynch High Yield Master 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
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, 1998. AAL does not prepare financial
statements more often than annually 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 consolidated financial statements of AAL as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 and the
financial statements of the Variable Account as of December 31, 1998 are
included herein and have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their reports thereon appearing and incorporated by
reference, elsewhere herein. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
The financial statements for AAL and the Variable Account are as follows:
Aid Association for Lutherans
Consolidated Financial Statements
December 31, 1998
Contents
Report of Independent Auditors.................................................1
Consolidated Balance Sheets....................................................2
Consolidated Statements of Income..............................................3
Consolidated Statements of Changes in Certificateholders' Surplus..............4
Consolidated Statements of Cash Flows..........................................5
Notes to Consolidated Financial Statements.....................................6
Report of Independent Auditors
The Board of Directors
Aid Association for Lutherans
We have audited the accompanying consolidated balance sheets of Aid Association
for Lutherans (AAL) as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in certificateholders' surplus and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of AAL's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AAL at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years ended December 31, 1998, in conformity with generally
accepted accounting principles.
January 27, 1999
Aid Association for Lutherans
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------------- -------------------
(In Thousands)
<S> <C> <C>
Assets
Investments:
Securities available for sale, at fair value
Fixed maturities $9,067,041 $7,717,917
Equity securities 823,519 681,216
Fixed maturities held to maturity, at amortized cost 3,905,705 4,365,805
Mortgage loans 3,149,509 3,218,193
Real estate 74,529 113,793
Certificate loans 499,509 501,327
Other invested assets 10,425 9,441
------------------- -------------------
Total investments 17,530,237 16,607,692
Cash and cash equivalents 231,761 291,302
Premiums and fees receivable 18,904 13,999
Accrued investment income 198,226 190,776
Deferred acquisition costs 666,837 659,815
Property and equipment 95,057 95,453
Assets held in separate accounts 1,406,402 824,995
Other assets 6,434 7,473
------------------- -------------------
Total Assets $20,153,858 $18,691,505
=================== ===================
Liabilities and Certificateholders' Surplus Certificate liabilities and
accruals:
Future certificate benefits $2,800,287 $2,640,172
Unpaid claims and claim expenses 97,942 97,670
------------------- -------------------
Total certificate liabilities and accruals 2,898,229 2,737,842
Certificateholder funds 13,111,702 12,783,985
Liabilities related to separate accounts 1,406,402 824,995
Other liabilities 189,086 126,616
------------------- -------------------
Total Liabilities 17,605,419 16,473,438
Certificateholders' Surplus
Accumulated surplus 2,137,075 1,890,394
Accumulated other comprehensive income 411,364 327,673
------------------- -------------------
Total Certificateholders' Surplus 2,548,439 2,218,067
------------------- -------------------
Total Liabilities and Certificateholders' Surplus $20,153,858 $18,691,505
=================== ===================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------------- ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
Revenue
Insurance premiums $ 406,153 $ 390,881 $ 364,078
Insurance charges 309,326 297,171 278,774
Net investment income 1,231,684 1,210,481 1,171,590
Net realized investment gains 117,615 107,445 62,959
Other revenue 82,798 68,401 63,141
----------------- ------------------ ------------------
Total revenue 2,147,576 2,074,379 1,940,542
Benefits and expenses
Certificate claims and other benefits 369,443 356,943 345,786
Increase in certificate reserves 172,673 150,754 134,900
Interest credited 800,093 775,196 748,350
Surplus refunds 112,264 109,491 105,997
----------------- ------------------ ------------------
Total benefits 1,454,473 1,392,384 1,335,033
Underwriting, acquisition and insurance
expenses 331,352 329,448 303,162
Fraternal benefits and expenses 115,070 104,279 104,306
----------------- ------------------ ------------------
Total expenses 446,422 433,727 407,468
----------------- ------------------ ------------------
Total benefits and expenses 1,900,895 1,826,111 1,742,501
----------------- ------------------ ------------------
Net income $ 246,681 $ 248,268 $ 198,041
================= ================== ==================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Changes in Certificateholders' Surplus
<TABLE>
<CAPTION>
Accumulated
other Total
Accumulated comprehensive certificateholders'
surplus income surplus
------------------- ----------------------- --------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1,444,085 $ 238,680 $ 1,682,765
Comprehensive income
Net income 198,041 - 198,041
Net increase in unrealized
appreciation of securities
available for sale * - (89,977) (89,977)
------------------- ----------------------- --------------------------
Total comprehensive income 198,041 (89,977) 108,064
Balance at December 31, 1996 1,642,126 148,703 1,790,829
Comprehensive income
Net income 248,268 - 248,268
Net increase in unrealized
appreciation of securities
available for sale * - 178,970 178,970
------------------- ----------------------- --------------------------
Total comprehensive income 248,268 178,970 427,238
Balance at December 31, 1997 1,890,394 327,673 2,218,067
Comprehensive income
Net income 246,681 - 246,681
Net increase in unrealized
appreciation of securities
available for sale * - 83,691 83,691
------------------- ----------------------- --------------------------
Total comprehensive income 246,681 83,691 330,372
Balance at December 31, 1998 $ 2,137,075 $ 411,364 $ 2,548,439
=================== ======================= ==========================
* Net increase in unrealized appreciation of securities available for sale is
reported net of reclassification adjustment calculated as follows:
1998 1997 1996
------------------- ----------------------- --------------------------
Unrealized appreciation of securities
available for sale $ 211,369 $ 247,980 $ (11,170)
Less: reclassification adjustment for
realized gains included in net income 127,678 69,010 78,807
------------------- ----------------------- --------------------------
Net increase (decrease) in appreciation
of securities available for sale $ 83,691 $ 178,970 $ (89,977)
=================== ======================= ==========================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income $246,681 $248,268 $198,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in certificate liabilities and accruals 160,387 131,364 135,911
Increase in certificateholder funds 435,667 424,048 449,570
(Increase) decrease in deferred acquisition costs (8,323) 14,818 (17,547)
Realized gains on investments (105,957) (104,418) (63,219)
Provisions for amortization and depreciation 19,843 17,902 20,309
Changes in other assets and liabilities 50,563 (682) 3,914
----------------- ----------------- -----------------
Net cash provided by operating activities 798,861 731,300 726,979
Investing Activities:
Securities available for sale:
Purchases - fixed maturities (6,269,175) (2,708,407) (2,311,534)
Sales - fixed maturities 4,119,193 1,599,720 1,606,098
Maturities - fixed maturities 847,842 513,605 476,592
Purchases - equities (428,246) (419,487) (203,720)
Sales - equities 402,485 406,714 201,119
Securities held to maturity:
Purchases (294,364) (530,430) (785,732)
Maturities 752,177 576,810 435,374
Mortgage loans funded (244,184) (212,634) (559,005)
Mortgage loans repaid 318,378 308,598 207,904
Certificate loans, net 1,818 (64) (957)
Other 43,623 (6,377) 1,351
----------------- ----------------- -----------------
Net cash used in investing activities (750,453) (471,952) (932,510)
Financing Activities:
Universal life and investment contract receipts 1,029,287 1,051,931 1,086,856
Universal life and investment contract withdrawals (1,137,236) (1,126,545) (940,777)
----------------- ----------------- -----------------
Net cash (used in) provided by financing activities (107,949) (74,614) 146,079
----------------- ----------------- -----------------
Net (decrease) increase in cash and cash equivalents (59,541) 184,734 (59,452)
Cash and cash equivalents, beginning of year 291,302 106,568 166,020
----------------- ----------------- -----------------
Cash and cash equivalents, end of year $231,761 $291,302 $106,568
================= ================= =================
</TABLE>
See accompanying notes.
Aid Association for Lutherans
Notes to Consolidated Financial Statements
December 31, 1998
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Aid Association for Lutherans (AAL) is the nation's largest fraternal benefit
society in terms of assets and individual life insurance in force. It provides
its 1.7 million members with life insurance and retirement products (both fixed
and variable), as well as disability income and long-term care insurance, in
most states. Mutual funds are offered to members by AAL Capital Management
Corporation (CMC). AAL Trust Company, FSB (AALTC), which commenced operations in
November of 1998, provides personal asset management, administrative and other
trust services to members. CMC and AALTC are wholly-owned by AAL Holdings Inc.,
AAL's wholly-owned subsidiary. Credit union services are available to members
from the AAL Member Credit Union, an affiliate of AAL. AAL members are served by
nearly 1,700 district representatives across the country.
Basis of Presentation
The accompanying consolidated financial statements of AAL and its wholly-owned
subsidiary have been prepared in accordance with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of AAL, its
wholly-owned subsidiary, AAL Holdings Inc., and its wholly-owned subsidiaries,
including CMC, AALTC and North Meadows Investment Ltd. All significant
intercompany transactions have been eliminated.
The significant accounting practices used in preparation of the financial
statements are summarized as follows:
Investments
Investments in fixed maturities are classified as available for sale or held to
maturity according to the holder's intent. Securities classified in the
available for sale category are carried at fair value and consist of those
securities which AAL intends to hold for an indefinite period of time but not
necessarily to maturity. Securities in the held to maturity category are carried
at amortized cost and consist of those which AAL has both the ability and the
positive intent to hold to maturity.
Changes in fair values of available for sale securities, after adjustment of
deferred acquisition costs (DAC), are reported as unrealized appreciation or
depreciation directly in certificateholders' surplus as other comprehensive
income and, accordingly, have no effect on net income. The DAC offsets to the
unrealized appreciation or depreciation represent valuation adjustments of DAC
that would have been required as a charge or credit to operations had such
unrealized amounts been realized.
The cost of fixed maturity investments classified as available for sale and as
held to maturity is adjusted for amortization of premiums and accretion of
discounts calculated using the effective interest method. That amortization or
accretion is included in net investment income.
Mortgage loans generally are stated at their outstanding unpaid principal
balances. Interest income is accrued on the unpaid principal balance. Discounts
and premiums are amortized to income using the effective interest method.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Investments (Continued)
Investment real estate is valued at original cost plus capital expenditures less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of the property. Real estate expected to
be disposed of is carried at the lower of cost or fair value, less cost to sell.
Certificate loans are generally valued at the aggregate unpaid balances. Other
investments, consisting of limited partnerships, are valued on the equity basis.
All investments are carried net of allowances for declines in value that are
other than temporary; the changes in those reserves are reported as realized
gains or losses on investments.
Realized gains and losses on the sale of investments and declines in value
considered to be other than temporary are recognized in the Consolidated
Statements of Income on the specific identification basis.
Securities loaned under AAL's securities lending agreement are stated in the
Consolidated Balance Sheets at amortized cost or fair market value, consistent
with AAL's classifications of such securities as held to maturity or available
for sale. AAL measures the fair value of securities loaned against the
collateral received on a daily basis. Additional collateral is obtained as
necessary to ensure such transactions are adequately collateralized.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and include all highly liquid
investments purchased with an original maturity of three months or less.
Deferred Acquisition Costs
Costs which vary with and are primarily attributable to the production of new
business have been deferred to the extent such costs are deemed recoverable from
future profits. Such costs include commissions, selling, selection and
certificate issue expenses. For interest sensitive life, participating life and
investment products, these costs are amortized in proportion to estimated
margins from interest, mortality and other factors under the contracts.
Amortization of acquisition costs for other certificates is charged to expense
in proportion to premium revenue recognized.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. The
cost of property and equipment is being depreciated by the straight-line method
over the estimated useful lives. Accumulated depreciation was $94,297,000 and
$113,453,000 at December 31, 1998 and 1997, respectively.
Certificate Liabilities and Accruals
Reserves for future certificate benefits for participating life insurance are
net level reserves computed using the same interest and mortality assumptions as
used to compute cash values. Reserves for future certificate benefits for
non-participating life insurance are also net level reserves, computed using
assumptions as to mortality, interest and withdrawal, with a provision for
adverse deviation. Interest assumptions generally range from 2.5% to 4.0% for
participating life insurance and from 7.8% to 9.6% for non-participating life
insurance.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Certificate Liabilities and Accruals (Continued)
Reserves for future certificate benefits for universal life insurance and
deferred annuities consist of certificate account balances before applicable
surrender charges. The average interest rate credited to account balances in
1998 was 7.4% for universal life, 6.0% for portfolio-average deferred annuities,
and ranged from 4.4% to 7.2% for investment generation deferred annuities (IGA).
Reserves for health certificates are generally computed using current pricing
assumptions. For Medicare supplement, disability income and long term care
certificates, reserves are computed on a net level basis using realistic
assumptions, with provision for adverse deviation.
Claim reserves are established for future payments not yet due on claims already
incurred, relating primarily to health certificates. These reserves are based on
past experience and applicable morbidity tables. Reserves are continuously
reviewed and updated, with any resulting adjustments reflected in current
operations.
Separate Accounts
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable annuity and
variable universal life contracts, and for which the certificateholder, rather
than AAL, bears the investment risk. Fees charged on separate account
certificateholder deposits are included in insurance charges. Separate account
assets, which are stated at fair value based on quoted market prices, and
separate account liabilities are shown separately in the Consolidated Balance
Sheets. Operating results of the separate accounts are not included in the
Consolidated Statements of Income.
Insurance Premiums and Charges
For life and some annuity contracts other than universal life or investment
contracts, premiums are recognized as revenues over the premium paying period,
with reserves for future benefits established on a prorated basis from such
premiums.
Revenues for universal life and investment contracts consist of policy charges
for the cost of insurance, policy administration and surrender charges assessed
during the period. Expenses include interest credited to certificate account
balances and benefits incurred in excess of certificate account balances.
Certain profits on limited payment certificates are deferred and recognized over
the certificate term.
For health certificates, gross premiums are prorated over the contract term of
the certificates with the unearned premium included in the certificate reserves.
Surplus Refunds
Surplus refunds are recognized over the certificate year and are reflected in
the Consolidated Statements of Income. The majority of life insurance
certificates, except for universal life and term certificates, begin to receive
surplus refunds at the end of the second certificate year. Surplus refunds are
not currently being paid on interest-sensitive and health insurance
certificates. Surplus refund scales are approved annually by AAL's Board of
Directors.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 1. Nature of Operations and Significant Accounting Policies (Continued)
Fraternal Benefits
Fraternal benefits and expenses include all fraternal activities as well as
expenses incurred to provide or administer fraternal benefits, and expenses
related to AAL's fraternal character. This would include items such as
benevolences to help meet the needs of people, educational benefits to raise
community and family awareness of an issue, as well as various programs and
church grants. Expenses, such as those necessary to maintain the branch system,
are also included.
Other Revenue
Other revenue consists primarily of concessions and investment advisory fees of
CMC.
Income Taxes
AAL, a fraternal benefit society, qualifies as a tax-exempt organization under
the Internal Revenue Code. Accordingly, income earned by AAL is generally exempt
from taxation. AAL's wholly-owned subsidiary and its subsidiaries are subject to
federal and state taxation; however, the resulting income taxes are not material
to AAL's financial statements.
Recent Pronouncements
As of January 1, 1998, AAL adopted Financial Accounting Standards Board (FASB)
Statement 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on AAL's net income or
certificateholders' surplus. Statement 130 requires unrealized appreciation or
depreciation on AAL's securities available for sale, which prior to adoption
were reported separately in certificateholders' surplus, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.
In June 1998, the FASB issued Statement 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. Because of AAL's minimal involvement with
derivative instruments and hedging activities, management does not anticipate
that the adoption of the new statement will have a significant effect on
earnings or the financial position of AAL.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments
AAL's investments in available for sale securities and held to maturity
securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities at December 31, 1998:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $1,741,661 $17,854 $ (2,203) $1,757,312
Obligations of other
governments, states and
political subdivisions 18,528 996 19,524
-
Corporate bonds 5,862,020 147,705 (28,691) 5,981,034
Mortgage & asset-backed securities 1,292,057 18,926 (1,812) 1,309,171
------------------ --------------- --------------- -----------------
Total fixed maturity securities 8,914,266 185,481 (32,706) 9,067,041
Equity securities 531,061 292,458 823,519
-
------------------ --------------- --------------- -----------------
Total $9,445,327 $477,939 $ (32,706) $9,890,560
================== =============== =============== =================
Held to maturity securities at December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 30,845 $ 1,387 $ (420) $ 31,812
Loan-backed obligations of U.S.
Government corporations
and agencies 320,156 32,406 352,562
-
Obligations of other
governments, states and
political subdivisions 53,983 834 (623) 54,194
Corporate bonds 2,929,495 124,565 (7,503) 3,046,557
Mortgage & asset-backed securities 571,226 14,637 (48) 585,815
------------------ --------------- --------------- -----------------
Total $3,905,705 $173,829 $ (8,594) $4,070,940
================== =============== =============== =================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities at December 31, 1997:
Fixed maturity securities:
Loan-backed obligations of U.S.
Government corporations
and agencies $ 331,935 $ 5,319 $ (297) $ 336,957
Obligations of other
governments, states and
political subdivisions 129,229 3,894 (34) 133,089
Corporate bonds 4,985,444 120,781 (10,917) 5,095,308
Mortgage & asset-backed securities 2,124,120 33,787 (5,344) 2,152,563
------------------ --------------- --------------- -----------------
Total fixed maturity securities 7,570,728 163,781 (16,592) 7,717,917
Equity securities 468,164 213,052 681,216
-
------------------ --------------- --------------- -----------------
Total $8,038,892 $376,833 $ (16,592) $8,399,133
================== =============== =============== =================
Held to maturity securities at December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and
non-loan-backed obligations
of U.S. Government
corporations and agencies $ 38,598 $ 1,729 $ (470) $ 39,857
Loan-backed obligations of U.S.
Government corporations
and agencies 383,182 26,792 (360) 409,614
Obligations of other
governments, states and
political subdivisions 59,550 926 (474) 60,002
Corporate bonds 3,051,373 134,047 (5,725) 3,179,695
Mortgage & asset-backed securities 833,102 17,760 (1,386) 849,477
------------------ --------------- --------------- -----------------
Total $4,365,805 $181,254 $ (8,415) $4,538,645
================== =============== =============== =================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- ----------------- ----------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 256,545 $ 258,984 $ 206,753 $ 210,971
Due after one year through five years 3,411,546 3,478,956 1,272,248 1,317,236
Due after five years through ten years 1,976,689 2,014,414 998,402 1,033,607
Due after ten years 235,768 248,204 536,920 570,749
----------------- ----------------- ----------------- ------------------
Total fixed maturity securities
excluding mortgage and
asset-backed bonds 5,880,548 6,000,558 3,014,323 3,132,563
Loan-backed obligations of U.S.
Government corporations and
agencies 1,741,661 1,757,312 320,156 352,562
Mortgage and asset-backed securities 1,292,057 1,309,171 571,226 585,815
----------------- ----------------- ----------------- ------------------
Total fixed maturity securities $8,914,266 $9,067,041 $3,905,705 $4,070,940
================= ================= ================= ==================
Major categories of AAL's investment income are summarized as follows:
Years Ended December 31
1998 1997 1996
----------------- ----------------- ------------------
(In Thousands)
Fixed maturity securities $ 884,754 $ 854,080 $ 828,565
Equity securities 23,375 20,257 11,030
Mortgage loans 279,025 294,285 284,534
Investment real estate 17,988 19,570 21,998
Certificate loans 35,184 34,993 34,882
Other invested assets 4,628 4,594 6,666
----------------- ----------------- ------------------
Gross investment income 1,244,954 1,227,779 1,187,675
Investment expenses 13,270 17,298 16,085
----------------- ----------------- ------------------
Net investment income $1,231,684 $1,210,481 $1,171,590
================= ================= ==================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
AAL's realized gains and losses on investments are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
--------------- -------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Securities available for sale:
Fixed maturity securities:
Gross realized gains $69,246 $47,366 $41,313
Gross realized losses (16,316) (11,350) (9,058)
Equity securities:
Gross realized gains 76,231 66,140 37,001
Gross realized losses (37,398) (5,537) (7,546)
Other investments, net 25,852 10,826 1,249
--------------- -------------- ---------------
Net realized investment gains $117,615 $107,445 $62,959
=============== ============== ===============
Net unrealized appreciation of securities available for sale credited directly
to certificateholders' surplus as other comprehensive income was as follows:
December 31
1998 1997 1996
--------------- -------------- ---------------
(In Thousands)
Fair value adjustment to available for sale securities $445,233 $360,241 $151,389
Decrease in deferred acquisition costs (33,869) (32,568) (2,686)
--------------- -------------- ---------------
Net unrealized gains on available for sale securities $411,364 $327,673 $148,703
=============== ============== ===============
The net increase (decrease) in accumulated other comprehensive income due to
unrealized appreciation of securities available for sale is as follows:
Years Ended December 31
1998 1997 1996
--------------- -------------- ----------------
(In Thousands)
Fixed maturity securities available for sale $ 5,586 $138,125 $(187,064)
Equity securities available for sale 79,406 70,727 53,659
Deferred acquisition costs (1,301) (29,882) 43,428
--------------- -------------- ----------------
$83,691 $178,970 $(89,977)
=============== ============== ================
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 2. Investments (Continued)
AAL invests in mortgage loans, principally involving commercial real estate.
Such investments consist of first mortgage liens on completed income producing
properties. AAL manages its investments in mortgage loans to limit credit risk
by diversifying among various geographic regions and property types as follows
as of December 31, 1998:
<TABLE>
<CAPTION>
Principal Percent
------------------ ----------
(In Thousands)
<S> <C> <C>
Geographic Region:
Pacific $ 1,034,925 31.7
South Atlantic 1,108,708 33.9
Midwest 612,823 18.8
Other 511,423 15.6
------------------ ----------
Total Mortgage Loans $ 3,267,879 100.0
================== ==========
Property Type:
Office $ 828,505 25.4
Industrial 890,291 27.2
Retail 418,166 12.8
Residential 392,198 12.0
Church 222,635 6.8
Other 516,084 15.8
------------------ ----------
Total Mortgage Loans $ 3,267,879 100.0
================== ==========
The following table presents changes in the allowance for credit losses:
Years Ended December 31
1998 1997 1996
----------------- ----------------- -----------------
(In Thousands)
Balance at January 1 $123,880 $139,702 $134,402
Provisions for credit losses (3,219) (13,264) 9,066
Charge offs (2,291) (2,558) (3,766)
----------------- ----------------- -----------------
Balance at December 31 $118,370 $123,880 $139,702
================= ================= =================
</TABLE>
AAL's investment in mortgage loans includes $198,314,000 and $233,938,000 of
loans that are considered to be impaired at December 31, 1998 and 1997,
respectively, for which the related allowance for credit losses are $38,167,000
and $43,484,000 at December 31, 1998 and 1997, respectively. The average
recorded investment in impaired loans during the years ended December 31, 1998
and 1997, was $216,126,000 and $257,907,000, respectively. AAL recorded interest
income, using the accrual method, on impaired loans of $16,460,000, $18,804,000
and $19,366,000 for 1998, 1997 and 1996, respectively.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 3. Deferred Acquisition Costs
The changes in deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $659,815 $704,515 $643,540
Acquisition costs deferred:
Commissions, net of certificate charges 73,891 76,265 78,627
Other costs 29,072 27,039 27,499
---------------- ---------------- ----------------
Total deferred 102,963 103,304 106,126
Acquisition costs amortized (94,640) (118,122) (88,579)
---------------- ---------------- ----------------
Increase (decrease) in deferred acquisition costs 8,323 (14,818) 17,547
(Decrease) increase related to unrealized
appreciation of fixed maturity investments
recorded directly to certificateholders'
as comprehensive income (1,301) (29,882) 43,428
---------------- ---------------- ----------------
Total increase (decrease) 7,022 (44,700) 60,975
---------------- ---------------- ----------------
Balance at end of year $666,837 $659,815 $704,515
================ ================ ================
</TABLE>
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions
AAL offers a noncontributory defined retirement plan and a contributory savings
plan to substantially all home office and field employees. The savings plan is
defined under the Internal Revenue Code section 401(k) as a profit sharing plan
that allows participant contributions on a before-tax basis as well as an
after-tax basis. AAL also provides postretirement benefits in the form of health
and life insurance for substantially all retired home office and field
personnel.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions (continued)
The following tables set forth the amounts recognized in AAL's financial
statements and the plans' funding status.
<TABLE>
<CAPTION>
Retirement Plans Other Benefits
December 31
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Projected benefit obligation for
services rendered to date $268,685 $236,887 $ 41,527 $ 38,993
Plan assets at fair value 320,987 286,314
- -
----------------- ----------------- ----------------- -----------------
Funded (unfunded) status of
the plan $ 52,302 $ 49,427 $ (41,527) $ (38,993)
================= ================= ================= =================
Accrued liability included in
consolidated balance sheet $ (5,651) $ (1,080) $ (42,987) $ (41,456)
</TABLE>
The following summarizes certain assumptions included in the preceding schedule:
<TABLE>
<CAPTION>
Retirement Plans Other Benefits
Years Ended December 31
1998 1997 1996 1998 1997 1996
------------ ----------- ------------ ----------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 8.0% 7.0% 7.5% 8.0%
Expected return
on plan assets 9.0% 9.0% 8.5% - - -
Rate of compensation
increase 5.0% 5.0% 5.0% - - -
Health care trend rate - - - 6.0% 6.0% 6.0%
</TABLE>
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 4. Retirement and Savings Plans and Postretirement Benefits Other Than
Pensions (continued)
Years Ended December 31
1998 1997 1996
----------- ------------ -----------
(In Thousands)
Savings Plan
Benefit cost $ $ - $
- -
Employer contributions 3,833 3,729 3,609
Employee contributions 14,014 13,360 12,570
Benefits paid 21,804 18,027 12,608
Retirement Plans
Benefit cost $4,571 $4,643 $5,045
Employer contributions 4,771 6,993
-
Employee contributions
- - -
Benefits paid 10,595 9,307 8,729
Other Benefits
Benefit cost $3,669 $3,947 $4,156
Employer contributions
- - -
Employee contributions
- - -
Benefits paid 2,137 2,531 2,159
Note 5. Synopsis of Statutory Financial Results
The accompanying financial statements differ from those prepared in accordance
with statutory accounting practices prescribed or permitted by regulatory
authorities. The more significant differences are as follows: (a) investments in
bonds are reported at amortized cost or at fair value with unrealized holding
gains and losses reported as a separate component of certificateholders'
surplus, depending on their designation at purchase as held to maturity or
available for sale, respectively, rather than being valued based on the bond's
NAIC rating; (b) certain acquisition costs of new business are deferred and
amortized rather than being charged to operations as incurred; (c) the
liabilities for future certificate benefits and expenses are based on reasonably
conservative estimates of expected mortality, interest, withdrawals and future
maintenance and settlement expenses rather than using statutory rates for
mortality and interest; (d) certain assets, principally costs in excess of net
assets acquired, furniture, equipment and agents' debit balances are reported as
assets rather than being charged to certificateholders' surplus and excluded
from the balance sheet; (e) the interest maintenance reserve and asset valuation
reserve are reported as part of certificateholders' surplus rather than as a
liability; and (f) revenues for universal life and investment-type contracts
include mortality, expense and surrender charges levied against the
certificateholders' accounts rather than including as revenues the premiums
received on these certificates. Expenses include interest added to the
certificateholders' accounts rather than reserve changes related to the
investment portion of these policies. Summarized statutory-basis financial
information for AAL on an unconsolidated basis is as follows:
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 5. Synopsis of Statutory Financial Results (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31
1998 1997
------------------ -------------------
(In Thousands)
Assets $19,417,667 $17,974,813
================== ===================
Liabilities $17,899,692 $16,594,333
Unassigned funds 1,517,975 1,380,480
------------------ -------------------
Total liabilities and unassigned funds $19,417,667 $17,974,813
================== ===================
Years ended December 31
1998 1997 1996
---------------- ------------------ -------------------
(In Thousands)
Premium income and certificate proceeds $1,806,096 $1,785,172 $1,663,403
Net investment income 1,218,981 1,205,622 1,162,629
Other income 35,977 27,411 23,647
---------------- ------------------ -------------------
Total income 3,061,054 3,018,205 2,849,679
Reserve increase 569,233 518,656 741,518
Certificateholders' benefits 1,543,577 1,489,662 1,285,702
Surplus refunds 114,728 111,981 107,472
Commissions and operating costs 377,368 362,912 367,155
Other 367,301 365,518 226,097
---------------- ------------------ -------------------
Total benefits and expenses 2,972,207 2,848,729 2,727,944
---------------- ------------------ -------------------
Net gain from operations 88,847 169,476 121,735
Net realized capital gains 44,835 40,281 7,967
---------------- ------------------ -------------------
Net income $ 133,682 $ 209,757 $ 129,702
================ ================== ===================
</TABLE>
AAL is in compliance with the statutory surplus requirements of all states.
Note 6. Fair Value of Financial Instruments
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the accompanying balance sheets for these
instruments approximate their fair values.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 6. Fair Value of Financial Instruments (Continued)
Investment Securities
Fair values for fixed maturity securities are based on quoted market prices
where available, or are estimated using values obtained from independent pricing
services. All fixed maturity issues are individually priced based on year-end
market conditions, the credit quality of the issuing company, the interest rate
and the maturity of the issue. The fair values for investments in equity
securities are based on quoted market prices.
Mortgage Loans
The fair values for mortgage loans are estimated using discounted cash flow
analyses, based on interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations.
Certificate Loans
The carrying amounts reported in the accompanying balance sheets for these loans
are considered to be reasonable estimates of their fair value.
Financial Liabilities
The fair values for AAL's liabilities under investment-type contracts, such as
deferred annuities and other liabilities, including supplementary contracts
without life contingencies, deferred income settlement options and refunds on
deposit, are estimated to be the cash surrender value payable upon immediate
withdrawal. These amounts are included in certificateholder funds in the
accompanying balance sheets.
The cost and estimated fair value of AAL's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- ----------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
------------------ ------------------- ------------------- -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities $12,819,971 $13,137,981 $11,936,533 $12,256,562
Equity securities 531,061 823,519 468,164 681,216
Mortgage loans 3,149,509 3,628,252 3,218,193 3,625,645
Cash and cash equivalents 231,761 231,761 291,302 291,302
Certificate loans 499,509 499,509 501,327 501,327
Financial Liabilities:
Deferred annuities 7,309,453 7,238,292 7,354,135 7,256,623
Variable annuities 1,433,221 1,356,276 842,301 795,052
Other 680,637 677,814 600,588 598,264
</TABLE>
Note 7. Contingent Liabilities
AAL is involved in various lawsuits and contingencies that have arisen from the
normal conduct of business. Contingent liabilities arising from litigation, tax
and other matters are not considered material in relation to the financial
position of AAL. AAL has not made any provision in the financial statements for
liabilities, if any, that might ultimately result from these contingencies.
Aid Association for Lutherans
Notes to Consolidated Financial Statements (Continued)
Note 8. Year 2000 Issue (Unaudited)
AAL is proceeding with its plan to modify internal information technology to be
ready for the year 2000. AAL has completed its assessment of all systems that
could be significantly affected by the year 2000. Programming to convert
critical mainframe systems and corporate testing is substantially complete. The
project also includes determining whether third-party service providers have
reasonable plans in place to become year 2000 compliant. To date this project
has not had a material effect on operations, nor does AAL expect the project to
have a material effect on future operations.
Management of AAL believes it has an effective plan in place to resolve the year
2000 issue in a timely manner. AAL is currently developing contingency plans in
the event it does not complete all phases of its year 2000 plan. Utilization of
such contingency plans is not expected as the project is substantially complete
and no significant issues have been identified.
<PAGE>
AAL Variable Annuity Account I
Audited Financial Statements
December 31, 1998
Contents
Report of Independent Auditors.................................................1
Statement of Net Assets........................................................2
Statement of Operations........................................................3
Statements of Changes in Net Assets............................................4
Notes to Financial Statements..................................................5
Report of Independent Auditors
The Board of Directors and Certificate Owners
Aid Association for Lutherans
We have audited the accompanying statement of net assets of the AAL Variable
Annuity Account I (comprising, respectively, the Money Market, Bond, Balanced,
Large Company Stock, Small Company Stock, International Stock, and High Yield
Bond Subaccounts) as of December 31, 1998, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the AAL Variable Annuity Account I at December 31,
1998, and the results of their operations for the year then ended, and changes
in their net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Milwaukee, Wisconsin
January 27, 1999
AAL Variable Annuity Account I
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments in AAL Variable Product Series Fund, Inc.:
Money Market Subaccount:
Money Market Portfolio, 33,225,986 shares at net asset value of
$1.00 per share (cost $33,225,986) $ 33,230,461
Bond Subaccount:
Bond Portfolio, 4,072,442 shares at net asset value of $10.36 per
share (cost $41,289,943) 42,181,532
Balanced Subaccount:
Balanced Portfolio, 34,119,399 shares at net asset value of $15.97
per share (cost $455,023,372) 544,728,825
Large Company Stock Subaccount:
Large Company Stock Portfolio, 24,894,238 shares at net asset
value of $22.90 per share (cost $402,793,962) 570,197,756
Small Company Stock Subaccount:
Small Company Stock Portfolio, 15,959,906 shares at net asset
value of $12.39 per share (cost $213,327,098) 197,822,567
International Stock Subaccount:
International Stock Portfolio, 401,245 shares at net asset
value of $11.05 per share (cost $4,264,613) 4,430,887
High Yield Bond Subaccount:
High Yield Bond Portfolio, 1,117,262 shares at net asset value
of $8.95 per share (cost $10,576,803) 9,998,212
----------------------
Total Investments (cost $1,160,501,777) 1,402,590,240
Liabilities -
----------------------
Net Assets $1,402,590,240
======================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Unit Extended
Units Value Value
---------------- ------------- ----------------------
Net Assets are represented by:
Money Market Subaccount 28,880,399 1.15 $ 33,230,461
Bond Subaccount 3,397,426 12.42 42,181,532
Balanced Subaccount 31,007,716 17.57 544,728,825
Large Company Stock Subaccount 24,637,221 23.14 570,197,756
Small Company Stock Subaccount 12,646,465 15.64 197,822,567
International Stock Subaccount 405,358 10.93 4,430,887
High Yield Bond Subaccount 1,044,323 9.58 9,998,212
----------------------
Total Net Assets $1,402,590,240
======================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
AAL Variable Annuity Account I
Statement of Operations
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Large Small High
Money Company Company International Yield
Market Bond Balanced Stock Stock Stock Bond
Combined Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ----------- ----------- ------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 24,528,466 $ 1,501,845 $ 1,895,504 $ 14,364,866 $ 5,329,416 $ 999,073 $ 295 $ 437,467
Capital gain distributions 40,020,449 - - 8,246,931 345,453 31,428,065 - -
------------ ----------- ----------- ------------ ------------ ------------ ---------- -----------
Total investment income 64,548,915 1,501,845 1,895,504 22,611,797 32,427,138 437,467
5,674,869 295
Expenses-mortality and expense
risk charges 14,194,765 363,505 378,623 5,392,900 2,314,809
5,667,444 25,261 52,223
------------ ----------- ----------- ------------ ------------ ------------ ---------- -----------
Net investment income (loss) 50,354,150 1,138,340 1,516,881 17,218,897 30,112,329 385,244
7,425 (24,966)
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions
1,515,394 - 23,071 410,315 781,967 323,308 5,756 (29,023)
Change in unrealized
appreciation (depreciation)
of investments 121,795,866 530,394 52,220,247 103,931,509 (34,473,969) 166,275 (578,590)
-
------------ ----------- ----------- ------------ ------------ ------------ ---------- -----------
Net gain (loss) on investments 123,311,260 553,465 52,630,562 104,713,476 (34,150,661) 172,031 (607,613)
-
------------ ----------- ----------- ------------ ------------ ------------ ---------- -----------
Net increase (decrease) in net assets
resulting from operations $173,665,410 $1,138,340 $ 2,070,346 $ 69,849,459 $104,720,901 $(4,038,332) $ 147,065 $ (222,369)
============= =========== =========== ============ ============ ============ ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
AAL Variable Annuity Account I
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Large Small
Money Company Company
Market Bond Balanced Stock Stock
Combined Subaccount Subaccount Subaccount Subaccount Subaccount
--------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 313,072,015 $15,127,096 $ 12,715,943 $ 111,574,219 $ 109,713,467 $ 63,941,290
Increase (decrease) in net assets
Net investment income
13,783,610 836,458 854,722 4,923,350 763,478 6,405,602
Net realized gain (loss) from
investment transactions
60,921 - (9,732) 43,784 - 26,869
Change in unrealized appreciation
of investments
97,567,574 - 461,285 30,694,969 52,011,575 14,399,745
--------------- ------------- ------------- ------------- -------------- -------------
Net increase in net assets
resulting from operations
111,412,105 836,458 1,306,275 35,662,103 52,775,053 20,832,216
Capital share transactions
Transfers of net premiums 418,962,388 158,275,206 5,588,348 109,666,841 100,328,693 45,103,300
Transfers of death benefits
(3,458,133) (79,044) (265,091) (1,821,655) (780,984) (511,359)
Transfers of surrenders
(11,336,055) (699,487) (499,880) (5,125,578) (3,272,494) (1,738,616)
Transfers between subaccounts (3,657,074) (147,996,133) 2,790,890 56,542,618 59,710,922 25,294,629
--------------- ------------- ------------- ------------- -------------- -------------
Net increase in net assets resulting
from capital share transactions 400,511,126 9,500,542 7,614,267 159,262,226 155,986,137 68,147,954
--------------- ------------- ------------- ------------- -------------- -------------
Total increase 511,923,231 10,337,000 8,920,542 194,924,329 208,761,190 88,980,170
--------------- ------------- ------------- ------------- -------------- -------------
Net assets at December 31, 1997 824,995,246 25,464,096 21,636,485 306,498,548 318,474,657 152,921,460
Increase (decrease) in net assets
Net investment income (loss)
50,354,150 1,138,340 1,516,881 17,218,897 7,425 30,112,329
Net realized gain (loss) from
investment transactions
1,515,394 - 23,071 410,315 781,967 323,308
Change in unrealized appreciation
(depreciation) of investments 121,795,866 - 530,394 52,220,247 103,931,509 (34,473,969)
--------------- ------------- ------------- ------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations
173,665,410 1,138,340 2,070,346 69,849,459 104,720,901 (4,038,332)
Capital share transactions
Transfers of net premiums 446,760,777 187,658,462 9,671,632 109,087,355 96,013,937 36,097,357
Transfers of death benefits
(7,628,131) (433,928) (717,906) (3,041,335) (2,616,157) (679,754)
Transfers of surrenders (28,535,620) (1,403,987) (1,120,954) (11,852,374) (9,700,141) (4,204,730)
Transfers between subaccounts (6,667,442) (179,192,522) 10,641,929 74,187,172 63,304,559 17,726,566
--------------- ------------- ------------- ------------- -------------- -------------
Net increase in net assets resulting
from capital share transactions 403,929,584 6,628,025 18,474,701 168,380,818 147,002,198 48,939,439
--------------- ------------- ------------- ------------- -------------- -------------
Total increase 577,594,994 7,766,365 20,545,047 238,230,277 251,723,099 44,901,107
--------------- ------------- ------------- ------------- -------------- -------------
Net assets at December 31, 1998 $ 1,402,590,240 $33,230,461 $ 42,181,532 $ 544,728,825 $ 570,197,756 $ 197,822,567
================= ============= ============= ============= ============== =============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
High
International Yield
Stock Bond
Subaccount Subaccount
Net assets at January 1, 1997 ---------- --------------
Increase (decrease) in net assets
Net investment income $ - $ -
Net realized gain (loss) from
investment transactions - -
Change in unrealized appreciation
of investments - -
Net increase in net assets - -
resulting from operations ---------- --------------
Capital share transactions
Transfers of net premiums - -
Transfers of death benefits - -
Transfers of surrenders
- -
Transfers between subaccounts
- -
Net increase in net assets resulting - -
from capital share transactions ---------- --------------
Total increase - -
---------- --------------
Net assets at December 31, 1997 - -
---------- --------------
Increase (decrease) in net assets
Net investment income (loss) (24,966) 385,244
Net realized gain (loss) from
investment transactions 5,756 (29,023)
Change in unrealized appreciation 166,275 (578,590)
(depreciation) of investments ---------- --------------
Net increase (decrease) in net assets
resulting from operations 147,065 (222,369)
Capital share transactions 2,316,310 5,915,724
Transfers of net premiums
Transfers of death benefits (3,264) (135,787)
(67,246) (186,188)
Transfers of surrenders
2,038,022 4,626,832
Transfers between subaccounts ---------- --------------
Net increase in net assets resulting 4,283,822 10,220,581
from capital share transactions ----------- --------------
4,430,887 9,998,212
Total increase ----------- --------------
$4,430,887 $9,998,212
Net assets at December 31, 1998 =========== ==============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
AAL Variable Annuity Account I
Notes to Financial Statements
December 31, 1998
Note 1. Summary of Significant Accounting Policies
The AAL Variable Annuity Account I (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within Aid Association for Lutherans (AAL) to
fund flexible premium deferred variable annuity insurance certificates.
The Account had five separate subaccounts at December 31, 1997 and seven
separate subaccounts at December 31, 1998, each of which invests solely, as
directed by certificate owners, in a different portfolio of AAL Variable Product
Series Fund, Inc. (the Fund), an open-end, diversified management investment
company sponsored by AAL. Certificate owners also may direct investments to a
guaranteed interest subaccount held in the general account of AAL.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The first-in,
first-out basis has been used in determining the net realized gain or loss from
investment transactions and unrealized appreciation or depreciation of
investments. Dividends and capital gain distributions paid to the Account are
automatically reinvested in shares of the Fund on the payment date.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Note 2. Expense Charges
The Account pays AAL certain amounts relating to the distribution and
administration of the certificates funded by the Account and as reimbursement
for certain mortality and other risks assumed by AAL. The following summarizes
those amounts.
Mortality and expense risks assumed by AAL are compensated for by a charge
equivalent to an annual rate of approximately 1.25% of the average daily net
asset value of the Account. A certificate maintenance charge of $25 per
certificate year is deducted to reimburse AAL for administrative expenses
related to the contract. This fee is waived if the sum of premiums received by
AAL less the sum of any withdrawals and withdrawal charges from the certificate
is $5,000 or more at the time the deduction would be made. In addition, a
surrender charge is imposed in the event of a full or partial surrender in
excess of 10% of the accumulated value during the first seven contract years.
The amount charged is 7% of the amount surrendered during the first contract
year and declines by 1% in each of the next six contract years. The certificate
owner may make two transfers from one or more subaccounts to other subaccounts
or the fixed account in each certificate year, but thereafter, each transfer is
subject to a $10 transfer charge.
Note 3. Federal Income Taxes
The operations of the Account form a part of the operations of AAL. AAL, a
fraternal benefit society, qualifies as a tax-exempt organization under the
Internal Revenue Code. Under current law, no federal income taxes are payable
with respect to the Account's net investment income and net realized gains on
investments. Accordingly, no charge for income taxes is currently being made to
the Account. If such taxes are incurred by AAL in the future, a charge to the
Account may be assessed.
AAL Variable Annuity Account I
Notes to Financial Statements (Continued)
Note 4. Investment Transactions
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
Year ended December 31, 1998 Purchases Sales
--------------------- ---------------------
Money Market Subaccount $ 58,441,701 $ 50,676,008
Bond Subaccount 21,910,913 1,919,329
Balanced Subaccount 186,914,944 1,315,229
Large Company Stock Subaccount 148,687,401 1,677,778
Small Company Stock Subaccount 80,794,911 1,743,142
International Stock Subaccount 4,521,028 262,171
High Yield Bond Subaccount 11,283,057 677,232
--------------------- ---------------------
Combined $ 512,553,955 $ 58,270,889
===================== =====================
Year ended December 31, 1997
Money Market Subaccount $ 52,006,464 $ 41,671,205
Bond Subaccount 9,912,197 1,443,207
Balanced Subaccount 164,350,968 165,393
Large Company Stock Subaccount 156,749,615 -
Small Company Stock Subaccount 74,629,170 75,616
--------------------- ---------------------
Combined $ 457,648,414 $ 43,355,421
===================== =====================
AAL Variable Annuity Account I
Notes to Financial Statements (Continued)
Note 5. Summary of Changes from Unit Transactions
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
Units Sold Units Redeemed Net Increase
--------------------------------- -------------------------------- -------------------------------
Units Amount Units Amount Units Amount
-------------- ------------------ ------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Money Market Subaccount 166,630,005 $ 187,658,462 160,769,420 $ 181,030,437 5,860,585 $ 6,628,025
Bond Subaccount 1,682,099 20,313,561 1,528,369
153,730 1,838,860 18,474,701
Balanced Subaccount 11,388,627 183,274,527 10,463,405 168,380,818
925,222 14,893,709
Large Company Stock
Subaccount 7,797,598 159,318,496 7,191,347 147,002,198
606,251 12,316,298
Small Company Stock
Subaccount 3,304,007 53,823,923 2,986,319
317,688 4,884,484 48,939,439
International Stock Subaccount
412,234 4,354,332 6,877 70,510 405,357 4,283,822
High Yield Bond Subaccount 1,078,107 10,542,556 1,044,323
33,784 321,975 10,220,581
-------------- ------------------ ------------- ----------------- ------------- ----------------
Combined 192,292,677 $ 619,285,857 162,812,972 $ 215,356,273 29,479,705 $ 403,929,584
============== ================== ============= ================= ============= ================
Year ended December 31, 1997
Money Market Subaccount 145,819,570 $ 158,275,206 137,026,017 $ 148,774,664 8,793,553 $ 9,500,542
Bond Subaccount
752,545 8,379,238 69,453 764,971 683,092 7,614,267
Balanced Subaccount 12,055,929 166,209,458 11,551,411 159,262,226
504,518 6,947,232
Large Company Stock
Subaccount 9,824,842 160,039,615 9,577,342 155,986,137
247,500 4,053,478
Small Company Stock
Subaccount 4,812,850 70,397,928 4,656,613
156,237 2,249,974 68,147,954
-------------- ------------------ ------------- ----------------- ------------- ----------------
Combined 173,265,736 $ 563,301,445 138,003,725 $ 162,790,319 35,262,011 $ 400,511,126
============== ================== ============= ================= ============= ================
</TABLE>
AAL Variable Annuity Account I
Notes to Financial Statements (Continued)
Note 6. Net Assets
The Account has an unlimited number of accumulation units authorized with no par
value. Net assets as of December 31, 1998, consisted of:
<TABLE>
<CAPTION>
Large Small High
Money Company Company International Yield
Market Bond Balanced Stock Stock Stock Bond
Combined Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
--------------- ----------- ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paid-in capital $ 1,089,971,003 $30,796,252 $ 38,381,909 $ 430,661,389 $400,682,836 $174,944,214 $4,283,822 $10,220,581
Accumulated undistributed net
investment income (loss) $ 68,941,110 2,434,209 2,896,208 23,907,738 1,313,990 38,028,687 (24,966) 385,244
Accumulated undistributed net
realized gain (loss) from investment
transactions $ 1,594,137 - 11,826 454,245 797,136 354,197 5,756 (29,023)
Net unrealized appreciation
(depreciation) of investments
242,083,990 - 891,589 89,705,453 167,403,794 (15,504,531) 166,275 (578,590)
--------------- ----------- ------------ ------------- ------------- ------------- ------------ --------
Net assets $ 1,402,590,240 $33,230,461 $ 42,181,532 $ 544,728,825 $570,197,756 $197,822,567 $4,430,887 $9,998,212
=============== =========== ============ ============= ============= ============= =========== =========
</TABLE>
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 of
this Registration Statement. The financial statements are:
Report of Independent Auditors
Statement of Net Assets as of December 31, 1998
Statement of Operations for the year ended December 31, 1998
Statement of Changes in Net Assets for the year ended
December 31, 1998, and 1997
Notes to Financial Statements
Aid Association for Lutherans
The following audited financial statements of Aid
Association for Lutherans ("Depositor") as of December 31,
1998, December 31, 1997, and December 31, 1996, are included
in Part B:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1998
Consolidated Statements of Income for the years ended December 31,
1998, and 1997
Consolidated Statements of Changes in Certificateholders' Surplus for
the years ended December 31, 1998, and 1997
Consolidated Statements of Cash Flow for the years ended December 31,
1998, and 1997
Notes to Consolidated 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit Name of Exhibit Incorporated by Reference(1) Filed
Number Herewith
1 Resolution of the Board of Directors of the Depositor Post-Effective Amendment #3
authorizing the establishment of AAL Variable Annuity dated April 18, 1997
Account I
2 Not applicable
3 First Amendment to the Amended and Restated Principal X
Underwriting and Servicing Agreement between Aid
Association for Lutherans (AAL) and AAL Capital Management
Corporation (AAL CMC) dated March 15, 1999
4(a) Variable Annuity Certificate (Adult) Post-Effective Amendment #3
dated April 18, 1997
4(b) Variable Annuity Certificate (Juvenile) Post-Effective Amendment #3
dated April 18, 1997
4(c) Omnibus IRA Endorsements Post-Effective Amendment #5 X
dated February 27, 1998
4(d) 403(b) Endorsement and SIMPLE-IRA Endorsement Post-Effective Amendment #5
dated February 27, 1998
4(e) Variation pages applicable to both Adult and Juvenile Post-Effective Amendment #5 X
Certificates used in various states dated February 27, 1998
5(a) Standard Computer Certificate Application Form X
5(b) Computer Application Certification Form Post-Effective Amendment #5
dated February 27, 1998
5(c) Variable Annuity Option Selection Form X
5(d) Section 1035 Exchange Form Post-Effective Amendment #1
dated June 13, 1995
5(e) Omnibus IRA Disclosures and Financial Disclosures Post-Effective Amendment #5 X
dated February 27, 1998
6(a) Articles of Incorporation of Depositor Post-Effective Amendment #3
dated April 18, 1997
6(b) Bylaws of Depositor X
7 Not applicable
8(a) Amended and Restated Participation Agreement between X
AAL and the AAL Variable Product Series Fund, Inc.
(the "Fund) as of March 15, 1999
8(b) Amendment to the Trade Name/Service Mark Licensing X
Agreement between AAL and the Fund dated March 15, 1999
8(c) Letter Terminating the Administrative Services Agreement X
between AAL and AAL Capital Management Corporation (AAL CMC)
effective January 1, 1999
8(d) Amendment & Restatement of Transfer Agency Agreement dated
March 15, 1999 X
9 Opinion of Counsel as to the legality of the Post-Effective Amendment #3 X
securities being registered (including written consent) dated April 18, 1997
10 Consent of Independent Auditors X
11 Not applicable
12 Stock Subscription Agreement dated December 11, 1997 Post-Effective Amendment #5
dated February 27, 1998
13 Schedules for computation of each performance Post-Effective Amendment #2
quotation in the Registration Statement dated April 29, 1996
15 Power of Attorney Post-Effective Amendment #6
dated September 1, 1998
</TABLE>
- ----------------
(1) Documents incorporated by reference are incorporated from the identified
previously filed amendments to this Registration Statement.
Item 25. Directors and Officers of the Depositor
The directors, executive officers and, to the extent responsible for variable
annuity operations, other officers of Depositor, are listed below:
Name and Principal Positions and Offices
Business Address with Depositor
Richard L. 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
Robert H. Hoffman
Vice President
Taylor Corporation
1725 Roe Crest Drive
P.O. Box 3728 Director
North Mankato, MN 56002-3728
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
Paul D. Schrage
formerly Sr. Exec. Vice President &
Chief Marketing Officer
McDonald's Corporation
1405 Midwest Club Director
Oak Brook, IL 60523
James H. Scott
Principal
Miller Anderson & Shernerd
West Conshohocken, PA 19428 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
Rev. Thomas R. Zehnder
President Lutheran Ministry Center
Lutheran Church Missouri Synod
7207 Monetary Drive
Orlando, FL 32809-5724 Director
Walter S. Rugland
4321 North Ballard Road Executive Vice President
Appleton, WI 54919 and Chief Operating
Officer
Woodrow E. Eno, Esq.
4321 North Ballard Road Senior Vice President,
Appleton, WI 54919 Secretary and General
Counsel
Ronald G. Anderson
4321 North Ballard Road Senior Vice President
Appleton, WI 54919
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
Jon M. Stellmacher Senior Vice President
4321 North Ballard Road
Appleton, WI 54919
Carl Rudolph
4321 North Ballard Road
Appleton, WI 54919 Vice President,
Controller Chief
Financial Officer and
Treasurer
James H. Abitz
222 West College Avenue
Appleton, WI 54919 Vice President
James Jawort
4321 North Ballard Road
Appleton, WI 54919 Vice President
Gary Mounce
4321 North Ballard Road
Appleton, WI 54919 Assistant Vice President
Michael J. Mevis Assistant Vice President
4321 North Ballard Road
Appleton, WI 54919
Robert G. Same Chief Compliance Officer
222 W. College Avenue and Deputy General
Appleton, WI 54919 Counsel
Dan Shinnick
4321 North Ballard Road
Appleton, WI 54919 Vice President
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) AAL Capital Management Corporation (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; and (d) AAL Variable Product Series Fund, Inc.
("Fund"), a Maryland corporation organized as an open-end management investment
company. 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 December 31, 1998, there were approximately 29,577 qualified and 23,641
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 (the 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
Small Cap Stock, Mid Cap Stock, International, Capital Growth, Equity
Income, Balanced, High Yield Bond, Municipal Bond, 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.
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Underwriter
Steven A. Weber Director
Woodrow E. Eno Director, Vice President, General Counsel and Secretary
James H. Abitz Director and Senior Vice President
Ronald G. Anderson Chairman of the Board and President
Robert G. Same Assistant Secretary
Stanley H. Herman Director and Vice President
Jon M. Stellmacher Director and Vice President
Jeffrey L. Verhagen Vice President
Thomas R. Mischka Director and Vice President
Lori Richardson Vice President
Krien VerBerkmoes III Vice President and Chief Compliance Officer
Paul Stadler Vice President
Charles D. Gariboldi Assistant Vice President
Charles A. Friedman Assistant Vice President
Wendy S. Schmidt Assistant Vice President
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of Registrant are located at the offices of the
Depositor at 4321 North Ballard Road, Appleton, Wisconsin, 54919, and 222 West
College Avenue, Appleton, Wisconsin, 54911, and 125 North Superior Street,
Appleton, Wisconsin,54911.
Item 31. 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;
and
(4) Obtain from each plan participant who purchases a Section 403(b)
annuity Certificate, prior to or at the time of such purchase, a
signed statement acknowledging the participant's understanding of (1)
the restrictions on redemption imposed by Section 403(b)(11), and (2)
the investment alternatives available under the employer's Section
403(b) arrangement, to which the participant may elect to transfer his
Certificate Value.
AAL has complied, and is complying, with the provisions of paragraphs (1) - (4)
above.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this amended Registration
Statement and has caused this amended Registration Statement to be signed on its
behalf in the City of Appleton and State of Wisconsin on this 22nd day of April,
1999.
AAL VARIABLE ANNUITY ACCOUNT I
(Registrant)
By: Aid Association for Lutherans
(Depositor, on behalf of itself and Registrant)
By: /s/ John O. Gilbert
------------------------------
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
- ------------------------------ and Chief Executive Officer April 22, 1999
John O. Gilbert
/s/ Carl Rudolph
- ------------------------------ Vice President, Controller, April 22, 1999
Carl Rudolph Treasurer and Chief Financial Officer
(Principal Financial Officer,
Principal Accounting Officer)
All of the Board of Directors:
Herbert J. Arkebauer John O. Gilbert Paul D. Schrage
Raymond G. Avischious Gary J. Greenfield James H. Scott
Richard E. Beumer Richard L. Gunderson Kathi P. Seifert
Kenneth Daly Robert H. Hoffman Roger B. Wheeler
Elizabeth A. Duda Robert E. Long E. Marlene Wilson
Edward A. Engel Robert B. Peregrine 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
- ------------------------------ April 22,1999
John O. Gilbert
Attorney-in-Fact
<PAGE>
AAL VARIABLE ANNUITY ACCOUNT I
INDEX TO EXHIBITS
The exhibits below represent only those exhibits which are newly filed with
this Registration Statement. See Item 24(b) of Part C for exhibits not listed
below.
Exhibit
Number
Name of Exhibit
3 First Amendment to the Amended and Restated Principal
Underwriting and Servicing Agreement between Aid Association for
Lutherans (AAL) and AAL Capital Management Corporation (AAL CMC)
dated March 15, 1999
4 c IRA Endorsements
4(e) Variation pages applicable to both Adult and Juvenile
Certificates used in Various States
5(a) Standard Computer Certificate Application
5c Variable Annuity Option Selection Form
5(e) Omnibus IRA Disclosures and Financial Disclosures
5(f) TSA Salary Reduction Agreement Form
5(g) MCA Worksheet
6(b) Bylaws of Depositor
8(a) Amended and Restated Participation Agreement between AAL and the
AAL Variable Product Series Fund, Inc. (the "Fund) as of March
15, 1999
8 (b) Amendment to the Trade Name/Service Mark Licensing Agreement
between AAL and the Fund dated March 15, 1999
8 (c) Letter Terminating the Administrative Services Agreement between
AAL and AAL Capital Management Corporation (AAL CMC) effective
January 1, 1999
8 (d) Amendment and Restatment of Transfer Agency Agreement, dated
March 15, 1999
9 Opinion of Counsel
10 Consent of Independent Auditors
AMENDMENT NO. 1
TO AMENDED AND RESTATED
PRINCIPAL UNDERWRITING AND SERVICING AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") is entered into this 15th day of
March, 1999, by and between AAL Capital Management Corporation ("Distributor")
and Aid Association for Lutherans ("AAL"), on behalf of itself and on behalf of
the AAL Variable Account I, AAL Variable Account II, and the AAL Variable Life
Account I, for the purpose of amending the Principal Underwriting and Servicing
Agreement by and between those two parties dated November 23, 1994, as amended
and restated on March 4, 1998 (as so amended and restated the "Distributor
Agreement"). Capitalized terms used in this Amendment which are not defined
herein shall have the meanings defined for such terms in the Distributor
Agreement.
WHEREAS, AAL and its newly established separate account, AAL Variable
Annuity Account II, a separate account registered under the Investment Company
Act of 1940, propose to offer for sale to the public certain single premium
immediate variable annuity contracts;
WHEREAS, effective upon the effectiveness of AAL Variable Annuity
Account II's registration statement filed under the Securities Act of 1933, AAL
desires to appoint the Distributor as, and the Distributor desires to accept
appointment as, the principal underwriter in a continuous offering of the single
premium immediate annuity contracts for AAL, and the parties thereby wish to
amend the Distributor Agreement to cover the Distributor's offer and sale of the
single premium immediate variable annuity contracts of AAL Variable Annuity
Account II;
NOW, THEREFORE, for consideration described in the Distributor
Agreement and to carry out the mutual promises and intentions of the parties set
forth herein, the parties to this Amendment hereby agree to amend the
Distributor Agreement as follows:
1. ACCOUNTS. As used in the Distributor Agreement, the term "ACCOUNTS" shall
include the AAL Variable Annuity Account II, in addition to the AAL
Variable Annuity Account I and AAL Variable Life Account I.
2. Certificate. As used in the Distributor Agreement, the term "Certificates"
shall include single premium immediate variable annuity contracts proposed
to be offered by AAL through AAL Variable Annuity Account II.
3. Sales Commissions. AAL will pay Distributor a sales commission on sales of
single premium immediate variable annuity contracts in accordance with the
schedule for Variable Annuities set forth on Schedule A attached to the
Distributor Agreement.
4. Effect on Other Provisions. Except to extend the terms of the Distributor
Agreement to cover and include the offer and sale of single premium
immediate variable annuity contracts offered by AAL through the AAL
Variable Annuity Account II, and except as explicitly amended by this
Amendment, the terms and provisions of the Distributor Agreement shall
continue in full force and effect, unaffected by the provisions of this
Amendment.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed
by its duly authorized officer as of the day and year written above.
AID ASSOCIATION FOR LUTHERANS AAL CAPITAL MANAGEMENT
CORPORATION
By: /s/John O. Gilbert By: /s/Ronald G. Anderson
------------------------------ --------------------------
John O. Gilbert Ronald G. Anderson
President and Chief President and Chief
Executive Officer Executive Officer
Attest: /s/Woodrow E. Eno Attest: /s/Woodrow E. Eno
------------------------------ --------------------------
Woodrow E. Eno Woodrow E. Eno
Senior Vice-President, Senior Vice President,
Secretary and General Secretary and General
Counsel Counsel
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
ENDORSED ON THIS CERTIFICATE ON ITS DATE OF ISSUE:
This certificate has been purchased as an Individual Retirement Annuity as
described in Section 408(b) of the Internal Revenue Code of 1986, as amended,
(hereinafter referred to as "the Code"). In order to qualify as an Individual
Retirement Annuity, the following provisions apply, notwithstanding any
provisions to the contrary in this certificate:
(1) NONTRANSFERABLE
Only the annuitant may be the owner, and this certificate is
not transferable by the owner and may not be sold, assigned,
discounted, or pledged as collateral for a loan or as
security for the performance of an obligation or for any
other purpose, to any person other than Aid Association for
Lutherans ("AAL").
(2) OWNERSHIP
This certificate is for the exclusive benefit of the owner
or his or her beneficiaries.
(3) CONTRIBUTION LIMITATIONS
Except in the case of a rollover contribution (as per-
mitted by Section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3)
of the Code), or a contribution made in accordance with the
terms of a Simplified Employee Pension (SEP) as described in
Section 408(k) of the Code, the annual premium under this
certificate for any taxable year of the owner shall not
exceed 100 percent of the compensation includable in his or
her gross income for such taxable year, or $2,000, whichever
is less. The term "compensation" means wages, salaries,
professional fees, or other amounts derived from or received
for personal services actually rendered (including, but not
limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits,
commissions on insurance premiums, tips, and bonuses), and
includes earned income, as defined in Section 401(c)(2) of
the Code (reduced by the deduction the self employed
individual takes for contributions made to a self-employed
retirement plan). For purposes of this definition, Section
401(c)(2) of the Code shall be applied as if the term trade
or business for purposes of Section 1402 of the Code
included service described in Subsection (c)(6) the Code.
The term "compensation" includes any amount includable in
the owner's gross income under Section 71 of the Code with
respect to a divorce or separation instrument described in
subparagraph (A) of Section 71(b)(2) of the Code. The term
"compensation" does not include amounts derived from or
received as earnings or profits from property (including,
but not limited to, interest and dividends), or
4464 Page 1
<PAGE>
amounts not includable in gross income, or any amount
received as a pension or annuity or as deferred
compensation. All contributions under this certificate shall
be in cash.
(4) SURPLUS REFUNDS
Any surplus refunds under this certificate (other than those
attributable to excess contributions) will be applied,
before the close of the calendar year following the year
of the refund, toward the payment of future premiums or the
purchase of additional benefits.
(5) PREMIUM PAYMENTS
If premium payments under this certificate are inter-
rupted, this certificate will be reinstated at any date
prior to maturity upon payment of a premium to AAL of not
less than $25, however, AAL may at its option either accept
additional future payments or terminate the certificate by
payment in cash of the then present value of the paid up
benefit if no premiums have been received for 2 full
consecutive certificate years and the paid up annuity
benefit at maturity would be less than $20.00 per month.
(6) DISTRIBUTIONS BEFORE DEATH
The entire interest of the owner will be distributed or
commence to be distributed, no later than the first day of
April following the calendar year in which the owner attains
age 70-1/2 (required beginning date), over
(a) the life of the owner, or the lives of the owner and
his or her designated beneficiary, or
(b) a period certain not extending beyond the life
expectancy of the owner, or the joint and last survivor
expectancy of the owner and his or her designated
beneficiary.
Payments must be made in periodic payments at intervals of
no longer than one year. In addition, payments must be
either nonincreasing or they may increase only as provided
in Q A F-3 of Section 1.401(a)(9)-1 of the Proposed Income
Tax Regulations.
All distributions made hereunder shall be made in accordance
with the requirements of Section 401(a)(9) of the Code,
including the incidental death benefit requirements of
Section 401(a)(9)(G) of the Code, and the regulations
thereunder, including the minimum distribution incidental
benefit requirement of Section 1.40 1(a)(9)-2 of the
Proposed Income Tax Regulations.
4464 Page 2
<PAGE>
Life expectancy is computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Income
Tax Regulations. Unless otherwise elected by the owner by
the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election
shall be irrevocable by the owner and shall apply to all
subsequent years. The life expectancy of a non-spouse
beneficiary may not be recalculated. Instead, life
expectancy will be calculated using the attained age of such
beneficiary during the calendar year in which the owner
attains age 70-1/2. and payments for subsequent years shall
be calculated based on such life expectancy reduced by one
for each calendar year which has elapsed since the calendar
year life expectancy was first calculated.
(7) DISTRIBUTIONS UPON DEATH
(a) If the owner dies after distribution of his or her
interest has begun, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being used
prior to the owner's death.
(b) If the owner dies before distribution of his or her
interest begins, distribution of the owner's entire
interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the
owner's death except to the extent that an election is
made to receive distributions in accordance with (1) or
(2) below:
(1) If the owner's interest is payable to a designated
beneficiary, then the entire interest of the owner may
be distributed over the life or over a period certain
not greater than the life expectancy of the designated
beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year
in which the owner died.
(2) If the designated beneficiary is the owner's surviving
spouse, the date distributions are required to begin in
accordance with (1) above shall not be earlier than the
later of
(A) December 31 of the calendar year immediately following
the calendar year in which the owner died or
(B) December 31 of the calendar year in which the owner
would have attained age 70-1/2.
4464 Page 3
<PAGE>
(3) If the designated beneficiary is the owner's surviving
spouse, the spouse may treat the certificate as his or
her own IRA. This election will be deemed to have been
made if such surviving spouse makes a regular IRA
contribution to the certificate, makes a rollover to or
from such certificate, or fails to elect any of the
above provisions.
(c) Life expectancy is computed by use of the expected
return multiples in Tables V and VI of Section 1.72-9
of the Income Tax Regulations. For purposes of
distributions beginning after the owner's death, unless
otherwise elected by the surviving spouse by the time
distributions are required to begin, life expectancies
shall be recalculated annually. Such election shall be
irrevocable by the surviving spouse and shall apply to
all subsequent years. In the case of any other
designated beneficiary, life expectancies shall be
calculated using the attained age of such beneficiary
during the calendar year in which distributions are
required to begin pursuant to this paragraph 7, and
payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by one
for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
(d) Distributions under this paragraph 7 are considered to
have begun if distributions are made on account of the
owner reaching his or her required beginning date or if
prior to the required beginning date distributions
irrevocably commence to the owner over a period
permitted and in an annuity form acceptable under
Section 1.401(a)(9) of the Regulations.
(8) NONFORFEITABLE INTEREST
The entire interest of the owner of this certificate is
nonforfeitable.
(9) DECLARATION OF INTENTION
Except in the case of the owner's death or disability (as
defined in Section 72(m) of the Code) or attainment of age
59-1/2, before distributing an amount from this certificate,
AAL shall receive from the owner a declaration of the
owner's intention as to the disposition of the amount
distributed.
4464 Page 4
<PAGE>
(10) INFORMATION FOR IRS REPORTS
The owner shall provide information to AAL at such time and
in such manner and containing such information as may be
necessary for AAL to prepare any reports required pursuant
to Section 408(i) of the Code and the regulations
thereunder.
(11) ANNUAL REPORTING
AAL shall furnish annual calendar year reports concerning
the status of this certificate.
(12) AMENDMENTS
This certificate shall be amended by AAL from time to time
to comply with the provisions of the Code and regulations
thereunder.
Aid Association for Lutherans
Secretary
4464 Page 5
<PAGE>
ROTH INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
ENDORSED ON THIS CERTIFICATE ON ITS DATE OF ISSUE:
This endorsement is made a part of the annuity contract to which it is
attached, and the following provisions apply in lieu of any provisions in
the contract to the contrary.
The annuitant is establishing a Roth Individual retirement annuity (Roth
IRA) under section 408A to provide for his or her retirement and for the
support of his or her beneficiaries after death.
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion
IRA, then, except in the case of a rollover
contribution described in section 408A(e), the issuer
will accept only cash contributions and only up to a
maximum amount of $2,000 for any tax year of the
annuitant.
2. If this Roth IRA is designated as a Roth Conversion
IRA, no contributions other than IRA Conversion
Contributions made during the same tax year will be
accepted.
ARTICLE II
The $2,000 limit described in Article I is gradually reduced
to $0 between certain levels of adjusted gross income (AGI).
For a single annuitant, the $2,000 annual contribution is
phased out between AGI of $95,000 and $110,000; for a
married annuitant who files jointly, between AGI of $150,000
and $160,000; and for a married annuitant who files
separately, between $0 and $10,000. In the case of a
conversion, the issuer will not accept IRA Conversion
Contributions in a tax year if the annuitant's AGI for the
tax year exceeds $100,000 or if the annuitant is married and
files a separate return. Adjusted gross income is defined in
section 408A(c)(3) and does not include IRA Conversion
Contributions.
ARTICLE III
The annuitant's interest in the contract is nonforfeitable
and nontransferable.
ARTICLE IV
1. The contract does not require fixed contributions.
2. Any dividends (refund of contributions other than those
attributable to excess contributions) arising under the
contract will be applied before the close of the
calendar year following the year of the dividend as
contributions toward the contract.
4464R Page 1
<PAGE>
ARTICLE V
1. If the annuitant dies before his or her entire interest
in the contract is distributed to him or her and the
annuitant's surviving spouse is not the sole
beneficiary, the entire remaining interest will, at the
election of the annuitant or, if the annuitant has not
so elected, at the election of the beneficiary, either:
(a) Be distributed by December 31 of the calendar year
containing the fifth anniversary of the annuitant's
death, or
(b) Be distributed over the life, or a period not longer
than the life expectancy, of the designated beneficiary
starting no later than December 31 of the calendar year
following the calendar year of the annuitant's death.
Life expectancy is computed using the expected return
multiples in Table V of section 1.72-9 of the Income
Tax Regulations.
If distributions do not begin by the date described in (b),
distribution method (a) will apply.
2. If the annuitant's spouse is the sole beneficiary on
the annuitant's date of death, such spouse may then be
treated as the annuitant.
For purposes of this Article, unless otherwise elected by
the surviving spouse by the time distributions are required
to begin following the owner's death, life expectancy will
be recalculated annually. Such election shall be irrevocable
by the surviving spouse and shall apply to all subsequent
years.
In the case of any other designated beneficiary, life
expectancy shall be calculated using the attained age of
such beneficiary during the calendar year in which
distributions are required to begin pursuant to Article V.
Payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by one for
each calendar year which has elapsed since the calendar year
life expectancy was first calculated. Therefore, payments to
such beneficiary may not continue for life.
4464R Page 2
<PAGE>
ARTICLE VI
1. The annuitant agrees to provide the issuer with
information necessary for the issuer to prepare any
reports required under sections 408(i) and
408A(d)(3)(E), and Regulations section 1.408-5 and
1.408-6, and under guidance published by the Internal
Revenue Service.
2. The issuer agrees to submit reports to the Internal
Revenue Service and the annuitant as prescribed by the
Internal Revenue Service.
ARTICLE VII
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through IV and
this sentence will be controlling. Any additional articles
that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VIII
This endorsement will be amended from time to time to comply
with the provisions of the Code, related regulations, and
other published guidance. Other amendments may be made with
the consent of the persons whose signatures appear on the
contract.
Aid Association for Lutherans
Secretary
4464R Page 3
JOHN E. DOE
JANUARY 1, 1996
01234567
<TABLE>
<CAPTION>
<S> <C>
AID ASSOCIATION
FOR LUTHERANS
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY This certificate is issued in
consideration of the application and the
payment of the first premium.
o Flexible premiums NOTICE OF TEN DAY RIGHT TO
o Annuity proceeds on annuity commencement date CANCEL CERTIFICATE
o Death proceeds before annuity commencement date READ THIS CERTIFICATE CAREFULLY.
o Participating Within 10 days after you receive this
certificate, you may cancel it for any
reason. The certificate must be delivered
ACCUMULATED VALUES AND DEATH or mailed with a written request to your
PROCEEDS UNDER THIS CERTIFICATE, WHEN AAL district representative or AAL's
BASED ON THE PERFORMANCE OF THE service center. Within 7 days after
VARIABLE ACCOUNT, MAY INCREASE OR AAL receives your request for cancellation,
DECREASE DAILY. THEY ARE NOT AAL will refund an amount equal to the
GUARANTEED AS TO DOLLAR AMOUNT. sum of: (1) the difference between the
premium you paid (including any fees or
This is your certificate of membership other charges) and the amount allocated
and flexible premium deferred variable annuity to subaccounts or fixed account, and
with Aid Association for Lutherans (AAL). It is (2) the accumulated value of the certificate
a legal contract between you and AAL. as of the date you return the certificate to
AAL (postmark date). If returned, this
AAL will apply the annuity proceeds to certificate will be void from the beginning.
provide you with annuity payments if the Signed for Aid Association for Lutherans
annuitant is alive on the annuity commencement at the home office, 4321 North Ballard
date. If you are the annuitant, AAL will pay the Road, Appleton, WI 54919.
annuitant's death proceeds to the beneficiary
if you die before the annuity commencement
date. If you are not the annuitant, AAL
will pay the annuitant's death proceeds to the Secretary President
beneficiary if the annuitant dies while you are alive
and before the annuity commencement date. AAL
will pay the owner's death proceeds to the successor
owner if you die while the annuitant is alive and
before the annuity commencement date. The annuity
proceeds, annuitant's death proceeds, and owner's
death proceeds will be paid according to the provisions
of this certificate.
AID ASSOCIATION FOR LUTHERANS
<PAGE>
TABLE OF CERTIFICATE PROVISIONS
1. General Provisions 6. Withdrawals And Surrender
1.1.........................................Definitions 6.1......................................Withdrawals
1.2.....................................Entire Contract 6.2........................................Surrender
1.3.......................Statements in the Application 6.3.................Withdrawal And Surrender Charges
1.4..................................Change of Contract 6.4.............................10% Free Withdrawals
1.5......................Change of Annuity Commencement 6.5..................Waiver of Charges If Settlement
Date Option Selected
1.6...................................Incontestabillity 6.6.................................Delay of Payment
1.7.........................................Age And Sex
1.8.............................Maintenance Of Solvency 7. Beneficiary
1.9.......................................Annual Report 7.1 .........Beneficiary Designation For Annuitant's
Death Proceeds
2. Membership, Ownership, And Assignment 7.2............Order of Payment for Annuitant's Death
2.1..........................................Membership Proceeds
2.2...........................................Ownership 7.3...............Beneficiary Designation For Owner's
2.3...............................Transfer of Ownership Death Proceeds
2.4...............................Collateral Assignment 7.4.............Change of Beneficiary Designation For
Annuitant's Or Owner's Death Proceeds
3. Premiums
3.1.................................Payment of Premiums 8. Payment of Certificate Proceeds
3.2......................................Premium Notice 8.1..................................Annuity Proceeds
3.3................................Premium Restrictions 8.2........................Annuitant's Death Proceeds
3.4.................................Premium Allocations 8.3............................Owner's Death Proceeds
8.4..............................Filing A Death Claim
4. Accumulated Certificate Values
4.1...................................Accumulated Value 9. Settlement Options
4.2......................Certificate Maintenance Charge 9.1......................Choosing A Settlement Option
4.3..................Minimum Accumulated Value Required For The Annuity Proceeds
4.4.....................................Surplus Refunds 9.2..................Choosing A Settlement Option For
The Annuitant's Or Owner's Death
5. Fixed An Variable Accounts Proceeds
5.1.......................................Fixed Account 9.3................................Settlement Options
5.2.................Crediting Interest To Fixed Account 9.4.......................Guaranteed Interest Rate On
5.3....................................Variable Account Settlement Options
5.4........................Number of Accumulation Units 9.5..........................Settlement Agreement
5.5.............................Accumulation Unit Value
5.6......................Transfer Of Accumulated Values A copy of the application follows Section 9.
5.7...............................Dollar Cost Averaging
5.8..............................Change of Portfolio Or
Investment Policy
</TABLE>
<PAGE>
1. GENERAL PROVISIONS
1.1 DEFINITIONS
As used in this certificate: "AAL" means Aid Association for
Lutherans.
"AAL's service center" is the location where administration
of this certificate will occur.
"Accumulation unit" is an accounting unit of measure. It is
used to calculate the accumulated value for this certificate
in each subaccount prior to the annuity commencement date.
"Annuitant" means the person named as annuitant on page 3.
Except as otherwise provided in Section 8, the annuitant
cannot be changed.
"Annuity commencement date" means the date on which the
annuity proceeds are applied to a settlement option. The
annuity commencement date is shown on page 3.
"Certificate year" means the 12 month periods following the
issue date of this certificate. The first certificate year
starts on the certificate issue date. Each succeeding
certificate year starts on the anniversary of the
certificate issue date.
"Fixed account" is part of AAL's general account which
includes all of AAL's assets other than those in any
separate account of AAL.
"Fund" means the AAL Variable Product Series Fund, Inc. The
fund has portfolios that correspond to each of the
subaccounts of the variable account. The current portfolios
are shown on page 3.
"Net asset value" means the value of any fund portfolio as
computed for any valuation period as described in the fund
prospectus.
"Proof of death" means a certified copy of the death
certificate, a certified decree of a court of competent
jurisdiction as to the finding of death, a written statement
by a medical doctor who attended the deceased, or any other
proof satisfactory to AAL.
"Subaccount" means a subdivision of the variable account.
Each subaccount invests exclusively in the shares of a
corresponding portfolio of the fund. The current subaccounts
are shown on page 3.
<PAGE>
"Valuation date" means every day the New York Stock Exchange
is open for regular trading and AAL is open for business.
"Valuation period" means the period of time from the end of
one valuation date to the end of the next valuation date.
"Variable account" means the AAL Variable Annuity Account I.
It is a separate account of AAL.
"Written request" means a written request signed by you that
is satisfactory in form and content to AAL. "You" or "your"
means the owner of this certificate.
1.2 ENTIRE CONTRACT
The entire contract is made up of:
This certificate, including any attached endorsements or
amendments;
The attached application; and
The AAL Articles of Incorporation and Bylaws which are in
force on the issue date of this certificate.
Your rights and obligations under this certificate, or those
of any person rightfully claiming under this certificate,
are governed by the laws of the State of New York.
1.3 STATEMENTS IN THE
APPLICATION
Statements made in the application will be treated as
representations and not warranties. No statement will be
used by AAL to void the contract or to deny a claim unless
it appears in the application.
1.4 CHANGE OF CONTRACT
No representative of AAL except the president or the
secretary may change any part of this certificate on behalf
of AAL.
To continue treatment of this certificate as an annuity, AAL
will amend this certificate without your consent whenever it
determines that such amendment is necessary for the
certificate to comply with the provisions of the Internal
Revenue Code or any regulation or ruling thereunder, or with
any other applicable federal or state law, rule or
regulation.
<PAGE>
1.5 CHANGE OF ANNUITY COMMENCEMENT DATE
You may change the annuity commencement date at any time before
the annuity commencement date by sending a written request to
AAL's service center. Any change in the annuity commencement date
is subject to approval by AAL.
1.6 INCONTESTABILITY
This certificate will be incontestable after it has been in
effect during the lifetime of the annuitant for 2 years from its
issue date.
1.7 AGE AND SEX
The issue age is the age nearest birthday of the annuitant on the
issue date. This is based on the date of birth given in the
application. The issue age is shown on page 3.
The annuity age equals the issue age plus the number of completed
years from the issue date. The annuity age increases each year on
the anniversary of the issue date.
The values of this certificate are based on the annuitant's age
and sex on the date of issue. If the age or sex of the annuitant
has been misstated, the amount payable will be changed to equal
the amount payable according to the correct age or sex. If the
incorrect date of birth or sex has caused any underpayments to
occur, AAL will pay the underpaid amount with interest at an
effective rate of 4%. If the incorrect date of birth or sex has
caused any overpayments to occur, AAL will deduct from the next
payments the overpaid amount with interest at an effective rate
of 4%.
1.8 MAINTENANCE OF SOLVENCY
This provision applies only to values in the fixed account.
If AAL's reserves for any class of certificates become impaired,
you may be required to make an extra payment. AAL's Board of
Directors will determine the amount of any extra payment based on
each member's fair share of the deficiency.
If the payment is not made, it will be charged as an indebtedness
against this certificate with interest at a rate of 5% per year,
compounded annually. You may choose an equivalent reduction in
benefits instead of or in combination with the payment or
indebtedness.
Any indebtedness and interest charged against this certificate,
or any agreement for a reduction in benefits, shall have priority
over the interest of any owner, beneficiary, or collateral
assignee under this certificate.
<PAGE>
1.9 ANNUAL REPORT
AAL will send you a report at least once each certificate year.
The report will show the accumulated value of this certificate
and any additional information required by law.
2. MEMBERSHIP, OWNERSHIP, AND ASSIGNMENT
2.1 MEMBERSHIP
The person who applied for this certificate is a benefit member
of AAL. This membership can not be transferred. The privileges of
membership are stated in the AAL Articles of Incorporation and
Bylaws.
If the Bylaws of AAL should ever provide for expulsion or
suspension of the member, and if the member is so expelled or
suspended, he or she will still have the privilege of maintaining
this certificate in force.
Any assessment as described in the Maintenance of Solvency
provision that may be required of members holding certificates of
the same class will also apply to the expelled or suspended
member.
2.2 OWNERSHIP
The person who applied for this certificate is the owner, unless
ownership has been transferred. While the annuitant is alive and
before the annuity commencement date, the owner of this
certificate may exercise every right and enjoy every benefit
provided in this certificate.
2.3 TRANSFER OF OWNERSHIP
You may transfer ownership of this certificate by sending a
written request to AAL's service center. AAL will provide a form
for you to use to make this request. Your written request must be
received and approved at AAL's service center before it is
effective. Once approved, the transfer will take effect as of the
date you signed the request, or the date it was received at AAL's
service center if no date appears on the request. AAL is not
liable for any payment made or action taken by it before
receiving and approving the transfer at AAL's service center. AAL
is not responsible for the validity of any transfer of ownership.
2.4 COLLATERAL ASSIGNMENT
You may assign this certificate as collateral. The assignment
must be in writing on a form acceptable to AAL and must be filed
at AAL's service center. AAL is not liable for any payment made
or action taken by it before receiving and filing the assignment
at AAL's service center. AAL is not responsible for the validity
of any assignment.
<PAGE>
The interest of any beneficiary will be subject to any collateral
assignment
3. PREMIUMS
3.1 PAYMENT OF PREMIUMS
The amount of the first premium is shown on page 3. Premiums may
be paid at any time before the annuity commencement date and in
any amount, subject to the restrictions described in Section 3.3.
Upon request, AAL will furnish a receipt for premiums paid.
3.2 PREMIUM NOTICE
AAL will send you premium notices based on the billed premium and
premium interval you selected as shown on page 3. The amount of
the billed premium or the premium interval, or both, may be
changed at any time upon written request to AAL's service center.
Premiums may be billed at any premium interval offered by AAL.
3.3 PREMIUM RESTRICTIONS
Each premium payment must be at least $50.
The total amount of all premium payments on this certificate is
limited to $1 million.
3.4 PREMIUM ALLOCATIONS
Premiums will be allocated to the subaccounts and fixed account
according to the premium allocation percentages you specified in
the application. If you do not designate premium allocation
percentages, the entire premium will be allocated to the money
market subaccount. Your first premium will be allocated at the
end of the valuation period during which your premium is received
at AAL's service center or AAL approves your application,
whichever is later. All subsequent premiums will be allocated at
the end of the valuation period during which they are received at
AAL's service center.
The dollar amount of any premium allocation to a subaccount or
the fixed account may not be less than $50. Each premium
allocation percentage must be a whole percent. The sum of the
premium allocation percentages must be 100%. AAL will adjust your
allocation to eliminate fractional percentages.
<PAGE>
You may change your premium allocation percentages by sending a
written request to AAL's service center. AAL will provide a form
for you to use to make this request. The change will be effective
on the date your written request is received at AAL's service
center. The change will apply to premium payments received at
AAL's service center on or after the effective date of the
change.
4. ACCUMULATED CERTIFICATE VALUES
4.1 ACCUMULATED VALUE
The accumulated value of this certificate at any time before the
annuity commencement date is equal to the sum of the accumulated
values for this certificate in the subaccounts and in the fixed
account.
The accumulated value for this certificate in each subaccount on
a valuation date is equal to:
The number of accumulation units for this certificate in
that subaccount multiplied by the accumulation unit value
for that subaccount.
The accumulated value for any day that is not a valuation date
will be determined on the next valuation date.
The accumulated value for this certificate in the fixed account
on any day is equal to:
The sum of all premiums allocated to the fixed account, any
accumulated value transferred to the fixed account from a
subaccount. and all interest credited;
Less
The sum of any withdrawals from the fixed account, any
accumulated value transferred from the fixed account to a
subaccount, and any withdrawal charges or certificate
maintenance charges applied against the fixed account.
<PAGE>
4.2 CERTIFICATE MAINTENANCE CHARGE
A certificate maintenance charge will be deducted from the
accumulated value of this certificate on the last day of each
certificate year, or upon surrender of this certificate, if
earlier. This charge will not be deducted if the sum of premiums
received by AAL less the sum of any withdrawals and withdrawal
charges from this certificate is $5,000 or more at the time the
deduction would otherwise be made. This charge will not apply on
or after the annuity commencement date. The amount of the
certificate maintenance charge is shown on page 3.
The portion of the certificate maintenance charge applied against
each subaccount and the fixed account will be determined
according to the ratio that the accumulated value in the
subaccount or fixed account of this certificate bears to the
total accumulated value of this certificate at the time of
deduction.
4.3 MINIMUM ACCUMULATED VALUE REQUIRED
AAL will terminate this certificate on any anniversary of the
certificate issue date and pay you the accumulated value of this
certificate if:
The accumulated value of this certificate is less than $600; and
No premium payment has been received at AAL's service center for
at least 36 months.
4.4 SURPLUS REFUNDS
This is a participating certificate. It will share in any surplus
refunds declared annually by the AAL Board of Directors. Surplus
refunds, if any, may be applied under any one of the following
options.
1. Paid in Cash
2. Accumulate with Interest
Surplus refunds may be accumulated with interest at a rate of at
least 3 percent per year. The rate of interest may be increased
as determined annually by the AAL Board of Directors.
3. Additional Cash Value
Surplus refunds may be added to the cash value of this
certificate.
<PAGE>
5. FIXED AND VARIABLE ACCOUNTS
5.1 FIXED ACCOUNT
Premiums allocated to the fixed account and transfers of
accumulated value from a subaccount to the fixed account become
part of the general account assets of AAL. The general account
includes all of AAL's assets, except those assets segregated in
the variable account or any other separate account of AAL.
5.2 CREDITING INTEREST TO FIXED ACCOUNT
AAL will periodically declare effective annual interest rates for
new premiums allocated to the fixed account or accumulated value
transferred from a subaccount to the fixed account. The rate in
effect on the date of allocation or transfer is the initial
effective annual interest rate for that allocation or transfer.
The initial effective annual interest rate for each premium
allocated or accumulated value transferred to the fixed account
is guaranteed to remain in effect for that allocation or transfer
for at least 12 months from the date of the allocation or
transfer. After the initial 12 month guarantee period, AAL can
change the effective annual interest rate for that allocation or
transfer. However, any change in the effective annual interest
rate for the allocation or transfer is guaranteed to remain in
effect for at least 12 months from the effective date of such
change.
Interest is credited on each premium allocated or accumulated
value transferred to the fixed account from the date of the
allocation or transfer. Interest is credited and compounded
daily. AAL guarantees that the effective annual interest rate
credited will never be less than 3 1/2%.
Any withdrawals, withdrawal charges or certificate maintenance
charges applied against the fixed account, or any transfers of
accumulated value from the fixed account to a subaccount, will be
taken from premium allocations or accumulated value transferred
to the fixed account, and interest credited on such allocations
or transfers, on a first-in, first- out basis. For purposes of
making this determination, all interest credited on any premium
allocation or accumulated value transferred to the fixed account,
including compounded interest, will be deemed to have been
credited on the date of such allocation or transfer.
<PAGE>
5.3 VARIABLE ACCOUNT
The AAL Variable Annuity Account I is a separate investment
account established by AAL under Wis-- consin law. The variable
account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of
1940. The AAL Variable Annuity Account I is sub-- ject to the
laws of the State of New York to the extent that AAL, a foreign
fraternal benefit society, is subject to those laws.
AAL uses the assets of the variable account to buy shares in the
AAL Variable Product Series Fund, Inc. The fund is registered
with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a diversified open-end management
investment company. The variable account has subaccounts which
are invested in corresponding specific portfolios of the fund.
These subaccounts and portfolios are shown on page 3.
AAL, consistent with then applicable law and subject to approval
by the New York State Insurance Department, may:
Combine with another separate account, operate as a
management investment company, deregister as an investment
company or modify the variable account;
Add, delete, combine or modify subaccounts;
Invest the assets of any new subaccount in a new portfolio
of the fund, a different investment company or in any other
investment; and
Make any new subaccount available to you on a basis to be
determined by AAL.
AAL owns the assets of the variable account and keeps them
legally segregated from the assets of the general account. The
assets of the variable account shall, at the time during the year
that adjustments in the reserves are made, have a value at least
equal to the reserves and other contract liabilities with respect
to the variable account and, at all other times, shall have a
value approximately equal to or in excess of such reserves and
liabilities, and shall not be chargeable with liabilities arising
out of any other business AAL may conduct, except to the extent
that the assets of the variable account exceed the reserves and
other contract liabilities of the variable account arising under
the certificates supported by the variable account.
<PAGE>
Income, gains and losses, whether or not realized, from the
assets in each subaccount are credited to or charged against that
subaccount without regard to any of AAL's other income, gains or
losses. The value of the assets in the variable account is
determined at the end of each valuation date.
5.4 NUMBER OF ACCUMULATION UNITS
The number of accumulation units for this certificate in any
subaccount may increase or decrease at the end of each valuation
period prior to the annuity commencement date depending on the
transactions that occur in the subaccount during the valuation
period. When transactions occur, the actual dollar amounts of the
transactions are converted to accumulation units. The number of
accumulation units for a transaction in a subaccount is
determined by dividing the dollar amount of the transaction by
the accumulation unit value of the subaccount at the end of the
valuation period during which the transaction occurs.
The number of accumulation units in a subaccount increases when
the following transactions occur during the valuation period:
Premiums are allocated to the subaccount; or
Accumulated value is transferred to the subaccount from
another subaccount or from the fixed account.
The number of accumulation units in a subaccount decreases when
the following transactions occur during the valuation period:
Accumulated value is transferred from the subaccount to
another subaccount or to the fixed account;
Withdrawals and withdrawal charges are applied against the
subaccount; or
Certificate maintenance charges or transfer charges are
applied against the subaccount.
5.5 ACCUMULATION UNIT VALUE
For each subaccount, the accumulation unit value was set when the
subaccount was established. The accumulation unit value may
increase or decrease from one valuation period to the next.
The accumulation unit value for a subaccount for any valuation
period is equal to:
The net asset value of the corresponding fund portfolio at
the end of the valuation period;
<PAGE>
Plus the amount of any dividend, capital gain or other
distribution made by the fund portfolio if the "ex-dividend"
date occurs during the valuation period;
Minus the dollar amount of the mortality and expense risk
charge AAL deducts for each day in the valuation period.
This mortality and expense risk charge is guaranteed not to
exceed, on an annual basis, 1.25% of the daily value of the
subaccount;
Plus or minus any cumulative charge or credit for taxes
reserved which is determined by AAL to have resulted from
the operation of the portfolio;
Divided by the total number of accumulation units held in
the subaccount at the end of the valuation period before any
of the transactions described in Section 5.4 have occurred.
5.6 TRANSFER OF ACCUMULATED VALUES
At any time before the annuity commencement date and while the
annuitant is alive, you may transfer all or a portion of the
accumulated value of this certificate among the subaccounts and
the fixed account by sending a written request to AAL's service
center. AAL will provide a form for you to use. The transfer will
be effective at the end of the valuation period during which your
written request is received at AAL's service center. Transfers
are subject to the following:
The total dollar amount of any transfer cannot be less than
the smaller of $500 or the accumulated value of the
subaccount or fixed account from which the transfer is being
made at the time of transfer.
The dollar amount of any transfer to a subaccount or the
fixed account may not be less than $50.
You may make 12 transfers from one or more subaccounts to
one or more other subaccounts or the fixed account in each
certificate year without charge. Thereafter, each transfer
in the certificate year will be subject to a $10 transfer
charge, which will be applied against the subaccounts from
which transfers are being made according to the ratio that
the amounts transferred from each subaccount bear to the
total amount transferred from the subaccounts.
<PAGE>
You may make only 1 transfer from the fixed account in each
certificate year. The transfer may not exceed the greater of
$500 or 25% of the accumulated value of the fixed account at
the time of transfer. This transfer will not be subject to a
transfer charge.
AAL may delay making transfers subject to the same conditions
described in Section 6.6.
5.7 DOLLAR COST AVERAGING
At any time before the annuity commencement date and while the
annuitant is still alive, you may elect to establish a Dollar
Cost Averaging plan. AAL will provide a form for you to use. Once
the Dollar Cost Averaging plan is established, AAL will
automatically transfer a predetermined amount from the Money
Market Subaccount to one or more other subaccounts. The automatic
transfers will continue on a predetermined basis until the
balance in the Money Market Subaccount is depleted or you
terminate the plan, whichever occurs first. The predetermined
amount to be transferred to each subaccount must be $50 or more.
Transfers made under a Dollar Cost Averaging plan are not subject
to the transfer charges described in Section 5.6.
5.8 CHANGE OF PORTFOLIO OR INVESTMENT POLICY
AAL may determine that a portfolio of a fund is no longer
desirable for investment by a subaccount or the shares of a
portfolio are no longer available for investment. If that occurs,
AAL has the right to substitute another portfolio of the fund, or
to invest in another investment company. This change would be
subject to any required prior approval by the Securities and
Exchange Commission and the insurance supervisory officials in
the state where this certificate is delivered.
Any change in the investment policy of the variable account will
be subject to any required prior approval from the New York State
Insurance Department and by the insurance supervisory officials
of the state of Wisconsin. AAL will notify you of any material
change in investment policy.
<PAGE>
6. WITHDRAWALS AND SURRENDER
6.1 WITHDRAWALS
At any time before the annuity commencement date and while the
annuitant is alive, you may withdraw part of the accumulated
value of this certificate by sending a written request to AAL's
service center. The withdrawal will be effective at the end of
the valuation period during which your written request is
received at AAL's service center. Each withdrawal must be at
least $25.
Withdrawals and withdrawal charges will be taken from each
subaccount and the fixed account according to the ratio that the
accumulated value in the subaccount or fixed account of this
certificate bears to the total accumulated value of this
certificate at the time of the withdrawal.
You may choose to have withdrawals taken from other subaccounts
or the fixed account with AAL's approval. Any withdrawal charges
will then be taken from each subaccount or the fixed account from
which the withdrawal is taken according to the ratio that the
amount of the withdrawal from each subaccount or fixed account
bears to the total amount of the withdrawal.
6.2 SURRENDER
You may surrender this certificate at any time before the annuity
commencement date and while the annuitant is alive. A written
request must be sent to AAL's service center. The surrender will
be effective at the end of the valuation period during which your
written request is received at AAL's service center. AAL will pay
you the cash surrender value which is the accumulated value of
this certificate at the time of surrender less any surrender
charge and less any certificate maintenance charge. Upon payment
of the cash surrender value, this certificate will terminate.
The cash surrender value is not less than the minimum benefit
required by any statute of the state in which the contract is
delivered.
<PAGE>
6.3 WITHDRAWAL AND SURRENDER CHARGES
A withdrawal or surrender charge will be subtracted from the
accumulated value of this certificate if the withdrawal or
surrender is made during the first 7 certificate years. The
withdrawal charge is a percentage of the accumulated value of
this certificate that is withdrawn. The surrender charge is a
percentage of the accumulated value of this certificate at the
time of surrender. Withdrawal and surrender charges are shown on
the Table of Withdrawal and Surrender Charges on page 3. However,
at no time will the total of all withdrawal and surrender charges
applied under this certificate exceed 7.5% of the total premiums
paid on this certificate.
6.4 10% FREE WITHDRAWALS
In each certificate year. you may make free withdrawals of up to
10% of the accumulated value of this certificate existing at the
time of the first withdrawal in the certificate year. A free
withdrawal is a withdrawal on which no withdrawal charge is
applied. The free withdrawal amount available on any withdrawal
is:
The accumulated value of this certificate at the time of the
first withdrawal in the certificate year;
Multiplied by 10%;
Less any previous free withdrawals made during the
certificate year.
If you surrender this certificate and no free withdrawals were
made during the certificate year, no surrender charge will be
subtracted from the first 10% of the accumulated value of this
certificate existing at the time of surrender. If any free
withdrawals were made during the certificate year, the amount of
the accumulated value of this certificate not subject to
surrender charges is:
The accumulated value of this certificate at the time of the
first withdrawal in the certificate year;
Multiplied by 10%;
Less any previous free withdrawals made during the
certificate year.
<PAGE>
6.5 WAIVER OF CHARGES IF SETTLEMENT OPTION SELECTED
Withdrawal or surrender charges will be waived if:
The withdrawal or surrender is made more than 3 years after
the issue date; and
The value is applied to settlement option 2 for periods of
five years or more, 3 for periods of five years or more, 4,
or 5 under Section 9.3.
6.6 DELAY OF PAYMENT
Payment of any withdrawal value or cash surrender value will
normally be made within 7 days after your written request is
received at AAL's service center. However, AAL may delay this
payment or any other type of payment from the variable account
for any period when:
The New York Stock Exchange is closed for trading other than
customary weekend and holiday closings;
Trading on the New York Stock Exchange is restricted;
An emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in the
variable account or to fairly determine their value; or
The Securities and Exchange Commission by order permits the
delay for the protection of security holders.
AAL may delay payment of any withdrawal value or cash surrender
value from the fixed account for up to 6 months after your
written request is received at AAL's service center.
7. BENEFICIARY
7.1 BENEFICIARY DESIGNATION FOR ANNUITANTS DEATH PROCEEDS
You may designate one or more beneficiaries to receive the
annuitant's death proceeds as defined in Section 8.2. The
beneficiary designation is made at the time of application. The
Bylaws of AAL list those eligible to be beneficiaries.
Beneficiaries are designated as first, second or third class.
<PAGE>
7.2 ORDER OF PAYMENT FOR ANNUITANT'S DEATH PROCEEDS
Unless you indicate otherwise in the beneficiary designation, AAL
will pay the annuitant's death proceeds as follows:
Equally to the beneficiaries in the first class who survive
the annuitant. If none in the first class survive the
annuitant, then;
Equally to the beneficiaries in the second class who survive
the annuitant. If none in the second class survive the
annuitant, then;
Equally to the beneficiaries in the third class who survive
the annuitant, however;
If any beneficiary dies at the same time as the annuitant
but before the annuitant's death proceeds are paid, AAL will
pay the annuitant's death proceeds as though that
beneficiary had died before the annuitant.
If no beneficiary has been designated or survives the annuitant,
AAL will pay the annuitant's death proceeds to you, if living,
otherwise to your estate.
7.3 BENEFICIARY DESIGNATION FOR OWNERS DEATH PROCEEDS
If you are not the annuitant, you may designate a successor owner
as designated beneficiary to receive the owner's death proceeds
as defined in Section 8.3. Unless you indicate otherwise in the
successor owner designation, AAL will pay the owner's death
proceeds equally to the successor owners who survive you. If you
do not designate a successor owner, or if no successor owner
survives you, AAL will pay the owner's death proceeds to your
estate.
7.4 CHANGE OF BENEFICIARY DESIGNATION FOR ANNUITANT'S OR OWNER'S DEATH PROCEEDS
You may change the beneficiary designation for the annuitant's or
owner's death proceeds by sending a written request to AAL's
service center. AAL will provide a form for you to use to make
this request. Your written request must be received and approved
at AAL's service center before it is effective. Once approved,
the change will take effect as of the date you signed the
request, or the date it was received at AAL's service center if
no date appears on the request, provided the request was mailed
or actually delivered to AAL's service center while the annuitant
was alive in the case of a change of the beneficiary designation
for the annuitant's death proceeds or while you were alive in the
case of a change of the beneficiary designation for the owner's
death proceeds. AAL is not liable for any payment made or action
taken by it before receiving and approving the change at AAL's
service center.
<PAGE>
8. PAYMENT OF CERTIFICATE PROCEEDS
8.1 ANNUITY PROCEEDS
If you are the annuitant, AAL will apply the annuity proceeds to
the settlement option in effect under Section 9 on the annuity
commencement date if you are alive on that date. If you are not
the annuitant, AAL will apply the annuity proceeds to the
settlement option in effect under Section 9 on the annuity
commencement date if you and the annuitant are alive on that
date. The annuity proceeds are the accumulated value on the
annuity commencement date.
Annuity benefits provided at the time annuity benefits commence
will not be less than that provided by using the greater of the
cash surrender value or 95% of the accumulated value to purchase
a single premium immediate annuity offered by AAL at the time to
the same class of annuitants.
8.2 ANNUITANT'S DEATH PROCEEDS
If you are the annuitant, AAL will pay the beneficiary the
annuitant's death proceeds as provided in Section 9, upon
receiving proof that you died before the annuity commencement
date. If you are not the annuitant, AAL will pay the beneficiary
the annuitant's death proceeds as provided in Section 9, upon
receiving proof that the annuitant died while you are alive and
before the annuity commencement date. Except as otherwise
provided in Section 9.2, the amount of the annuitant's death
proceeds are calculated as of the annuitant's date of death.
A written request from the beneficiary to receive the death
proceeds as provided under Section 9.2 must be received at AAL's
service center. The request must include a completed claim form
and such other information AAL may reasonably require for
processing the claim.
If the annuitant dies before attaining age 80, the amount of the
annuitant's death proceeds is the greatest of:
The accumulated value of this certificate as of the
annuitant's date of death; or
The sum of all premiums paid less the sum of any withdrawals
as of the annuitant's date of death.
If the annuitant dies on or after attaining age 80, the amount of
the annuitant's death proceeds is the accu-mulated value of this
certificate as of the annuitant's date of death.
<PAGE>
The annuitant's death proceeds are not less than the minimum
benefit required by any statute of the state in which the
contract is delivered.
If the annuitant's spouse is the owner and sole first
beneficiary, the spouse may elect to continue this certificate in
force as the annuitant and owner.
If the annuitant was the owner, or the owner was not a natural
person, the annuitant's death proceeds and any interest credited
on such proceeds, will be paid to the beneficiary within 5 years
after the annuitant's death. However, if the beneficiary is a
natural person, the annuitant's death proceeds may be paid under
a settlement option described in Section 9.3 provided payments
begin within 1 year after the annuitant's death and are paid over
the life of the beneficiary or over a period not exceeding the
life expectancy of the beneficiary.
If the annuitant was the owner and the annuitant's spouse is the
sole first beneficiary, the spouse may elect to continue this
certificate in force as the annuitant and owner. The spouse will
be deemed to have made this election if a written request from
the spouse to receive the annuitant's death proceeds as provided
in Section 9.2 is not received at AAL's service center within 60
days after proof of death of the annuitant is received at AAL's
service center.
8.3 OWNERS DEATH
AAL will pay the successor owner the owner's death PROCEEDS
proceeds as provided in Section 9, upon receiving proof that you
died while the annuitant is alive and before the annuity
commencement date. The owner's death proceeds is the accumulated
value on the date of the owner's death. The owner's death
proceeds are not less than the minimum benefit required by any
statute of the state in which the contract is delivered.
The owner's death proceeds and any interest credited on such
proceeds, will be paid to the successor owner within 5 years
after your death. However, if the successor owner is a natural
person, the owner's death proceeds may be paid under a settlement
option described in Section 9.3 provided payments begin within 1
year after your death and are paid over the life of the successor
owner or over a period not exceeding the life expectancy of the
successor owner.
If your spouse is the sole successor owner, your spouse may elect
to continue this certificate in force as the new owner.
<PAGE>
8.4 FILING A DEATH CLAIM
Written notice of death of the owner or annuitant must be given
to AAL at AAL's service center. Notice should include the
annuitant's or owner s name and the certificate number. Help may
be obtained through an AAL district representative.
A claim form will be sent upon receiving the death claim notice.
Complete the claim form and send it to AAL's service center along
with a certified copy of the death certificate or other proof of
death. Processing of the claim will begin as soon as these items
are received.
9. SETTLEMENT OPTIONS
9.1 CHOOSING A SETTLEMENT OPTION FOR THE ANNUITY PROCEEDS
You may choose or change a settlement option for the annuity
proceeds while the annuitant is alive and before the annuity
commencement date. AAL will provide a form for you to use. If you
do not choose a settlement option before the annuity commencement
date, the automatic settlement option is Option 4, Life Income
With A 10 Year Guaranteed Payment Period.
9.2 CHOOSING A SETTLEMENT OPTION FOR THE ANNUITANT'S OR OWNERS DEATH PROCEEDS
The beneficiary for the annuitant's or owner's death proceeds may
choose to receive the death proceeds in a lump sum payment or
under any settlement option, unless the owner has chosen a
mandatory method of payment in the beneficiary designation that
does not allow the beneficiary to change it, or unless otherwise
restricted under Sections 8.2 or 8.3. AAL will provide a form for
you to use.
On lump sum payments, AAL will pay interest on the annuitant's
death proceeds at a rate required by law from the date of death
until the date of payment.
If a written request from the beneficiary to receive the death
proceeds as provided in this Section is not received at AAL's
service center within 60 days after proof of death of the
non-owner annuitant is received at AAL's service center, the
amount of the death proceeds will then be calculated and applied
to the settlement option designated as Option 1, Interest.
9.3 SETTLEMENT OPTIONS
The minimum amount that may be applied to any one settlement
option is $1,000. Payments may be received on a monthly,
quarterly, semiannual, or annual basis provided each payment is
at least $20. The first payment under an option will be made on
the first business day following the end of the payment interval
chosen.
<PAGE>
Settlement options 2, 3, 4 and 5 are fixed annuity options. This
means that annuity payments are guaranteed as to minimum amount
and are not dependent on the investment experience of the
variable account.
The settlement options are as follows:
OPTION 1 - INTEREST
The proceeds are left with AAL to earn interest. Interest earned
may be paid in cash at regular intervals or may be left with AAL
to accumulate with interest. All or part of these proceeds may be
withdrawn upon request.
OPTION 2 - SPECIFIED AMOUNT INCOME
The proceeds are used to make payments at regular intervals for a
specified amount until the proceeds with interest have been paid.
The payment period may not exceed 30 years. The unpaid proceeds
may be withdrawn upon request.
OPTION 3 - FIXED PERIOD INCOME
The proceeds are used to make payments at regular intervals for a
fixed number of years, not to exceed 30 years. The unpaid
proceeds may be withdrawn upon request. Guaranteed payments are
shown in the table below.
MONTHLY PAYMENTS FOR EACH $1,000 OF
PROCEEDS
Number Number
Of Monthly of Monthly
Years Payment Years Payment
----- ------- ----- -------
2 $42.96 17 $6.24
3 $29.06 18 $5.98
4 $22.12 19 $5.74
5 $17.95 20 $5.53
6 $15.18 21 $5.33
7 $13.20 22 $5.16
8 $11.71 23 $5.00
9 $10.56 24 $4.85
10 $ 9.64 25 $4.72
11 $ 8.88 26 $4.60
12 $ 8.26 27 $4.49
13 $ 7.73 28 $4.38
14 $ 7.28 29 $4.28
15 $ 6.89 30 $4.19
16 $ 6.54
<PAGE>
OPTION 4 - LIFE INCOME WITH GUARANTEED PAYMENT PERIOD
The proceeds are used to make payments at regular intervals for
the lifetime of the payee. If the payee dies during the
guaranteed period, payments will be continued to the payee's
beneficiary to the end of that period. A period of 10 or 20 years
may be elected. The amount of the payments depends on the age and
sex of the payee at the time AAL issues the settlement agreement.
Guaranteed payments are shown in the table below.
MONTHLY PAYMENTS FOR EACH $1,000 OF
PROCEEDS
10 YEAR 20 YEAR
GUARANTEED GUARANTEED
PAYMENT PAYMENT
PERIOD PERIOD
Age Male Female Male Female
--- ---- ------ ---- ------
50 $4.53 $4.19 $4.38 $4.13
51 $4.61 $4.26 $4.44 $4.18
52 $4.69 $4.32 $4.50 $4.24
53 $4.77 $4.39 $4.56 $4.29
54 $4.85 $4.45 $4.62 $4.35
55 $4.93 $4.52 $4.68 $4.40
56 $5.03 $4.61 $4.74 $4.46
57 $5.14 $4.70 $4.80 $4.53
58 $5.24 $4.78 $4.87 $4.59
59 $5.35 $4.87 $4.93 $4.66
60 $5.45 $4.96 $4.99 $4.72
61 $5.58 $5.07 $5.05 $4.79
62 $5.71 $5.18 $5.11 $4.86
63 $5.85 $5.30 $5.18 $4.93
64 $5.98 $5.41 $5.24 $5.00
65 $6.11 $5.52 $5.30 $5.07
66 $6.27 $5.67 $5.35 $5.14
67 $6.43 $5.82 $5.40 $5.20
68 $6.59 $5.96 $5.44 $5.27
69 $6.75 $6.11 $5.49 $5.33
70 $6.91 $6.26 $5.54 $5.40
71 $7.09 $6.44 $5.57 $5.44
72 $7.26 $6.63 $5.60 $5.49
73 $7.44 $6.81 $5.62 $5.53
74 $7.61 $7.00 $5.65 $5.58
75 $7.79 $7.18 $5.68 $5.62
76 $7.95 $7.38 $5.69 $5.64
77 $8.12 $7.58 $5.71 $5.66
78 $8.28 $7.78 $5.72 $5.69
79 $8.45 $7.98 $5.74 $5.71
80 $8.61 $8.18 $5.75 $5.73
<PAGE>
Table Continued
MONTHLY PAYMENTS FOR EACH $1,000 OF
PROCEEDS
10 YEAR 20 YEAR
GUARANTEED GUARANTEED
PAYMENT PAYMENT
PERIOD PERIOD
Age Male Female Male Female
--- ---- ------ ---- ------
81 $8.74 $8.35 $5.75 $5.74
82 $8.86 $8.51 $5.76 $5.74
83 $8.99 $8.68 $5.76 $5.75
84 $9.11 $8.84 $5.77 $5.75
85 $9.24 $9.01 $5.77 $5.76
86 $9.32 $9.11 $5.77 $5.76
87 $9.39 $9.21 $5.77 $5.76
88 $9.47 $9.32 $5.77 $5.77
89 $9.54 $9.42 $5.77 $5.77
90 $9.62 $9.52 $5.77 $5.77
If different guaranteed payment periods have the same guaranteed
payment amounts, the longest guaranteed payment period will be
deemed to have been chosen.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENT
PERIOD
The proceeds are used to make payments at regular intervals for
the lifetime of both payees. Upon the death of one of the payees,
payments will be continued for the lifetime of the surviving
payee. If both payees die during the guaranteed period, payments
will be continued to the payee's beneficiary to the end of that
period. A period of 10 or 20 years may be elected. The amount of
the payments depends upon the age and sex of the payees at the
time AAL issues the settlement agreement. Guaranteed payments are
shown in the tables below.
<PAGE>
MONTHLY PAYMENTS FOR EACH $1,000 OF
PROCEEDS
PAYMENTS GUARANTEED FOR 10 YEARS
Male Female Ages
Ages 50 55 60 65 70 75 80 85 90
- ---- -- -- -- -- -- -- -- -- --
50 $3.91 $4.05 $4.18 $4.29 $4.38 $4.45 $4.49 $4.51 $4.52
55 $3.99 $4.17 $4.36 $4.53 $4.67 $4.78 $4.86 $4.90 $4.92
60 $4.06 $4.28 $4.53 $4.77 $5.00 $5.19 $5.32 $5.39 $5.43
65 $4.11 $4.37 $4.67 $5.00 $5.34 $5.64 $5.87 $6.01 $6.08
70 $4.14 $4.43 $4.79 $5.20 $5.66 $6.11 $6.48 $6.72 $6.84
75 $4.17 $4.48 $4.86 $5.34 $5.91 $6.52 $7.07 $7.46 $7.67
80 $4.18 $4.50 $4.91 $5.44 $6.09 $6.83 $7.56 $8.11 $8.42
85 $4.19 $4.52 $4.94 $5.49 $6.19 $7.03 $7.89 $8.58 $8.98
90 $4.19 $4.52 $4.95 $5.51 $6.24 $7.13 $8.08 $8.85 $9.32
<PAGE>
MONTHLY PAYMENTS FOR EACH $1,000 OF
PROCEEDS
PAYMENTS GUARANTEED FOR 20 YEARS
Male Female Ages
Ages 50 55 60 65 70 75 80 85 90
- ---- -- -- -- -- -- -- -- -- --
50 $3.90 $4.03 $4.16 $4.25 $4.32 $4.36 $4.38 $4.38 $4.38
55 $3.98 $4.15 $4.32 $4.47 $4.58 $4.64 $4.67 $4.68 $4.68
60 $4.04 $4.25 $4.47 $4.68 $4.84 $4.94 $4.98 $4.99 $4.99
65 $4.08 $4.32 $4.59 $4.85 $5.07 $5.21 $5.28 $5.29 $5.30
70 $4.11 $4.37 $4.67 $4.97 $5.24 $5.42 $5.50 $5.53 $5.54
75 $4.12 $4.39 $4.70 $5.04 $5.34 $5.55 $5.64 $5.68 $5.68
80 $4.12 $4.40 $4.72 $5.07 $5.38 $5.60 $5.71 $5.74 $5.75
85 $4.13 $4.40 $4.72 $5.07 $5.39 $5.62 $5.72 $5.76 $5.77
90 $4.13 $4.40 $4.72 $5.07 $5.40 $5.62 $5.73 $5.76 $5.77
<PAGE>
If different guaranteed payment periods have the same guaranteed
payment amounts, the longest guaranteed payment period will be
deemed to have been chosen.
OTHER OPTIONS
AAL also has other settlement options which may be chosen.
Information about these options may be obtained from an AAL
district representative or AAL's service center.
9.4 GUARANTEED INTEREST RATE ON SETTLEMENT OPTIONS
Options 1, 2, and 3 are based on a guaranteed effective annual
interest rate of 3%. Options 4 and 5 are based on a guaranteed
effective annual interest rate of 3 1/2% using the "1983 Table a"
annuitant mortality table
<PAGE>
9.5 SETTLEMENT AGREEMENT
AAL will issue a separate settlement agreement whenever proceeds
are applied to any settlement option. The settlement agreement
will be issued to the payee. The payee is the person named to
receive the payments.
If the payee dies on or after the annuity commencement date and
before the entire interest in the settlement agreement has been
paid, the remaining portion of such interest will be paid to the
payee's beneficiary at least as rapidly as under the method of
payment in effect as of the date of the payee's death.
<PAGE>
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY
o Flexible premiums
o Annuity proceeds on annuity
commencement date
o Death proceeds before annuity
commencement date
o Participating
---------------------
ASSOCIATION FOR LUTHERANS
4321 N. Ballard Road,
AppIeton, WI 549l9-0001
AID ASSOCIATION FOR LUTHERANS AAL CAPITAL MANAGEMENT CORPORATION
4321 N. Ballard Road, 222 West College Avenue,
Appleton, WI 54919-0001 Appleton, WI 54919-0007
AAL Variable Annuity Application
New Account Information
The Variable Annuity Owner I Applicant must provide the following information to
meet insurance and securities industry rules designed for customer protection.
This information is confidential and is only for the use of AAL and its
affiliated companies.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Section A - Personal Information Name of owner I applicant
(print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------- ----------------------------------------------------------------------------
Birthdate (mo/day/yr) Are you a U.S. citizen? Other citizenship description
__ Yes __ No
- ------------------------------------------------------- ----------------------------------------------------------------------------
- ------------------------------------------------------- ----------------------------------------------------------------------------
__Single __ Divorced __ Divorce Pending Employer name
__Married ___ Widowed __ Separated
- ------------------------------------------------------- ----------------------------------------------------------------------------
- ------------------------------------------------------- ----------------------------------------------------------------------------
Number of dependents under age 18 -
- ------------------------------------------------------- ----------------------------------------------------------------------------
- ------------------------------------------------------- ----------------------------- -------------------- -------- ----------------
Occupation: Employer street address
__ Labor/Trades __ Office/Retail
__ Manager / Sales __ Professional
__ Retired __ Student
__ Unemployed
__ Other- ______________________
- ------------------------------------------------------- ----------------------------- -------------------- -------- ----------------
Do you own a business? City State ZIP Code
__ Yes - Nbr of: Full-time employees ____
__ No - Part-time employees __________
- ------------------------------------------------------- ---------------------------------------------------- -------- -----------
- ------------------------------------------------------- ----------------------------------------------------------------------------
Associated with NASD firm?
__ Yes: Firm -
__ No
- ------------------------------------------------------- ----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section B - Financial Suitability Information
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ -----------------------------------------------
Prior Investment Less Annual Household Assets - Excluding this purchase
Experience Than 5 5 + Income Cash / CDs $___________
Bank Savings, CD's, None Years Years Stocks / Bonds $___________
Money Market Funds __ __ __ __Under $20,000 Mutual Funds $___________
Stocks or Equity __ __ __ __ $20,001 - $35,000 Business $___________
Bonds or Fixed Income __ __ __ __ $35,001 - $50,000 Residence (equity) $___________
Mutual Funds __ __ __ __ $50,001 - $75,000 Insurance (cash value) $___________
Variable Annuities/Life __ __ __ __ $75,001 -$100,000 Deferred Annuities $___________
Other - __ __ __ __ More than $100,000 Other - $___________
Total Assets $__________
Liquid Net Worth = $__________
- ------------------------------------------------------------------------------------ -----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section C - Investment Information - For This Purchase Only
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Purpose __ Retirement __ Other -
- ------------------------------------------------------------------------------------------------------------------------------------
Source of Funds
__ Current Income __ AAL Mutual Fund __ Other Company Mutual Fund __Loans
__ Gift / Inheritance __ Death Proceeds __ Sale of Other Investment __ Savings / Checking / CD
__ Pension / IRA - AAL __ Pension / IRA - Other Company __ Not Pension - Other Company
__ Not Pension - AAL __ Other - _____________________________
Risk Tolerance - Check the number below that corresponds with the level of risk
you are willing to accept.
- -------------------------------------------------------------------- -------------------------------------------- ------------------
Low- __1 __2 __3 __4 __5 __6 __7 __8 __9 __10 - High
- -------------------------------------------------------------------- -------------------------------------------- ------------------
- -------------------------------------- --------------------------- ---------------------------------------------- ------------------
CDs Utility and Blue Chip Small Company I Emerging Precious Metals Oil
Savings Accounts Stocks Growth Securities and Gas
Money Market Funds and Bonds International / Global Securities Drilling
High Yield Securities
- -------------------------------------- --------------------------- ---------------------------------------------- ------------------
</TABLE>
<PAGE>
Section D - Other Information
Are you replacing a Variable Annuity contract?
__ Yes - Indicate the reason for the exchange of contract and provide
allocation information on the contract being replaced.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__ No
<PAGE>
<TABLE>
<CAPTION>
Application For Variable Annuity With AID ASSOCIATION FOR
Aid Association For Lutherans (AAL), LUTHERANS
A Fraternal Benefit Society, Appleton, WI 54919 4321 N. Ballard Road, Appleton, WI 54919-0001
<S> <C> <C> <C> <C> <C> <C> <C>
__ Adult - New Business __ Juvenile - New Business
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section 1 - Replacement
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Yes No
__ __ Is this certificate intended to replace any part of, or all of, another
company's contract?
__ __ Is this certificate intended to replace any part of,
or all of, an AAL certificate?
__ __ Is this a 1035 exchange?
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section 2 - Proposed Annuitant
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- -------------------------------------------------------
Social Security number Date of birth (mo/day/yr) Sex Residence state
- ------------------------------------- -------------------------------------- -------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section 3 - Proposed Applicant / Controller - If Juvenile Application
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- ------------------- -----------------------------------
Social Security number Date of birth (mo/day/yr) Sex Residence state Relationship to annuitant
- ------------------------------------- -------------------------------------- ------------------- -----------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section 4 - Proposed Third Party Owner
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Type of application: __ Third Party Reason -
__ Advanced Marketing Reason -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Type of owner __ Individual __Multiple individuals
__ Other - ___________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- -------------------------------------------------------
Relationship to annuitant Relationship to member Date of birth Percentage of Residence
(mo/day/yr) common ownership* state
-----------%
- ------------------------------------- -------------------------------------- -------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Complete additional names if multiple owners.
Multiple owners shall be: __ Joint owners __ Common owners
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
Relationship to annuitant Relationship to member Date of birth (mo/day/yr) Percentage of common
ownership * _______%
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
Relationship to annuitant Relationship to member Date of birth (mo/day/yr) Percentage of common
ownership * _______%
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
Relationship to annuitant Relationship to member Date of birth (mo/day/yr) Percentage of common
ownership * _______%
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
Relationship to annuitant Relationship to member Date of birth (molday/yr) Percentage of common
ownership * _______%
- ------------------------------------- -------------------------------------- ------------------------------ ------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* Complete only if multiple owners with common ownership. If none indicated,
percentage will be equal.
Joint ownership is always equal.
</TABLE>
Page 1
<PAGE>
Authorized person(s) / trustee(s) who can sign on behalf of the trust:
1.
- --------------------------------------------------------------------------------
2.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Section 5 - Proposed Member Information (Complete only for Advanced Marketing)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Advanced Marketing member name Relationship of member
to annuitant
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Section 6 - Flexible Premium Deferred Variable Annuity - Product Information
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------- -----------
__ Single Premium: $ ________________ __ Billed Premium $ ____________________
- -------------------------------------------------------------------- -----------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Single Premium Allocation: Billed Premium Allocation:
Must total 100% and be in whole numbers: Must total 100% and be in whole numbers:
Money Market % Large Company Stock % Money Market % Large Company Stock %
Balanced % Small Company Stock % Balanced % Small Company Stock %
Bond % International Stock % Bond % International Stock %
Fixed Account % Fixed Account % _______________ %
High Yield Bond % High Yield Bond % _______________ %
Plan Type: __ Roth IRA - Contributory __ SIMPLE - IRA
__ Regular Annuity - Not Pension __ Roth IRA Rollover / Transfer - Contributory __ TSA
__ IRA __ Roth IRA Rollover / Transfer - Conversion __ TSA - Transfer
__ IRA - Spousal __ Roth IRA - Conversion __ Corporate -Profit Sharing
__ IRA - Direct Rollover __ Self Employed - Money Purchase __ Corporate - Money Purchase
__ IRA - Regular Rollover __ Self Employed - Profit Sharing __ SEP
__ IRA - Transfer __ Other -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Automatic Payouts Option: Dollar Cost Averaging:
__ Yes __ No __ Yes __ No
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Telephone Authorization: __ Yes __ No
By checking `Yes' above, the applicant agrees and understands as follows:
1. AAL is authorized to accept and act upon telephone instructions from me for
the following purposes; transfer of accumulated values among account
options, address changes, changes in allocation of premiums, premium
payment instructions, and any other transactions made available by AAL for
telephone transfer. Any transfers shall be made on the basis of unit values
next determined following AAL's receipt of instructions in proper order.
2. AAL may refuse telephone instructions if the caller cannot provide proper
identification of person or account. Without prior disclosure, AAL may
record any telephone conversation containing such instructions. If AAL acts
in good faith upon the telephone instruction, AAL (and any affiliate or
agent) will not be liable for any loss, expense or cost arising out of any
telephone instruction.
3. AAL may modify, suspend, or discontinue this privilege at any time without
prior notice. The privilege is subject to terms of the certificate, the
current prospectus, and any other rules enacted by AAL. This authorization
is valid until written cancellation notice signed by the owner is received
by AAL. All terms are binding on my agents, heirs, and assigns.
Page 2
<PAGE>
Section 7 - Premium / Billing Information Initial Premium paid by:
- ------------------------------------------------------ -------------------------
Type Amount
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Check / Money Order $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Electronic First Premium (EFP) $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Internal Rollover / Transfer / 1035 Exchange $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
External Rollover / Transfer / 1035 Exchange $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Loan $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Complete Withdrawal I Surrender $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Surplus Refunds $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Partial Withdrawal $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Employer $
<TABLE>
<CAPTION>
<S> <C>
Premium Billing - Type of billing:
__ Regular Billing - Send to special
billing address? __ Yes __ No
__ MCA - First MCA withdrawal
expected - ______________
Add to existing MCA
Account - ______________
__ Combined Billing - Add to existing
Combined Billing
Account - _______________
__ Government allotment
--------------------------------------------------
Frequency of billing:
__ Annual __ Semi-Annual __ Bi-weekly
__ Quarterly __ Monthly
__ Less than 12 months:
First month for no payment -
--------------------------------------------------
Resume payment month -
------------------------
</TABLE>
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
CD Transfer $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Other - $
- ------------------------------------------------------ -------------------------
- ------------------------------------------------------ -------------------------
Total Initial Premium Amount $
- ------------------------------------------------------ -------------------------
- ----------------------------------------------------------------- --------------
Total Initial Premium Amount $
- ----------------------------------------------------------------- --------------
- ----------------------------------------------- --------------------------------
First tax year Second tax year
- ----------------------------------------------- --------------------------------
- ----------------------------- --------------- --------------------------- ------
Amount Tax year Amount Tax year
$ $
- ----------------------------- --------------- --------------------------- ------
- --------------------------------------------------------------------------------
Name And Address For Special Billing / Combined Billing
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name (print title, first, middle, last, and suffix name, as applicable)
<PAGE>
Address (Street, RR, box no.) City
State Zip Code
Section 8 - Special Requests
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 3
<PAGE>
Section 9 - Beneficiary Designation
If you are completing the application on paper, complete a beneficiary
designation form printed from the Forms System.
Page 4
<PAGE>
Section 10 - Agreement And Authorization
I understand and agree that:
1. I have personally read (or had read to me) and verified all statements and
answers provided to the AAL representative as part of this application,
which includes 1) New Account information, and 2) variable annuity
application.
2. This application will become part of the variable annuity contract.
3. No change in this application shall be made without my written consent.
4. No representative of AAL is authorized to change or waive any terms of this
agreement or to make any promises or representations other than those
contained in this agreement.
5. AAL reserves the right to allocate premium payments to the money market
subaccount until the expiration of the free look period in those states
that require a full refund of premium during the free look period. More
detailed information on the allocation of premium payments during the free
look period is contained in the prospectus.
6. Under the annuity contract applied for, the Accumulated Value and Death
Proceeds when based on the performance of the Variable Account, are not
guaranteed as to dollar amount (subject to the minimum death benefit).
7. I have received and reviewed the current prospectus for the AAL Variable
Annuity and underlying mutual funds. I understand the provisions of the
prospectus and agree to its terms.
I have read (or have had read to me) the statements and answers made on this
application. The signature below applies to all sections and statements on this
application.
Signed at ____________________________________ ________
City State
- --------------------------------------------------------------------------------
Signature of proposed annuitant (applicant / controller
if under age 16) /Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of member / Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of owner / Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of owner / Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of owner / Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of owner / Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of owner / Date signed (mo/day/yr)
- --------------------------------------------------------------------------------
Caution: If your answers on this application are incorrect or untrue, AAL may
have the right to deny benefits or rescind your certificate.
I certify that I have asked all questions and recorded all answers as they were
given to me and reviewed these with the proposed annuitant.
To the best of my knowledge, the certificate applied for __ is __ is not
intended to replace any part of, or all of, another contract.
Signature of AAL representative
Date signed (mo/day/yr)
DR name / Code number / ID
Page 5
<PAGE>
Section 11 - Representative's Information
Yes No
__ __ 1. (a) Do you claim production credit on an assigned congregation basis?
If No, explain -
_____________________________________________________________________
Complete only if you are the servicing representative but not
the DR of the branch listed.
Service override number Reason for override
__ __ (b) Should the application credit be split? If yes, list split
below and give reason.
- ---------------------------------------- ------------------ --------------------
Agent Identification Number Split Percent * * Note:
The
total
split
percent
must
equal
100%.
- ---------------------------------------------------- -----------------------
(c) Reason for credit split - ______________________________________
__ __ 2. (a) Does the proposed annuitant have any other applications pending
or being submitted other than this application? If Yes, list
below.
__ __ (b) Does any other family member have applications pending with AAL?
If Yes, list below.
- --------------------------------- ---------------- -----------------------------
Name Date Applied Plan
- --------------------------------- ---------------- -----------------------------
<PAGE>
- --------------------------------------------------------------------------------
__ __ 3. Will this application be electronically transmitted?
Additional Details
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the best of my knowledge and belief:
Required disclosures, Buyer's Guide, Prospectus, and Receipt Of Payment were
left with the proposed annuitant.
Page 6
<PAGE>
AID ASSOCIATION FOR AAL Variable Annuity
LUTHERANS Application
4321 N. Ballard Road, Appleton, WI 54919-0001
New Account Information
The Variable Annuity Owner I Applicant must provide the following information to
meet securities industry regulatory rules designed for customer protection. This
information is confidential and is only for the use of AAL.
- --------------------------------------------------------------------------------
Section 1 - Personal Information
- --------------------------------------------------------------------------------
- ------------------------------------- --------------- --------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First name of owner/applicant Middle initial Last name Birthdate __ U.S. citizen
__Other
- ------------------------------------- --------------- ---------------------------------- -------------------
- ------------------------------------------------------------------------------------------------------------
__ Single __ Married __ Divorced __ Widowed Employer name
- ----------------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------------- ------------------------------------------------
Dependent Children Under 18 - Year of Birth Employer street address
1. 2.
- ----------------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------------- --------------------------------------- --------
3. 4. City State ZIP Code
- ----------------------------------------------------------- -------------- -------------- ------------------
- ----------------------------------------------------------- ------------------------------------------------
Occupation Employer is a:
__ Labor / Trades __ Manager / Sales __ Retired __ Lutheran Organization __ Federal or State Government
__ Office / Retail __ Professional __ Nonprofit or Educational Organization
__ Other
- ------------------------------------------------------------------------ -----------------------------------------------------------
------------------------------------------------------------------------
Do you own a business? If Owner/Applicant is an associated person of any NASD firm, list firm
__ If yes - Number of employees: name:
- ------------------------------------------------------------------------ -----------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section 2 - Financial Suitability Information
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- ---------------------------- -----------------------------------------------
Prior Investment Experience Annual Household Income Assets - Excluding this purchase
Cash & CDs $
1 to 5 5 + __ Under $20,000 Stocks & Bonds $
None Years Years __ $20,001 - $35,000 Business $
__ $35,001 - $50,000 Mutual Funds $
CD's, Bank Savings, __ $50,001 - $75,000 Residence (equity) $
Money Market Funds __ __ __ __ $75,001 - $100,000 Insurance (cash value) $
Stock or Equity __ __ __ __ More than $100,000 Deferred Annuities $
Bonds or Fixed Income __ __ __ Other $
Mutual Funds __ __ __ Total Assets $
Variable Annuities __ __ __
Variable Life Insurance __ __ __ OR Total Net Worth =
Assets minus Liabilities $
- ------------------------------------------------------- ---------------------------- -----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Section 3 - Investment Information - For this purchase only
Purpose Source of Funds
__ Retirement __Current Income __Sale of Other Investment __AAL Mutual Fund __Gift/Inheritance
__ Other - __Savings/Checking/CD __AAL Annuity __Other Company Mutual Fund __Death Proceeds
__Retirement Plan __Other Company Annuity __Loans __Other -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------ -----------------------------------------------------------
Section 4 - Registered Representative Information Broker-Dealer Approval - For Home Office Use
- ------------------------------------------------------------------------ -----------------------------------------------------------
- ------------------------------------------------------------------------ -----------------------------------------------------------
Will the Variable Annuity applied for replace any other insurance or Authorized Principal Of AAL
annuity now in force?
__ Yes
__ No Registered representative's signature Signature of authorized principal Date
- ------------------------------------------------------------------------ -----------------------------------------------------------
Registered Representative's Comments
NY8O24VAR N1O-97
<PAGE>
Membership Application with Aid Association for Lutherans (AAL)
AAL provides insurance and annuities only to its members. Membership eligibility
is limited to the categories below.
Complete for Adult Applications Including Third Party Applicants Check the first
statement that applies.
__ I am currently an AAL member. My branch number is___________ (No signature
required)
__ I am a Lutheran and a member of the congregation below.
__ I am a Lutheran but I am not a member of a local Lutheran Congregation. I
was a member of the congregation below, and I have not joined a
non-Lutheran congregation nor do I practice a non-Lutheran faith.
__ My spouse is an AAL member and is a member of the congregation below.
My spouse's s name is:
__ My spouse is Lutheran and an AAL member but is not a member of a local
Lutheran congregation and has not joined a non-Lutheran congregation and
does not practice a non-Lutheran faith.
My spouse's name is:
__ My spouse is a Lutheran who is also currently applying for AAL membership.
My spouse's name is:
Complete Only for Juvenile Applications - Age 0-15 (Becomes member at age 16)
Check the first statement that applies.
__ The juvenile is currently a juvenile AAL insured and is in branch number
___________ (No signature required)
__ The juvenile is a Lutheran. Complete church information below.
__ The juvenile's parent/guardian is a Lutheran and an AAL member or is a
Lutheran currently applying for AAL membership. Complete the church
information below.
Print Lutheran parent's/guardian's name (first, M.I, last):
__________________________________________________
__ The juvenile's parent/guardian is a Lutheran, an AAL member or is a Lutheran
currently applying for AAL membership, and was a member of the congregation
below and has not joined a non-Lutheran congregation and does not practice
a non-Lutheran faith.
Print Lutheran parent's/guardian's name (first, M.I., last):
____________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Complete for all Applications
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------- -------------------------
Lutheran congregation City State Church number
- ---------------------------------------------------------------------------------------------------------- -------------------------
- -------------------------------------------------------------------- ---------------------------------------------------------------
Complete for New Member Adult Applications Complete for New Member Juvenile Applications
- -------------------------------------------------------------------- ---------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
I am applying for AAL membership and want to join I certify that the above information is correct.
branch number certify that the above (Name)_____________________will become
information is correct. An AAL member at age 16 in branch number_________.
Signature of adult/third party applicant Date Signature of parent/guardian Date
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
To be Completed by Authorized Representative
- ------------------------------------------------------------------------------------------------------------------------------------
Complete only if you are the servicing representative but not the registered
representative of the branch listed above.
- -------------------------------------------------------------- ---------------------------------------------------------------------
Service override number Reason for override Reason for override
- -------------------------------------------------------------- ---------------------------------------------------------------------
- -------------------------------------------------------------- ---------------------------------------------------------------------
Receipt for Payment
- -------------------------------------------------------------- ---------------------------------------------------------------------
- -------------------------------------------------------------- ---------------------------------------------------------------------
Name of proposed annuitant:
Received from:
Amount: By: ___ Check ___ Other
- -------------------------------------------------------------- ---------------------------------------------------------------------
Note: Make all checks payable to Aid Association for Lutherans. Do not leave the
payee blank or make checks payable to the AAL representative. The receipt
is void if any check given for payment is not honored.
Signature of AAL representative Date
NY8O24VAR N10-97
<PAGE>
Associate Membership Application with Aid Association for Lutherans (AAL)
Complete for Associate Membership Eligibility
Check the first statement that applies.
__ I am a Lutheran and a member of the congregation below.
__ I am a Lutheran but I am not a member of a local Lutheran Congregation. I
was a member of the congregation below, and I have not joined a
non-Lutheran congregation nor do I practice a non-Lutheran faith.
__ My spouse is an AAL member and is a member of the congregation below.
My spouse's name is: ________________________________________
My spouse is Lutheran and an AAL member but is not a member of a local
Lutheran congregation and has not joined a non-Lutheran congregation and
does not practice a non-Lutheran faith.
My spouse's name is:_________________________________________
__ My spouse is a Lutheran who is also currently applying for AAL membership.
My spouse's name is:_________________________________________
- ------------------------------------------------------------------------------------ --------------- ---------
Name Date of birth Social Security number
- ------------------------------------------------------------------------------------ --------------- ---------
- --------------------------------------------------- -------------------------------------------------- -------
Street address or R.R. and box no. City State ZIP Code
- --------------------------------------------------- -------------------------------------------------- -------
- --------------------------------------------------- -------------------------------------------------- -------
Lutheran congregation City State Branch number
- --------------------------------------------------- -------------------------------------------------- -------
- --------------------------------------------------------------------------------------------------------------
Reason for Application
- --------------------------------------------------------------------------------------------------------------
- -----------------------
DR code stamp
- -----------------------
---------------------------------------
Signature of associate membership applicant Date
NY8024VAR N10-97
<PAGE>
Application for Variable Annuity With Aid Association for Lutherans AID ASSOCIATION FOR
(AAL), a Fraternal Benefit Society, Appleton, WI 54919 LUTHERANS
4321 N. Ballard Road, Appleton, WI 54919-0001
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DR code stamp AAL certificate no., if any
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Is annuitant/applicant owner a member of AAL? __ Yes ___No - Please apply for membership.
Section A Complete For All Applications - Replacement Information
Is this annuity intended to replace or change any insurance or annuities Is a 1035 exchange desired?
now in force? __ Yes - Complete replacement requirements. __ No __Yes - Complete 1035 exchange form. __ No
Section B Complete For All Applications - Information On Proposed Annuitant
Name (first, middle initial, last)
Marital Status Social Security Number - Must be completed to process.
__Single __Married __Widowed __Divorced _________-________-_________
Complete information in this section only if a
new member or change to existing records. Date of Birth (mo/day/yr) Sex _________
Street Address or R.R. and Box Number
City State ZIP Code
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Section C Complete ONLY For Juvenile Applicant Or Third Party Member / Applicant
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Check one: __Juvenile application (available at issue ages 0-15) __Third party
application (available at all issue ages) Name (first, middle initial, last)
Sex/Relationship to Annuitant/ Date of Birth (mo , day , yr ) / Social Security Number - Must be completed to process
Street Address or R.R. and Box Number (complete only if different than proposed annuitant)
City State ZIP Code
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Section D Complete ONLY For Third Party Owner / Applicant
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Name (first, middle initial, last)
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Sex Relationship to Annuitant Date of Birth (mo, day, yr) Social Security Number -
Must be completed to process.
Street Address or R.R. and Box Number (complete only if different than proposed annuitant)
City State ZIP Code
Page 1
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<PAGE>
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Section E Special Requests
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Section F Beneficiary Designation
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Beneficiary Designation and Payment
AAL will pay the accumulated value from the certificate to the first
beneficiary, if none survive the annuitant then to the second beneficiary, if
none survive the annuitant then to the third beneficiary.
The accumulated value will be divided equally (unless an unequal distribution is
stated) among all beneficiaries in the same class who survive the annuitant.
I request that the accumulated value payable according to the terms of the
certificate be paid to the following beneficiaries: The beneficiaries named
below may select any available method of settlement when proceeds become
payable. If a specific method of settlement is desired, indicate this following
the designation of beneficiaries. All beneficiaries shall be permitted to change
the method of settlement selected for them unless it is specifically stated as
mandatory.
Show first name, middle initial, last name, address and relationship to the
member (applicant if third party).
First Beneficiary
Second Beneficiary
Third Beneficiary
When a trust is designated beneficiary, AAL shall not be obliged to inquire into
the terms of any trust. Payment to the trustee shall fully discharge AAL from
all liability. The word "children" shall include adopted children unless
otherwise specified. The interest of any beneficiary is subject to any
collateral assignment of this certificate.
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Section G Complete For All Applications
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Premium Information Premium Allocation
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Amount Remitted Premium paid by: Premium Allocations must total 100% and be in whole
$______________ __Check __Surplus numbers.
__Surrender __Loan Large
Company Stock ____% Money Market ____%
Premium Payor? __ Other _______________ Bond ____% Balanced ____%
Applicant International ____% Fixed Amount ____%
Other High Yield ____% Small Company Stock ____%
Include name and address in Special Requests Section E.
NY8O24VAR N10-97 Page 2
<PAGE>
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Billing Information Dollar Cost Averaging
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Single Amount Bill Amount Dollar Cost Averaging __ Yes __ No
__ __ __ . __ __ __ . __ __ __ __ __ , __ __ __ . __ __ Please transfer $ _______ ($50 minimum per
account) from my AAL Variable Annuity Money Market
Select one type of billing: account to the account(s) indicated below on
(day of month; can not elect the 29th, 30th, 31st),
__ Annual First MCA Pac __ Monthly __ Quarterly __ Semi-annually __ Annually
__ Quarterly expected (mo/day) ____________ Large Company Stock $ Bond $
__ Monthly Small Company Balanced $
__ No bill Stock $ High Yield Bond $
__ MCA-M International Stock $
__ 26Week __ Government Allotment
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Plan Information: __ Regular Annuity - Not Pension __ IRA 408b IRC
__ IRA 408b IRC (Spousal) __ IRA Rollover __ IRA Direct Rollover
__ IRA Transfer __ Qualified Retirement Plan __ Simplified Employee Pension 408K (SEP)
__TSA 403b IRC __ Roth-IRA __ Roth-IRA Rollover __ Roth-IRA-Transfer
__ Roth-IRA Conversion __ SIMPLE - IRA __Other
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Section H Complete For All Applications
I understand and agree that:
1. All the information on this application, which includes 1) New Account
information, 2) membership information, and 3) variable annuity application
are true and complete to the best of my knowledge and belief.
2. This application will become part of the variable annuity contract.
3. No change in this application shall be made without my written consent.
4. No representative of AAL is authorized to change or waive any terms of this
agreement or to make any promises or representations other than those
contained in this agreement.
5. Under the annuity contract applied for, the Accumulated Value and Death
Proceeds when based on the performance of the Variable Account, are not
guaranteed as to dollar amount (subject to the minimum death benefit).
Receipt of a current prospectus for the variable annuity and underlying
mutual fund is hereby acknowledged.
I have read or have had read to me the above statements and answers.
Signed this _______ day of _________________ 19____ at _____________________________________________
City State
Witnessed by _________________________________________ _________________________________________
AAL representative Signature of proposed annuitant
(Parent or guardian if under age 16)
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Signature of member / applicant Signature of owner / applicant
</TABLE>
Page 3
Variable Annuity Option Selection - New York
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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Name of annuity owner Certificate number
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- ---------------------------------------------------- -------------------------- --------------------------------- ------------------
Street address City State ZIP Code
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- ---------------------------------------------------- -------------------------- --------------------------------- ------------------
Section A - Premium Allocation Change
- ---------------------------------------------------- -------------------------- --------------------------------- ------------------
Please change my AAL Variable Annuity Premium Allocation to that indicated
below.
Large Company Stock _____% Balanced Account ____________ % International Stock ______________%
Bond Account ____________% Fixed Account _______________ % High Yield Bond_________________ %
Money Market ____________% Small Company Stock__________%
Premium allocations must be in whole numbers and total 100%.
Section B - Account Transfers
Please transfer the following amounts from my existing accounts to the accounts indicated.
From: To:
Large Company Stock __ All or $ (Amount) Large Company Stock $ (Amount)
Bond __ All or $ (Amount) Bond $ (Amount)
Money Market __ All or $ (Amount) Money Market $ (Amount)
Balanced __ All or $ (Amount) Balanced $ (Amount)
Fixed Account __ All or $ (Amount) Fixed Account $ (Amount)
Small Company Stock __ All or $ (Amount) Small Company Stock $ (Amount)
International Stock __ All or $ (Amount) International Stock $ (Amount)
High Yield Bond __ All or $ (Amount) High Yield Bond $ (Amount)
Section C - Dollar Cost Averaging
___ Start my Dollar Cost Averaging ___ Change my Dollar Cost Averaging ___ Stop my Dollar Cost Averaging
as indicated below. as indicated below.
Please transfer $____________ ($50 minimum per account) from my AAL Variable
Annuity Money Market account to the account(s) indicated below on the _________
day of the month. (Can not elect the 29th, 30th, 31st.)
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___ Monthly ___ Quarterly ____ Semi-annually ___ Annually
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- ------------------------------------------------------------------------------------------------------------------------------------
Large Company Stock $ Bond Account $ Balanced Account $
$ $ $
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Signature of owner Date
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Signature of AAL representative Date
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</TABLE>
AID ASSOCIATION FOR
LUTHERANS
4321 N. Ballard Road, Appleton. WI
54919-0001
V11926NY N8-98
<PAGE>
Variable Annuity Option Selection
- ---------------------------------------------------- ---------------------------
Name of annuity owner Certificate number
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
Street address City State ZIP Code
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Section A - Premium Allocation Change
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please change my AAL Variable Annuity Premium Allocation to that indicated
below.
Large Company Stock % High Yield Bond % Balanced Account %
Small Company Stock % Bond Account % Fixed Account %
International Stock % Money Market %
Premium allocations must be in whole numbers and total 100%.
- --------------------------------------------------------------------------------
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Section B - Account Transfers
- --------------------------------------------------------------------------------
Please transfer the following amounts from my existing accounts to the accounts
indicated.
From: To:
Large Company Stock ___ All or $ (Amount) Large Company Stock $ (Amount)
Small Company Stock ___ All or $ (Amount) Small Company Stock $ (Amount)
International Stock ___ All or $ (Amount) International Stock $ (Amount)
High Yield Bond ___ All or $ (Amount) High Yield Bond $ (Amount)
Bond ___ All or $ (Amount) Bond $ (Amount)
Money Market ___ All or $ (Amount) Money Market $ (Amount)
Balanced ___ All or $ (Amount) Balanced $ (Amount)
Fixed Account ___ All or $ (Amount) Fixed Account $ (Amount)
Section C - Dollar Cost Averaging
- --------------------------------------------------------------------------------
___ Start my Dollar Cost Averaging ____Change my Dollar Cost Averaging
as indicated below. as indicated below.
____Stop my Dollar Cost Averaging.
Please transfer $____________ ($50 minimum per account) from my AAL Variable
Annuity Money Market account to the account(s) indicated below on the day of the
month. (Can not elect the 29th, 30th, 31st.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__ Monthly ___ Quarterly ___Semi-annually ___ Annually
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Large Company Stock $ International Stock $ Bond Account $
Small Company Stock $ High Yield Bond $ Balanced Account $
- --------------------------------------------------------------------------------
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Section D - Telephone Transaction Authorization
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- --------------------------------------------------------------------------------
__ I elect Telephone Transaction Authorization.
__ I revoke my previous Telephone Transaction Authorization.
By electing Telephone Transaction Authorization, I agree and understand that:
1. AAL is authorized to accept and act upon telephone instructions from me for
the following purposes: transfer of accumulated values among account options,
address changes, changes in allocations of premiums, premium payment
instructions, and any other transactions made available by AAL for telephone
transfer. Any transfers shall be made on the basis of unit values next
determined following AAL's receipt of instructions in proper order.
2. AAL may refuse telephone instructions if the caller cannot provide proper
identification of person or account. Without prior disclosure, AAL may record
any telephone conversation containing such instructions. If AAL acts in good
faith upon the telephone instructions, AAL (and any affiliate or agent) will not
be liable for any loss, expense, or cost arising out of any telephone
instruction.
3. AAL may modify, suspend, or discontinue this privilege at any time without
prior notice. The privilege is subject to terms of the certificate, the current
prospectus, and any other rules enacted by AAL. This authorization is valid
until written cancellation notice signed by the owner is received by AAL. All
terms are binding on my agents, heirs, and assigns. The signature of owner below
applies to all sections and statements made on this selection form.
Signature of owner Date AID ASSOCIATION FOR LUTHERANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature or AAL representative Date 4321 N. Ballard Road.
Appleton. WI 54919-0001
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- --------------------------------------------------------------------------------
V11926 N2-98
TRADITIONAL INDIVIDUAL RETIREMENT
ANNUITY (IRA) DISCLOSURE STATEMENT
Your Traditional Individual Retirement Annuity (referred to here as an IRA) is
issued in accordance with Section 408(b) of the Internal Revenue Code of 1986,
as amended.
You may return your IRA to AAL, 4321 North Ballard Road, Appleton, Wisconsin,
54919, (1-800-225-5225), or one of its representatives within 7 days after
initially receiving the IRA disclosure statement if for any reason you are not
satisfied. Upon such return, your IRA shall be void from the beginning, and AAL
will refund all contributions made to the IRA.
Please keep this form with your certificate and read this information carefully.
In addition to helping you understand your IRA, it also meets federal
notification requirements. It will help familiarize you with the restrictions
placed on the IRA and enable you to preserve its unique tax advantages. Further
information can be obtained from any district office of the Internal Revenue
Service.
1. What is an IRA?
An IRA allows funds to be accumulated for retirement for the exclusive
benefit of the IRA owner. An IRA has two tax advantages. First, interest
from contributions accumulates tax deferred until distributions occur.
Second, contributions may be tax deductible if you have income below a
certain limit.
2. Have AAL's IRA certificates been approved by the IRS?
Yes, AAL's IRA certificates have been found acceptable by the Internal
Revenue Service. The approval is only as to the form of the certificate and
does not represent a determination of the merits of the IRA.
3. Do I need earned income to be eligible to make an IRA contribution?
You must have earned income to be eligible to contribute to an IRA. Earned
income means wages, salaries, fees, commissions, tips, bonuses, alimony,
and other amounts you receive for services rendered by you. Earned income
does not include social security payments, dividends, interest, rents,
royalties, and disability income.
4. If I'm over age 70 1/2, am I eligible to make a contribution to an IRA?
No, you can only make a contribution to an IRA if you are under age 70 1/2
and you or your spouse have earned income.
5. How much can I contribute to an IRA?
You can annually contribute up to a maximum of $2,000 of earned income into
an IRA, less contributions made to Roth IRAs for the same tax year. If your
earned income for a year is less than $2,000, your contribution is limited
to the total amount of earned income.
6. If I am married and file a joint tax return, can I make a contribution for
my spouse to an IRA if my spouse has little or no earned income?
If you are eligible to contribute to an IRA and your spouse has little or
no earned income, you may contribute to an IRA for yourself and an IRA for
your spouse. The maximum combined annual contribution for the two IRAs is
$4,000 or 100% of your combined earned income, whichever is less. If the
combined earned income of you and your spouse is less than $4,000, or 100%
our total contribution for all IRAs including Roth IRAs) is limited to the
total amount of your combined earned income.
Neither IRA may receive more than $2,000 annually.
7. Can I contribute to an IRA after the end of my tax year?
A contribution to an IRA must be made by your tax filing deadline,
generally April 15. Your check must be in the mail by the tax filing
deadline. Tax filing extensions do not allow contributions to be made after
your tax filing deadline. When a contribution is made after the end of the
year, you must elect which tax year the contribution is being made for or
the default is the current year.
AID ASSOCIATION FOR LUTHERANS
4321 N Ballard Road,
Appleton, WI 54919-0001
<PAGE>
8. What if I contribute too much in a given year to my IRA?
You will be subject to a 6% excise tax on excess contributions over the
maximum contribution amount. This tax will apply each year in which an
excess remains in your IRA. This penalty is avoided if the amount equal to
the excess, plus interest, is removed prior to your income tax filing
deadline. Please contact AAL to request a removal of any excess
contribution from your IRA.
9. What if I made a contribution to an IRA but instead want the contribution
to be made to a Roth IRA?
You can choose to recharacterize all or part of your IRA contribution to a
Roth IRA if you determine that you exceed the IRA modified adjusted gross
income (MAGI) limits for making a deductible contribution or you decide you
would rather contribute to a Roth IRA instead of an IRA. You must be
eligible to make a Roth IRA contribution. The transfer of funds must
include all earnings that have accrued in the IRA. A recharacterization can
be made until your federal income tax filing deadline (including
extensions).
10. Can I make additional contributions to my IRA?
This depends upon whether you have selected a single or flexible premium
certificate. If you have selected a single premium certificate, no further
contributions can be made to that certificate. A new IRA must be
established to make additional contributions. If you have selected a
flexible premium certificate, additional contributions can be made as long
as you do not exceed the IRA contribution limits.
11. Are IRA contributions tax deductible?
Contributions to an IRA may be deductible depending upon your tax filing
status, your MAGI, and your active participation in your employer's
retirement plan (such as 401(k) plan, profit sharing, money purchase plan,
Simplified Employee Pension Plan (SEP), or Savings Incentive Match Plan for
Employees (SIMPLE)). See questions 12-17 to address these rules.
12. How do I know if I am an active participant in my employer's retirement
plan?
Generally, you are an active participant if you are receiving contributions
by your employer to a retirement plan. You may be alerted to your active
participation status by your employer indicating such status on IRS Form
W-2.
13. If I file my tax return as a single filer and do not participate in my
employer's retirement plan, can I make a deductible contribution to my IRA?
Yes, your contribution will be deductible regardless of your MAGI.
14. If I file my tax return as a single filer and do participate in my
employer's retirement plan, can I make a deductible contribution to my IRA?
Whether you can make a deductible contribution depends upon your MAGI.
Since you participate in your employer's retirement plan, you can only make
a deductible contribution if your MAGI is below a certain level. The chart
below summarizes the MAGI contribution limits for single filers. If your
MAGI is below the lowest limit, you are eligible for a fully deductible
contribution to an IRA. If your MAGI is between the limit, you are eligible
to make a limited deductible contribution. If your MAGI exceeds the upper
limit, you are not eligible for a deductible contribution.
Generally, MAGI is your adjusted gross income, which is the bottom line on
the front of your IRS Form 1040 personal income tax return, without taking
into account any deductible contribution to an IRA. IRS Publication 590
explains how to calculate MAGI and contains a worksheet to determine the
exact amount of your maximum deductible contribution.
The MAGI thresholds will be increasing gradually over the next several
years. Therefore, if you are not currently eligible for a deductible
contribution because your MAGI exceeds the limits, you may be eligible as
the MAGI limits increase.
SINGLE FILER ACTIVE PARTICIPANT
DEDUCTIBILITY LIMITS
MAGI LIMITS
1999 $31,000 - $41,000
2000 $32,000 - $42,000
2001 $33,000 - $43,000
2002 $34,000 - $44,000
2003 $40,000 - $50,000
2004 $45,000 - $55,000
2005 $50,000 - $60,000
<PAGE>
15. If I am married and file a joint tax return and neither my spouse nor
myself participates in an employers retirement plan, can I make a
deductible contribution to my IRA?
Yes, your contribution will be deductible regardless of your MAGI. The same
rule is true for your spouse.
16. If I am married and file a joint tax return and participate in my
employer's retirement plan, can I make a deductible contribution to my IRA?
Whether you can make a deductible contribution depends upon your MAGI.
Since you participate in your employer's retirement plan, you can only make
a deductible contribution if your MAGI is below a certain level. The chart
below summarizes the MAGI contribution limits for joint filers. If your
MAGI is below the lowest limit, you are eligible for a fully deductible
contribution to an IRA. If your MAGI is between the limit, you are eligible
to make a limited contribution. If your MAGI exceeds the upper limit, you
are not eligible for a deductible contribution.
The MAGI thresholds will be increasing gradually over the next several
years. Therefore, if you are not currently eligible for a deductible
contribution because your MAGI exceeds the limits, you may be eligible as
the MAGI limits increase.
JOINT FILER ACTIVE PARTICIPANT
DEDUCTIBILITY LIMITS
MAGI LIMITS
1999 $51,000 - $61,000
2000 $52,000 - $62,000
2001 $53,000 - $63,000
2002 $54,000 - $64,000
2003 $60,000 - $70,000
2004 $65,000 - $75,000
2005 $70,000 - $80,000
2006 $75,000 - $85,000
2007 $80,000 - $100,000
17. If I am married and file a joint tax return and I do not participate in an
employers retirement plan but my spouse is an active participant in their
employer's retirement plan, can I make a deductible contribution to my IRA?
Even though you do not participate in an employer's retirement plan, your
spouse does and therefore, you can only make a deductible contribution to
an IRA if your MAGI is under $150,000. If your MAGI is between $150,000 and
$160,000, you are eligible to make a limited deductible contribution. If
your combined MAGI exceeds $160,000, you are not eligible for a deductible
contribution.
18. What are the tax consequences when I take a distribution from my IRA before
age 59 1/2?
If you take a distribution from your IRA before age 59 1/2, you will have
several tax consequences. You will be subject to ordinary income taxes on
the taxable portion of the distribution. If you have made both deductible
and nondeductible contributions to your IRA, upon distribution, part will
be taxable and part nontaxable. The taxable portion includes all deductible
contributions that were made to the IRA and interest earned on your
contributions. You must use IRS Form 8606 to determine how much of any IRA
distribution is nontaxable.
In addition, you will be subject to the 10% premature distribution penalty
tax, unless an exception applies. The exceptions to the 10% premature
distribution penalty tax are: attainment of age 59 1/2, death, disability,
substantially equal periodic payments, health insurance premiums for
unemployed individuals who have received unemployment compensation for
twelve consecutive weeks, unreimbursed medical expenses that exceed 7.5% of
adjusted gross income, qualified higher education expenses, and first time
homebuyer ($10,000 lifetime limit).
Unless you elect not to have federal income taxes withheld, AAL is required
to withhold from the entire distribution an amount determined under IRS
Regulations.
If amounts are distributed within seven years from the date your IRA is
issued, AAL withdrawal charges may still apply.
19. What are qualified higher education expenses?
This is an exception to the 10% premature distribution penalty tax for
amounts distributed to pay certain post-secondary education expenses such
as tuition, fees, books, supplies, equipment, and even room and board in
some cases. Distributions under this exception can be made for yourself,
children, grandchildren or your spouse. Amounts distributed will be subject
to ordinary income taxation, but the 10% premature distribution penalty tax
will not apply.
<PAGE>
20. What is the first time homebuyer exception to the 10% premature
distribution penalty tax?
The first time homebuyer exception allows a lifetime limit of $10,000 to be
distributed from your IRA to use for the purchase of a home. Generally, you
are a first time homebuyer if you had no present ownership in a home during
the two year period prior to the purchase. A total of $10,000 can be
distributed under this exception for yourself, children or grandchildren.
Amounts distributed will be subject to ordinary income taxation, but the
10% premature distribution penalty tax will not apply.
21. How will I be taxed if I am disabled, or I have medical expenses totaling
over 7.5% of my adjusted gross income, or I pay health insurance premiums
while unemployed and take a distribution before age 59 1/2?
The distribution is taxable as ordinary income as received but is not
subject to the 10% premature distribution penalty tax. You are considered
to be disabled if you are unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long
continued and indefinite duration. You will not be considered to be
disabled unless you furnish proof of the existence in such a manner as
required by the IRS.
22. What are the tax consequences when I take a distribution from my IRA after
age 59 1/2?
Your distribution will not be subject to the 10% premature distribution
penalty tax since you are over age 59 1/2. However, you will pay ordinary
income taxes on the taxable portion of the distribution. If deductible and
nondeductible contributions were made to an IRA, you must use IRS Form 8606
to determine the non-taxable portion of the distribution.
If amounts are distributed within seven years from the date your IRA is
issued, AAL withdrawal charges may still apply. 23. What is the latest age
I must begin to take benefits from my IRA?
You must start receiving benefits by April 1st of the calendar year after
the calendar year in which you turn age 70 1/2 or severe tax penalties may
result. If the amount of money you begin receiving after age 70 1/2 does
not satisfy the minimum distribution requirements, a 50% penalty tax may be
imposed on the difference between what you received and the amount you were
required to receive.
24. How will I be taxed if I take a distribution as a lump-sum between ages 59
1/2 and 70 1/2?
A lump-sum distribution is taxed as ordinary income. The special tax
treatment rules available to other plans, such as five-year averaging, are
not available for IRAs.
25. What options are available to my beneficiaries upon my death?
A nonspouse beneficiary has two options - either begin life expectancy
payments by December 31 of the year following the year of your death or
take a complete distribution of all funds by December 31 of the year
containing the fifth anniversary of your death.
A spouse beneficiary has the same distribution options as a nonspouse
beneficiary, plus a spouse beneficiary can choose to treat your IRA as his
or her own. Also, your spouse beneficiary can choose to defer receiving the
distribution until you would have attained age 70 1/2.
26. Does my beneficiary receive the advantages of the federal estate tax
exclusion?
No. There is no federal estate tax exclusion for IRA death proceeds.
27. Can my IRA be transferred or rolled over to another IRA?
Yes. An IRA to IRA transfer is a way of moving funds, tax free, from one
IRA to another. You do not actually receive the funds when conducting a
transfer, the transaction is handled by the distributing and receiving
financial organizations. You can request a transfer as often as you like -
there's no limit to the number or frequency of transfers.
<PAGE>
Instead of transferring IRAs, you can choose to rollover the funds. A
distribution from an IRA must be rolled to another IRA within 60 days of
receiving the funds. Unlike IRA transfers, only one IRA rollover of the
same funds may occur during the 12 months preceding the date you received
the distribution.
28. Can I convert my IRA to a Roth IRA?
You are not eligible to make a conversion if your MAGI is above $100,000.
Also, if you are married and file a separate tax return you are not
eligible for a conversion. A conversion is considered a distribution of
your IRA's value and you will include in income the taxable portion of the
distribution (deductible contributions made to the IRA plus interest earned
in the IRA).
29. Can I pledge a part or all of my IRA as collateral for a loan?
No, the part that is pledged is treated as having been distributed to you.
This amount will generally be taxable as ordinary income and will also be
subject to the 10% premature distribution penalty tax, unless an exception
applies. In addition, if you engage in a prohibited transaction (such as
taking a loan) the IRA will lose its tax-exempt status and you must include
the IRA's fair market value in your gross income. You must file IRS Form
5329 with the Internal Revenue Service to report and remit any penalties or
excise taxes.
30. Are there any administrative charges on my IRA contribution?
No. The contributions you make to your IRA plan are not reduced by any
administrative charges or fees. Thus, your entire contribution is added to
your IRA to earn interest.
31. Must I furnish AAL with information to help with reporting requirements?
Yes. The government requires that AAL report certain activities. AAL will
contact you periodically to get the information needed for this reporting
to assure the qualified status of your IRA.
32. What are my annual filing requirements?
In most instances your IRA contribution need only be indicated on IRS Form
1040 and filed with the Internal Revenue Service. You must report to the
IRS on Form 8606 the amount of nondeductible contributions that are made to
the IRA. This information is needed to determine the taxable portion of any
distribution you receive from your IRA.
33. Will I receive any information from AAL each year summarizing my previous
year IRA contributions?
Yes. After the end of your tax year (usually in January) AAL will furnish
you with the information needed to complete IRS Form 1040. In addition, AAL
will furnish the IRS with information on your IRA contribution amounts.
<PAGE>
ROTH INDIVIDUAL RETIREMENT ANNUITY (IRA) DISCLOSURE STATEMENT
Your Roth Individual Retirement Annuity (referred to as Roth IRA) is issued in
accordance with Section 408(b) and 408A of the Internal Revenue Code of 1986, as
amended.
You may return your Roth IRA to AAL, 4321 North Ballard Road, Appleton,
Wisconsin, 54919, (1-800-225-5225), or one of its representatives within 7 days
after initially receiving the Roth IRA disclosure statement if for any reason
you are not satisfied. Upon such return, your Roth IRA shall be void from the
beginning, and AAL will refund all contributions made to the Roth IRA.
Please read this information carefully. It will help familiarize you with the
Roth IRA rules and enable you to preserve its tax advantages. Further
information can be obtained from any Internal Revenue Service district office.
1. What is a Roth IRA?
The Roth IRA is an individual retirement plan introduced by the Taxpayer
Relief Act of 1997 to allow funds to be accumulated for retirement. A Roth
IRA has two tax advantages. First, interest from contributions accumulates
tax deferred within a Roth IRA. Second, distributions from a Roth IRA may
be tax-free if certain requirements are met.
2. Have AAL's Roth IRA certificates been filed with the IRS?
No. AAL will file the Roth IRA with the IRS when permitted and if required
to do so. An approval, if needed, of AAL's Roth IRA will only be for the
form of the certificate and will not represent a determination of the
merits of the Roth IRA.
3. What are the eligibility requirements for a Roth IRA?
You must have earned income to be eligible to contribute to a Roth IRA.
Earned income means wages, salaries, fees, commissions, tips, bonuses,
alimony, and other amounts you receive for services rendered by you. Earned
income does not include social security payments, dividends, interest,
rents, royalties, and disability income.
In addition to receiving earned income, your modified adjusted gross income
(MAGI) must not exceed a certain limit. Generally, your MAGI is your
adjusted gross income, which is the bottom line on the front of your Form
1040 federal income tax return, without taking into account any deductible
contribution to a traditional IRA.
If you are a single filer, you may make the maximum contribution if your
MAGI is under $95,000. If your MAGI is between $95,000 and $110,000, you
are eligible for a limited contribution to a Roth IRA. If your MAGI exceeds
$110,000, you are not eligible for a contribution.
If you are married filing jointly, you may make the maximum contribution if
you and your spouse's MAGI is under $150,000. If your MAGI is between
$150,000 and $160,000, you and your spouse are eligible for a limited
contribution to a Roth IRA. If MAGI exceeds $160,000, you and your spouse
are not eligible for a contribution.
4. Are Roth IRA contributions tax deductible?
Contributions to a Roth IRA are never tax deductible.
5. How much can I contribute to a Roth IRA?
You can annually contribute up to a maximum of $2,000 of earned income into
a Roth IRA, less any contributions to all traditional IRAs for the same tax
year. If you are eligible to contribute to a Roth IRA and your spouse has
little or no earned income, you may establish a Roth IRA for yourself and a
Roth IRA for your spouse. The maximum combined annual contribution for the
two Roth IRAs is $4,000 or 100% of your combined earned income, whichever
is less. Neither Roth IRA may receive more than $2,000 annually.
6. If I participate in my employers retirement plan at work (such as a 401(k),
profit sharing or money purchase plan), can I still make a contribution to
a Roth IRA?
A contribution to a Roth IRA is not limited by your or your spouse's
participation in an employer's retirement plan.
AID ASSOCIATION FOR LUTHERANS
4321 N. Ballard Road,
Appleton, WI 54919-0001
<PAGE>
7. Can I contribute to a Roth IRA after the end of my tax year?
A contribution to a Roth IRA must be made by your tax filing deadline,
generally April 15. Your check must be in the mail by the tax filing
deadline. Tax filing extensions do not allow contributions to be made after
your tax filing deadline. When a contribution is made after the end of the
year, you must elect which tax year the contribution is being made for or
the default is the current year.
8. What if I contribute too much in a given year to my Roth IRA?
You will be subject to a 6% excise tax on excess contribution amounts over
the maximum contribution amount determined under question 3. This tax will
apply each year in which an excess remains in your Roth IRA. This penalty
is avoided if the amount equal to the excess, plus interest, is removed
prior to your income tax filing deadline. Please contact AAL to request a
removal of any excess contribution from your Roth IRA.
9. What if I made a contribution to a Roth IRA but instead want the
contribution to be made to a traditional IRA?
You can choose to recharacterize all or part of your Roth IRA contribution
to a traditional IRA if you determine that you exceed the Roth IRA MAGI
limits for making a contribution or you decide you would rather fund a
traditional IRA instead of a Roth IRA. You must be eligible to make a
traditional IRA contribution. The transfer of funds must include all
earnings that have accrued in the Roth IRA. A recharacterization can be
made until your federal income tax filing deadline (including extensions).
10. Can I continue making contributions to my Roth IRA past age 70 1/2?
You can continue making contributions to your Roth IRA as long as you or
your spouse (if joint filers) have earned income.
11. Can I make additional contributions to my Roth IRA?
This depends upon whether you have selected a single or flexible premium
certificate. If you have selected a single premium certificate, no further
contributions can be made to that certificate. A new Roth IRA must be
established to make additional contributions. If you have selected a
flexible premium certificate, additional contributions can be made as long
as you do not exceed the contribution limits.
12. When can I take a tax free distribution from my Roth IRA?
If you meet the definition of a qualified distribution, you can receive tax
free distributions from your Roth IRA.
13. What are qualified distributions from a Roth IRA?
The major advantage of a Roth IRA compared to a traditional IRA is that a
qualified distribution from a Roth IRA is tax free. Upon receiving a
qualified distribution from a Roth IRA, the amount received will not be
included in your gross income. A qualified distribution is any distribution
made after the five year holding period is satisfied AND: on or after you
attain age 59 1/2, or after your death, or you are disabled, or you are a
first time homebuyer (subject to a $10,000 lifetime distribution limit). If
the Roth IRA has been held for five years and any one of the four
triggering events has occurred, you can receive a tax free distribution
from your Roth IRA.
14. How does the five year holding period work?
To meet the requirement for a qualified distribution, you must satisfy a
five year holding period and satisfy one of the four possible triggering
events stated in question 13. For all Roth IRAs, the five year period
begins with the year of the first contribution or conversion to any Roth
IRA. This rule applies to any contribution or conversion made to a Roth
IRA, even if the funds are maintained in separate Roth IRAs. Separate five
year periods do not start with respect to each year's contribution or
conversion.
For example, if you make a $2,000 contribution to a Roth IRA in 1998 and
make a conversion to a Roth IRA in 1999, the five year holding period for
the conversion made in 1999 will relate back to the year of the first
contribution, 1998.
If you make a contribution for a Roth IRA by your tax filing deadline, this
can be considered a contribution for the previous tax year, if you have
made a proper election to do this. In such a case, the five year holding
period begins to run with the tax year to which the contribution relates,
not the year in which the contribution is actually made.
<PAGE>
15. What happens if I do not meet the requirements for a qualified
distribution, but still remove funds from my Roth IRA?
Any distributions which do not meet the requirements of a qualified
distribution are first considered to be a return of cost basis. If you have
not converted any traditional IRA balances to a Roth IRA, the following
rules apply. Cost basis from annual contributions are removed first, tax
free. Any amounts distributed beyond cost basis is taxable as ordinary
income and may be subject to the 10% premature distribution penalty tax,
unless you meet an exception. See question 22.
For example, if you establish a Roth IRA with a $2,000 contribution in 1998
(and do not make any additional contributions) and two years later decide
to remove the entire amount, which had grown to $2,110, you would be taxed
on $110 and also be subject to the 10% premature distribution penalty tax
on this amount unless an exception applies. The $2,000 would be a tax free
return of cost basis.
If you have converted a traditional IRA into a Roth IRA and also have made
annual contributions to a Roth IRA, and take a distribution that does not
meet the requirements of a qualified distribution, the following ordering
rules apply. First, the distribution will satisfy annual contribution cost
basis, then conversion cost basis, and lastly interest. If the nonqualified
distribution exceeds contribution and conversion cost basis, you will be
taxed as ordinary income on the amount that exceeds cost basis and may be
subject to the 10% premature distribution penalty tax, unless you meet an
exception. See question 22. Note that additional rules apply to removal of
cost basis from conversion amounts within a stated time period. See
question 21.
Also, if amounts are distributed within seven years from the date your
certificate is issued, AAL withdrawal charges will still apply.
16. What is the latest age I must begin to take distributions from my Roth IRA?
No distributions are required to be paid while you are alive. The tradi-
tional IRA rules that require you to take a distribution by April 1 after
you reach age 70 1/2, do not apply to Roth IRAs. However, after your death,
distributions must be taken by your beneficiary.
17. Can I convert my traditional IRA to a Roth IRA?
Yes, if you have MAGI of $100,000 or under, you can convert a traditional
IRA into a Roth IRA. In addition, if you are married, you must be a joint
filer to be eligible for the conversion. A traditional IRA is considered
any IRA that you previously made deductible or nondeductible contributions
to. SEP and SIMPLE IRAs can be converted to a Roth IRA. For SIMPLE IRAs, a
conversion may be done only after the expiration of the two year period
when the individual first participates in the plan.
Qualified retirement plans cannot be converted directly to a Roth IRA.
Qualified retirement plans, such as your 401(k) plan or tax sheltered
annuity, can be rolled to a traditional IRA and then converted into a Roth
IRA. The amount being converted from a traditional IRA is not included in
the $100,000 aggregate limit.
You may not convert any minimum required distribution amount that you are
required to receive from your traditional IRA when you reach age 70 1/2.
18. What other rules apply to conversions?
A conversion of a traditional IRA to a Roth IRA is a taxable event. It is
considered a distribution of the traditional IRA's cash value. Therefore,
you must include in income the taxable portion of the conversion amount.
For 1998 conversions, you could either prorate the taxable income from the
distribution over the next four years (1998, 1999, 2000, and 2001) or you
could choose to include all taxable income caused by the conversion on your
1998 tax return. For conversions after 1998, all of the income caused by
the conversion must be included in that year. The four year spread out of
income only applies to conversions made in 1998.
<PAGE>
19. What happens if I convert in 1998, choose to spread the taxable income over
the next four years, and die sometime between 1998 and 2001?
If you die during the four year spread period for 1998 conversions, any
amounts remaining to be included in taxable income as a result of the 1998
conversion would be includible as income on your final tax return. However,
if your spouse is the sole beneficiary of the Roth IRA, your spouse will be
allowed to elect to continue the deferral by including the remaining
amounts in his/her income over the remainder of the four year period.
20. Does the 10% premature distribution penalty apply upon conversion?
No. The penalty will not apply. However, the penalty will apply to that
amount distributed from the traditional IRA but not converted into the Roth
IRA.
21. After I convert my traditional IRA to a Roth IRA, can I withdraw my cost
basis from the Roth IRA without tax implications?
No. If you convert to a Roth IRA in 1998 and you have chosen to spread the
taxable income over the next four years, any distributions before 2001 will
cause the income taxation to be accelerated faster than anticipated as
under the four year spread. You cannot convert to a Roth IRA and
immediately remove the dollars without including the distribution in
income. For conversions after 1998, this acceleration of income provision
will not apply.
In addition, the 10% premature distribution penalty tax will apply to
converted amounts that are distributed within five years of the conversion,
unless you meet one of the exceptions stated in question 22. This penalty
applies regardless of whether or not you used the four year spread option
for 1998 conversions.
22. What are the exceptions to the 10% premature distribution penalty tax for a
Roth IRA?
The exceptions to the 10% premature distribution penalty tax for the Roth
IRA are the same as the exceptions for traditional IRAs: attainment of age
59 1/2, death, disability, substantially equal periodic payments, health
insurance premiums for unemployed individuals who have received
unemployment compensation for twelve consecutive weeks, unreimbursed
medical expenses that exceed 7.5% of adjusted gross income, qualified
higher education expenses, and first time homebuyer ($10,000 lifetime
limit).
23. What are qualified higher education expenses?
This is an exception to the 10% premature distribution penalty tax for
amounts distributed to pay certain post-secondary education expenses such
as tuition, fees, books, supplies, equipment, and even room and board in
some cases. Distributions under this exception can be made for yourself,
children, grandchildren, or your spouse. Amounts distributed from the Roth
IRA will still be subject to ordinary income taxation, but the 10%
premature distribution penalty tax will not apply.
24. What is the first time homebuyer exception?
The first time homebuyer exception allows a lifetime limit of $10,000 to be
distributed from a Roth IRA to use for the purchase of a home. Generally,
you are a first time homebuyer if you had no present ownership in a home
during the two year period prior to the purchase. A total lifetime limit of
$10,000 can be distributed under this exception for yourself, children, or
grandchildren.
The amount distributed for a first time homebuyer from a Roth IRA can be
either taxable or tax free depending upon whether the Roth IRA has been
held for five years. For example, if the Roth IRA has met the five year
holding period requirement, a first time homebuyer is a triggering event
which allows a lifetime limit up to $10,000 to be distributed tax free.
However, if the Roth IRA did not meet the five year holding period
requirement, and a distribution occurs, the total amount distributed that
exceeds cost basis would be taxable at ordinary income rates. In both
cases, the 10% premature distribution penalty would not apply.
<PAGE>
25. How will I be taxed if I am disabled, or I have medical expenses totaling
over 7.5% of my adjusted gross income, or I pay health insurance premiums
while unemployed for myself, my spouse, or my dependents and take a
distribution before age 59 1/2?
The distribution is taxable as ordinary income as received but is not
subject to the 10% premature distribution penalty tax. You are considered
to be disabled if you are unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long
continued and indefinite duration. You will not be considered to be
disabled unless you furnish proof of the existence in such a manner as
required by the IRS.
26. Can my Roth IRA be transferred or rolled over to another Roth IRA?
Yes. A Roth IRA to Roth IRA transfer is a way of moving funds, tax free,
from one Roth IRA to another. You do not actually receive the funds when
conducting a transfer, the transaction is handled by the distributing and
receiving financial organizations. You can request a transfer as often as
you like - there's no limit to the number or frequency of transfers.
Instead of transferring Roth IRAs, you can choose to rollover the funds. A
distribution from a Roth IRA must be rolled to another Roth IRA within 60
days of receiving the funds. Unlike Roth IRA transfers, only one Roth IRA
rollover of the same funds may occur during the 12 months preceding the
date you received the distribution.
27. Can I convert to a Roth IRA and then transfer the funds back to a
traditional IRA if I choose?
If you convert a traditional IRA into a Roth IRA, you may transfer all or
part of the converted amounts and all earnings from your Roth IRA to any
traditional IRA prior to the due date of your tax return, including
extensions. This process is called recharacterization. After you have
recharacterized to a traditional IRA, you also have the option to reconvert
back into a Roth IRA if you meet the Roth IRA eligibility requirements. If
you performed a 1998 conversion, you may also do one
recharacterization/reconversion in 1999 by the due date of your tax return,
including extensions.
If you convert to a Roth IRA for the first time in 1999, you can
recharacterize/reconvert once in 1999. Each conversion, recharacterization,
and reconversion will generate separate tax reporting.
28. What options are available to beneficiaries upon my death?
A nonspouse beneficiary has two options - either begin life expectancy
payments by December 31 of the year following the year of your death or
take a complete distribution of all funds by December 31 of the year
containing the fifth anniversary of your death.
A spouse beneficiary has the same distribution options as a nonspouse
beneficiary, plus a spouse beneficiary can choose to treat your Roth IRA as
his or her own. These distributions may either be taxable or tax free
depending on whether the five year holding period was satisfied. See
question 13 for a discussion on qualified distributions.
29. Can I pledge a part or all of my Roth IRA as collateral for a loan?
No, the part that is pledged is treated as having been distributed to you.
This amount will generally be taxable as ordinary income and will also be
subject to the 10% premature distribution penalty tax, unless an exception
applies. In addition, if you engage in a prohibited transaction (such as
taking a loan) the Roth IRA will lose its tax exempt status and you must
include the fair market value of the interest in your gross income. You
must file Form 5329 with the Internal Revenue Service to report and remit
any penalties or excise taxes.
30. Does my beneficiary receive the advantage of the federal estate tax
exclusion?
No. There is no federal estate tax exclusion for Roth IRA death proceeds.
<PAGE>
31. Does the five year or ten year forward averaging tax apply to Roth IRA
distributions?
No.
32. Must I furnish AAL with information to help with the reporting
requirements?
Yes. The government requires that AAL report certain activities. AAL will
contact you periodically to get the information needed for this reporting
to assure the qualified status of your Roth IRA.
33. Will I receive any information from AAL each year summarizing my previous
year Roth IRA contributions?
Yes. After the end of your tax year
(usually in January) AAL will furnish you with the information needed to
complete IRS Form 1040. In addition, AAL will furnish the IRS with
information on your Roth IRA contribution amounts.
34. Where do I report any transactions regarding my Roth IRA, such as
conversions, distributions, or recharacterizations?
On IRS form 8606. Also see IRS Publication 590 for additional information
regarding Roth IRAs.
Salary Reduction Employment Agreement For AAL Variable Annuity
<TABLE>
<CAPTION>
<S> <C> <C> <C>
A. Employee's Request for Salary Reduction
- ------------------------------------------------------------------------------------- ----------------------------------------------
1. Employee name Employee Social Security no.
- ------------------------------------------------------------------------------------- ----------------------------------------------
- ------------------------------------------------------------------------------------- ----------------------------------------------
Employer name Employer telephone number AAL billing account no, if known
- ------------------------------------------------------------------------------------- ----------------------------------------------
- -------------------------------------------- ---------------------------------------- ----------------------------------------------
Employer mailing address City State ZIP Code
- -------------------------------------------- ---------------------------------------- ----------------------------------------------
</TABLE>
I request that my current employment terms be modified to substitute the
purchase of a variable annuity contract as directed herein, in lieu of the
compensation otherwise payable directly to me. If accepted by my employer, this
request will constitute an agreement which shall supersede and replace all prior
agreements or requests which I have made. For such purpose, I hereby authorize
you to:
<TABLE>
<CAPTION>
<S> <C>
2. Reduce my cash compensation 3.__ New variable __ Change to existing variable
for each pay period by: annuity certificate annuity certificate
$__________________ or ___________% Check all boxes that apply.
__ Add Fixed Annuity(ies)* __ Delete Fixed Annuity(ies)
__ Add Mutual Fund(s)* __ Delete Mutual Fund(s)
The salary reduction will begin: __ Other - Describe in detail:
The pay period under this agreement is: ________________________________________
__Weekly __Bi-weekly __Monthly __Twice per month Please complete form 5245 "Salary Reduction Employment
__Less than 12 months - List months no payment will be made: Agreement"
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------ --- ---------------------------------- --------------------------------------------------------
4. Apply the salary reduction X Account Employee Salary Reduction Contribution
amount for each pay period
specified above to the purchase of
an AAL Variable Annuity.
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
New certificate $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Existing certificate No: $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Large Company Stock $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Small Company Stock $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
International Stock $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
High Yield Bond $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Bond $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Balanced $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Money Market $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Fixed Account $ or %
--- ---------------------------------- --------------------------------------------------------
--- ---------------------------------- --------------------------------------------------------
Total Contributions $ or 100%
--- ---------------------------------- --------------------------------------------------------
</TABLE>
If you choose more than one account for purchase from your salary reduction
amount, please indicate the dollar amount or the percent of your salary
reduction for each pay period to be applied to each of your accounts. The total
dollar amount should equal your salary reduction agreement. If percentages are
used, your choices should total 100% The minimum purchase amount per account is
$50.00.
This agreement shall be legally binding and irrevocable with respect to amounts
earned while it is in effect, and supersedes all prior similar agreements.
Unless modified or terminated by written notice, this agreement shall be
applicable to each subsequent employment period. I understand and agree that
during any taxable year I will make no more than one modification to my salary
reduction agreement. However, this agreement may be terminated by written notice
of either party at any time.
Amounts contributed under this Salary Reduction Agreement shall be subject to
the contribution limitations under Section 402(g), 403(b), and 415; and the
distribution restrictions under Section 403(b) of the Internal Revenue Code of
1986 (i.e. distributions cannot be made unless I have attained the age of
59-1/2, suffered a hardship, became disabled, separated from service, or died).
But, I understand that there may be other investment alternatives available
under my employer's Section 403(b) arrangement to which I may elect to transfer
my contract value. I make this agreement to take advantage of Section 403(b) of
the Internal Revenue Code and the tax deferrals therein provided. I am eligible
to elect salary reductions under a 403(b) plan. I understand and consent that
variable annuity contributions will be applied when received in goad form at the
AAL Variable Products Service Center.
Employee signature X ________________________________________ Date _____________
B. Approval by Employer The undersigned employer agrees to the modification of
the employee's employment agreement as set out above and further agrees to apply
the salary reduction amount toward the purchase of the variable annuity
designated above by the employee. The employer further agrees that it will
continue to apply the salary reduction amount in a like manner for all future
periods of employment until written notice to the contrary is received from the
employee. Employer certifies that it is a qualifying organization described in
Section 403(b)(1)(A) of the Internal Revenue Code.
Authorized signature X ______________________ Title _____________ Date_________
Distribution:
Original - Employer
Canary - AAL Variable Products Service Center
4321 North Ballard Road
Appleton, WI 54919-6688 AID ASSOCIATION FOR LUTHERANS
Pink - Member
Goldenrod - AAL District Representative
4321 N. Ballard Road, Appleton, WI 54919-6001
----------------------------------------
Representative's name
----------------------------------------
V5245 R2-98
MCA Worksheet I Account Owners Agreement Membership Number
For The AAL Variable Annuity
I request these services be made on my MCA.
___ Establish New Variable Annuity MCA
Bank Change (on existing Variable Annuity MCA)
___ -Complete areas marked with an asterisk.
___ Other - As indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------- -------------------------------------------------------------
* MCA numbers. List all accounts this change pertains to: *The first MCA withdrawal to Account type
reflect this change should be: __Personal
Month PAC Day (1-28 only) Year __Business
Account owner's AAL Branch number
- ---------------------------------------------------------------------- -------------------------------------------------------------
- ---------------------------------------------------------------------- -------------------------------------------------------------
Account owner's or business name Joint account owners name
- ---------------------------------------------------------------------- -------------------------------------------------------------
- ---------------------------------------------------------------------- -------------------------------------------------------------
Account owner's or business street address Special MCA requests
- ---------------------------------------------------------------------- -------------------------------------------------------------
- ----------------------------------------------- ----------------------
City State Zip Code
- ----------------------------------------------- ---------------------- -------------------------------------------------------------
- ------------------------------------------------------------------------------- ----------------------------------------------------
Account owner's Social Security number or business TIN number Joint account owners Social Security number
- ------------------------------------------------------------------------------- ----------------------------------------------------
- ---------------- -------------------------------------------------------------------------------------------------------------------
Certificate Insured's Name A=Add Total Monthly Premium Amount
Number D=Delete ($50 Miniumum)
C=Change
- ---------------- -------------------------------------------------------------------------------------------------------------------
- ---------------- ---------------------------- -------------------- ------------------------------ ----------------------------------
$
- ---------------- ---------------------------- -------------------- ------------------------------ ----------------------------------
- ---------------- ---------------------------- -------------------- ------------------------------ ----------------------------------
$
- ---------------- ---------------------------- -------------------- ------------------------------ ----------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Indicate how the monthly payment should be allocated.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Account Large Company Small Company International High Yield Bond Money Market Balanced Fixed Account
Stock Stock Stock Bond Account
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------ -------------------------- --------------------------------------------------------------------------------------
Amount $ $ $ $ $ $ $ $
- ------------------ -------------------------- --------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* Authorization to Financial Institution to Honor Withdrawals
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
I hereby authorize the financial institution named below to honor withdrawals
drawn by and payable to Aid Association for Lutherans when drawn on the account
listed below.
This authorization shall remain in effect until revoked by me in writing and
until you actually receive such notice, I agree that you shall be fully
protected in honoring any such withdrawals.
I agree that your treatment of each such withdrawal, and your
rights in respect to it shall be the same as if it were a check
signed personally by me. I further agree if such withdrawal be Attach
dishonored, whether with or without cause, you shall be under no Voided
liability whatsoever though such dishonor results in the Sample
forfeiture of insurance. Account owner's name (Business name, if Check
appropriate) Transit number Here
Full name of financial institution Account number
Address of financial institution Type of account
__Checking __Savings
City State Zip Code Phone number of financial institution
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
X__________________________ X_______________________________ X___________
Signature of account owner Signature of joint account owner Date
Original - Return completed form to:
AAL Variable Products Service Center AID ASSOCIATION FOR LUTHERANS
4321 N. Ballard Road,
Appleton, WI 54919-0001
4321 North Ballard Road
Appleton, WI 54919-6688 DR name and code stamp
Pink - DR
Account owner must keep yellow copy. V6568 R1-98
[AAL LOGO OMITTED]
AID ASSOCIATION FOR LUTHERANS
Articles of
Incorporation
and Bylaws
PREFACE
<PAGE>
The AAL Articles of Incorporation and Bylaws, printed in this brochure, are part
of your fraternal contract with Aid Association for Lutherans. (See bylaws,
section 4, page two.) They set the framework within which all AAL programs,
operations and policies must fall. Members of the AAL Board of Directors, as
representatives of all AAL members, use the bylaws and articles to make
decisions about corporate objectives, policies and strategy. These decisions, in
turn, dictate the course of management decisions.
<PAGE>
Articles of Incorporation
As amended January 1,1986
I
Name
The name of this fraternal benefit society shall be Aid Association for
Lutherans."
II
Place of Business
The principal office of this fraternal benefit society shall be at Appleton,
Wisconsin.
III
Powers
For the purposes set forth in these articles, Aid Association for Lutherans, a
Wisconsin corporation organized and operating under the laws governing
Fraternals, shall have all the powers granted by law.
IV
Purpose
The purpose of Aid Association for Lutherans is to associate Lutherans and their
families and thereby enable them through membership in this fraternal benefit
society to aid themselves and others with programs of: 1. Insurance and other
benefits permissible under the laws governing Fraternals; and 2. Fraternal and
benevolent activities in local branches; and 3. Assistance to Lutheran
congregations and their institutions; and 4. Assistance to such other lawful
social, intellectual, educational, charitable, benevolent, moral, fraternal,
patriotic or religious endeavors as the board of directors may determine.
V
Supreme Governing Body
The supreme governing body shall be a board of directors made up of benefit
members of this fraternal benefit society. The board shall consist of 12
elective directors, such appointive directors as the board may appoint in a
manner prescribed in the bylaws, and not more than two principal officers of the
society designated by the board from time to time. The elective directors shall
be elected by the benefit members in a manner prescribed in the bylaws, and
shall constitute a majority of the board in number.
VI
Membership
1. Classes of members. There shall be the following classes of members:
A. Benefit member. A benefit member is a person of age 16 or more who has
been accepted for membership in accordance with eligibility rules as
determined by resolution of the board of directors and who is issued a
certificate of membership and insurance, or who receives a settlement
agreement benefit by virtue of such insurance. When more than one person
in a family is covered in a single certificate only the applicant is a
benefit member. Benefit members may participate in the affairs and
activities of the local branch in which they are members and may also hold
office therein. Benefit members shall also have the right to vote in the
corporate and insurance affairs of this fraternal benefit society
according to the articles and bylaws.
B. Associate member An associate member is a person age 16 or more who has
been accepted for membership in accordance with eligibility rules as
determined by resolution of the board of directors and who has been issued
a certificate of membership. Associate members may participate in the
affairs and activities of the local
<PAGE>
branch in which they are members, and may hold office therein, but shall
not have the right to vote in the corporate and insurance affairs of this
fraternal benefit society.
2. Juveniles. This fraternal benefit society may insure the lives or disability
of children younger than the minimum age for benefit membership but otherwise
eligible for benefit membership. Such insurance shall be issued upon the
application of some adult person who shall not by reason thereof, nor by
reason of any benefit providing waiver of premiums, become a benefit member.
At age 16 the insured juvenile shall become a benefit member.
VII
Branches
Local branches may be chartered by the board of directors in a manner prescribed
in the bylaws, and shall have such powers as the board of directors shall
determine.
VIII
Bylaws
The board of directors shall have power to make bylaws, and to repeal or amend
them. Notice of changes to the bylaws shall be given to benefit members and
applicants for juvenile insurance in a manner prescribed in the bylaws.
IX
Amendments
These articles may be amended or repealed in whole or in part by a majority of
the votes cast by benefit members. Before submitting such changes to a vote of
the benefit members, the board of directors shall approve such changes by an
affirmative vote of a majority of the full board. Upon adoption by the benefit
members such changes shall be filed with the Commissioner of Insurance of the
state of Wisconsin and shall be published in the official publication in a
manner prescribed in the bylaws.
Bylaws
As amended March 27, 1999
DEFINITIONS
Section 1. Wherever the term "the Association" appears in these bylaws, it means
"Aid Association for Lutherans." Wherever the term "board" appears in these
bylaws, it means "board of directors." Wherever the term "home office" appears
in these bylaws, it means "principal office."
APPLICATION FOR MEMBERSHIP
Section 2. Application for benefit membership shall be upon a form in use by the
Association. It shall be accompanied by evidence of insurability (if required)
which is acceptable to the Association under its rules and regulations.
Application for associate membership, if such be authorized by the board, shall
be upon a form in use by the Association.
JUVENILE INSURANCE
Section 3. Application for juvenile insurance shall be upon a form in use by the
Association and shall be accompanied by evidence of insurability (if required)
which is acceptable to the Association under its rules and regulations. Juvenile
certificates shall be under the control of the applicant for the period provided
in the certificate. If it be in the best interest of the juvenile as determined
by the Association, the applicant may be divested of control of a juvenile
certificate. If the applicant has been divested of control of the juvenile
certificate or if the applicant has died, control shall be vested in the legally
appointed guardian of the juvenile. If a guardian is not appointed, control
shall be vested in some person who shall appear to the Association to be
equitably entitled to it by reason of being responsible for the support and
maintenance of such juvenile, or by reason of relationship.
FRATERNAL CONTRACT
Section 4. The certificate of membership and insurance, together with any riders
or endorsements attached to it, the application, the declaration of insurability
(if any) signed by the applicant, the articles of incorporation and bylaws and
all amendments to them, constitute the entire contract when it is issued. Any
subsequent changes to the articles of incorporation or bylaws shall be binding
upon the member, beneficiaries or other persons affected, and shall govern and
control in all respects, except that no changes shall destroy or diminish
benefits promised in the certificate when it was issued.
BENEFICIARIES
Section 5. Any of the following persons may be designated as beneficiary: the
applicant benefit member, wife, husband, child, parent or other person related
to the benefit member by blood, marriage or legal adoption; foster parents of
the benefit member; betrothed of the benefit member; dependents of the benefit
member; or, where not prohibited by law, the estate of the benefit member. With
the consent of the Association, any of the following may also be designated as
beneficiary: a charitable institution; church or church organization;
educational institution; a nonprofit corporation; any corporation, community
chest, fund or foundation described in section 501(c)(3) of the Internal Revenue
Code of 1954 and its subsequent amendments, and operated exclusively for
religious, charitable, scientific, literary or educational purposes; or a
person, corporation, partnership or other legal entity which has an interest in
the benefit member, provided that the proceeds are for the benefit, direct or
indirect, of the benefit member or the benefit member's family or dependents.
Wherever the applicable laws conflict with the above, only beneficiaries
permitted by such laws may be designated.
Section 6. Unless the beneficiary designation calls for some other method of
distribution, if some beneficiaries of the same class die before the insured,
the death benefit proceeds shall be paid in full to the surviving beneficiaries
of the same class. Each shall share equally the portion of the death benefit
proceeds not otherwise disposed of in the certificate. If all beneficiaries,
however designated, are dead when the insured dies, the death benefit
proceeds--where not otherwise required by law--shall be paid to the owner or to
the owner's estate. A beneficiary shall not have or acquire any claim against
the Association whatever until the insured dies unless otherwise provided by
law.
Section 7. No beneficiary change shall take effect unless received by the
Association at its home office. When it is received, any change shall take
effect as of the date the request for beneficiary change was signed, as long as
the request for change was mailed or actually delivered to the Association while
the insured was alive. Such beneficiary change shall be null and void where the
Association has made a good faith payment of the proceeds or has taken other
action before receiving the change.
SETTLEMENT OPTIONS
Section 8. In addition to the settlement options offered in the certificate, the
Association may offer any other manner of settlement made available by the
Association at the time certificate proceeds are to be paid.
MAINTENANCE OF SOLVENCY
Section 9. If the Association's reserves for any class of certificates, other
than those portions of any certificate that provide variable benefits based on
the experience of a separate account authorized under Section 10, become
impaired, the board may require that benefit members pay the Association an
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equitable amount to eliminate the deficiency. If the amount is not paid, it
shall be charged as an indebtedness against the certificate and shall draw
interest at the lower rate of either what is specified in the certificate for
certificate loans or what is specified in the certificate under the maintenance
of solvency provision. If the owner of the certificate agrees, an equivalent
reduction in benefits can be chosen instead of the payment or indebtedness
charged against the certificate.
SEPARATE ACCOUNTS AND VARIABLE CONTRACTS
Section 10. The board of directors may provide for the establishment and
operation of one or more separate accounts in accordance with applicable law.
AAL may issue contracts on a variable basis that provide for the dollar amount
of benefits or other contractual payments or values to vary so as to reflect the
investment results of such separate accounts. The board of directors may adopt
special procedures or create legal entities necessary or appropriate for the
conduct of the business and affairs of any variable contract and separate
account. Any provisions of the AAL Bylaws that are inconsistent with the
provisions of this bylaw shall not apply to any variable contract or separate
account.
TAXES
Section 11. If any jurisdiction requires the Association to pay any sum as a tax
on its operations, the board may determine an equitable apportionment of the
full amount of the taxes paid and make a levy of such amount upon the benefit
members and insureds residing in that jurisdiction. Notice of the levy including
the manner in which it is to be paid, shall be given to those affected. If the
amount levied is not paid after 60 days from the date of the notice, the amount
shall be charged as an indebtedness against the certificate and draw interest at
5 percent per annum compounded annually.
RESOLUTION OF DISPUTES
Section 12.
(a) Purpose. The purpose of this section is to prescribe the sole means to
present and resolve grievances, complaints or disputes brought by members,
certificate owners or beneficiaries, against the Association or its
directors, officers, agents and employees. Procedures set forth in this
section are meant to provide prompt, fair and efficient opportunities for
dispute resolution, consistent with the fraternal nature of the
Association, without the delay and expense of formal legal proceedings.
(b) Scope. This section applies to all past, current and future benefit
certificates, members, insureds, certificate owners, and beneficiaries. It
applies to all claims, actions, disputes and grievances of any kind or
nature whatsoever. It includes, but is not limited to, claims based on
breach of benefit contract, as well as claims based on fraud,
misrepresentation, violation of statute, discrimination, denial of civil
rights, conspiracy, defamation, and infliction of distress, against the
Association or its directors, officers, agents or employees. This section
does not apply to claims or disputes made after the applicable statute of
limitations has expired. This section does not apply to actions brought by
the Association, including, but not limited to, actions for: declaratory
judgment, determining proper payees, recovering amounts due, and contesting
insurance coverage or membership eligibility.
(c) Procedures. No lawsuits or any other actions may be brought for any claims
or disputes covered by this section. The following are the steps and
procedures for presenting and resolving disputes:
Step 1. Appeal. Appeal of the dispute to a designated reviewer within the
Association as appropriate to the dispute.
Step 2. Mediation. If step 1 does not result in a mutually satisfactory
resolution, either party has the right to have the matter mediated in
accord with the applicable mediation rules of the American Arbitration
Association (or other neutral organization as agreed upon by the parties).
Step 3. Arbitration. If there is still no mutually satisfactory resolution,
the matter will be resolved by binding arbitration in accord with rules of
the American Arbitration Association. The arbitrator(s) may award any
actual damages incurred for which there is liability, but may not award
attorneys' fees, or compensatory, exemplary, extra-contractual or punitive
damages. The decision of the arbitrator(s) is binding and final. Additional
procedural rules may be defined in policies established by the Association
and made available upon request. If a claim or dispute is subject to law
that prohibits parties from agreeing to submit future disputes to binding
arbitration, arbitration results shall be non-binding, unless both the
individual and the Association voluntarily agree to binding arbitration
after the claim or dispute has arisen.
(d) Costs. Fees and expenses of the mediator and/or arbitrator shall be paid
out of a dispute resolution fund established by the Association. This does
not include attorneys' fees, experts' fees, or discovery costs, which each
party shall bear as its own responsibility.
(e) Joinder of Disputes. No claim or dispute may be brought against the
Association or its directors, officers, agents or employees, in a
representative capacity, or on behalf of any "class" of persons or members.
Claims of multiple persons may be joined and presented under this section
provided all affected members, certificate owners and beneficiaries consent
in writing, or if the Association determines that joinder is appropriate.
RECEIPT OF PAYMENTS NOT A WAIVER
Section 13. If the Association receives and temporarily holds a payment or
premium, this shall not constitute a waiver of any of its defenses. If a
certificate has lapsed or been forfeited, or if the Association has received a
notice of cancellation, the payment of any premium for the certificate shall not
revive or continue the certificate, whether made on notice of premium due or
otherwise, and the payment shall be returned to the person making it.
BOARD OF DIRECTORS
Section 14. The affairs of the Association shall be managed under the direction
of the board. The board shall meet quarterly at dates to be set by the board.
All meetings shall be held at the home office of the Association unless some
other place is designated by the chief executive officer or board. Regular or
special meetings of the board of directors or its committees may also be
conducted by other means of communication, as prescribed by Wisconsin law, if so
designated by the board, the chairman of the board, the chief executive officer,
or the chairman of a committee of the board with respect to committee meetings.
Special meetings may be called by the chief executive officer or upon written
request to the secretary by at least five members of the board. The chief
executive officer or secretary shall notify board members, in writing or by
personal delivery, of the purpose, time and place of special meetings at least
seven calendar days before the date of the meetings. Except in the case of
removal of a director from office for cause, board members may waive their right
to receive notice individually and the board, by unanimous vote of the full
board, may suspend the requirement to give such notice.
Section 15. The board shall elect a chairman of the board and vice chairman of
the board from among its members for a term of up to one year. The chairman
shall preside at all meetings of the board and perform such other duties as may
be designated by the board. If the chairman of the board is a principal officer
of the Association, he or she shall be responsible only to the board. The vice
chairman shall preside at meetings of the board in the absence of the chairman.
Section 16. A majority of the members of the board shall constitute a quorum to
transact all business unless otherwise required in the articles of incorporation
or bylaws of the Association.
ELECTION OR APPOINTMENT OF DIRECTORS
Section 17. Twelve benefit members shall be elected to the board for terms of
office of four years each, three members being elected each year in the
following manner: The board, as well as each branch, shall have the right to
nominate benefit members as candidates for director. All nominations must be
reported to the secretary of the Association at the home office within the time
specified by the board. The secretary shall report the nominations to the board.
The board shall then direct the secretary to prepare the ballot and give notice
of the election, specifying the time and procedures for election. Each branch
shall conduct an election meeting within the time specified at which a vote
shall be taken on the candidates and shall be reported in the manner and within
the time specified in the notice of election. Those elective directors whose
terms do not expire with the current election shall constitute the Election
Committee. The tabulation of results of the election shall be done by an
independent certified public accounting firm selected by the board to report to
the Election Committee. The Election Committee shall declare the three
candidates receiving the highest number of valid votes to be duly elected for a
term beginning with the first quarterly meeting of the board in the year
following election.
Section 18. Vacancies in elective directorship positions shall be filled as soon
as possible by an affirmative vote of a majority of the remaining elective
directors. Such directors shall fill the unexpired terms and shall be considered
elective directors.
Section 19. Except as provided in Section 20, benefit members of the Association
shall not be eligible for election to the board for an initial term if they
shall have passed their 60th birthday on the first day of January of the year in
which their term would begin. No employee of the Association shall be eligible
for election to the board nor shall any former employee be eligible for election
to the board until the expiration of two years from the date of termination of
employment.
Section 20. The board may appoint up to four benefit members of the Association
to serve as appointive directors for a term of office of one year. The board may
also appoint not more than two principal officers of the Association to serve as
directors as the board shall from time to time determine to be in the
Association's best interest. Any appointment or reappointment shall require the
affirmative vote of a majority of the elective directors. An appointive director
shall be eligible for election pursuant to Section 17 or appointment pursuant to
Section 18 if the date of initial appointment as an appointive director preceded
such director's 60th birthday.
Section 21. No elective, appointive or principal officer director shall serve
beyond December 31 of the year in which age 70 is attained. A director may be
removed from office for cause by an affirmative vote of a majority of the full
board at a meeting of the board called for that purpose.
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COMMITTEES OF DIRECTORS
Section 22. The board by resolution adopted by a majority of the full board may
designate a governance committee and one or more additional committees of
directors. Each committee shall consist of three or more directors who serve by
appointment of the board. Each committee shall have such authority as delegated
to it by the board. A majority of the members of each committee of directors
shall constitute a quorum for the transaction of all committee business.
Vacancies occurring on committees of directors shall be filled by the board as
soon as possible.
OFFICERS OF THE ASSOCIATION
Section 23. The principal officers of the Association shall be the chairman of
the board, chief executive officer, president, secretary, treasurer and all vice
presidents except second vice presidents and assistant vice presidents.
Principal officers shall be elected by the board and shall serve at the pleasure
of the board. Officers other than principal officers shall be appointed by the
chief executive officer.
Section 24. The board shall elect the person who shall serve as chief executive
officer of the Association. The chief executive officer shall be responsible
only to the board. All other officers and employees of the Association shall be
under the chief executive officer's supervision and control. Subject to the
control and direction of the board, all activities and operations of the
Association shall be under the chief executive officer's supervision and
control.
Section 25. The board shall fix reasonable compensation for directors and
principal officers. The chief executive officer shall fix compensation for
officers other than principal officers, in accordance with policies established
by the board.
OFFICIAL PUBLICATION
Section 26. The official publication of the Association shall be called
Correspondent. Any notice, report or statement required by law, including notice
of election, may be published in Correspondent. If Association records show that
two or more benefit members or applicants for juvenile insurance have the same
mailing address, a Correspondent mailed to one of them is deemed mailed to all
of them at the same address unless a separate copy is requested. All amendments
to the Articles of Incorporation and Bylaws of the Association shall be
published in Correspondent not later than four months after the date of filing
such amendments with the Commissioner of Insurance of the state of Wisconsin. An
affidavit by the secretary of the Association certifying that Correspondent was
mailed in accordance with this section shall be submitted to the board at its
next meeting after publication of any notice, report or statement required by
law. The affidavits shall be filed in the records of the secretary's office.
FISCAL YEAR
Section 27. The fiscal year of the Association shall begin on the first day of
January and end on the thirty-first day of December.
ANNUAL REPORT
Section 28. An annual statement of the transactions of each fiscal year shall be
prepared and published in Correspondent within six months following the close of
each fiscal year.
LOCAL BRANCHES
Section 29. Branches shall be created and maintained to foster voluntary
activity for aiding such lawful social, intellectual, educational, charitable,
benevolent, moral, fraternal, patriotic or religious endeavors as the branch
determines in accord with policies of the board; to provide members with the
opportunity to take part in benevolent and charitable activities of the
Association; and to provide benefit members with the opportunity to exercise
their right to vote in the corporate and insurance affairs of the Association.
Section 30. Branches shall be chartered by resolution of the board upon petition
to it by 10 benefit members who live in the same general locality. The petition
shall indicate acceptance of the Articles of Incorporation and Bylaws of the
Association and the constitution for local branches. Petitions for branch
charters by groups of less than 10 benefit members may be specially considered
by the board, and charters may be issued pursuant to such petitions when the
board finds that the circumstances are justified. Charters may be withdrawn when
the board determines it to be in the best interests of the Association. The form
of petition, charter and constitution for local branches shall be adopted by the
board.
Section 31. Regular meetings of the branches shall be held at least monthly.
Meetings for election of directors and branch officers shall be held according
to procedures and during the time prescribed by the board.
Section 32. Branches may voluntarily join together to form regional groupings of
branches to assist each other in the performance of their fraternal and
benevolent activities, subject to the supervision and control of the board.
INDEMNIFICATION AND FIDELITY BONDS
Section 33. The Association shall indemnify any person who is or was a director,
officer or employee against liability for acts or omissions in the performance
of their duties. The Association shall also indemnify any person who is or was
serving at the request of the Association as a director, officer or trustee of
another corporation, partnership, joint venture, trust or other enterprise, or
any director, officer or employee who is or was serving in a fiduciary capacity
with regard to any employee benefit plan, against liability for acts or
omissions in the performance of their duties. The Association may purchase and
maintain insurance on behalf of an individual who is an employee, agent,
director or officer of the corporation against liability asserted against and
incurred by the individual in his or her capacity as an employee, agent,
director or officer, or arising from his or her status as an employee, agent,
director or officer, regardless of whether the Association is required or
authorized to indemnify or allow expenses to the individual against the same
liability. If such insurance is purchased, the amounts shall be as determined by
resolution of the board. The Association shall maintain fidelity bonds on the
officers and employees as determined by resolution of the board.
AMENDMENTS
Section 34. These bylaws may be repealed or amended, or new bylaws may be
adopted, at any regular meeting of the board or at any special meeting called
for that purpose. Notice of the proposed change shall be mailed or personally
delivered to board members at least 30 calendar days before the date of the
meeting. Board members may waive their right to receive notice individually and
the board, by unanimous vote of the full board, may suspend the requirement to
give such notice. Theo number of votes required to repeal or amend these bylaws,
or adopt new bylaws, shall be an affirmative vote of a majority of the full
board. Such changes shall be effective from the date of passage or at such other
date as stipulated by the board and shall be filed promptly after adoption with
the Commissioner of Insurance of the state of Wisconsin. After filing, the
changes shall be published in the official publication as prescribed in these
bylaws.
[AAL LOGO OMITTED]
AID ASSOCIATION FOR LUTHERANS
4321 N. Ballard Road, Appleton, WI 54919-0001
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
BY AND AMONG
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE ANNUITY ACCOUNT I
AND
AAL VARIABLE ANNUITY ACCOUNT II
AND
AAL VARIABLE LIFE ACCOUNT I
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.,
DATED SEPTEMBER 27, 1994, AMENDED DECEMBER 11, 1997
AND AS AMENDED MARCH 15, 1999
TABLE OF CONTENTS
Page
1. Sale of FUND Shares......................................................4
2. Representations and Warranties...........................................5
3. Prospectus and Proxy Statements: Voting..................................6
4. Sales Material and Information...........................................7
5. Fees and Expenses........................................................8
6. Diversification..........................................................8
7. Monitoring of Material Irreconcilable Conflicts..........................9
8. Indemnification..........................................................11
9. Term and Termination of This Agreement...................................14
10. Notices..................................................................16
11. Miscellaneous............................................................16
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT, is made and entered into as of this 15th day of
March, 1999, by and among AID ASSOCIATION FOR LUTHERANS ("AAL"), on its own
behalf and on behalf of AAL VARIABLE ANNUITY ACCOUNT I, AAL VARIABLE ANNUITY
ACCOUNT II, and AAL VARIABLE LIFE ACCOUNT I (the "ACCOUNTS"), and AAL VARIABLE
PRODUCT SERIES FUND, INC. (the "FUND"), (collectively the "Parties").
WITNESSETH:
WHEREAS, AAL is a fraternal benefit society organized under the laws of the
State of Wisconsin engaged in the writing of life insurance, annuity contracts,
and other insurance products, and serves as sponsor and depositor of the
ACCOUNTS and as investment adviser of the FUND registered under the Investment
Advisers Act of 1940;
WHEREAS, the ACCOUNTS are legally segregated asset accounts of AAL,
established pursuant to the laws of the State of Wisconsin, and currently
consists of seven subaccounts (the "Subaccounts"), for the purpose of funding
certain variable universal life insurance contracts and variable annuity
contracts (collectively the "Certificates");
WHEREAS, the FUND, is registered with the Securities and Exchange
Commission (the "SEC"), as a diversified, open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act"), and its shares are
registered with the SEC under the Securities Act of 1933 (the "1933 Act");
WHEREAS, the FUND is a series company, meaning its Board of Directors may
designate various series ("Portfolios") into which the FUND's authorized shares
are to be divided from time to time, with each such Portfolio consisting of a
specific number of the FUND's authorized shares, representing an interest in a
separate portfolio of securities and other assets, and having its own investment
objectives, policies and restrictions (the Board of Directors currently has
designated seven such Portfolios);
WHEREAS, to the extent permitted by applicable insurance, tax and other
laws and regulations, AAL intends to purchase shares in the FUND on behalf of
the ACCOUNTS to fund the Certificates or on its own behalf for related purposes,
and the FUND is authorized to sell such shares to the ACCOUNTS and to AAL at net
asset value;
WHEREAS, the FUND has entered into an Investment Advisory Agreement with
AAL, dated the twenty-seventh day of September, 1994, as amended, wherein AAL
has agreed to serve as investment adviser to the FUND, and to accept certain
obligations of the FUND as set forth herein, i.e., to compute the daily net
asset value and the net asset value per share for each Portfolio and to comply
with Subchapter M and Section 817(h) of the Internal Revenue Code of 1986 (the
"Code");
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
1. Sale of FUND Shares
1.1 The Certificates funded through the ACCOUNTS will provide for the
allocation of net amounts among certain Subaccounts for investment in
such shares of the Portfolios as may be offered from time to time in
the prospectus of the ACCOUNTS for the Certificates. The selection of
the particular Subaccount is to be made by the Certificate owner, and
such selection may be changed in accordance with the terms of the
Certificates.
1.2 The FUND will sell to AAL those shares of each available Portfolio
that AAL orders based on transactions under Certificates, effecting
such orders on a daily basis at the Portfolio's net asset value per
share next computed as provided in the FUND prospectus.
1.3 The Board of Directors of the FUND (the "Board") may refuse to sell
shares of any Portfolio to AAL, or suspend or terminate the offering
of shares of any Portfolio, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of the FUND.
1.4 The FUND agrees that its shares will be sold only to: (a) AAL, on its
own behalf and on behalf of separate accounts that it establishes from
time to time and maintains to fund variable annuity contracts and
variable life insurance contracts of AAL, including the ACCOUNTS; (b)
other life insurance companies, whether affiliated or unaffiliated
with AAL, on behalf of separate accounts funding variable annuity
contracts and variable life insurance contracts of such other
insurance companies; and (c) qualified pension or retirement plans,
whether for the benefit of employees of AAL and/or its affiliates or
for the benefit of unaffiliated entities ("Qualified Plans"). AAL
separate accounts (including the ACCOUNTS) and separate accounts of
other life insurance companies eligible to purchase shares of the FUND
are referred to in this Agreement as "Separate Accounts." No shares of
any Portfolio will be sold to the general public or to any life
insurance company (on its own behalf, as opposed to a Separate Account
maintained by such other insurance company) other than AAL.
1.5 The FUND will redeem for cash from AAL those full or fractional shares
of each Portfolio that AAL requests based on transactions under
Certificates, effecting such requests on a daily basis at the
Portfolio's net asset value per share next computed as provided in the
FUND prospectus.
1.6 Issuance and transfer of the FUND's shares will be by book entry only.
Stock certificates will not be issued to AAL. Shares ordered from the
FUND will be recorded in an appropriate title for AAL.
1.7 The FUND shall furnish notice promptly to AAL of any income, dividends
or capital gain distributions payable on the shares of any Portfolio.
AAL hereby elects to receive all such income, dividends and capital
gain distributions as are payable on FUND shares in additional shares
of that Portfolio. AAL reserves the right to revoke this election and
to receive all such income, dividends and capital gain distributions
in cash. The FUND shall notify AAL of the number of shares so issued
as payment of such income, dividends and distributions.
1.8 The FUND shall make the net asset value per share for each Portfolio
available to AAL on a daily basis, as soon as reasonably practical
after the net asset value per share is calculated.
1.9 The FUND may establish additional Portfolios to provide additional
funding media for the Certificates, or delete, combine, or modify
existing Portfolios. The shares of any additional Portfolio may be
made available to the ACCOUNTS by the FUND, pursuant to the terms of
this Agreement, and any applicable reference to any Portfolio, the
FUND or its shares herein shall include a reference to any such
Portfolio.
2. Representations and Warranties
2.1 AAL represents and warrants that interests in the ACCOUNTS under the
Certificates are or will be registered under the 1933 Act to the
extent required by the 1933 Act, that the Certificates will be issued
and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Certificates will
comply in all material respects with state insurance and federal
securities law suitability requirements. AAL further represents and
warrants that it is a fraternal benefit society organized under the
laws of the State of Wisconsin and engaged in the writing of life
insurance, annuity contracts, and other insurance products; that it
has legally and validly established its ACCOUNTS as segregated asset
accounts under Wisconsin insurance law; and that it has registered or
will register the ACCOUNTS as unit investment trusts in accordance
with the provisions of the 1940 Act to serve as segregated investment
accounts for the Certificates, to the extent required by the 1940 Act.
2.2 AAL represents and warrants that any interests in the ACCOUNTS being
offered for sale under the Certificates are or will be registered
under the 1933 Act to the extent required by the 1933 Act, that the
Certificates will be issued and sold in compliance in all material
respects with all applicable federal and state laws, and that the sale
of the Certificates will comply in all material respects with state
insurance law, and federal securities laws, including the rules of the
National Association of Securities Dealers, Inc. ("NASD").
2.3 The FUND represents and warrants that its shares sold pursuant to this
Agreement are or will be registered under the 1933 Act to the extent
required by the 1933 Act, duly authorized for issuance and sold in
compliance with the laws of the state of Maryland and all applicable
federal securities laws and that the FUND is or will be registered
under the 1940 Act to the extent required by the 1940 Act. The FUND
will amend the registration statement for its shares under the 1933
Act, as well as its registration statement under the 1940 Act, as
required in order to effect the continuous offering of its shares. The
FUND will register or qualify the shares for sale in accordance with
the laws of the various states only if and to the extent deemed
advisable by the FUND.
2.4 AAL represents and warrants that its Certificates are currently
treated as annuity contracts and universal life insurance contracts
under applicable provisions of the Code and that it will make every
effort to maintain such treatment.
2.5 The FUND makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses) complies
with the insurance laws or regulations of the various states. On the
request of any state insurance department, the FUND agrees to provide
and furnish to the department any information or reports in connection
with the FUND's operations or services that will allow the insurance
department to determine if the variable product operations of AAL are
being conducted in a manner consistent with state laws. The FUND
intends to comply with the insurance laws of any relevant state
regarding any Portfolio's investment objectives, policies and
restrictions to the extent that AAL advises the FUND, in writing, of
such laws or any change in such laws, provided the FUND's Board of
Directors and/or shareholders approve such changes as required by the
1940 Act.
2.6 The FUND represents and warrants that each of its Portfolios will
qualify as a regulated investment company under Subchapter M of the
Code and that the investments of each of its Portfolios will comply
with the diversification requirements of Section 817(h) of the Code
and the regulations thereunder, and that it will notify AAL
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
3. Prospectus and Proxy Statements: Voting
3.1 The FUND will provide such documentation (including a final copy of
any new prospectus, statement of additional information ("SAI"), or
supplement) and other assistance as is reasonably necessary in order
for AAL or its designee to timely distribute the current FUND
prospectus, SAI and any supplement thereto, or, in the alternative, to
have the prospectus of the ACCOUNTS for the Certificates and the
FUND's prospectus printed together in one document once each year (or
more frequently if the prospectus for the FUND is amended) (such FUND
prospectus printing to be at the FUND's expense, as provided in
Section 5.1).
3.2 The FUND will provide such documentation (including a final copy of
any proxy material, report to shareholders, and other communication to
shareholders) and other assistance as is reasonably necessary for AAL
or its designee to timely distribute the proxy material, report to
shareholders, and other communication (such printing and distribution
to be the FUND's expense, as provided in Section 5.1).
3.3 If, and to the extent required by law, AAL shall, at AAL's expense, as
provided in Section 5.2:
(a) solicit voting instructions from Certificate owners;
(b) vote Portfolio shares in accordance with instructions received
from Certificate owners;
(c) vote Portfolio shares for which no instructions have been
received, as well as Portfolio shares attributable to AAL other
than under Certificates, in the same proportion as shares of such
Portfolio for which instructions have been received, so long as
and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges. AAL reserves the
right to vote Portfolio shares held in any segregated asset
accounts or in general accounts in its own right, to the extent
permitted by law.
3.4 The FUND reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the FUND
solely upon the authorization of its Board and/or shareholders as
required by the 1940 Act.
4. Sales Material and Information
4.1 AAL or its designee will furnish, or will cause to be furnished, to
the FUND or its designee, each piece of sales literature or other
promotional material in which the FUND or AAL is named, at least
fifteen (15) days prior to its intended use. No such material will be
used if the FUND or its designee objects to such intended use within
fifteen (15) days after receipt of such material.
4.2 AAL will not give any information or make any representation or
statement, or cause such information to be given or representation to
be made, on behalf of the FUND or concerning any Portfolio in
connection with the sale of the Certificates other than the
information or representations contained in the registration
statement, prospectus, and SAI for FUND shares, as such registration
statement, prospectus, and SAI may be amended or supplemented from
time to time, or in reports or proxy materials for the FUND, or in
sales literature or other promotional material approved by the FUND or
its designee, except with the permission of the FUND or its designee.
4.3 The FUND or its designee will furnish, or will cause to be furnished,
to AAL or its designee, each piece of sales literature or other
promotional material of the FUND in which AAL and/or its ACCOUNTS is
named, at least fifteen (15) days prior to its intended use. No such
material will be used if AAL or its designee objects to such intended
use within fifteen (15) days after receipt of such material.
4.4 The FUND will not give any information or make any representations or
statements, or cause such information to be given or representations
to be made, on behalf of AAL or concerning AAL, its ACCOUNTS or its
Certificates other than the information or representations contained
in a registration statement or prospectus for such ACCOUNTS, as such
registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for the ACCOUNTS that are
in the public domain or approved by AAL for distribution to owners, or
in sales literature or other promotional material approved by AAL or
its designee, except with the permission of AAL or its designee .
4.5 The FUND will provide to AAL one complete copy of all registration
statements, prospectuses, SAI's, reports, proxy material, sales
literature and other promotional material, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the FUND or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory
authorities.
4.6 AAL will provide to the FUND one complete copy of all registration
statements, prospectuses, SAI's, reports, solicitations for voting
instructions, sales literature and other promotional material,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the ACCOUNTS or its
Certificates, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
5. Fees and Expenses
5.1 The FUND will pay all expenses incident to the FUND's performance
under this Agreement. In addition to the investment advisory fee,
subject to the expense reimbursement arrangement discussed below, each
Portfolio will bear all of its operating expenses that are not
specifically assumed by AAL, including the following: (i) interest and
taxes (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses for those Directors who are not "interested"
persons under Section 2(a)(19) of the Act; (v) independent legal and
audit expenses; (vi) fees and expenses of the FUND's custodian,
shareholder servicing or transfer agent and accounting services agent;
(vii) expenses incident to the issuance of its shares, including stock
certificates and issuance of shares on the payment of, or reinvestment
of dividends; (viii) fees and expenses incident to the registration
under Federal or state securities laws of the FUND or its shares; (ix)
FUND or portfolio organizational expenses; (x) FUND expenses of
preparing, printing and mailing reports and notices, proxy material
and prospectuses to shareholders of the FUND; (xi) all other expenses
incidental to holding meetings of the FUND's shareholders; (xii) dues
or assessments of or contributions to the Investment Company Institute
or any successor or other industry association; (xiii) such
non-recurring expenses as may arise, including litigation affecting
the FUND and the legal obligations which the FUND may have to
indemnify its officers and Directors with respect thereto; and (xiv)
cost of daily valuation of each of the Portfolio's securities and net
asset value per share.
5.2 AAL will pay all expenses incident to AAL's performance under this
Agreement. In addition, AAL will bear the expenses of printing and
distributing to its Certificate owners the FUND proxy materials, proxy
cards and voting instruction forms (collectively "proxy information"),
tabulating the results of proxy solicitations to its Certificate
owners, printing and distributing to its Certificate owners the FUND
prospectus, SAI, supplement, proxy material, report to shareholders,
and other communication to shareholders, and any expenses associated
with administration of its Certificates.
6. Diversification
6.1 The Portfolios will at all times invest money from the Certificates in
such a manner as to ensure that the Certificates will be treated as
variable life insurance contracts and variable annuity contracts under
the Code and the regulations thereunder insofar as such investment is
required for such treatment. Without limiting the scope of the
foregoing, the Portfolios will at all times comply with Section 817(h)
of the Code and Treasury Regulations Section 1.817-5 relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such
Section or Regulations.
6.2 The FUND shall furnish to AAL on a regular basis reports of all of the
investments of each Portfolio in a form sufficient to permit AAL to
determine whether each Portfolio is in compliance with the
diversification requirements of Section 817(h) of the Code and the
Regulations thereunder and shall take immediate action, on learning
through its own monitoring, or on advice from AAL, that any Portfolio
is not in compliance with such requirements, to return to compliance
with such requirements.
6.3 If any Portfolio is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace
period allowed under the Regulations, the FUND shall take all
appropriate efforts immediately to restore any such Portfolio to
compliance and shall fully cooperate with AAL in any effort to correct
such diversification failure under procedures established by the
Internal Revenue Service, including those set forth in Revenue
Procedure 92-25.
7. Monitoring for Material Irreconcilable Conflicts
7.1 The FUND's Board of Directors will monitor the FUND for the existence
of any material irreconcilable conflict between and among the
interests of the certificateholders of the Separate Accounts
(including the ACCOUNTS) investing in the FUND and the participants of
any of the Qualified Plans investing in the FUND. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling , private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investment of the FUND are being managed; (e) a difference in voting
instructions given by the Separate Accounts vis-a-vis voting
instructions provided by the trustees of the Qualified Plans; (f) a
decision by AAL or another life insurance company to disregard the
voting instructions of Certificate owners in one or more Separate
Accounts; or (g) if applicable, a decision by the trustee of a
Qualified Plan to disregard the voting instructions of the
participants of such Qualified Plan. A determination by the FUND's
Board that a material irreconcilable conflict exists will be a final
determination.
7.2 If it is determined by a majority of the FUND's Board, or by a
majority of its disinterested directors, that a material
irreconcilable conflict exists, AAL (on behalf of the ACCOUNTS) shall,
at its expense and to the extent reasonably practicable (as determined
by a majority of the disinterested directors of the FUND), take
whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict. Such steps could include: (a) withdrawing the
assets allocable to some or all of the ACCOUNTS from the FUND or any
Portfolio of the FUND and reinvesting such assets in a different
investment medium, including another portfolio of the FUND; (b)
submitting the question as to whether such segregation should be
implemented to a vote of all affected Certificate owners and, as
appropriate, segregating the assets of any appropriate (i.e., variable
annuity Certificate owners or variable life insurance Certificate
owners of one or more of AAL and any other insurance companies with
Separate Accounts investing in the FUND) that votes in favor of such
segregation, or offering to the affected Certificate owners the option
of making such change; or (c) establishing a new registered management
investment company or managed separate account. If a material
irreconcilable conflict arises because of a decision by AAL to
disregard voting instructions of owners of Certificates in one or more
of the ACCOUNTS, and that decision represents a minority position or
would preclude a majority vote with respect to the vote being taken by
shareholders of the FUND, then AAL shall, at the election and
direction of the FUND's Board, withdraw each affected ACCOUNT's
investment in the FUND (but no charge or penalty shall be imposed as a
result of such withdrawal).
7.3 AAL is responsible, to the extent permitted by applicable law, for
taking remedial action on behalf of the affected ACCOUNT(s) in the
event that the FUND's Board determines a material irreconcilable
conflict exists. AAL will take remedial action only as it pertains to
assets of the affected ACCOUNT(s) and in accordance with its fiduciary
responsibility to Certificate owners in such affected ACCOUNT(s). AAL,
as the sponsor of the affected ACCOUNT(s), will be responsible for the
cost of any such remedial action. For the purpose of this Section, a
majority of the disinterested members of the FUND's Board will
determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event shall the FUND, or AAL
in its capacity as advisor to the FUND, be required to establish a
Portfolio or new funding medium for any Certificate or any ACCOUNT.
Nor, in its capacity as sponsor of any ACCOUNT, shall AAL be required
to establish a new funding medium for any Certificate or any ACCOUNT
if any offer to do so has been declined by a vote of a majority of the
Certificate owners materially and adversely affected by the material
irreconcilable conflict.
7.4 The FUND promptly shall notify AAL in writing of any determination by
the FUND's Board as to the existence of a material irreconcilable
conflict and its implications
7.5 All reports of potential or existing conflicts received by the FUND's
Board and all Board actions with regard to or determining the
existence of a conflict of interest, notifying AAL of a conflict, and
determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the FUND's Board
or other appropriate records, and such minutes or other records will
be made available to the SEC upon request.
7.6 The FUND will disclose in its prospectus that (a) shares of the FUND
may be offered to Separate Accounts and Qualified Plans; (b) material
irreconcilable conflicts may arise between the interest of various
certificateholders investing in the Separate Accounts and the
interests of participants in the Qualified Plans investing in the
FUND; and (c) the FUND's Board will monitor events in order to
identify the existence of any material conflict and determine what
action, if any, should be taken in response to such material
irreconcilable conflict.
7.7 No less than annually, AAL will submit to the FUND's Board such
reports, materials and data as the Board may reasonably request so
that the Board may carry out fully its obligations under this Section.
Such reports, materials and data will be submitted more frequently if
deemed appropriate by the FUND's Board. In any event, AAL will
promptly notify the FUND's Board in writing if it becomes aware of any
facts or circumstances that could give rise to a material
irreconcilable conflict between the interests of various Certificate
owners in the ACCOUNTS and the interests of Qualified Plan
participants investing in the FUND. All reports submitted to the
FUND's Board under this Section 7.7 shall include all information
reasonably necessary for the Board to consider the conflict issues
raised. In this regard, AAL promptly shall notify the FUND's Board
whenever AAL has determined to disregard voting instructions of the
Certificate owners of any ACCOUNT(s) on any matter submitted to a vote
of shareholders of the FUND.
8. Indemnification
8.1 Indemnification By AAL
(a) AAL will indemnify and hold harmless the FUND and each of its
Directors, officers, and employees and each person, if any, who
controls the FUND within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of AAL) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and
which:
(i) arise out of or are based upon any failure by AAL to perform
the duties or assume the general business responsibilities
of AAL with respect to the design, drafting, state
approvals, issuance, servicing and administration of the
Certificates, or the establishment and maintenance of the
ACCOUNTS; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus, or SAI for the
Certificates, or the ACCOUNTS, or contained in the
Certificates or sales literature for the Certificates (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this Agreement to indemnify
will not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished in writing to AAL by or on behalf of the FUND for
use in the registration statement, prospectus, or SAI for
the Certificates or the ACCOUNTS or in the Certificates or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Certificates or FUND shares; or
(iii)arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI, or
sales literature of the FUND not supplied by AAL, or persons
under its control) or wrongful conduct of AAL or persons
under its control, or failure to supervise persons under
AAL's control or entities or individuals with which AAL
contracts, with respect to the sale or distribution of the
Certificates or FUND shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished in
writing to the FUND by or on behalf of AAL; or
(v) arise out of or result from any failure by AAL to provide
the services and furnish the materials contemplated by this
Agreement; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by AAL in this Agreement
or arise out of or result from any other material breach of
this Agreement by AAL, as limited by and in accordance with
the provisions of Sections 8.1(b). and 8.1(c) hereof.
(b) AAL will not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the FUND,
whichever is applicable.
(c) AAL will not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified AAL in writing within
a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any
designated agent), but failure to notify AAL of any such claim
will not relieve AAL from any liability that it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, AAL shall
be entitled to participate, at its own expense, in the defense
thereof. AAL also will be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After
notice from AAL to such party of AAL's election to assume the
defense thereof, the Indemnified Party will bear the fees and
expenses of any additional counsel retained by it, and AAL will
not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable
costs of investigation.
(d) The Indemnified Party will promptly notify AAL of the
commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
8.2 Indemnification By the FUND
(a) The FUND will indemnify and hold harmless AAL and each of its
directors, officers and employees and each person, if any, who
controls AAL within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of FUND) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, which:
(i) arise out of or are based upon any failure by the FUND to
perform the duties or assume the general business
responsibilities required by this Agreement with respect to
the sale of shares of the FUND to AAL; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the sales literature for the FUND and/or the Certificates,
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify will not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the FUND by or on behalf of AAL for
use in the registration statement, prospectus, or SAI for
use in the sales literature or otherwise for use in
connection with the sale of Portfolio shares; or
(iii)arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI, or
sales literature of the FUND not supplied by the FUND, or
persons under its control) or wrongful conduct of the FUND
or persons under its control, or failure to supervise
persons under the FUND's control or entities or individuals
with which the FUND contracts, with respect to the sale or
distribution of the Certificates or FUND shares; or
(iv) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the FUND or
any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished in
writing to AAL by or on behalf of AAL; or
(v) arise out of or result from any failure by the FUND to
provide the services and furnish the materials contemplated
by this Agreement; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by the FUND in this
Agreement or arise out of or result from any other material
breach of this Agreement by the FUND, except to the extent
provided in Section 8.2(b) and 8.2(c) hereof.
(b) The FUND will not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would be subject by
reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the
FUND, whichever is applicable.
(c) The FUND will not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the FUND in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the FUND of any such
claim will not relieve the FUND from any liability that it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
the FUND shall be entitled to participate, at its own expense, in
the defense thereof. The FUND also will be entitled to assume the
defense thereof, with counsel satisfactory to the party named in
the action. After notice from the FUND to such party of the
FUND's election to assume the defense thereof, the Indemnified
Party will bear the fees and expenses of any additional counsel
retained by it, and the FUND will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Indemnified Party will promptly notify the FUND of the
commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with
transactions that are the subject of this Agreement whether or
not indemnification is being sought hereunder.
9. Term and Termination Of This Agreement
9.1 This Agreement will terminate:
(a) as to any party hereto, at the option of that party, upon prior
written notice to the other party as provided in Section 9.3
herein; or
(b) at the option of the FUND in the event that formal administrative
proceedings are instituted against AAL by the NASD, the SEC, any
state securities or insurance commissioner or any other
regulatory body regarding AAL's duties under this Agreement or
related to the sale of the Certificates, the operation of the
ACCOUNTS, or the purchase of FUND shares, provided, however, that
the FUND determines, in its sole judgment exercised in good
faith, that any such administrative proceedings will have a
material adverse effect upon the ability of AAL to perform its
obligations under this Agreement; or
(c) at the option of AAL in the event that formal administrative
proceedings are instituted against the FUND by the NASD, the SEC,
or any state securities or insurance commission or any other
regulatory body, regarding the FUND's duties under this Agreement
or related to the sale of FUND shares or the operation of the
FUND, provided, however, that AAL determines, in its sole
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability
of the FUND to perform its obligations under this Agreement; or
(d) at the option of AAL with respect to the ACCOUNTS, upon requisite
authority to substitute the shares of another investment company
for shares of the FUND in accordance with the terms of the
Certificates or in accordance with the ACCOUNTS investment policy
or standards of conduct; or
(e) at the option of AAL, in the event any of the FUND's shares are
not registered, issued, or sold in accordance with applicable
federal and any state law or such law precludes the use of such
shares as the underlying investment media of the Certificates
issued or to be issued by AAL; or
(f) at the option of AAL, if the FUND fails to meet the requirements
specified in Sections 2.3 or 2.6 hereof; or
(g) at the option of the FUND, if the investments of the ACCOUNTS
fail to satisfy the diversification requirements of the Code and
the regulations thereunder, or
(h) at the option of AAL, if the FUND dissolves or becomes otherwise
unable to sell shares to fund the ACCOUNTS.
9.2 It is understood and agreed that the right of any party hereto to terminate
this Agreement pursuant to Section 9.1(a) may be exercised for any reason
or for no reason.
9.3 Notice Requirement for Termination
No termination of this Agreement will be effective unless and until the party
terminating this Agreement gives prior written notice to the other party to this
Agreement of its intent to terminate, and such notice shall set forth the basis
for such termination. Furthermore,
(a) in the event that any termination is based upon the provisions of
Section 9.1(a) hereof, such prior written notice shall be given
at least one hundred eighty (180) days in advance of the
effective date of termination as required by such provision;
(b) in the event that any termination is based upon the provisions of
Section 9.1(b) or Section 9.1(c) hereof, such prior written
notice shall be given at least ninety (90) days in advance of the
effective date of termination;
(c) in the event that any termination is based upon the provisions of
Section 9.1(d) hereof, AAL will give at least sixty (60) days
prior written notice to the FUND of the date of any proposed
action to substitute FUND shares, including the filing of any
applicable exemptive application under the 1940 Act relating to
the ACCOUNTS; and AAL will provide the FUND with a copy of any
such exemptive application; and
(d) in the event that any termination is based upon the provisions of
Section 9.1(e), Section 9.1(f), or Section 9.1(g) hereof, such
prior written notice shall be given as soon as possible within
twenty-four (24) hours after the terminating party learns of the
event causing termination to be required.
9.4 Partial Termination
It is also understood that this Agreement may be terminated with regard to a
specific Portfolio or Portfolios of the FUND, or the entire FUND at the
discretion of the terminating party. Notwithstanding any termination of this
Agreement, the FUND, or any Portfolio, provided its shares are then available
for sale to any persons, shall at the option of AAL, continue to make available
additional shares of the FUND pursuant to the terms and conditions of this
Agreement, for all Certificates in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Certificates").
Specifically, without limitation, the owners of the Existing Certificates shall
be permitted to transfer or reallocate investments under the Certificates,
redeem investments in the FUND and/or invest in the FUND upon the making of
additional purchase payments under the Existing Certificates.
10. Notices
Any notice will be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to AAL: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: Woodrow E. Eno
If to the FUND: 4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Attention: Steven A. Weber
11. Miscellaneous
11.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland, where
the sale of any FUND share shall be deemed to have been made;
provided, however, that if such laws or any of the provisions of this
Agreement conflict with applicable Provisions of the 1940 Act, the
latter shall control.
11.2 If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement will not be effected thereby.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the 15th day of March, 1999.
AID ASSOCIATION FOR LUTHERANS and
AAL VARIABLE ANNUITY ACCOUNT I,
AAL VARIABLE ANNUITY ACCOUNT II and
AAL VARIABLE LIFE ACCOUNT I
By: /s/John O. Gilbert
-------------------------------------
John O. Gilbert
President and Chief Executive Officer
By: /s/Woodrow E. Eno
-------------------------------------
Woodrow E. Eno
Senior Vice President,
Secretary and General Counsel
AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/Walter S. Rugland
-------------------------------------
Walter S. Rugland
President
By: /s/Steven Fredricks
-------------------------------------
Steven Fredricks
Secretary
1
AMENDMENT
TO
TRADE NAME/SERVICE MARK LICENSING AGREEMENT
BY AND BETWEEN
AID ASSOCIATION FOR LUTHERANS
AND
AAL VARIABLE PRODUCT SERIES FUND, INC.
The Trade Name/Service Mark Licensing Agreement between Aid Association for
Lutherans and AAL Variable Product Series Fund, Inc. dated September 27, 1994,
amended, effective March 4, 1998, is hereby amended, effective March 15, 1999 as
follows:
The RECITALS section is hereby amended to read as follows:
RECITALS
LICENSOR has used the trade name/service mark "AAL" for the
marketing of insurance, mutual fund, fraternal and other related services
since 1917, and the name is associated with and represents LICENSOR and
the quality of services it provides, and all the goodwill associated with
it. LICENSOR has a valid federal service mark for said name, registered
with The United States Patent & Trademark Office, encompassing the
services offered by LICENSEE. LICENSOR will have the non-exclusive right
to use and license others to use such trade name/service mark for mutual
fund services marketed only to AAL Variable Annuity Account I, AAL
Variable Annuity Account II, AAL Variable Life Account I, any other
separate account(s) that AAL may establish in the future to fund variable
insurance products issued by AAL, the Aid Association for Lutherans
Savings Plan, AAL and/or AAL Benefit Members (or those eligible for
membership), and employees and their immediate families of AAL, its
subsidiaries and affiliates.
Consideration for this agreement shall be $1.00 in United States
currency, receipt of which by LICENSOR shall be acknowledged by the
signing of this agreement, and the mutual promises herein.
Nothing in this agreement shall be construed in any way to create a
partnership, agency or subsidiary relationship between the parties
involved herein.
LICENSEE desires to obtain a license, under the terms and
conditions provided herein, to utilize said trade name/service mark in
association with the marketing, servicing and provision of only the
services agreed to in this licensing agreement, only to AAL Variable
Annuity Account I, AAL Variable Annuity Account II, AAL Variable Life
Account I, any other separate account(s) that AAL may establish in the
future to fund variable insurance products issued by AAL, the Aid
Association for Lutherans Savings Plan, AAL and/or, AAL Benefit Members
(or those eligible for membership), and employees and their immediate
families of AAL, its subsidiaries and affiliates.
LICENSOR is willing to grant a limited license to LICENSEE to use
such trade name/service mark under the terms and conditions provided
herein.
In WITNESS WHEREOF the parties hereto have caused this Amendment to be signed by
the respective Officers effective this 15th day of March, 1999.
ATTEST: AAL VARIABLE PRODUCT SERIES
FUND, INC.
By: /s/Steven J. Fredricks By: /s/Walter S. Rugland
----------------------------- --------------------------
Steven J. Fredricks Walter S. Rugland
Secretary President
ATTEST: AID ASSOCIATION FOR LUTHERANS
By: /s/Woodrow E. Eno By: /s/John O. Gilbert
------------------------------ --------------------------
Woodrow E. Eno John O. Gilbert
Senior Vice President, President and Chief
General Counsel and Secretary Executive Officer
Mr. Ronald G. Anderson
President
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54911
RE: Administrative Services Agreement between AAL and AALCMC providing for fund
accounting services to the AAL Variable Product Series Fund, Inc.
Dear Ron:
As you know, Aid Association for Lutherans has an Administrative Services
Agreement with AAL Capital Management Corporation to provide fund accounting
services for the AAL Variable Product Series Fund, Inc. Under Section 10 of this
agreement, sixty days written notice is required to terminate this contract.
Please accept this letter as written notice of AAL's desire to terminate this
agreement effective January 1, 1999.
Please indicate your acceptance of this notice by signing the copy of this
letter and returning the signed copy to AAL.
Sincerely,
/s/ John O. Gilbert
- -----------------------------------------------
John O. Gilbert
President and Chief Executive Officer
Enclosure
October 26, 1998
I accept the notice of termination of the Administrative Services Agreement on
behalf of AAL Capital Management Corporation. The termination will be effective
January 1, 1999.
/s/ Ronald G. Anderson
- -----------------------------------------------
Ronald G. Anderson
President
AAL Capital Management Corporation
AMENDMENT AND RESTATEMENT
OF
TRANSFER AGENCY AGREEMENT
BY AND AMONG
AAL VARIABLE PRODUCTS SERIES FUND, INC.
AND
AID ASSOCIATION FOR LUTHERANS
DATED SEPTEMBER 27, 1994, AND AS
AMENDED MARCH 15, 1999
TABLE OF CONTENTS
Page
1. Documents.............................................................3
2. Authorized Shares.....................................................4
3. AAL to Issue and Register Shares......................................4
4. Notice of Distribution................................................5
5. Distributions.........................................................5
6. Redemptions and Repurchases...........................................5
7. Processing Transactions...............................................5
8. Tax Returns...........................................................5
9. Book and Records......................................................6
10. Information to be Furnished...........................................7
11. Proxies ........................................................7
12. Compliance with Governmental Rules and Regulations....................7
13. Force Majeure.........................................................7
14. Standard of Care and Indemnification..................................7
15. Further Actions.......................................................8
16. Additional Portfolios.................................................8
17. Assignment and Agents.................................................9
18. Maryland Law to Apply.................................................9
19. Amendment and Termination.............................................9
TRANSFER AGENCY AGREEMENT
The TRANSFER AGENCY AGREEMENT made and entered into as of September 27,
1994 by and among the AAL VARIABLE PRODUCT SERIES FUND, INC. (the "FUND"), a
Maryland corporation, and AID ASSOCIATION FOR LUTHERANS ("AAL"), a fraternal
benefit society founded under the laws of the State of Wisconsin, is hereby
amended and restated as of the 15th day of March, 1999.
WITNESSETH THAT:
WHEREAS, the Fund is a diversified, open-end management investment
company, registered under the Investment Company Act of 1940 as amended ("1940
Act"), and authorized to issue shares of common stock, $.001 par value ("Common
Stock"), in separate series, with each such series representing an interest in a
separate portfolio of securities and other assets; and
WHEREAS, AAL, a fraternal benefit society founded in Wisconsin in 1902
and owned by and operated for its members, is currently licensed to transact
life insurance business in all 50 states and the District of Columbia and
intends to offer variable annuity and variable universal life certificates (the
"Certificates") in states where it has authority to issue variable contracts;
and
WHEREAS, the Fund intends to offer shares of the AAL Variable Product
Large Company Stock Portfolio, the AAL Variable Product Small Company Stock
Portfolio, the AAL Variable Product Bond Portfolio, the AAL Variable Product
Balanced Portfolio, the AAL Variable Product Money Market Portfolio, the AAL
Variable Product International Stock Portfolio and the AAL Variable Product High
Yield Bond Portfolio (such portfolios, together with all other portfolios
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 16 hereof, the "Portfolios"), exclusively to
corresponding subaccounts of the AAL Variable Annuity Account I, AAL Variable
Annuity Account II, AAL Variable Life Account I (each of which funds certain
Certificates issued by AAL), the Aid Association for Lutherans Savings Plan, (a
qualified retirement plan under Section 401(k) of the Internal Revenue Code of
1986, as amended), and directly to AAL (the "Shareholders");
NOW THEREFORE, in consideration of the Fund making its shares available
for investment in connection with certain insurance products and qualified
retirement plans and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, but for no other fee or
reimbursement which is not specifically set forth herein, AAL is hereby
appointed Transfer Agent for the shares of the Fund and Dividend Disbursing
Agent for the Fund, and AAL accepts said appointment, subject to the following
terms and conditions:
1. Documents
1.1 In connection with the appointment of AAL as Transfer Agent, the Fund
shall file with AAL the following documents:
a) A certified copy of the Articles of Incorporation of the Fund and
any amendments thereto;
b) A certified copy of the By-Laws of the Fund as amended to date;
c) A copy of the resolution of the Board of Directors of the Fund
authorizing this Agreement; and
d) An opinion of counsel for the Fund with respect to the validity
of the shares of the Fund, the number of shares authorized, the
number of shares allocated to each Portfolio, the status of
redeemed or repurchased shares and the number of shares of each
Portfolio with respect to which a registration statement under
the Securities Act of 1933, as amended ("1933 Act"), has been
filed and is in effect.
1.2 The Fund will also furnish to AAL from time to time the following
documents:
a) Each resolution of the Board of Directors of the Fund authorizing
the original issue of its shares or affecting the status of
redeemed or repurchased shares;
b) Each registration statement filed with the Securities and
Exchange Commission under the 1933 Act or under the 1940 Act and
amendments thereof, orders relating thereto and prospectuses and
statements of additional information (hereinafter collectively
referred to as "prospectus") in effect with respect to the sale
of shares of the Fund;
c) A certified copy of each amendment to the Articles of
Incorporation or the By-Laws of the Fund;
d) Certified copies of each resolution of the Board of Directors
authorizing officers to give instructions to the Transfer Agent;
and
e) Such other documents or opinions which AAL may, in its
discretion, reasonably deem necessary or appropriate in the
proper performance of its duties.
2. Authorized Shares
The Fund certifies to AAL that as of the close of business on the date of
this Agreement, it has authorized a total of 2,000,000,000 (two billion) shares
of its Common Stock, of which 700,000,000 (seven hundred million) shares are
divided equally among the seven Portfolios, and certifies that by virtue of its
Articles of Incorporation and the provisions of the laws of the state of its
incorporation, shares of its Common Stock which are redeemed or re-purchased by
the Fund from the holder will be restored to the status of authorized and
unissued shares.
3. AAL to Issue and Register Shares
AAL shall issue and record the issuance of shares of the Common Stock of
the Fund. AAL shall notify the Fund and its "Custodian" (which term, whenever
used herein, shall mean each Custodian for the one or more Portfolios affected
by the transaction referred to) of every issuance, which notice shall include
the date, Portfolio, number of shares, and dollar amount of the transaction. AAL
shall compute the number of shares issuable in the case of an order for a dollar
amount of shares (or the purchase price in the case of an order for a specific
number of shares) at the net asset value per share for the Portfolio, as
described in the then-current prospectus of the Fund, unless the Board of
Directors of the Fund should otherwise direct.
4. Notice of Distribution
The Fund shall promptly inform AAL of the declaration of any dividend or
distribution on account of its shares, including the amount per share, record
date, date payable and the Portfolio.
5. Distributions
AAL shall act as Dividend Disbursing Agent for the Fund, and, as such, in
accordance with the provisions of the Articles of Incorporation and the
then-current prospectus of the Fund, shall distribute or credit income and
capital gain payments to shareholders. The Fund will notify AAL of and cause the
Custodian to make available to AAL out of the assets of the Fund of the
appropriate Portfolio, the amount of any such payment to be paid out in cash.
AAL shall process the reinvestment of distributions in each Portfolio at the net
asset value per share for that Portfolio next computed after the payment, in
accordance with the then-current prospectus of the Fund. AAL shall notify the
Fund and the Custodian as to the number, Portfolio, dollar amount and date of
issue of shares by reinvestment of each distribution.
6. Redemptions and Repurchases
AAL shall process each redemption or repurchase of shares at the net asset
value per share of that Portfolio, as described in the then-current prospectus
of the Fund, unless the Board of Directors of the Fund should otherwise direct.
Where redemption or repurchase of a dollar amount is required, AAL shall
calculate the number of shares to be redeemed or repurchased so as to provide
the shareholder with the dollar value required, and where a stated number of
shares is required, AAL shall compute the dollar amount of the proceeds. In
either case, AAL shall notify the Fund of the number of shares and the Portfolio
out of which the shares are to be redeemed or repurchased, and the dollar amount
and date of the redemption or repurchase, and shall direct the Fund to make the
required amount of proceeds available to the shareholder out of the assets of
that Portfolio. The Fund shall cause its Custodian to make such proceeds
available not more than seven calendar days after receipt of the redemption or
repurchase request.
7. Processing Transactions
In calculating the number of shares to be issued on purchase or
reinvestment, or redeemed or repurchased, or the amount of the purchase payment
or redemption or repurchase proceeds owed, AAL shall use the net asset value per
share computed by AAL in accordance with the investment advisory agreement
between the Fund and AAL.
The authority of AAL to process purchases, reinvestments, redemptions and
repurchases shall be suspended upon receipt of notification by AAL of the
suspension of the determination of the net asset value of the Portfolios of the
Fund, until such suspension has been lifted.
8. Tax Returns
AAL shall, if necessary, prepare, file with the Internal Revenue Service
and with the appropriate state agencies, and, if required, mail to shareholders
such returns for reporting dividends and distributions paid as are required to
be so filed and mailed under applicable federal and state income tax laws, rules
and regulations.
9. Book and Records
With respect to each Portfolio, AAL shall maintain records showing for each
shareholder's account the following:
a) Names, address and tax identifying numbers;
b) Number of shares of each Portfolio held;
c) Historical information regarding transactions with respect to
each Portfolio, including purchases, redemptions, dividends and
distributions, transfers, and any other transactions, with date
and price for all transactions;
d) Any stop or restraining order placed against the account;
e) Correspondence relating to the current maintenance of the
account;
f) Any information required in order for the AAL to perform the
calculations contemplated or required by this Agreement; and
g) Such other records as the Fund may from time to time reasonably
request, and any other document pertinent to the above, or to
functions that the parties to a transfer agent agreement may
assign to the transfer agent.
Any such records required to be maintained by Rule 31a-1 of the General
Rules and Regulations under the 1940 Act shall be preserved by AAL for the
periods prescribed in Rule 31a-2 of said rules. Such record retention shall be
at the expense of AAL and records may be inspected by the Fund or its designees
at reasonable times, and, upon reasonable request of the Fund, copies of records
shall be provided at AAL expense to the Fund or its designee. AAL may, at its
option at any time, and shall forthwith upon the demand of the Fund, turn over
to the Fund and cease to retain in AAL files, records and documents created and
maintained by AAL pursuant to this Agreement which are no longer needed by AAL
in performance of its services or for its protection. If not so turned over to
the Fund, such records and documents will be retained by AAL for six years from
the year of creation, during the first two of which such documents will be in
readily accessible form. At the end of the six year period, such records and
documents will either be turned over to the Fund, or destroyed in accordance
with the authorization of the Fund.
Any such records required to be maintained by Maryland General Corporation
Law shall be maintained by AAL upon the terms thereunder.
Any such records maintained by AAL pursuant to this Agreement are deemed to
be the property of the Fund and will be promptly surrendered or made available
to the Fund or its designee, without charge, except for reimbursement of
expenses for surrender of such documents, upon request by the Fund or upon
termination of this Agreement.
AAL and the Fund agree that all books, records, information and data
pertaining to the business of the other Party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.
10. Information to be Furnished
AAL shall furnish to the Fund such other information, including statistical
information, as needed to implement the provisions of this Agreement and as may
be agreed upon from time to time.
AAL shall report to the Fund regarding its performance under this Agreement
as may be reasonably requested by the Fund.
The Fund shall furnish to AAL such instructions and other information as
are needed to implement the provisions of this Agreement and as may be agreed
upon from time to time.
11. Proxies
AAL shall mail or otherwise distribute such proxy cards and other material
supplied to it by the Fund in connection with shareholder meetings of the Fund
and shall receive, examine and tabulate returned proxies and voting instructions
and certify the vote of each Portfolio of the Fund.
12. Compliance with Governmental Rules and Regulations
As between the Fund and AAL in its capacity as Transfer Agent, the Fund
assumes full responsibility for the preparation, contents and distribution of
each prospectus of the Fund and for complying with all applicable requirements
of the 1933 Act, the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction over the Fund, except as may be
specifically provided herein.
13. Force Majeure
AAL shall not be liable for loss of data occurring by reason of
circumstances beyond its control, including but not limited to acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots, or failure of transportation, communication or
power supply. AAL shall use its best efforts to minimize the likelihood of such
damage, loss of data, delays or errors resulting from uncontrollable events, and
if such damage, loss of data, delays or errors occur, AAL shall use its best
efforts to mitigate the effects of such occurrence.
14. Standard of Care and Indemnification
AAL shall at all times act in good faith and use its best efforts within
reasonable limits to ensure the accuracy of all services performed under this
Agreement, but assumes no responsibility and shall not be liable for loss or
damage due to errors; provided, that AAL shall indemnify and hold the Fund
harmless from all loss, cost, damage, and expense, including reasonable
attorneys' fees, incurred by the Fund as a result of AAL's gross negligence, bad
faith, or willful misfeasance in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement, or
that of its officers, agents and employees, in the performance of this
Agreement.
The Fund shall indemnify and hold AAL harmless from all loss, cost, damage
and expense, including reasonable attorneys' fees incurred by it resulting from
any claim, demand, action or suit in connection with the performance of its
duties hereunder, or the functions of Transfer and Dividend Disbursing Agent or
as a result of acting upon any instruction reasonably believed by it to have
been properly executed by a duly authorized officer of the Fund, or upon any
information, data, records or documents provided AAL or its agents by computer
tape, telex, CRT data entry or other similar means authorized by the Fund;
provided, that this indemnification shall not apply to actions or omissions of
AAL in cases of its own gross negligence, bad faith or willful misfeasance in
the performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement, or that of its officers, agents and
employees, in the performance of this agreement.
In order that the indemnification provisions contained in this Section 14
shall apply, however, it is understood that if in any case the one party (the
"Indemnitor") may be asked to indemnify or save the other party (the
"Indemnitee") harmless, the Indemnitor shall be fully and promptly advised of
all pertinent facts concerning the matters in question, and it is further
understood that the Indemnitee will use all reasonable care to identify and
notify the Indemnitor promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Indemnitor. The Indemnitor shall have the option to defend the
Indemnitee against any claim which may be the subject of this indemnification,
and in the event that the Indemnitor so elects, it will so notify the
Indemnitee, and thereupon the Indemnitor shall take over complete defense of the
claim, and the Indemnitee shall in such situations incur no further legal or
other expenses for which it shall seek or be entitled to indemnification under
this paragraph. The Indemnitee shall in no case confess any claim or make any
compromise in any case in which the Indemnitor will be asked to indemnify the
Indemnitee except with the Indemnitor's prior written consent.
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
15. Further Actions
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
16. Additional Portfolios
In the event that the Fund establishes one or more Portfolios in addition
to the seven Portfolios with respect to which it desires to have AAL render
services as Transfer Agent and Dividend Disbursing Agent under the terms hereof,
it shall so notify AAL in writing, and if AAL agrees in writing to provide such
services, such Portfolio shall become a Portfolio hereunder. AAL shall not
unreasonably withhold approval of such new Portfolio.
17. Assignment and Agents
AAL may not assign this Agreement or delegate any of its responsibilities
hereunder without the express written consent of the Fund. However, AAL may from
time to time employ agents to act on its behalf to perform and carry out its
functions set forth as responsibilities of AAL in this Agreement.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Maryland.
19. Amendment and Termination
This Agreement may be modified or amended from time to time by written
agreement between the parties hereto. This Agreement may be terminated at any
time by not less than one hundred twenty (120) days' written notice given by one
party to the other.
EXECUTED under seal as of the day and year above written:
AID ASSOCIATION FOR LUTHERANS AAL VARIABLE PRODUCT SERIES FUND, INC.
By: /s/John O. Gilbert By: /s/Walter S. Rugland
------------------------------ ------------------------------
John O. Gilbert Walter S. Rugland
President and President
Chief Executive Officer
By: /s/Woodrow E. Eno By: /s/Steven J. Fredricks
------------------------------ ------------------------------
Woodrow E. Eno Steven J. Fredricks
Senior Vice President, Secretary
Secretary and General Counsel
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: AAL Variable Annuity Account I (the "Registrant")
1933 Act Registration No. 33-82054
1940 Act File No. 811-8660
CIK #0000927649
Post-Effective Amendment No. 7 to Form N-4
Filed in Accordance with Rules 485(b) and 497(j)
Ladies and Gentlemen:
This letter relates to the Registrant's filing, pursuant to Rule 485(b) under
the Securities Act of 1933 (the "1933 Act"), of Post-Effective Amendment No. 7
under the 1933 Act and Amendment No. 8 under the Investment Company Act of 1940
(the "Amendment") to its Registration Statement on Form N-4 (the "Registration
Statement"). I am Supervisory Attorney of AAL and in such capacity, I have
examined the Amendment. This Amendment is being filed in the same format as the
original N-4 Registration Statement for the AAL Variable Annuity Account II
which was filed as a "template" filing with the Commission on February 5, 1999.
In accordance with the template filing request sent to Lisa Reid Ragan on
February 5, 1999, I represent and certify that it is my opinion that this filing
is sufficiently similar to the template filing that the template filing fairly
represented the overall disclosure contained in this Amendment. I also represent
that the Registrant has incorporated SEC staff comments based on plain English
guidelines made on the template filing into this Amendment. Lastly, I certify
that this Amendment does not contain any other disclosures that would render it
ineligible to become effective automatically on May 1, 1999 pursuant to Rule
485(b) under the 1933 Act.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement. In giving this opinion, I do not thereby admit that I come with the
category of persons whose consent is required under section 7 of the 1933 Act or
the rules and regulations of the Securities and Exchange Commission.
Please direct any questions or comments regarding this filing to the undersigned
at (920) 734-5721, extension 3528.
Sincerely,
/s/ Kathleen A. Brost
Kathleen A. Brost
Supervisory Attorney
Law & Compliance
April 21, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements"
and to the use of our report dated January 27, 1999, with respect to Aid
Association for Lutherans and to the incorporation by reference of our report
dated January 27, 1999, with respect to AAL Variable Annuity Account I, in this
Post-Effective Amendment No. 7 to Form N-4 Registration Statement under the
Securities Act of 1933 (File No. 33-82054) and this Amendment No. 8 to the
Registration Statement under the Investment Company Act of 1940 (File No.
811-8660) and related Prospectus of AAL Variable Annuity Account I.
/s/ Ernst & Young LLP
-----------------------------
Ernst & Young LLP
Milwaukee, Wisconsin
April 20, 1999
