REGISTRATION No. 33-12911
As filed on April 11, 1996
Registration No. 811-5075
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
/ / REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ /
/X/ POST-EFFECTIVE AMENDMENT NO. 18
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
/ / ACT OF 1940
/X/ AMENDMENT NO. 20
(CHECK APPROPRIATE BOX OR BOXES)
THE AAL MUTUAL FUNDS
(EXACT NAME OF REGISTRANT IS SPECIFIED IN CHARTER)
222 WEST COLLEGE AVE.
APPLETON, WISCONSIN 54919-0007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone Number, including Area Code (414) 734-5721
Robert G. Same
Secretary
The AAL Mutual Funds
222 West College Avenue
Appleton, WI 54919-0007
(NAME AND ADDRESS OF AGENT FOR SERVICES)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / ON _____________, PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1) OF RULE 485
/X/ ON JULY 1, 1996, PURSUANT TO PARAGRAPH (A)(ii) OF RULE 485
REGISTRANT HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF
BENEFICIAL INTEREST PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF
1940. REGISTRANT FILED A NOTICE UNDER RULE 24F-2 BEFORE JUNE 30, 1995.
<PAGE>
CROSS REFERENCE SHEET FOR
The AAL Small Cap Stock Fund
The AAL Mid Cap Stock Fund
The AAL Capital Growth Fund
The AAL Utilities Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
N-1A ITEM NO. LOCATION
PART A
Item 1 Cover Page Cover Page
Item 2 Synopsis General Information
Item 3 Financial Highlights Financial Highlights
Item 4 General Description of Registrant Cover Page; General
Information; Investment
Objectives and Policies
Item 5 Management of the Fund Board of Trustees
and Management of the
Trust
Item 6 Capital Stock and Other Securities Organization and Descrip-
tion of Shares
Item 7 Purchase of Securities Being Offered How to Buy Shares Divi-
dends, Distributions and
Taxes; Organization & De-
scription of Shares
Item 8 Redemption or Repurchase How to Sell (Redeem)
Shares
Item 9 Pending Legal Proceedings Not Applicable
PART B
Item 10 Cover Page Cover Page
Item 11 Table of Contents Table of Contents
Item 12 General Information and History Not Applicable
Item 13 Investment Objectives and Policies Investment Objectives &
Policies; Investment Tech-
niques; Investment Re-
strictions
Item 14 Management of the Fund Investment Advisory Ser-
vices; Distribution Plan
Item 15 Control Persons and Principal Investment Advisory Ser-
Holders of Securities vices
Item 16 Investment Advisory and Other Investment Advisory Ser-
Services vices; Distributor; Dis-
tribution Plan
Item 17 Brokerage Allocation Portfolio Transactions
Item 18 Capital Stock and Other Securities General
Item 19 Purchase, Redemption and Pricing Purchases & Redemptions;
of Securities Being Offered Pricing Considerations
Item 20 Tax Status Tax Status, Dividends and
Distributions
Item 21 Underwriters Distributor
Item 22 Calculation of Performance Data Calculation of Yiled and
Total Return
Item 23 Financial Statements Financial Statements
PART C
Item 24 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>
The AAL Mutual Funds (the "Funds") are a series of separate mutual fund
portfolios within a single Trust, each with a specific investment objective. The
Funds offer investment opportunities to eligible Lutherans (including their
families and their enterprises) and to AAL members and employees. AAL Capital
Management Corporation acts as Investment Adviser ("Adviser") and Distributor
("Distributor") to the Funds. This prospectus describes the following Funds:
THE AAL SMALL CAP STOCK FUND:
A Long-Term Capital Growth Investment in Small Companies
THE AAL MID CAP STOCK FUND
(Formerly The AAL Smaller Company Stock Fund):
A Long-Term Capital Growth Investment in Mid-Sized Companies
THE AAL CAPITAL GROWTH FUND:
A Conservative Stock Investment
THE AAL UTILITIES FUND:
A Public Utilities Investment
THE AAL BOND FUND:
A Quality Bond Investment
THE AAL MUNICIPAL BOND FUND:
A Tax-Exempt Bond Investment
THE AAL MONEY MARKET FUND:
A Money Market Investment
INVESTMENTS IN THE AAL MONEY MARKET FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THIS FUND
WILL BE ABLE TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
THIS PROSPECTUS PROVIDES YOU WITH CONCISE INFORMATION ABOUT THESE
FUNDS. READ IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. You can find more
detailed information, including investment policies, techniques, restrictions,
and the risks associated with them, in the Statement of Additional Information
("SAI"), dated July 1, 1996. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated in this prospectus by reference
(which means that it is legally considered part of this prospectus even though
it is not printed here). You can get your own copy of the SAI, and a copy of the
annual report, free by calling 800-553-6319, or by writing The AAL Mutual Funds
at 222 West College Avenue, Appleton, Wisconsin 54919-0007. The
Telecommunications Device for the Deaf ("TDD") number is 800-684- 3416.
<PAGE>
Three following additional series of The AAL Mutual Funds are described
in separate prospectuses: The AAL U.S. Government Zero Coupon Target Fund,
Series 2001 and 2006, and The AAL International Fund. Before you invest in The
AAL International Fund you must review a current prospectus, which you can
get by calling the telephone number above, or writing to the address above. We
have closed The AAL U.S. Government Zero Coupon Target Fund, Series 2001,
and The AAL U.S. Government Zero Coupon Target Fund, Series 2006, to new
investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Summary of Expenses....................................................
Financial Highlights...................................................
The AAL Small Cap Stock Fund...........................................
The AAL Mid Cap Stock Fund.............................................
The AAL Capital Growth Fund............................................
The AAL Utilities Fund.................................................
The AAL Bond Fund......................................................
The AAL Municipal Bond Fund............................................
The AAL Money Market Fund..............................................
Additional Investment Factors and Risks................................
Investment Restrictions................................................
Board of Trustees......................................................
Management of the Trust................................................
Buying Shares in the Funds.............................................
Buying Additional Shares...............................................
Additional Information About Buying Shares.............................
Selling (Redeeming) Your Shares........................................
The AAL Money Market Fund Checks ......................................
Closing Small Accounts.................................................
Reinstatement Privilege................................................
Exchange Privilege.....................................................
Net Asset Value (NAV)..................................................
Dividends, Distributions, and Taxes....................................
Shareholder Maintenance Agreement......................................
Yield and Performance Information......................................
Custodian, Transfer Agent, and Independent Accountants.................
Organization and Description of Shares.................................
Asset Allocation.......................................................
Questions..............................................................
Glossary of Important Terms...........................................
<PAGE>
READING THIS PROSPECTUS. We have placed a glossary defining important
terms at the end of this prospectus. If you are unsure of the meaning of any
term in the prospectus, please check the glossary.
References to "you" and "your" in this prospectus refer to prospective
investors or shareholders, while references to "we," "us," or "our" refer to the
Trust or the Funds generally.
SUMMARY OF EXPENSES
The following information shows recurring and non-recurring Fund
expenses. Operating expenses are expressed as a percentage of average net
assets. Percentages shown for management fees and Rule 12b-1 distribution fees
are the maximum fees permitted under The AAL Mutual Funds Investment Advisory
Agreement and Rule 12b-1 Distribution Plan. Percentages shown for "Other
expenses" are based on amounts incurred in the prior fiscal year, before
voluntary reimbursements by the Adviser.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
The AAL The AAL The AAL The AAL The AAL
Small Cap Mid Cap Capital The AAL The AAL Municipal Money
Stock Stock Growth Utilities Bond Bond Market
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% NONE
sales
charge
imposed on
purchases
(as a
percentage
of offering
price)(1)
Maximum NONE NONE NONE NONE NONE NONE NONE
sales
charge
imposed on
reinvested
dividends
Deferred NONE NONE NONE NONE NONE NONE NONE
sales
charges
Redemption NONE NONE NONE NONE NONE NONE NONE
fee (2)
Exchange NONE NONE NONE NONE NONE NONE NONE
Fee (per
exchange)
</TABLE>
<PAGE>
Annual Fund Operating Expenses
(As a percentage of average net assets)
<TABLE>
<CAPTION>
The AAL The AAL The AAL The AAL The AAL
Small Cap Mid Cap Capital The AAL The AAL Municipal Money
Stock Stock Growth Utilities Bond Bond Market
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Management .75% .75% .70% .50% .55% .55% .50%
Fee
Rule 12b-1 .25% .25% .25% .25% .25% .25% .125%
Distribution
Plan
Other expenses(3) N/A
Total Fund N/A
operating
expenses (4)
<FN>
(1) Because Rule 12b-1 distribution fees continue for the life of the
investment, over time a long-term investor may pay more than the
economic equivalent of the maximum front end sales charge permitted by
the National Association of Securities Dealers.
</FN>
<FN>
(2) A fee, currently $10.00, will be charged for each wire redemption.
(3) The Adviser has a contractual obligation to reimburse the Funds for
expenses in excess of any applicable state maximum expense limitation.
There were no such reimbursements in the last fiscal year. "Other
expenses" are based on actual expenses incurred by the relevant Fund
for the fiscal year ended April 30, 1996, except for The AAL Small Cap
Stock Fund, which is a new Fund that did not commence operations until
July 1, 1996. "Other expenses" for The AAL Small Cap Stock Fund are
based on management's estimates of operationg expenses for the fiscal
year ending April 30, 1997, and on an assumption of average net assets
of _____ million during the year.
(4) "Total Fund operating expenses" are based on prior fiscal year
financial data, and before additional voluntary reimbursements by the
Adviser for The AAL Money Market Fund. "Other expenses" for the prior
fiscal year (as a percentage of average net assets), after additional
voluntary reimbursement by the Adviser for The AAL Money Market Fund,
was ____%. Voluntary reimbursements may be initiated, modified, or
discontinued by the Adviser at any time. There was no reimbursement for
The AAL Mid Cap Stock, Capital Growth, Utilities, Bond and Municipal
Bond Funds.
</FN>
</TABLE>
<PAGE>
THESE TABLES ARE DESIGNED TO HELP YOU UNDERSTAND THE VARIOUS COSTS AND
EXPENSES THAT YOU WOULD PAY DIRECTLY AND INDIRECTLY WHEN YOU INVEST IN THE
FUNDS.
YOU SHOULD NOT CONSIDER THE EXPENSES SHOWN ABOVE TO BE A REPRESENTATION
OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN IN THESE
EXAMPLES.
EXPENSE EXAMPLE
Based on the expense information provided above, the following example
illustrates the expenses you would pay on a $1,000 investment in each of the
Funds for the periods indicated. The example assumes a five percent (5%)
compounded annual return and redemption at the end of each time period.
<TABLE>
<CAPTION>
The AAL The AAL The AAL The AAL The AAL
Small Cap Mid Cap Capital The AAL The AAL Municipal Money
Stock Stock Growth Utilities Bond Bond Market
Period Fund Fund Fund Fund Fund Fund Fund
- ------ ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year N/A
3 Years N/A
5 Years N/A
10 Years N/A
</TABLE>
THE PURPOSE OF THESE TABLES IS TO ASSIST THE INVESTOR IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUNDS WILL BEAR DIRECTLY
AND INDIRECTLY.
THE OPERATING EXPENSES AND THE EXPENSE EXAMPLES SHOWN ABOVE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The information presented in the table for The AAL Capital Growth, Bond, Muni-
cipal Bond and Money Market Funds is for the periods ending April 30, 1988,
1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996. The information provided for
both The AAL Mid Cap Stock Fund, which commenced operations June 30, 1993, and
The AAL Utilities Fund, which commenced operations March 17, 1994, is for the
periods ended April 30, 1994, 1995, and 1996. In each case, the information is
based on a share of beneficial interest outstanding throughout the applicable
period. This information should be read in conjunction with the Funds' audited
financial statements and related notes which have been examined by Price
Waterhouse LLP, independent accountants, and which are contained in the
Statement of Additional Information.
THE AAL MID CAP STOCK FUND
(formerly The AAL Smaller Company Stock Fund)
<TABLE>
<CAPTION>
Year Ended
---------- June 30, 1993 -
April 30 ,1996 April 30 ,1995 April 30 ,1994
-------------- -------------- --------------
<S> <C> <C> <C>
NAV Start of Period $ 10.38 $ 10.00
Net Investment Income (Loss) $ (0.054) $ (0.044)
Net Realized and Unrealized Gain (Loss) on Investments $ 0.594 $ 0.424
Total from Investment Operations $ 0.540 $ 0.380
Dividends from Net Investment Income - -
Distribution from Net Realized Gain on Investments - -
Total Dividends and Distributions - -
NAV End of Period $ 10.92 $ 10.38
Total Return for Period (1) 5.20% 3.80%
Net Assets at End of Period $220,792,070 $142,529,469
Ratio of Net Operating Expenses to Average Net Assets (2) 1.54% 1.72%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.77)% (1.14)%
Portfolio Turnover Rate 88.18% 55.49
Ratio of Net Operating Expenses to Average Net Assets (2) 1.54% 1.73%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) (0.77)% (1.14)%
</TABLE>
<PAGE>
THE AAL CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Year Ended
----------
April 30 ,1996 April 30 ,1995 April 30 ,1994 April 30 ,1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $14.49 $14.83 $14.06
Net Investment Income (Loss) $ 0.274 $ 0.296 $ 0.284
Net Realized and Unrealized Gain (Loss) on Investments $ 1.699 $(0.287) $ 0.761
Total from Investment Operations $ 1.973 $ 0.009 $ 1.045
Dividends from Net Investment Income (0.298) (0.286) (0.274)
Distribution from Net Realized Gain on Investments (0.605) (0.063) (0.001)
Total Dividends and Distributions (0.903) (0.349) (0.275)
NAV End of Period $15.56 $14.49 $14.83
Total Return for Period (1) 14.37% 0.00% 7.52%
Net Assets at End of Period $1,032,168,121 $868,850,190 $714,184,330
Ratio of Net Operating Expenses to Average Net Assets (2) 1.17% 1.18% 1.20%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.89% 2.07% 2.15%
Portfolio Turnover Rate 33.34% 40.60% 2.99%
Ratio of Net Operating Expenses to Average Net Assets (2) 1.17% 1.18% 1.20%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 1.89% 2.07% 2.15%
<CAPTION>
Year Ended
----------
April 30 ,1992 April 30 ,1991 April 30 ,1990 April 30 ,1989
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $12.42 $10.72 $ 9.84 $ 8.36
Net Investment Income (Loss) $ 0.276 $ 0.271 $ 0.233 $ 0.218
Net Realized and Unrealized Gain (Loss) on Investments $ 1.659 $ 1.726 $ 0.889 $ 1.466
Total from Investment Operations $ 1.935 $ 1.997 $ 1.122 $ 1.684
Dividends from Net Investment Income (0.280) (0.269) (0.242) (0.204)
Distribution from Net Realized Gain on Investments (0.015) (0.028) - -
Total Dividends and Distributions (0.295) (0.297) (0.242) (0.204)
NAV End of Period $14.06 $12.42 $10.72 $ 9.84
Total Return for Period (1) 15.77% 18.93% 11.45% 20.46%
Net Assets at End of Period $423,231,713 $209,055,868 $119,731,099 $48,915,003
Ratio of Net Operating Expenses to Average Net Assets(2) 1.28% 1.41% 1.44% 1.50%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 2.27% 2.59% 2.56% 2.80%
Portfolio Turnover Rate 1.11% 2.26% 1.43% 2.78%
Ratio of Net Operating Expenses to Average Net Assets(2) 1.28% 1.41% 1.49% 1.77%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 2.27% 2.59% 2.51% 2.54%
</TABLE>
<PAGE>
THE AAL CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
July 16, 1987 -
April 30 ,1988
--------------
<S> <C>
NAV Start of Period $10.00
Net Investment Income (Loss) $ 0.112
Net Realized and Unrealized Gain (Loss) on Investments $(1.709)
Total from Investment Operations $(1.597)
Dividends from Net Investment Income (0.043)
Distribution from Net Realized Gain on Investments -
Total Dividends and Distributions (0.043)
NAV End of Period $ 8.36
Total Return for Period (1) (15.95)%
Net Assets at End of Period $23,672,346
Ratio of Net Operating Expenses to Average Net Assets(2) 1.50%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 2.61%
Portfolio Turnover Rate 1.36%
Ratio of Net Operating Expenses to Average Net Assets(2) 1.91%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 2.21%
</TABLE>
<PAGE>
THE AAL UTILITIES FUND
<TABLE>
<CAPTION>
Year Ended
---------- March 17, 1994-
April 30 ,1996 April 30 ,1995 April 30 ,1994
-------------- -------------- --------------
<S> <C> <C> <C>
NAV Start of Period $ 9.95 $10.00
Net Investment Income (Loss) $ 0.338 $ 0.022
Net Realized and Unrealized Gain (Loss) on Investments $(0.498) $(0.072)
Total from Investment Operations $(0.160) $(0.050)
Dividends from Net Investment Income (0.320) -
Distribution from Net Realized Gain on Investments - -
Total Dividends and Distributions (0.320) -
NAV End of Period $ 9.47 $ 9.95
Total Return for Period (1) (1.51)% (0.50)%
Net Assets at End of Period $ 70,861,404 $ 15,423,861
Ratio of Net Operating Expenses to Average Net Assets (2) 1.19% 1.60%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 4.08% 5.12%
Portfolio Turnover Rate 24.65% 0.00%
Ratio of Net Operating Expenses to Average Net Assets (2) 1.19% 2.91%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 4.08% 3.81%
</TABLE>
<PAGE>
THE AAL BOND FUND
<TABLE>
<CAPTION>
Year Ended
----------
April 30 ,1996 April 30 ,1995 April 30 ,1994 April 30 ,1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $ 9.69 $10.61 $10.02
Net Investment Income (Loss) $ 0.580 $ 0.584 $ 0.661
Net Realized and Unrealized Gain (Loss) on Investments $(0.078) $(0.660) $ 0.627
Total from Investment Operations $ 0.502 $(0.076) $ 1.288
Dividends from Net Investment Income (0.580) (0.584) (0.661)
Distribution from Net Realized Gain on Investments (0.002) (0.260) (0.037)
Total Dividends and Distributions (0.582) (0.844) (0.698)
NAV End of Period $ 9.61 $ 9.69 $10.61
Total Return for Period (1) 5.47% (0.99)% 13.22%
Net Assets at End of Period $429,355,163 $442,962,543 $370,219,492
Ratio of Net Operating Expenses to Average Net Assets (2) 1.03% 1.02% 1.03%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 6.12% 5.61% 6.35%
Portfolio Turnover Rate 44.57% 27.75% 26.12%
Ratio of Net Operating Expenses to Average Net Assets (2) 1.03% 1.02% 1.03%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 6.12% 5.61% 6.35%
<CAPTION>
Year Ended
----------
April 30 ,1992 April 30 ,1991 April 30 ,1990 April 30 ,1989
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $ 9.76 $ 9.25 $ 9.33 $ 9.64
Net Investment Income (Loss) $ 0.721 $ 0.772 $ 0.806 $ 0.826
Net Realized and Unrealized Gain (Loss) on Investments $ 0.273 $ 0.510 $(0.080) $(0.255)
Total from Investment Operations $ 0.994 $ 1.282 $ 0.726 $ 0.571
Dividends from Net Investment Income (0.721) (0.772) (0.806) (0.826)
Distribution from Net Realized Gain on Investments (0.013) - - (0.055)
Total Dividends and Distributions (0.734) (0.772) (0.806) (0.881)
NAV End of Period $10.02 $ 9.76 $ 9.25 $ 9.33
Total Return for Period (1) 10.47% 14.34% 7.84% 6.21%
Net Assets at End of Period $229,309,955 $139,228,954 $ 94,937,997 $ 54,006,123
Ratio of Net Operating Expenses to Average Net Assets(2) 1.03% 1.00% 0.98% 0.83%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 7.19% 8.06% 8.38% 8.86%
Portfolio Turnover Rate 12.18% 6.39% 38.00% 54.49%
Ratio of Net Operating Expenses to Average Net Assets(2) 1.08% 1.17% 1.22% 1.37%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 7.14% 8.13% 8.13% 8.32%
</TABLE>
<PAGE>
THE AAL BOND FUND
<TABLE>
<CAPTION>
July 16, 1987 -
April 30 ,1988
--------------
<S> <C>
NAV Start of Period $10.00
Net Investment Income (Loss) $ 0.602
Net Realized and Unrealized Gain (Loss) on Investments $(0.360)
Total from Investment Operations $ 0.242
Dividends from Net Investment Income (0.602)
Distribution from Net Realized Gain on Investments -
Total Dividends and Distributions (0.602)
NAV End of Period $ 9.64
Total Return for Period (1) 2.56%
Net Assets at End of Period $20,938,863
Ratio of Net Operating Expenses to Average Net Assets(2) 0.75%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 8.67%
Portfolio Turnover Rate 85.88%
Ratio of Net Operating Expenses to Average Net Assets(2) 1.83%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 7.59%
</TABLE>
<PAGE>
THE AAL MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Year Ended
----------
April 30 ,1996 April 30 ,1995 April 30 ,1994 April 30 ,1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $10.56 $10.99 $10.36
Net Investment Income (Loss) $ 0.523 $ 0.539 $ 0.571
Net Realized and Unrealized Gain (Loss) on Investments $ 0.186 $(0.410) $ 0.631
Total from Investment Operations $ 0.709 $ 0.129 $ 1.202
Dividends from Net Investment Income (0.523) (0.539) (0.571)
Distribution from Net Realized Gain on Investments (0.056) (0.020) (0.001)
Total Dividends and Distributions (0.579) (0.559) (0.572)
NAV End of Period $10.69 $10.56 $10.99
Total Return for Period (1) 7.01% 1.04% 11.84%
Net Assets at End of Period $377,765,861 $370,568,847 $271,319,546
Ratio of Net Operating Expenses to Average Net Assets (2) 0.98% 0.99% 1.00%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 5.01% 4.87% 5.32%
Portfolio Turnover Rate 172.49% 10.15% 3.41%
Ratio of Net Operating Expenses to Average Net Assets (2) 0.98% 0.99% 1.00%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 5.01% 4.87% 5.32%
<CAPTION>
Year Ended
----------
April 30 ,1992 April 30 ,1991 April 30 ,1990 April 30 ,1989
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $10.13 $ 9.70 $ 9.74 $ 9.72
Net Investment Income (Loss) $ 0.598 $ 0.616 $ 0.608 $ 0.599
Net Realized and Unrealized Gain (Loss) on Investments $ 0.234 $ 0.434 $(0.035) $ 0.020
Total from Investment Operations $ 0.832 $ 1.050 $ 0.573 $ 0.619
Dividends from Net Investment Income (0.598) (0.616) (0.608) (0.599)
Distribution from Net Realized Gain on Investments (0.004) (0.004) (0.005) -
Total Dividends and Distributions (0.602) (0.620) (0.613) (0.599)
NAV End of Period $10.36 $10.13 $ 9.70 $ 9.74
Total Return for Period (1) 8.39% 11.12% 5.93% 6.53%
Net Assets at End of Period $172,494,589 $114,953,939 $ 78.844,594 $41.217,475
Ratio of Net Operating Expenses to Average Net Assets(2) 0.95% 0.90% 0.90% 0.94%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 5.81% 6.21% 6.13% 6.30%
Portfolio Turnover Rate 0.74% 13.63% 30.83% 29.24%
Ratio of Net Operating Expenses to Average Net Assets(2) 1.04% 1.10% 1.14% 1.46%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 5.72% 6.01% 5.89% 5.79%
</TABLE>
<PAGE>
THE AAL MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
July 16, 1987 -
April 30 ,1988
--------------
<S> <C>
NAV Start of Period $10.00
Net Investment Income (Loss) $ 0.398
Net Realized and Unrealized Gain (Loss) on Investments $(0.280)
Total from Investment Operations $ 0.118
Dividends from Net Investment Income (0.398)
Distribution from Net Realized Gain on Investments -
Total Dividends and Distributions (0.398)
NAV End of Period $ 9.72
Total Return for Period (1) 1.29%
Net Assets at End of Period $10,031,478
Ratio of Net Operating Expenses to Average Net Assets(2) 1.50%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 5.72%
Portfolio Turnover Rate 20.83%
Ratio of Net Operating Expenses to Average Net Assets(2) 2.28%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 4.95%
</TABLE>
<PAGE>
THE AAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Year Ended
----------
April 30 ,1996 April 30 ,1995 April 30 ,1994 April 30 ,1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $ 1.00 $ 1.00 $ 1.00
Net Investment Income (Loss) $ 0.038 $ 0.019 $ 0.025
Net Realized and Unrealized Gain (Loss) on Investments - - -
Total from Investment Operations $ 0.038 $ 0.019 $ 0.025
Dividends from Net Investment Income (0.038) (0.019) (0.025)
Distribution from Net Realized Gain on Investments - - -
Total Dividends and Distributions (0.038) (0.019) (0.025)
NAV End of Period $ 1.00 $ 1.00 $ 1.00
Total Return for Period (1) 3.92% 1.95% 2.53%
Net Assets at End of Period $ 70,210,675 $ 65,008,303 $ 83,274,493
Ratio of Net Operating Expenses to Average Net Assets (2) 1.17% 1.26% 1.13%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 3.95% 2.00% 2.53%
Portfolio Turnover Rate NA NA NA
Ratio of Net Operating Expenses to Average Net Assets (2) 1.42% 1.51% 1.27%
Ratio of Net Investment Income (Loss) to Average Net Assets (2) 3.70% 1.75% 2.38%
<CAPTION>
Year Ended
----------
April 30 ,1992 April 30 ,1991 April 30 ,1990 April 30 ,1989
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NAV Start of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income (Loss) $ 0.045 $ 0.068 $ 0.079 $ 0.078
Net Realized and Unrealized Gain (Loss) on Investments - - - -
Total from Investment Operations $ 0.045 $ 0.068 $ 0.079 $ 0.078
Dividends from Net Investment Income (0.045) (0.068) (0.079) (0.078)
Distribution from Net Realized Gain on Investments - - - -
Total Dividends and Distributions (0.045) (0.068) (0.079) (0.078)
NAV End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return for Period (1) 4.54% 7.07% 8.24% 8.10%
Net Assets at End of Period $147,584,931 $228,465,749 $223,447,573 $143,217,501
Ratio of Net Operating Expenses to Average Net Assets(2) 1.11% 1.07% 1.04% 0.76%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 4.56% 6.85% 7.84% 8.29%
Portfolio Turnover Rate NA NA NA NA
Ratio of Net Operating Expenses to Average Net Assets(2) 1.11% 1.07% 1.04% 1.18%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 4.56% 6.85% 7.84% 7.87%
</TABLE>
<PAGE>
THE AAL MONEY MARKET FUND
<TABLE>
<CAPTION>
March 10, 1988 -
April 30 ,1988
--------------
<S> <C>
NAV Start of Period $ 1.00
Net Investment Income (Loss) $ 0.009
Net Realized and Unrealized Gain (Loss) on Investments -
Total from Investment Operations $ 0.009
Dividends from Net Investment Income (0.009)
Distribution from Net Realized Gain on Investments -
Total Dividends and Distributions (0.009)
NAV End of Period $ 1.00
Total Return for Period (1) 0.91%
Net Assets at End of Period $7,990,507
Ratio of Net Operating Expenses to Average Net Assets(2) 0.07%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 7.06%
Portfolio Turnover Rate NA
Ratio of Net Operating Expenses to Average Net Assets(2) 1.76%
Ratio of Net Investment Income (Loss) to Average Net Assets(2) 5.37%
<PAGE>
<FN>
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deductions for sales charges. The aggregate (not annual-
ized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) are calculated
on an annualized basis.
</FN>
</TABLE>
<PAGE>
The AAL Small Cap Stock Fund:
A Long-Term Capital Growth Investment in Small Companies
INVESTMENT OBJECTIVE
The AAL Small Cap Stock Fund seeks capital growth by investing
primarily in a diversified portfolio of common stocks, and securities that can
be converted into common stocks, of companies with a market capitalization of
less than $1 billion. We designed this Fund for people who want to invest for
the long term, and who are able to accept the risks involved in investing in
small companies. There is no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of our total net
assets in stocks, not including convertible securities, of companies with market
capitalization or annual sales of less than $1 billion. Generally we focus on
companies with market capitalization or annual sales between $30 million and
$600 million. We invest in companies that are small and substantially
less-seasoned than companies listed in the Standard & Poor's 500 Index(R) ("S&P
500(R)") or The S&P Mid Cap 400 Index(R). These companies may trade on the
over-the-counter market as well as on U.S. securities exchanges such as the New
York Stock Exchange ("NYSE"). We also may invest in a broader range when
investments meet our other investment criteria.
We look for small companies that, in our opinion: 1) are in their early stages
of development or positioned in new and emerging industries; 2) have an oppor-
tunity for rapid growth; 3) have capable management; and 4) are financially
sound. These small companies generally are not as well known to the investing
public and have less of an investor following than larger companies. Therefore,
they may provide greater opportunities for long-term capital growth as a result
of relative inefficiencies in the marketplace.
We tend to sell the stock of companies when we think that other investments
offer better opportunities. Because of this policy, the Fund may from time to
time have short-term gains or losses.
We also may invest in foreign securities that are listed and traded on a U.S.
national securities exchange.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund.
This annual fee, shown below, is paid monthly:
0.75 of 1% on the first $200 million; and
0.65 of 1% on assets over $200 million.
<PAGE>
PORTFOLIO MANAGER
Kevin Schmitting, CFA, manages the day-to-day investments for the Fund.
Prior to November 1, 1995, Mr. Schmitting served as investment director and in
other investment capacities for the State of Wisconsin Investment Board
beginning in 1984. Mr. Schmitting also manages The AAL Mid Cap Stock Fund
(formerly The AAL Smaller Company Stock Fund).
INVESTMENT FACTORS AND THE RISKS THAT ARE INVOLVED
Small, less-established companies may have relatively small revenues,
limited product lines, lack of management depth, and a small share of the market
for their products or services. Stocks of these companies present greater risks
than stocks of larger, more established companies.
Historically, small capitalization stocks have experienced more volatility in
price than mid-size and large capitalization stocks. Some of the reasons they
have greater volatility include: 1) the less certain growth prospects of small
firms; 2) the lower degree of liquidity in the markets for such stocks; and 3)
the greater sensitivity of small companies to changing economic conditions.
In the short term, the value of the Fund's investments may increase and
decrease substantially more than the stock market in general, as measured by the
S&P 500(R). There may be greater risks that you could lose your money investing
in the Fund, especially if you sell your shares during a time when the Fund is
declining in value.
Over time, the stock market tends to move in cycles, with periods when
stock prices rise generally and periods when stock prices decline generally. The
prices for stocks in small companies tend to have more volatility than stocks in
larger companies. In other words, they tend to rise and fall more dramatically
than those for larger companies. The following table shows the historic
performance and volatility of the stock market as measured by the S&P Small
Cap(R) for the past six years*. While you can use these returns as a guide for
your reasonable expectations, you should not use them to predict future returns.
CUMULATIVE STOCK MARKET TOTAL RETURNS S&P SMALL CAP(R)**
(From 1990 through 1995)
YEAR TOTAL RETURN
---- ------------
1995 30.0%
1994 -4.8%
1993 18.8%
1992 21.0%
1991 48.5%
1990 -23.7%
<PAGE>
* S&P began compiling the Small Cap index in 1994. Returns for prior
years are estimates contained in research by an unaffiliated secur-
ities firm.
** Total return is the change in capital value plus reinvested dividends.
The S&P Small Cap(R) covers companies with a market capitalization
ranging from $213 million to about $2.8 billion.
THE AAL MID CAP STOCK FUND
(formerly The AAL Smaller Company Stock Fund)
A Long-Term Capital Growth Investment in Mid-Sized Companies
INVESTMENT OBJECTIVE
The AAL Mid Cap Stock Fund seeks capital growth by investing primarily
in a diversified portfolio of common stocks, and securities convertible into
common stocks, of mid-sized companies. We designed this Fund for people who want
to invest for the long term, and who are able to accept the risks involved in
investing in mid-sized companies. There is no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of our total net
assets in stocks of companies, not including convertible securities, with market
capitalization or annual sales from $100 million to $5 billion. While generally
we focus on companies with market capitalizations or annual sales between $400
million and $3.5 billion, we also may invest in a broader range when investments
meet our other investment criteria. We tend to invest in companies that are
smaller and less-seasoned than companies listed in the S&P 500(R). These
companies may trade on the over-the-counter market as well as on U.S. national
securities exchanges.
We look for mid-sized companies that, in our opinion: 1) have prospects for
growth in their sales and earnings; 2) are in an industry with a good economic
outlook; 3) have higher quality management and more management depth than small
companies; and 4) are in a strong financial position. The Fund tends to invest
in companies in the middle stages of their development. These companies tend to
have established a record of profitability and may possess a new technology,
unique product, or market niche.
We tend to sell the stock of companies when we think other investments
offer better opportunities. Due to this policy, the Fund may from time to time
have short term gains or losses.
We also may invest in foreign securities listed and traded on a U.S. national
securities exchange.
<PAGE>
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the
Fund. This annual fee, shown below, is paid monthly:
0.75 of 1% on the first $200 million; and
0.65 of 1% on assets over $200 million.
PORTFOLIO MANAGER
Kevin Schmitting, CFA, has managed the day-to-day investments for the Fund
since November 1, 1995. Prior to managing the Fund, Mr. Schmitting served as
investment director and in other investment capacities for the State of
Wisconsin Investment Board from 1984 through October 1995. Mr. Schmitting
also manages The AAL Small Cap Stock Fund.
INVESTMENT FACTORS AND THE RISKS THAT ARE INVOLVED
Stocks of mid-sized companies may present greater risks than stocks of
larger, more established companies, but may present less risk than stocks of
smaller companies. Mid-sized companies tend to have relatively smaller revenues,
narrower product lines, less management depth, and smaller shares of the market
for their products or services than large companies.
The value of the Fund's investments may increase and decrease more than
the stock market in general, as measured by the S&P 500(R). There is a risk that
you could lose money investing in the Fund, especially if you sell your shares
during a time when the Fund is declining in value.
Over time, the stock market tends to move in cycles, with periods when
stock prices rise generally and periods when stock prices decline generally. For
the last 14 years (1982 to 1995), stocks in mid-sized companies have provided a
positive average annual rate of return of approximately 17.1%, as measured by
the S&P MidCap 400(R) Index ("S&P MidCap(R)"). By comparison, the S&P 500(R)
average annual total return was approximately 16.4% for the same period. While
you can use these returns as a guide for your reasonable expectations, you
should not use them to predict future returns. The following table shows the
historic performance and volatility of the stock market as measured by the S&P
MidCap(R).
CUMULATIVE STOCK MARKET TOTAL RETURNS* S&P MIDCAP(R)
(14 years 1982-1995)
PERFORMANCE ONE-YEAR PERIOD FIVE-YEAR PERIOD TEN-YEAR PERIOD
----------- --------------- ---------------- ---------------
Best 50.1% 161.1% N/A**
Worst -5.1% 75.2% N/A**
Average 18.2% 121.6% N/A**
<PAGE>
* Total return is the change in capital value plus reinvested dividends.
The S&P MidCap(R) covers companies with a market capitalization ranging
from about $118 million to a little over $7 billion, and it begins with
February 1981 prices.
** Not shown because the index only has five complete ten-year periods,
beginning with the first ten-year period from January 1982 to December
31, 1991.
THE AAL CAPITAL GROWTH FUND
A Conservative Stock Investment
INVESTMENT OBJECTIVE
The AAL Capital Growth Fund seeks long-term capital growth by investing
primarily in common stock and securities convertible into common stock. We
designed this Fund for people who want to invest for the long term. There is no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
To achieve our investment objective, we focus on purchasing
dividend-paying securities issued by companies that have growth in earnings per
share that is higher than the growth in earnings per share of the S&P 500(R).
These companies also may have a higher return on shareholders' equity than the
S&P 500(R). In selecting stocks, we look for quality, predictability of
operating growth, and financial strength.
We also may invest in preferred stocks and bonds; however, we do not
invest in bonds for capital growth or for long periods of time.
ADVISORY FEES
We pay the Adviser a fee based on the average daily net assets of the
Fund. This annual fee, shown below, is paid monthly:
0.70 of 1% on the first $250 million;
0.65 of 1% on the next $250 million;
0.575 of 1% on the next $500 million; and
0.50 of 1% on assets over $1 billion.
<PAGE>
PORTFOLIO MANAGER
Frederick L. Plautz has managed the day-to-day investments for the Fund
since November 1, 1995. Prior to managing the Fund, Mr. Plautz served as vice
president and portfolio manager for Federated Investors from 1990 through
October 1995.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The value of the Fund's investments may increase and decrease more than
the stock market in general, as measured by the S&P 500(R). There is a risk you
could lose money investing in the Fund, especially if you sell your shares
during a time when the Fund is declining in value.
Over time, the stock market tends to move in cycles, with periods when
stock prices rise generally and periods when stock prices decline generally.
Over the last 50 years (1946-1995), stocks have provided a positive average
annual rate of return of approximately 11.9% as measured by the S&P 500(R).
While you can use these returns as a guide for your reasonable expectations, you
should not use them to predict future returns. The following table shows the
historic performance and volatility of the stock market as measured by the S&P
500(R):
CUMULATIVE STOCK MARKET TOTAL RETURNS* S&P 500(R)
(50 Years 1946-1995)
PERFORMANCE ONE-YEAR PERIOD FIVE-YEAR PERIOD TEN-YEAR PERIOD
- ----------- --------------- ---------------- ---------------
Best 52.6% 192.2% 522.3%
Worst -26.5% -11.2% 13.1%
Average 13.2% 84.6% 234.0%
* Total return is the change in capital value plus reinvested dividends.
Total return is the change in capital value plus reinvested dividends.
Source: Ibbotson Associates, Inc.
<PAGE>
THE AAL UTILITIES FUND
A Public Utilities Investment
INVESTMENT OBJECTIVE
The AAL Utilities Fund seeks current income, long-term growth of income
and capital growth by investing primarily in a diversified portfolio of public
utility securities. We designed this Fund for people who want to invest for the
long term and who are able to accept the risks involved in investing in the
public utility industry. There is no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of our total net
assets in the securities of public utility companies. Examples of public utility
companies include those that: manufacture, produce, generate, transmit and sell
water, gas, electric, energy and telephone, telegraph, satellite, microwave and
other communication facilities for public benefit. Public utility companies,
however, do not include those in public broadcasting.
We may invest the remainder of the Fund's total net assets in the
securities of companies in other industries.
We look for public utility companies that: (1) have a good growth rate
and return on capital; (2) are financially sound; (3) have high-quality
management; and (4) are in a favorable regulatory and competitive environment.
We buy bonds only if, at the time of purchase, they are rated investment
grade by at least two Nationally Recognized Statistical Rating Organizations
(NRSRO). Any commercial paper we buy must be rated in the top two categories by
an NRSRO, or if unrated, the Adviser must determine they are of investment
grade.
FOREIGN SECURITIES
Although we have no present intention to do so, The AAL Utilities Fund
may invest up to 15% of its total net assets in the securities of utility
companies located outside the United States.
We also may invest in foreign securities in domestic markets through
depository receipts (i.e. American Depository Receipts ("ADRs")) and securities
of foreign issuers that are traded on a registered American stock exchange or
the NASDAQ National Market System without regard to the 15% limitation.
Investments in foreign securities involve certain inherent risks, such
as: exchange rate fluctuations; political, social or economic instability;
diplomatic involvements that could affect the assets of the Fund held in foreign
countries; and the possibility of exchange rate controls, withholding taxes on
dividends or interest payments, confiscatory taxes or expropriation; the degree
of governmental supervision regarding securities markets; different accounting,
auditing and financial standards; and
<PAGE>
the potential for less liquidity and more volatility in foreign securities
markets. Although foreign utility companies may provide products and services
substantially similar to domestic companies in which the Fund may invest, the
utility companies of many major countries, such as the United Kingdom, Spain,
and Mexico, have only recently substantially increased investor ownership
(including ownership by U.S. investors). As a result, these utility companies
may have only recently become subject to adversarial rate-making procedures.
These factors, as well as those associated with foreign issuers generally, may
affect the future values of foreign securities held by the Fund.
FOREIGN CURRENCY TRANSACTIONS
Foreign securities are subject to currency risk, that is, the risk that
the U.S. dollar value of these securities (and any income generated thereon) may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. To manage this risk and facilitate the
purchase and sale of foreign securities, we may engage in foreign currency
transactions involving the purchase and sale of forward foreign currency
exchange contracts (agreements to exchange one currency for another at a future
date). We also may engage in transactions in options on foreign currencies,
currency futures contracts, or options on currency futures contracts. Although
we may use foreign currency transactions to protect the Fund from adverse
currency movements, they involve the risk that we might not predict currency
movements accurately. The Fund's total return could be adversely affected as a
result.
ADVISORY FEES
We pay the Adviser a fee based on the average daily net assets of the
Fund. This annual fee, shown below, is paid monthly:
0.50 of 1% on the first $250 million; and
0.45 of 1% on assets over $250 million.
PORTFOLIO MANAGER
Lewis Alexander Bohannon, CFA, has managed the day-to-day Fund investments
since November 1, 1995. From 1980 through 1994, Mr. Bohannon was at Cigna
Corporation, serving as managing director and portfolio manager from 1990 to
1994.
INVESTMENT FACTORS AND THE RISKS INVOLVED
Although we attempt to diversify our investments within the public
utilities industry in terms of the types of issuers and securities (stocks and
bonds), due to the fact that we concentrate our investments in a single
industry, the public utilities industry, you should not consider investment in
this Fund a diversified investment program. These investments are subject to the
risks associated with the public utilities industry. These risks may include
increased operating expenses, high interest costs,
<PAGE>
environmental regulations, and regulatory changes. Some public utilities are
facing increased competition, which may affect utility companies independently
from the securities markets as a whole.
Public utility company securities are sensitive to interest changes,
particularly with respect to bonds. A decline in interest rates may increase the
value of the securities in the Fund's portfolio, while an increase in interest
rates may reduce their value.
With regard to stock investments, over time the market tends to move in
cycles, with periods when stock prices rise generally and periods when stock
prices decline generally. Likewise, general changes in the prices of utilities
stocks will affect the net asset value of the Fund.
There is a risk you could lose money investing in the Fund, especially
if you sell your shares during a time when the Fund is declining in value.
THE AAL BOND FUND
A Quality Bond Investment
INVESTMENT OBJECTIVE
The AAL Bond Fund seeks a high level of current income, consistent with
the preservation of capital, by investing primarily in investment grade debt
securities. There is no assurance that the Fund will achieve its investment
objectives.
INVESTMENT POLICIES
Under normal circumstances, we will invest at least 65% of our total net assets
in: (1) the debt securities of U.S. issuers, and the debt securities of foreign
issuers payable in U.S. dollars, which are rated within the four highest rating
categories by at least two Nationally Recognized Statistical Rating Organ-
izations ("NRSROs") when we buy them; and (2) securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, primarily those secur-
ities supported by the full faith and credit of the U.S. Treasury. We may also
invest in:
o privately issued or guaranteed mortgage-related securities
that are in the four highest categories of at least two NRSROs
when we buy them, or they must be equal to these ratings;
o commercial paper in the highest rating category by an NRSRO,
or issued or guaranteed by a corporation whose outstanding
debt is in the two highest categories by an NRSRO when we buy
it;
o bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion; and
o corporate obligations, including variable rate master notes,
which are rated in the two highest categories by an NRSRO, or
issued by a corporation whose outstanding debt has an equal
or better rating at the time of purchase.
<PAGE>
Although there are no restrictions on the maturity of the debt
securities in which we may invest, we will generally have a weighted average
effective maturity of between 5 and 10 years. We anticipate that during normal
market conditions the average portfolio maturity of the Fund will not exceed 20
years. We use the stated final maturity date of a security in calculating
average maturity, notwithstanding earlier call dates and possible prepayments.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund.
This annual fee, shown below, is paid monthly:
0.55 of 1% on the first $250 million;
0.50 of 1% on the next $250 million; and
0.45 of 1% on assets over $500 million.
PORTFOLIO MANAGER
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From April 1994 through August 1995, Mr. Hilt served as
portfolio manager and quantitative analyst for Conseco Capital Management,
Inc. From August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc. Mr. Hilt also manages The AAL Money
Market Fund.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The primary risk to your investment is the impact of interest rate changes
on the value of your investment. Interest rates are influenced by supply and
demand as well as economic monetary policies. If interest rates increase, the
value of your investment may decline. In periods of declining interest rates,
the opposite may be true.
Investing in a bond fund is not the same as buying an individual bond.
Both bonds and bond funds offer regular income. However, while individual bonds
can offer a fixed amount of regular income until maturity, a mutual fund bond
portfolio includes a constantly changing pool of bonds with differing interest
rates and maturities. Therefore, both share prices and dividends may
fluctuate in bond mutual funds.
The following tables are hypothetical illustrations of the relationship
between changes in interest rates and principal value for three bonds of
different maturities. These yield and price changes do not represent any Fund's
current or future yield, nor do they represent expected changes in any Fund's
share price. You should not use this information to forecast returns for any
particular period. You should use it only to understand the relationship between
changes in interest rates and a Fund's net asset value, and to help you
determine the degree of interest rate risk you may be willing to assume.
<PAGE>
PERCENTAGE CHANGE IN THE PRICE (PRINCIPAL VALUE)
OF A PAR BOND YIELDING 7.00%
2% Increase in Interest 2% Decrease in Interest
Stated Maturity Rates Rates
- --------------- ----- -----
Short-Term (2.5 yrs) -4.81% 4.21%
Intermediate-Term (10 yrs) -13.68% 15.19%
Long-Term (20 yrs) -18.81% 20.03%
PERCENTAGE CHANGE IN THE PRICE (PRINCIPAL VALUE)
OF A PAR BOND YIELDING 5.00%
2% Increase in Interest 2% Decrease in Interest
Stated Maturity Rates Rates
- --------------- ----- -----
Short-Term (2.5 yrs) -4.85% 4.25%
Intermediate-Term (10 yrs) -14.75% 17.05%
Long-Term (20 yrs) -21.79% 29.29%
We intend for these tables to provide you with guidelines for
determining the degree of interest rate risk you may be willing to assume. You
should not take the yield and price changes shown as representative of any
Fund's current or future yield or expected changes in any Fund's share price.
We may invest in mortgage-backed securities that have amortizing payments
consisting of both interest and principal and may have a prepayment privilege.
Mortgaged-backed securities represent interest in pools of mortgage loans made
by lenders such as savings and loan institutions, mortgage bankers, commercial
banks and others. These pools are combined for sale to investors (such as the
Fund) by various government, government-related and private organizations (i.e.
The Government National Mortgage Association ("GNMA") guarantees and issues
mortgage-backed securities). Mortgage- backed securities generally provide for a
"pass through" of monthly payments made by individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
the securities. The yield on these securities applies only to the unpaid
principal balance. We must reinvest the periodic payments of principal at
prevailing market interest rates, which may be higher or lower than the rate on
the original investment. In addition, the prepayment privilege may require us to
reinvest at lower yields than we received from the original investment. If we
buy these securities at a premium, any prepayments will be at par or stated
value, which will give us a lower return.
<PAGE>
During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities tend to accelerate. Accordingly, any
prepayments on mortgage-backed securities held by the Fund reduce our ability to
maintain positions in high-yielding, mortgage-backed securities and reinvest
principal at comparable yields.
THE AAL MUNICIPAL BOND FUND
A Tax-Exempt Bond Investment
INVESTMENT OBJECTIVE
The AAL Municipal Bond Fund seeks a high level of current income that
is exempt from federal income taxes, consistent with the preservation of
capital, by investing primarily in a diversified portfolio of municipal
securities. There is no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
Under normal circumstances, we will invest at least 80% of our assets
in municipal bonds, the income from which is exempt from federal income tax. At
least 75% of our investment in municipal bonds will be in the three highest
ratings assigned by at least one NRSRO when we buy them.
State and local governments and municipalities issue municipal bonds to
raise money for a variety of public purposes, including general financing for
state and local governments or financing for projects or public facilities. The
municipality may issue such securities in anticipation of future revenues
(revenue bonds), or backed by the full taxing power of a municipality (general
obligation bonds), with the revenues from a specific project, or the credit of a
private organization (industrial development bonds). The interest paid on these
bonds generally is exempt from federal income taxes.
We may invest 25% or more of our assets in industrial development
bonds. We try not to invest more than 25% of our assets in municipal bonds that
we feel are so closely related that an economic, business, or political
development affecting one bond could also affect the others. For more
information on municipal securities, refer to the SAI.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund.
This annual fee, shown below, is paid monthly:
0.55 of 1% on the first $250 million;
0.50 of 1% on the next $250 million; and
0.45 of 1% on assets over $500 million.
<PAGE>
PORTFOLIO MANAGER
Duane A. McAllister, CFA, has managed the day-to-day investments of the
Fund since April 1994. Prior to joining AAL Capital Management Corporation,
on November 1, 1995, he managed the Fund while serving as vice president of Duff
& Phelps Investment Management Co. For the five-year period prior to managing
the Fund, Mr. McAllister managed portfolios for the Northern Trust Company
and First National Bank and Trust in Rockford, Illinois.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The primary risk to your investment is the impact of interest rate
changes on the value of your investment. Interest rates are influenced by supply
and demand as well as economic and monetary policies. If interest rates
increase, the value of your investment may decline. In periods of declining
interest rates, the opposite may be true. Similarly, when interest rates are
falling, any new money we invest may be in investments that produce lower yields
than the balance of our portfolio, thereby reducing our yield. In periods of
rising interest rates, the opposite will be likely true.
Please remember that investing in a bond fund is not the same as buying
an individual bond. Both bonds and bond funds offer regular income. However,
while individual bonds can offer a fixed amount of regular income until
maturity, a mutual fund bond portfolio includes a constantly changing pool of
bonds with differing interest rates and maturity prices. Therefore, both share
prices and dividends may fluctuate in bond mutual funds.
Comparing the value of the Fund's tax-exempt interest with taxable
interest depends upon your tax rate, as shown in the following table. This table
does not represent the actual return you may receive from the Fund. The Fund may
pay lower or higher tax-exempt interest rates.
Tax Rates
(The equivalent taxable interest rate is in italics.)
Tax-Exempt
Interest Rate 15% 28% 31% 39.6%
- ------------- --- --- --- -----
3.00% 3.53% 4.17% 4.35% 4.97%
5.00% 5.88% 6.94% 7.25% 8.28%
7.00% 8.24% 9.72% 10.14% 11.59%
You should remember that changes in federal income tax rates may affect
both the net asset value and the taxable equivalent interest of the Fund.
<PAGE>
THE AAL MONEY MARKET FUND
A Money Market Investment
INVESTMENT OBJECTIVE
The AAL Money Market Fund seeks a high level of current income,
consistent with liquidity and the preservation of capital, by investing in a
diversified portfolio of high-quality, short-term money market instruments.
There is no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
To achieve our investment objective, we will invest in short-term money market
instruments. We will invest in:
o Obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities;
o Certificates of deposit, bankers acceptances, and similar
obligations of U.S. banks, savings associations, foreign
branches of U.S. banks, and domestic branches of foreign
banks, which have total assets of more than $1 billion when
we buy them, and who are members of the Federal Depositary
Insurance Corporation ("FDIC");
o Commercial paper which, when we buy it, is defined as
"First Tier" or "Second Tier" by the Investment Company Act
of 1940, as long as no more than 5% of our total assets are
invested in Second Tier commercial paper; and
o Corporate obligations, including variable rate master notes
which, when we buy them, are in one of the two highest
categories of a NRSRO, or, if unrated, issued by a corpor-
ation with outstanding debt which has an equivalent or better
rating at the time of purchase.
All of our investments will be consistent with Rule 2a-7 under the
Investment Company Act of 1940. As such, all of our investments will mature in
397 days or less and the Fund will maintain a dollar-weighted average portfolio
maturity of not more than 90 days. By limiting the maturity of the Fund's
investments, we seek to lessen the changes in asset values caused by
fluctuations in short-term interest rates. We intend to maintain, to the extent
practical, a constant net asset value per share of $1.00.
In some instances, we may purchase variable rate securities (the yields
will vary in relation to changes in specific money market rates, such as the
prime rate) with actual maturities of 397 or more, but only under conditions
established by the Securities and Exchange Commission rules that permit such
securities to be considered to have maturities of less than 397 days. We intend
to invest in these longer-term variable rate
<PAGE>
securities only when, in our view, we may be able to take advantage of the
higher yield that is usually paid on these securities over short-term
securities, and it appears to us that the variable rates on these securities may
reduce the fluctuations in market value typical of longer-term securities. We
also may purchase variable rate securities with a put option, which may further
reduce the risk of fluctuations in market value.
We also may purchase participation interest in any securities in which
the Fund may invest. Participation interests are interests in securities held by
others.
Investments in this Fund are neither insured nor guaranteed by the U.S.
government.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the
Fund. This annual fee, shown below, is paid monthly:
0.50 of 1% on the first $500 million; and
0.45 of 1% on assets over $500 million.
PORTFOLIO MANAGER
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From April 1994 through August 1995, Mr. Hilt served as
portfolio manager and quantitative analyst for Conseco Capital Management,
Inc. From August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc. Mr. Hilt also manages The AAL Bond
Fund.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The primary risk to your investment in The AAL Money Market Fund is the
effect of falling interest rates on the Fund's yield. Although money market
instruments may have less price sensitivity to interest rate changes because of
their short durations, in periods of falling interest rates we may have to
invest new money in securities that produce lower yields than in the balance of
the portfolio. This will reduce the yield on the Fund. In periods of rising
interest rates, the opposite may be true.
ADDITIONAL INVESTMENT FACTORS AND RISKS
REGARDING THE FUNDS
TEMPORARY DEFENSIVE PURPOSES
For temporary defensive purposes, any of the Funds may invest in cash
and short-term money market obligations, including tax-exempt money market
funds, and investment grade fixed-income securities. The Funds primarily will
purchase the following types of securities for temporary defensive purposes:
<PAGE>
o Securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities;
o Commercial paper rated at the time of purchase in the highest
rating category by NRSROs; and
o Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
INTEREST RATE RISK
With respect to The AAL Bond, Municipal Bond Funds, Money Market and, to some
extent, The AAL Utilities Fund, it can be expected that a decline in
prevailing levels of interest rates generally will increase the value of
securities held in the portfolio, and an increase in interest rates generally
will reduce the value of those securities. As a result, interest rate
fluctuations will affect these Funds' net asset values, but not the income
received by the Funds from their existing portfolio securities. However, changes
in prevailing interest rates will affect the yield on subsequently purchased
securities. Because yields on the securities available for purchase by the Funds
will vary over time, no specific yield on shares of the Funds can be assured.
MEDIUM GRADE BOND INVESTMENTS
The AAL Utilities, Bond and Municipal Bond Funds may invest in
investment grade bonds. A debt or other fixed-income security is considered
investment grade if it is rated investment grade by a NRSRO, such as BBB or
better by Duff and Phelps Credit Rating Co. ("D&P") and Standard & Poor's
Corporation ("S&P") or Baa or better by Moody's Investors Services, Inc.
("Moody's"). Securities rated in the fourth highest category, such as BBB by D&P
or S&P or Baa by Moody's, are considered medium grade bonds and are more
sensitive to economic changes than are securities rated in a higher category.
These medium-grade bonds have speculative characteristics. A description of the
ratings assigned by D&P, S&P, and Moody's is contained in the SAI.
PORTFOLIO TURNOVER
We expect The AAL Small Cap Stock Fund, The AAL Mid Cap Stock Fund, and
The AAL Municipal Bond Fund to have portfolio turnover between 50% and 200%. We
expect the portfolio turnover for the AAL Capital Growth, Utilities, and Bond
Funds to be less than 100%. No portfolio turnover rate is calculated for The AAL
Money Market Fund due to the short maturities of its investments. Portfolio
turnover in excess of 100% may result in an increase in Fund expenses and lower
returns for shareholders.
<PAGE>
REPURCHASE AGREEMENTS AND BORROWING
When we invest in repurchase agreements, we require the Funds'
Custodian to hold an amount of cash or government securities at least equal to
the market value of the securities held pursuant to the agreement.
Each Fund may borrow money, but only from banks and only for temporary
or emergency purposes. A Fund may not borrow more than 10% of its total net
assets and it must repay any borrowing before it can buy additional securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The AAL Utilities, Bond, Municipal Bond, and Money Market Funds may buy
when-issued or delayed delivery securities, which are securities purchased for
future delivery at a stated price and yield. Generally, we will not pay for
these securities or start earning interest on them until we receive them. We
will not speculate in such securities, and we will expect to actually acquire
the securities when we buy them. However, we will sell such securities before
their settlement dates if we think it advisable.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, we may from time to time lend
securities from our portfolios to brokers, dealers and financial institutions
such as banks and trust companies. A full explanation of lending portfolio
securities, and the restrictions thereon, is set forth in the SAI. We have no
present intention of lending portfolio securities.
FUTURES CONTRACTS AND OPTIONS
Except for The AAL Money Market Fund, we may engage in options,
futures, and options on futures, but only for bona fide hedging or other
permissible risk management purposes. Generally, we will not make these
investments if the initial margin deposits and premiums paid for unexpired
options exceed 5% of a Fund's total assets. In addition, we will not:
o Commit more than 25% of a Fund's total net assets to such
instruments;
o Commit more than 25% of a Fund's total net assets to covered options;
or
o Commit more than 5% of the Fund's total net assets to the premiums
for put or call options.
We will follow the requirements of the SEC and the Commodities Futures
Trading Commission and set aside liquid assets in a separate account to secure a
Fund's potential obligations under its futures or options positions.
Our options transactions only will consist of techniques to hedge an
unrealized gain on portfolio securities, such as:
<PAGE>
(1) selling against the box, which involves selling securities that a
Fund owns for delivery at a later date;
(2) the purchase of covered put options on portfolio securities, which
allows a Fund to sell securities to the writer (seller) of the option
at a set price on or before the expiration date of the option; or
(3) the sale of covered call options, which allows the holder of the
options written by a Fund to purchase securities at a set price before
the expiration date;
(4) and entering into closing transactions with respect to such
options.
If we sell a security short against the box, we may protect unrealized gains,
but will lose the opportunity to profit on such securities if the price rises.
When we purchase covered put options we will pay premiums for the options. We
also will receive premiums when we write covered call options. The premiums
we receive from writing covered call options may be completely or partially
offset by any declines in the prices of the underlying securities.
We also may purchase stock index options and write covered stock index
options and enter into closing transactions on these options.
We only will deal in exchange traded or over-the-counter options on
securities and stock indexes.
Our futures transactions may include instruments such as interest rate
and index futures contracts and options thereon. We may use futures transactions
for several reasons, including hedging unrealized portfolio gains, minimizing
adverse principal fluctuations in a Fund's debt and fixed-income securities, or
as a means of adjusting exposure to various markets.
Our ability to use futures and options transactions successfully
depends upon our skill in predicting and implementing futures and options
transactions in furtherance of the Fund's investment objectives and the
liquidity of the market for futures and options, which cannot be assured.
Further information concerning the Funds' futures and options
transactions is set forth in the SAI.
INVESTMENT RESTRICTIONS
In addition to specific investment restrictions described in the SAI, only a
vote of the majority of the outstanding shares can change:
o The investment objective of a Fund;
o The policies on borrowing and lending securities;
o The restrictions on concentrating investments in a single
industry or issuer. A Fund cannot invest more than 5% of its
total net assets in a single issuer, except that up to 25% of
its total net assets may be invested, without regard to this
limitation. Further, these restrictions do not apply to
securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
<PAGE>
The Board of Trustees may change any of the Funds' other investment policies
without shareholder approval, such as those regarding specific investments,
discussed above (other than the policies on borrowing and securities lending). A
description of all of the investment restrictions applicable to the Funds is
included in the SAI.
BOARD OF TRUSTEES
Our Board of Trustees* decides matters of general policy and reviews
the activities of the Adviser and the officers who conduct and supervise the
daily business operations of the Funds.
The Trustees, their business addresses and principal occupations during
the past five years are:
POSITION WITH THE FUNDS AND PRINCIPAL
NAME AND ADDRESS OCCUPATION
- ---------------- ----------
John H. Pender** Trustee, and from 1987 through May 1996,
222 West College Ave. President of the Funds; Prior to 1996, Senior
Appleton, WI 54919 Vice President and Chief Investment Officer,
Aid Association for Lutherans (fraternal
benefit society) and prior to 1992, Treasurer
F. Gregory Campbell Trustee; President of Carthage College,
2001 Alford Park Drive Kenosha, WI; Director, Kenosha Hospital
Kenosha, WI 53140 and Medical Center; Chairman, WI Assoc. of
Independent Colleges and Universities;
Board Member, Kenosha Area
Development; and Board Member, Prairie
High School
Richard L. Gady Trustee; and Vice President, Public Affairs
One Central Park Plaza and Chief Economist, ConAgra, Inc.
Omaha, NE 68102
D.W. Russler Trustee; Former Senior Vice President,
P.O. Box 84 Finance and Administration, NCR
Minocqua, WI 54548 Corporation 1984 - 1988; Director, Capital
Markets Assurance Corporation (reinsurance);
and Member, Advisory Board -- Saratoga
Partners II and III (corporate buy-
out limited partnerships)
<PAGE>
Lawrence M. Woods Trustee; Former Executive Vice President
P.O. Box 1860 and Director, Mobil Oil Corp. (international
Worland, WY 82401 oil company)
Richard L. Gunderson** Trustee; Chairman of the Board of Directors
431 North Ballard Road and Chief Executive Officer and from 1985
Appleton, WI 54919 through 1995, President, Aid Association for
Lutherans (fraternal benefit society);
Trustee, Lawrence University; and Director,
Banta Corp.
* All of the Trustees are Directors for the AAL Variable Product Series
Fund, Inc.
** Denotes an "interested person" of the Funds as defined in the Invest-
ment Company Act of 1940.
MANAGEMENT OF THE TRUST
THE ADVISER
AAL Capital Management Corporation (the "Adviser") was organized in
1986 as a Delaware corporation, all of the shares of which are owned by AAL
Holdings Inc., a wholly-owned subsidiary of Aid Association for Lutherans
("AAL"). AAL is a non-profit, non-stock membership organization, licensed to do
business as a fraternal benefit society in all states. AAL has approximately 1.7
million members and is one of the world's largest fraternal benefit societies in
terms of assets and life insurance in force, ranking it in the top two percent
of all life insurers in the U.S. in terms of ordinary life insurance in force.
Membership is open to Lutherans and their families. AAL offers life, health and
disability income insurance and fixed and variable annuities to its members. All
members are part of one of over 9,100 local AAL branches throughout the U.S. AAL
Capital Management Corporation has served as Adviser to the Funds from the
commencement of operations, and, as of December 31, 1995, managed about $2.6
billion for the Funds. The principal address of the Adviser is 222 West College
Avenue, Appleton, Wisconsin 54919-0007 and of AAL is 4321 North Ballard Road,
Appleton, Wisconsin 54919-0001.
Under an Investment Advisory Agreement with the Trust, and subject to
the supervision of the Funds' Board of Trustees, the Adviser manages the
investment and reinvestment of the Funds' assets, provides the Funds with
personnel, facilities, and administrative services, and supervises the Funds'
daily business affairs. The Adviser formulates and implements a continuous
investment program for the Funds consistent with each Fund's investment
objectives, policies and restrictions.
The Adviser provides office space as well as executive and other
personnel to the Funds. In addition to investment advisory fees, each Fund
incurs the following expenses: legal, auditing, and accounting expenses;
trustees' fees and expenses; insurance premiums; brokers' commissions; taxes and
governmental fees; expenses of issuing and redeeming shares; organizational
expenses; expenses of registering or
<PAGE>
qualifying shares for sale; postage and printing for reports and notices to
shareholders; fees and disbursements of the Custodian and Transfer Agent;
certain expenses with respect to membership fees of industry associations; and
any extraordinary expenses, such as litigation expenses.
PORTFOLIO TRANSACTIONS
The Adviser directs the placement of orders for the purchase and sale
of the Funds' portfolio securities. In directing orders, the Adviser will
consider a number of factors to attain what it believes is the best combination
of price and execution for the Funds, including: when it believes that more
than one broker or dealer is capable of providing the best combination of price
and execution in a transaction, the Adviser normally will select a broker or
dealer who furnishes research services.
The Adviser may have other clients for which it is making investment
and order placement decisions similar to the funds. When making simultaneous
purchases or sales for the Funds and another client, if any, the Adviser's
decisions could have a detrimental effect on the price or volume of the
securities purchased or sold for the Funds. In other cases, simultaneous
purchases or sales for the Funds and another client could provide the Funds with
the ability to participate in volume transactions that could benefit the Funds.
BUYING SHARES IN THE FUNDS
You can buy shares in the Funds by mail or by wire transfer. Contact
your AAL Capital Management Corporation Registered Representative who is ready
to help you open a new account. If you do not know the name of your Registered
Representative, please call the Mutual Fund Service Center toll free at
800-553-6319. The Telecommunications Device for the Deaf (TDD) is 800-684-3416.
SALES CHARGES
You pay a sales charge ("load") when you buy shares of The AAL Mutual
Funds, except The AAL Money Market Fund. The sales charge is expressed as a
percentage of the public offering price, and the net amount invested, in the
following table:
Sales Charge as a % of Sales Charge as a % of Net
Amount of Purchase Public Offering Price Amount Invested
- ------------------ --------------------- ---------------
Less than $25,000 4.75% 4.99%
$25,000 or more, but less 4.50% 4.71%
than $100,000
$100,000 or more, but less 3.50% 3.63%
than $250,000
$250,000 or more, but less 2.00% 2.04%
than $500,000
$500,000 or more, but less 0.50% 0.50%
than $1,000,000
$1,000,000 or more 0.00% 0.00%*
<PAGE>
* Registered Representatives may receive, from the Distributor,
compensation not exceeding .25 of 1% of amounts invested at this
purchase level.
REDUCING YOUR SALES CHARGE
You may be eligible for a reduced sales charge. To qualify for any of
these reductions, you MUST TELL US AT THE TIME OF YOUR PURCHASE OR YOU MAY NOT
RECEIVE THE REDUCTION. Trustees, directors, and employees of the Funds and the
Adviser, as well as persons licensed to receive commissions for sales of The AAL
Mutual Funds, may not pay a sales charge on their purchases or on purchases made
by family members residing with them. We reserve the right to change or stop
these reductions at any time. We will notify you in advance of any changes.
50% REDUCTION -- Non-profit organizations, charitable trusts,
charitable remainder unitrusts, endowments, AAL branches and congregations pay
only 50% of the normal sales charge so long as there is a formal Lutheran
affiliation. This does not apply to 403(b)(7) Retirement Plan Accounts.
RIGHTS OF ACCUMULATION -- You can link all of your accounts together so
that all accounts are considered in computing your current sales charge using
the public offering price. You can also link accounts with family members who
live with you. Employer-sponsored retirement plan accounts cannot be linked with
individual accounts, but they can be linked with other employees in the plan.
Money market fund accounts do not reduce your sales charges unless the funds
came from an AAL Mutual Fund account that originally incurred a sales charge.
LETTER OF INTENT -- If you expect to invest $25,000 or more during the
next 13 months, you can reduce your sales charge now by signing a Letter of
Intent. Your AAL Capital Management Corporation Registered Representative will
assist you in determining whether you qualify for this reduction. The following
rules apply:
o The minimum amount for a Letter of Intent is $25,000.
o You are not obligated to buy any additional shares. If for any
reason you change your mind, the sales charges will be
recalculated and charged at the rate applicable without the
Letter of Intent. The Transfer Agent will escrow shares
totaling 5% of the investment goal and will sell shares to
cover any additional sales charges due.
<PAGE>
o You can backdate a Letter of Intent to include shares
purchased within the last 90 days. However, the sales charges
on these shares will not be recalculated.
o During the 13-month period, purchases in accounts that have
been linked for the Rights of Accumulation, and are still
owned, will count toward the Letter of Intent.
o Before the 13-month period ends, you must have the full amount
of your Letter of Intent invested, valued at your purchase
cost.
o The AAL Money Market Fund shares do not apply toward your
Letter of Intent, unless you paid a sales charge and exchanged
into The AAL Money Market Fund.
o You cannot use a Letter of Intent for 403(b)(7) Retirement
Plan Accounts, SEP-IRAs, or SARSEP-IRAs.
PURCHASE PRICE
You buy shares of The AAL Small Cap Stock, Mid Cap Stock, Capital
Growth, Utilities, Bond, and Municipal Bond Funds at the public offering price,
which is the net asset value plus a sales charge. You buy shares of The AAL
Money Market Fund at net asset value without a sales charge. The purchase price
of each Fund is based on the net asset value that is determined on the business
day the Transfer Agent receives your order in proper form. On the record date
for a distribution by The AAL Small Cap Stock, Mid Cap Stock, Capital Growth and
Utilities Funds, the share price is reduced by the amount of the distribution.
If you buy shares just before the record date ("buying a dividend"), you will
pay the full price for shares and then receive a portion of the price back as a
taxable distribution.
MINIMUM PURCHASE AMOUNT
PER ACCOUNT PER TRANSACTION
Initial Purchase Additional Purchase
---------------- -------------------
Regular Account $1,000 $50
IRA $ 250 $50
Automatic Investment Plan $ 0 $25
<PAGE>
We may waive the minimum investment amount needed to open or add to an
account for certain employer-sponsored accounts.
OPENING A NEW ACCOUNT
Your AAL Capital Management Corporation Registered Representative is
ready to help you open a new account. If you do not know the name of your
Registered Representative, please call the Mutual Fund Service Center at
800-553-6319. The Telecommunications Device for the Deaf (TDD) is 800-684-3416.
To open your account, just follow these steps:
1. After reviewing this prospectus, complete an AAL Mutual Funds
Application and new account form for every different account
registration. For example, you need separate applications for
an individual account in The AAL Bond Fund and an IRA invested
in The AAL Bond Fund. If you don't complete the application
properly, your purchase may be delayed or rejected;
2. Make your check payable to the Fund you are buying, for
example, "The AAL Bond Fund." If you are buying more than one
Fund, make your check payable to "THE AAL MUTUAL FUNDS." DO
NOT make your check payable to AAL or AAL Capital Management
Corporation; and
3. Mail your completed application and check to:
The AAL Mutual Funds
222 West College Avenue
P.O. Box 8004
Appleton, WI 54913-8004.
BUYING SHARES FOR THE FIRST TIME BY WIRE
If your bank is a member of or has a corresponding relationship with a
member of the Federal Reserve System, you can buy shares of the Funds by wire
transfer by following steps:
1. Call AAL Capital Management Corporation at 800-553-6319 and
provide the following information:
o Your account registration;
o The name of the Fund(s) in which you want to invest;
o Your address;
<PAGE>
o Your Social Security or tax identification number;
o The dollar amount;
o The name of the wiring bank; and
o The name and the telephone number of the person at
your bank we can contact about your purchase.
We must receive your wire order before the closing of the NYSE
(normally 3:00 p.m. Central Time) to receive that day's price;
2. Tell your bank to wire your funds as follows:
Firstar National Bank
ABA No. 075000022
For Credit to Firstar Trust Company
Acct. No 112-952-137
For Further Credit to (name of specific AAL Mutual Fund)
Account Registration (name(s) of the shareholders(s)); and
3. Complete The AAL Mutual Funds application and mail it
immediately to:
The AAL Mutual Funds
222 West College Ave.
P.O. Box 8004
Appleton, WI 54913-8004.
ACCOUNT REGISTRATION
How you register your account with us can affect your legal interests
as well as the rights and interests of your family and beneficiaries. You should
always consult with your legal and/or tax adviser to determine the account
registration that best meets your needs. You must clearly identify the type of
account you want on your AAL Mutual Funds application form. Some account
registrations may require additional documents.
ACCOUNTS FOR RETIREMENT SAVINGS
AAL members, their enterprises, and Lutheran organizations may
establish their own individual or business retirement plans. These accounts may
offer you tax advantages. You should consult with your legal and/or tax adviser
before you establish a retirement plan.
Your AAL Capital Management Corporation Registered Representative will
provide you with all the materials, documents, and forms you need, and will work
with you in establishing your retirement plan from among these choices:
<PAGE>
o Regular IRA (Individual Retirement Account);
o "Rollover" IRA;
o SEP-IRA (Simplified Employee Pension Plan);
o SARSEP (Salary Reduction Simplified Employee Pension Plan);
o 403(b)(7) Retirement Plan Account (Legal restrictions apply
to your ability to withdraw funds from this account); and
o Qualified Retirement Plans.
PRESTIGE ACCOUNT
Investors who maintain account balances totaling $50,000 or more will
be provided with additional benefits including personal attention from Prestige
Account representatives, an exclusive toll-free number, personalized investment
analysis, complimentary financial information, a Prestige Account organizer, and
more. Your AAL Capital Management Corporation Registered Representative can
provide you with more detailed information.
BUYING ADDITIONAL SHARES FOR YOUR ACCOUNT
After you have opened an account with The AAL Mutual Funds, you can
make additional investments of $50 or more per account by mail, telephone, or
wire. Please put your name and your AAL Mutual Fund Account number on the face
of all investment checks, and make sure your checks are payable to the specific
Fund in which you are investing (for example, "The AAL Bond Fund"). If you are
investing in more than one Fund, make your check payable to "The AAL Mutual
Funds." DO NOT make your check payable to AAL or AAL Capital Management
Corporation. Some retirement accounts, such as the 403(b)(7) Retirement Plan,
may allow you to make investments only by deferring part of their salary.
BY MAIL
REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds
c/o Firstar Trust Company c/o Firstar Trust Company
615 East Michigan Street Mutual Funds Services, Third Floor
P.O. Box 2981 615 East Michigan Street
Milwaukee, WI 53201-2981 Milwaukee, WI 53202
<PAGE>
BY WIRE
Follow the directions listed under "Buying Shares for the First Time By
Wire" on page ___.
BY TELEPHONE
Before you can buy additional shares by telephone, you must have
selected the Request for Telephone Purchase option. Once you have selected this
option, you can call us and we will withdraw money from your bank checking or
savings account to make your investment. The price you pay for your shares will
be the next price we compute after we receive your investment from your bank,
which is usually three business days after you authorize the transfer.
AUTOMATIC INVESTMENT PLANS
To make regular investing more convenient, you can open an automatic
investment plan with no initial investment and a minimum of $25 per account per
transaction after you start your plan.
Your AAL Capital Management Corporation Registered Representative is
ready to help you set up one of these plans:
THE BANK DRAFT PLAN allows you to make regular investments in The AAL
Mutual Funds directly from your checking, NOW, or savings account. The
following rules and/or guidelines apply:
o You can select up to two transaction dates per month (at least
10 days apart). If you don't select the date(s), the funds
will automatically be withdrawn from your bank account on the
5th of the month;
o To start the plan, or change your bank account, you must
notify us in writing at least 13 business days prior to the
transaction date. All bank account owners must sign the bank
draft plan card;
o To stop or change the amount of your plan, you must tell us at
least 5 business days prior to the transaction date; and
o Be sure you have enough money in your bank account to make the
investment so you can avoid paying any possible fees from your
bank or the Transfer Agent.
THE CAPITAL BUILDER PLAN allows you to transfer money every month from
your AAL Money Market Fund account into another AAL Mutual Fund. The
following rules and/or guidelines apply:
o You can select the transaction date. If you don't select the
date, it will automatically be withdrawn from your account on
the 15th of the month;
<PAGE>
o To start the plan, you must notify us in writing at least 24
hours prior to the transaction date. You must have all
account owners sign the Capital Builder Plan Card; and
o To stop or change the amount of your plan, you must tell us at
least 24 hours prior to the transaction date.
THE PAYROLL DEDUCTION SAVINGS AND INVESTMENT PLAN allows employees of
AAL, employees of Lutheran-affiliated institutions, and Lutheran
employees whose employers agree to invest in The AAL Mutual Funds
through direct deduction from their paychecks or commission checks.
THE GOVERNMENT ALLOTMENT PLAN allows Lutheran federal employees and
military personnel to invest in The AAL Mutual Funds through direct
deduction from their paychecks.
Using The AAL Mutual Funds' Automatic Investment Plans, you may
implement a strategy called DOLLAR COST AVERAGING. Dollar cost averaging
involves investing a fixed amount of money at regular intervals. By investing
the same amount periodically, you will be purchasing more shares when the price
is low and fewer shares when the price is high. Dollar cost averaging does not
ensure a profit or protect against a loss during declining markets. Because such
a program involves continuous investment regardless of changing share prices,
you should consider your ability to continue the program through times when the
share prices are low.
ADDITIONAL INFORMATION ABOUT BUYING SHARES
EARNING INCOME
You begin earning income, if any, on your shares on the business day
following the day that our Transfer Agent receives your payment.
PURCHASES
Your purchase must be in U.S. dollars, and your check must be drawn on
a U.S. bank. We do not accept cash or travelers checks. If your check does not
clear, your purchase will be canceled and you will be liable for any losses or
applicable fees. When you buy shares by check, you may not be able to redeem the
shares you purchased for 12 days or until your check has cleared, whichever is
later.
CONFIRMATION
We will generally mail written confirmation of your purchases in the
Funds, except for The AAL Money Market Fund, within two business days following
the date of
<PAGE>
your purchase. We will mail confirmation of additional purchases in The AAL
Money Market Fund monthly. We will mail confirmation of your automatic
investment plan purchases at least quarterly.
SHARE CERTIFICATES
We will issue you share certificates only upon written request, and
then only for full shares. You must make a new written request for a share
certificate each time you purchase shares. We do not charge a fee to issue share
certificates. If you have asked for or have received share certificates, you
cannot use certain shareholder services, including wire and check redemption,
share exchange, and any systematic withdrawal. Before you can redeem, transfer,
or exchange your shares, you must deliver the share certificates to the Transfer
Agent in negotiable form. Share Certificates may not be available for some
retirement accounts.
OTHER INFORMATION
The U.S. Postal Service or private delivery services are not agents of
The Funds, the Distributor, or the Funds' Transfer Agent. We do not legally
receive your purchase application or your request for redemption when you
deposit them in the mail, send them with a private delivery service, or when you
deposit them in our Post Office Box. We must have physical possession of your
request for it to be considered received. Current law will determine the legal
effect of posting for deadline purposes.
We reserve the right to suspend the offering of shares for a period of
time. We also reserve the right to reject any specific purchase of shares.
SELLING (REDEEMING) YOUR SHARES
You can sell your shares on any business day. When you sell your shares
you receive the net asset value per share. If we receive your request in good
order before the close of the NYSE (normally 3:00 p.m. Central Time) you will
receive that day's price. If we receive your redemption request in good order on
a holiday, weekend, or a day the NYSE is closed, we will process your
transaction on the next business day.
You can sell shares several ways.
BY MAIL
Please include the following in your redemption request:
o Name(s) of the account owner(s);
o Account number(s);
o Amount you want to receive or the number of shares you want
to sell;
<PAGE>
o Tax withholding information, if required, for retirement
accounts; and
o Signatures of all account owners.
YOU MUST HAVE YOUR SIGNATURE GUARANTEED IF:
1. You want to sell shares with a value of more than
$25,000;
2. You want the proceeds sent to an address other than
the one listed for your account;
3. You want the check payable to someone other than the
account owner(s); or
4. You hold share certificates (you must return the
signed certificates with your request).
You can usually obtain a signature guarantee at commercial banks, trust
companies, or broker dealer. A SIGNATURE GUARANTEE IS NOT THE SAME THING AS A
NOTARIZED SIGNATURE. Accounts held by a corporation, trust, estate,
custodianship, guardianship, partnership or pension and profit sharing plan may
require more documentation.
Mail to:
REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds
c/o Firstar Trust Company c/o Firstar Trust Company
615 East Michigan Street Mutual Funds Services, Third Floor
P.O. Box 2981 615 East Michigan Street
Milwaukee, WI 53201-2981 Milwaukee, WI 53202
BY TELEPHONE
In order to make investing in The AAL Mutual Funds more convenient, you
are allowed to buy, sell or exchange shares by telephone. If you decide to take
advantage of these services, please be aware of the following conditions:
o If The AAL Mutual Funds, AAL Capital Management Corporation,
the Custodian, the Transfer Agent, or any of their employees
fails to abide by their procedures, The AAL Mutual Funds may
be liable to you for losses suffered from any resulting
unauthorized transaction(s);
o THE AAL MUTUAL FUNDS, AAL CAPITAL MANAGEMENT CORPORATION, THE
CUSTODIAN, THE TRANSFER AGENT OR ANY OF THEIR EMPLOYEES WILL
NOT BE
<PAGE>
LIABLE FOR LOSSES SUFFERED BY YOU THAT RESULT FROM FOLLOWING
TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE AUTHENTIC
AFTER VERIFICATION PURSUANT TO THESE PROCEDURES; AND
o ONCE A TELEPHONE REQUEST HAS BEEN MADE, IT CAN'T BE CANCELED
OR MODIFIED! During periods of extreme volume caused by
dramatic economic or stock market changes, or when the tele-
phone system is not fully functional, you may have difficulty
reaching AAL Capital Management Corporation by telephone, and
telephone transactions may be difficult to implement at those
times. The Funds reserve the right to temporarily discontinue
or limit the telephone purchase, redemption or exchange
privileges during such periods.
The following rules and/or guidelines for selling by telephone apply:
o You must call the Mutual Fund Service Center at 800-553-6319;
o You must provide a form of personal identification to confirm
your identity;
o You can sell up to $25,000 worth of shares;
o We will mail a check only to the person(s) named on the
account registration, and only to the address on the account;
o Retirement plan accounts are not eligible;
o You cannot sell shares in certificate form by telephone;
o You can do only one telephone redemption within any 30-day
period for each authorized account;
o Telephone redemptions are not available if the address on the
account has been changed in the preceding 60 days; and
o If we receive your request in good order before the close of
the NYSE (normally 3:00 p.m. Central Time), you will receive
that day's price.
BY WIRE
The following rules and/or guidelines for selling by wire apply:
o You must give us written authorization, including the
signatures of all the owners of the account, on The AAL Mutual
Funds Application or Change Form;
<PAGE>
o You can make a wire redemption for any amount;
o You pay a $10.00 fee for each wire redemption;
o We must receive your request in good order before the close
of the NYSE (normally 3:00 p.m. Central Time) for you to
receive that day's price; and
o Wire redemptions may not be available to you for all retire-
ment account plans.
SYSTEMATIC WITHDRAWAL PLAN
You can have money automatically withdrawn from your mutual fund
account on a regular basis by using our Systematic Withdrawal Plan. This plan
allows you to receive funds or pay a bill at regular intervals. The following
rules and/or guidelines apply:
o You need a minimum of $5,000 in your account to start the
plan;
o You can select the date(s) on which the money is withdrawn. If
you don't select the date(s), your funds will automatically be
withdrawn from your account on the 15th of the month:
o To start the plan or change the payee(s), you must notify us
in writing at least 13 business days prior to the first with-
drawal. You must have all account owner(s) sign the
appropriate form;
o To stop or change your plan, you must notify us at least 5
business days prior to the next withdrawal; and
o Because of sales charges, you must consider carefully the
costs of frequent investments in and withdrawals from your
account.
THE AAL MONEY MARKET FUND CHECKS
You can write checks on your AAL Money Market Fund account, if you
complete a check writing signature card and agreement. You can request checks on
your mutual funds application or in writing. There is no charge for your first
set of checks. For each additional packet of checks, there is a $2.00 charge.
The following rules and/or guidelines apply:
o AAL Money Market Fund checks must be for at least $500;
o Because the Fund is not a bank, some features such as stop
payment are not available;
<PAGE>
o The Transfer Agent may impose reasonable fees for each check
that is returned;
o The Transfer Agent does not return your canceled checks to
you. For a fee, the Transfer Agent will send you a copy of
your check at your request;
o Unless they were purchased by bank wire, you must wait 12 days
after you purchase AAL Money Market Fund shares in order to
write checks against that purchase; and
o You need a written request--NOT A CHECK--to close an AAL Money
Market Fund account. Your written request will require a
signature guarantee to close accounts over $25,000.
CLOSING SMALL ACCOUNTS
All AAL Mutual Funds account owners share the high cost of maintaining
accounts with low balances. To reduce this cost, we reserve the right, subject
to state law, to close an account when, due to a redemption, its value is less
than $250. This does not apply to retirement plan accounts. We will notify you
in writing before we close any account, and you will have 30 days to add money
to bring the balance up to $250.
REINSTATEMENT PRIVILEGE
You have 60 days after you sell shares to reinvest the dollar amount
you redeemed without having to pay another sales charge. You will pay the net
asset value per share as of the day your reinvestment is made and not the net
asset value as of the day you sold. The following rules and/or guidelines apply:
o You may use this privilege only ONCE per account;
o You must send a written request and a check for the amount
you wish to reinvest to our Transfer Agent:
REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds
c/o Firstar Trust Company c/o Firstar Trust Company
615 East Michigan Street Mutual Funds Services, Third Floor
P.O. Box 2981 615 East Michigan Street
Milwaukee, WI 53201-2981 Milwaukee, WI 53202;
o The dollar amount you reinvest cannot exceed the dollar
amount you sold; and
<PAGE>
o The sale of your shares may be a taxable event despite the
reinstatement.
EXCHANGE PRIVILEGE
After you have paid the initial sales charge, you may exchange shares
in an AAL Mutual Fund for shares in another AAL Mutual Fund without paying any
additional sales charge. The following rules and/or guidelines apply:
o Minimum investment rules may apply when you open a new account
by exchanging shares, and you may have to submit a new
application;
o You may only exchange into funds that are legally available
for sale in your state;
o You may have a taxable gain or loss as a result of an
exchange;
o We reserve the right to end this privilege if you make more
than 12 exchanges in a year;
o We reserve the right to change or end this privilege upon 60
days notice, or suspend this privilege without notice when
economic or market changes make it difficult to carry out such
transactions; and
o If you have share certificates, you need to sign the
certificates, have your signature guaranteed, and return the
certificates with your request.
BY MAIL
Please include the following in your request:
o Name(s) of the account owner(s);
o Account number(s);
o Amount of shares (or dollar amount) you want to exchange; and
o Signatures of all account owners.
BY TELEPHONE
The guidelines for exchanging by telephone are:
o You can exchange shares by calling the Mutual Fund Service
Center at 800-553-6319;
<PAGE>
o When you call us, you will be asked for a form of personal
identification to confirm your identity; and
o If we receive your request, in good order, before the close of
the NYSE (normally 3:00 p.m. Central Time), you will receive
that day's price.
NET ASSET VALUE (NAV)
We compute the net asset value of a Fund share by adding up the value
of the individual Fund's assets, subtracting the Fund's liabilities, and
dividing the balance by the total number of shares outstanding. We compute the
net asset value at the end of the day after trading on the NYSE closes (normally
3:00 p.m. Central Time). We do not calculate the net asset value on the days
that the NYSE is not open.
Securities owned by a Fund are valued at current market value. When
market quotations are readily available, that quotation generally will be used.
If a quotation is not available, securities will be valued as determined in good
faith by or under the direction of the Board of Trustees. The Board of Trustees
may approve the use of pricing services to assist us in the determination of net
asset values.
We intend that all securities held by The AAL Money Market Fund and
money market instruments with a remaining maturity of 60 days or less held by
the other Funds will be valued on an amortized cost basis. We intend to comply
with SEC requirements for the use of this valuation method. For The AAL Money
Market Fund, this method of calculation facilitates, but does not assure,
maintaining a constant net asset value of $1.00 per share.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Internal Revenue Code refers to mutual funds as "regulated
investment companies" and exempts them from paying income taxes if they meet
certain requirements. Each Fund intends to comply with all of these requirements
in order to be considered a regulated investment company. We will annually
provide you with full information on dividends and capital gains distributions
for each Fund.
The following is a general description of the distribution policies and
some of the tax consequences for shareholders of the Funds. You should always
check with your tax adviser to determine whether any dividends and distributions
paid to you by a Fund are subject to any taxes, including state and local taxes.
THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL GROWTH, UTILITIES, BOND, AND
MONEY MARKET FUNDS
The dividends from net investment income of each of these Funds,
including net short-term capital gains, are taxable as ordinary income to
shareholders whether paid in additional shares or in cash. Any long-term capital
gains distributed to shareholders are
<PAGE>
taxable as capital gains to shareholders, whether they receive them in cash or
in additional shares, and regardless of the length of time a shareholder has
owned the shares.
These Funds intend to distribute substantially all net investment
income and any net realized long-term capital gains.
DIVIDENDS CAPITAL GAINS
FUND (IF ANY) (IF ANY)
- ---- -------- --------
The AAL Small Cap Stock annually annually
The AAL Mid Cap Stock annually annually
The AAL Capital Growth semi-annually annually
The AAL Utilities quarterly annually
The AAL Bond monthly annually
The AAL Money Market monthly annually
The AAL Bond Fund and The AAL Money Market Fund will accrue income
dividends daily.
THE AAL MUNICIPAL BOND FUND
Dividends derived from the interest earned on municipal securities
constitute "exempt-interest dividends" and are generally not subject to federal
income tax. The AAL Municipal Bond Fund will accrue dividends daily and pay
these dividends monthly. Capital gains will be paid at least annually. Realized
capital gains on municipal securities are subject to federal income tax. Thus,
shareholders will be subject to taxation at ordinary rates on the dividends they
receive that are derived from net short-term capital gains. Distributions of net
long-term capital gains will be taxable as long-term capital gains regardless of
the length of time a shareholder holds them. This Fund may, for temporary
defensive purposes, invest in short-term taxable securities. Shareholders of
this Fund are subject to federal income tax at ordinary rates on any income
dividends they receive that are derived from interest on taxable securities.
For shareholders who are receiving Social Security benefits, tax-exempt
income, including exempt-interest dividends from this Fund, will be added to
your taxable income in determining whether a portion of your Social Security
benefits will be subject to federal income tax.
The Internal Revenue Code provides that every person required to file a
tax return must report, solely for informational purposes, the amount of
exempt-interest dividends received from the Funds during the taxable year.
<PAGE>
TAX CONSIDERATIONS
We are required by federal law to withhold 31% of reportable payments
(which include dividends, capital gain distributions, and redemption proceeds)
to shareholders who have not properly certified that the Social Security or
other taxpayer identification number they provided is correct and that he or she
is not subject to backup withholding. We do not provide information on state and
local tax consequences of ownership of shares of Funds.
REINVESTMENT OF FUND DISTRIBUTIONS
You can reinvest all of your income dividends and/or capital gains into
the Funds at net asset value and pay no sales charges. You can also have these
distributions paid in cash. You may pay taxes on Fund distributions that you
reinvest or that are paid to you in cash. If you have requested cash
distributions and we cannot locate you, we will reinvest your dividends.
DISTRIBUTION FEES
In addition to the sales charge deducted at the time of purchase, each
Fund is authorized under a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 to use a portion of its assets to finance certain
activities relating to the distribution of its shares to investors.
The 12b-1 Distribution Plan permits payments to be made by each of the
Funds to the Distributor to reimburse it for expenses incurred with the
distribution of each of the Funds' shares to investors. These payments include,
but are not limited to, compensation to sales representatives (excluding the
initial sales charge), advertising, preparation and distribution of sales
literature and prospectuses to prospective investors, implementing and operating
the plan, and performing other promotional or administrative activities on
behalf of the Funds.
Plan payments may also be made to reimburse the Distributor for its
overhead expenses related to distribution of the Funds' shares. No reimbursement
may be made under the Plan for expenses of past fiscal years or in contemplation
of expenses for future fiscal years. Distribution fees paid by one Fund may not
be used to finance distribution of shares of another Fund.
The AAL Small Cap Stock, Mid Cap Stock, Capital Growth, Utilities,
Bond, and Municipal Bond Funds may each charge an annual distribution fee of up
to 0.25 of 1% of the average net assets of the Fund. The AAL Money Market Fund
may charge an annual distribution fee of up to 0.125 of 1% of its average net
assets. The Board of Trustees will review and approve these fees annually.
SHAREHOLDER MAINTENANCE AGREEMENT
The Board of Trustees authorized the Funds to contract with AAL Capital
Management Corporation for certain shareholder maintenance services.
AAL Capital Management Corporation receives an annual fee for providing
these services. This fee is based upon, and limited by, the difference between
the current
<PAGE>
account fees charged and the normal full-service fee schedule published by our
Transfer Agent. It also includes reimbursement for out-of-pocket costs including
postage and telephone charges. This account differential, including
reimbursement for expenses, is currently $3.58 per account per year.
YIELD AND PERFORMANCE INFORMATION
From time to time, we will calculate and advertise performance information for
different historical periods of time, by quoting yields or total returns
designed to inform you of the performance of the Funds. Whenever we advertise
performance, we will always include standardized yield and total return
information calculated in accordance with methods established by the Securities
and Exchange Commission. We also may include other total return calculations, if
we feel that they would be useful for you in evaluating the investment
performance of the Funds. Yields and total returns are based on historical
performance and are not intended to indicate future performance. Your investment
return and the principal value of your investments (except for The AAL Money
Market Fund, for which we intend to maintain at a constant $1.00 net asset
value) will fluctuate, and the value of your investment, if sold (redeemed), may
be worth more or less than your original cost.
STANDARDIZED YIELD AND TOTAL RETURNS
Whenever we advertises performance, we will include standardized yield
and total return quotations calculated in accordance with rules of the
Securities and Exchange Commission, in the manner described in the following
paragraphs.
THE AAL MONEY MARKET FUND --STANDARDIZED YIELD AND STANDARDIZED EFFECTIVE YIELD
The AAL Money Market Fund may advertise a standardized yield and a
standardized effective yield. Both yield figures are based on historical
earnings and are not intended to indicate future performance.
The standardized yield of the Fund refers to the income generated by an
investment in the Fund over a seven-day period, which period will be shown in
the advertisement. This income, less expenses, is then annualized, which means
that the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the beginning investment value.
The standardized effective yield is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL GROWTH, UTILITIES, BOND AND
MUNICIPAL BOND FUNDS -- STANDARDIZED CURRENT YIELD
<PAGE>
We may advertise a standardized current yield, which is based on the
income generated by an investment in the particular Fund over a 30-day period,
for The AAL Small Cap Stock, Mid Cap Stock, Capital Growth, Utilities, Bond and
Municipal Bond Funds. We will state the period in the advertisement. We
determine income earned on debt obligations by applying a calculated
yield-to-maturity percentage to the obligations held during the period. We
determine income earned from equity securities by using the stated annual
dividend rate applied over the performance period. We then annualize the income
earned. That is, the amount of income generated during the 30-day period is
assumed to be generated and reinvested monthly to provide a six-month return
which is then annualized. We show the return as a percentage of the maximum
offering price per share on the last day of the period.
THE AAL MUNICIPAL BOND FUND -- STANDARDIZED TAX EQUIVALENT YIELD
For the AAL Municipal Bond Fund, we may advertise a standardized tax
equivalent yield, which illustrates the yield that would be required on a fully
taxable investment to result in the same net income to an investor in the Fund,
after payment of federal taxes at the stated rate. We compute the yield by
dividing that portion of the Fund's current yield that is tax-exempt by one
minus a stated federal income tax rate, and then adding the quotient to the
value of any yield of the Fund that is not tax-exempt.
THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL GROWTH, UTILITIES, BOND AND
MUNICIPAL BOND FUNDS -- STANDARDIZED AVERAGE ANNUAL TOTAL RATE OF RETURN
We may advertise for each of The AAL Mutual Funds (except The AAL Money
Market Fund) a standardized average annual total rate of return for one, five
and ten year periods, or so much thereof as a Fund has been in existence (since
inception). The standardized average annual total rate of return is the change
in redemption value of shares purchased with an assumed initial investment of
$1,000, after giving effect to the maximum applicable sales charge, assuming the
reinvestment of dividends and capital gains distributions.
OTHER TOTAL RETURNS
Due to the many ways of evaluating investment performance, we may
advertise total returns, other than those described above, if we feel that this
information is useful to you in evaluating the Funds. All Funds (except The AAL
Money Market Fund) may advertise total returns calculated on the basis of net
investment in the Fund, which means we may calculate investment performance
(total returns), usually based on dollars invested, without giving effect to the
maximum applicable sales charge. Such performance figures will be higher than
those calculated by the standardized methods for the same time period.
Additional information regarding yield and performance information is contained
in the Statement of Additional Information.
<PAGE>
CUSTODIAN, TRANSFER AGENT, AND INDEPENDENT ACCOUNTANTS
Custodian and Transfer Agent
Firstar Trust Company
615 E. Michigan Street
P.O. Box 2981
Milwaukee, Wisconsin 53201-2981
Independent Accountants
Price Waterhouse LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment company
registered under the Investment Company Act of 1940. Each of the Funds is a
separate series of a Massachusetts Business Trust organized under a Declaration
of Trust dated March 13, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by its terms. The Declaration of Trust may be
amended by a vote of shareholders or the Board of Trustees. The Trust may issue
an unlimited number of shares in one or more series as the Board of Trustees may
authorize. Currently, the Board has authorized ten series which have the name
of the Funds.
Each share of a Fund is entitled to participate proportionately in any
dividends or other distributions declared by the Board with respect to that
Fund. All shares of a Fund have equal rights in the event of liquidation of that
Fund.
Each share of a Fund is entitled to one vote on each issue presented to
shareholders of that Fund. As a business trust, it will not hold annual
shareholder meetings unless required by law or deemed appropriate by the Board
of Trustees. However, special meetings may be called for purposes such as
electing or removing Trustees, changing fundamental policies, or awarding or
approving a new investment advisory contract. A separate vote of the shares of
an individual Fund is required on matters affecting that Fund. Shares of a Fund
cannot vote on any matter not affecting that Fund. All shares of each Fund vote
together in the election of Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims liability of the
shareholders, the Trustees, or officers of the Trust for acts or obligations of
the Trust that are binding only on the assets and property of the Trust. We
include this disclaimer in each agreement, obligation, or contract entered into
or executed by the Trust or the Board. The Declaration of Trust provides for
indemnification out of the Trust's assets for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is remote
<PAGE>
because it is limited to circumstances where the Trust itself is unable to meet
its obligations.
ASSET ALLOCATION (DIVERSIFICATION)
You should not consider an investment in any one Fund a complete
investment program. Like most investors, you should hold a number of different
investments, each with a different level of risk, such as common stocks, bonds,
and money market certificates. You may want to meet your goal of diversifying
your investments by purchasing shares in a number of different funds, each of
which has a different investment strategy and level of risk.
QUESTIONS
If you have questions, contact your AAL Capital Management Corporation
Registered Representative or the Mutual Fund Service Center by calling
800-553-6319 or writing us at:
The AAL Mutual Funds
c/o Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
<PAGE>
GLOSSARY OF IMPORTANT TERMS
AMERICAN DEPOSITARY RECEIPT (ADR): Receipt for the shares of a foreign-based
corporation held in the vault of a U.S. bank and entitling the shareholder to
all dividends and capital gains. Instead of buying shares of foreign-based
companies in overseas markets, Americans can buy shares in the U.S. in the form
of an ADR. ADR's are available for hundreds of stocks from numerous countries.
AMORTIZED: Paying the principal on a debt by installments; an accounting method
that provides for the gradual decline in the value of an asset.
ANNUALIZED: Calculated to represent a year(s); a statement produced by
calculating financial results for periods other than a complete year(s).
BOND: An interest-bearing debt security, or discounted government or corporate
security, that requires the issuer to pay a specified amount of interest for a
specified time, usually a number of years, then repay the bondholder the face
amount of the bond.
BUSINESS DAY: Any day both the Federal Reserve Bank of New York and the New York
Stock Exchange are open for business. A business day normally begins at 8:00
a.m. Central Time when the Exchange opens, and usually ends at 3:00 p.m. Central
Time when the Exchange closes.
CALL OPTION: A contract giving the owner the right to buy 100 shares of a stock
at a predetermined price any time up to a predetermined expiration date.
CAPITAL GAIN OR LOSS: The increase or decrease in the value of a security over
the original purchase price. A gain or loss is REALIZED when the security that
has increased or decreased in value is sold. An UNREALIZED GAIN or LOSS occurs
when the value of a security increases or decreases but the security is not
sold. If a security is held for more than 12 months and then sold at a profit,
that profit is a REALIZED LONG TERM CAPITAL GAIN. If it is sold at a profit
before being held for 12 months, that profit is a REALIZED SHORT TERM CAPITAL
GAIN.
CHARTERED FINANCIAL ANALYST (CFA): Designation earned by financial analysts who
pass examinations in economics, financial accounting, portfolio management,
security analysis, and standards of conduct.
COLLATERAL: Something of value--such as real estate, stocks and bonds--pledged
to secure a debt.
COMMERCIAL PAPER: Short-term, unsecured debt obligations issued by businesses
and sold at a discount but redeemed at pay within 2 to 270 days.
<PAGE>
COMPOUND INTEREST: Interest paid upon interest; interest that is calculated and
credited daily, weekly monthly, quarterly, semi-annually, or annually on both
the principal and the already credited interest.
COVERED OPTION: Option contract backed by the shares underlying the option.
DEBT SECURITIES: Bonds and other debt instruments used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity.
ECONOMIC RISK: The risk that an investment will lose value or not pay expected
returns because of domestic or international events.
EQUITY: Ownership interest in a company; stock represents the equity or amount
of ownership you have in the company issuing the stock.
FACE VALUE: See Par.
FDIC: The Federal Deposit Insurance Corporation, an agency of the federal
government that guarantees individual deposits up to $100,000 at participating
banks and savings and loan associations.
FINANCIAL RISK: The fundamental risk of investing that the issuer of a security
may not be able to meet its obligations to its investors.
403(b)(7) RETIREMENT PLAN: A personal retirement savings program that lets
employees of certain tax-exempt organizations or school systems and educational
institutions contribute a portion of their earnings, usually by salary deferral
agreement, into a special mutual fund account. Contributions are made on a
pre-tax basis and benefit from tax-deferred build up of income. The right to
withdraw funds is limited by law and amounts withdrawn are subject to income
taxes.
FUTURES CONTRACT: Agreement to buy or sell a specific amount of a commodity or
financial instrument at a particular price on a stipulated future date.
GENERAL OBLIGATIONS BONDS: Municipal bonds secured by the issuer's pledge of
its credit and taxing power for the payment of principal and interest.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): A personal retirement savings program that
lets individuals with earned income (and their spouses) under age 70 1/2
contribute both deductible and non deductible payments with the benefit of
tax-deferred build up of income. Funds withdrawn are usually subject to income
taxes and, if withdrawn before age 59 1/2, may also be subject to penalties.
<PAGE>
INDUSTRIAL DEVELOPMENT BONDS: Municipal bonds (usually revenue bonds), the
credit quality of which is normally directly related to the credit standing of
the industrial user involved or of the issuer of any credit enhancement such as
an insurance policy or letter of credit.
INFLATION RISK: The risk that the value of assets or of income from investments
will be less in the future as inflation decreases the value of money.
INSTRUMENTALITY: An agency of the Federal government whose debts are sponsored
or guaranteed by the government and are backed by the full faith and credit of
the government, even though the debt is not a direct obligation of the U.S.
Government. Examples of government instrumentalities include the Federal Home
Loan Bank and the Student Loan marketing Association.
INTEREST: The payment borrowers make to lenders for the use of their money,
usually expressed as a percentage of the amount borrowed (the principal).
INVESTMENT GRADE: A bond or other fixed-income security is considered investment
grade if it is rated investment grade by a NRSRO, such as BBB or better by D&P
or S&P or Baa or better by Moody's.
LIQUIDITY: The ease and speed at which an investment can be converted into
cash.
MARGIN: Amount a customer deposits with a broker when borrowing from the broker
to buy securities.
MARKET CAPITALIZATION: The value of a corporation as determined by multiplying
the current market price of a share of common stock by the number of shares held
by shareholders. Thus, if a corporation has one million shares outstanding and
the market price of a share is $10, the market capitalization of the corporation
is $10 million.
MARKET RISK: Refers to the tendency of security prices to move together. The
risk that a broad market downturn will impact investments in a particular field.
MARKET VALUE: The price at which a security can be bought or sold at a given
time in an open market.
MATURITY: The date on which the principal of a debt obligation such as a bond
comes due and must be repaid.
MONEY MARKET INSTRUMENT: Short-term, liquid debt, such as Treasury bills and
commercial paper, which is sold at a discount but redeemed at par. See
COMMERCIAL PAPER.
<PAGE>
MUNICIPAL BONDS: Debt obligations issued by or on behalf of the governments of
states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is generally exempt from federal income tax.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO): A company that
assesses the quality and potential performance of bonds, commercial paper,
preferred and common stocks, and municipal short-term issues, and rates the
probability that the issuer of the debt will meet the scheduled interest
payments and repay the principal. Ratings are published by such companies as
Moody's Investors Service (Moody's's), Standard & Poor's Corporation (S&P), Duff
& Phelps, Inc. (D&P), and Fitch Investor Services, Inc. (Fitch).
OPEN-END FUND: Also called a mutual fund; an investment company in which people
invest by buying its shares, thereby pooling their money and allowing the fund
to invest in a number of securities. The fund distributes any profits from these
investments, after expenses, to the fund's shareholders. Although shares in the
fund are sold publicly, they are not traded on an open exchange because the fund
will buy and sell shares to meet investor demand. Since the company can issue
more shares, the company's capitalization is not fixed but open.
PAR: The stated principal value of a bond, or the stated value per share of
stock usually only used to calculate fees for incorporation. Typically bonds
have a principal value of $1,000.00. A security selling at its face value is
said to be selling at "par". A security selling below its face value is said to
be selling below par or at a discount. A security selling above its face value
is said to be selling above par or at a premium.
PRINCIPAL: Face value of an obligation (such as a bond or loan) that must be
repaid at maturity.
PORTFOLIO: Combined holding of more than one stock, bond, commodity, real estate
investment, cash equivalent, or other asset by an individual or institutional
investor. The purpose of a portfolio is to reduce risk by diversification.
PREFERRED STOCK: Stock with a fixed dividend that must be paid before the div-
idend of common stock is paid.
PUBLIC UTILITY: A privately owned company that is involved in the generation,
transmission, or distribution of electricity, gas, energy, water and telephone,
telegraph, satellite, microwave and other communication facilities for the
public benefit.
PUT OPTION: A contract giving the owner the right to sell 100 shares of stock
at a predetermined price any time up to a predetermined expiration date.
<PAGE>
QUALIFIED RETIREMENT PLANS: Retirement plans established and maintained by an
employer for the benefit of its employees that must comply with special federal
tax and labor laws and regulations. Some of the more common types of qualified
plans are pension, profit sharing and 401(k) plans. A 401(k) plan also permits
employees to make contributions to the plan through salary deferrals.
RECORD DATE: Date on which a shareholder must officially own shares in order to
be entitled to a dividend.
REGULATED INVESTMENT COMPANY: Term used by Internal Revenue Code to define a
mutual fund.
REPURCHASE AGREEMENT: Agreement between a seller and a buyer, usually of U.S.
Government securities, whereby the seller agrees to repurchase the securities at
an agreed upon price and, usually, at a stated time.
REVENUE BONDS: Municipal bonds that usually are payable only from the revenues
derived for a particular facility or class of facilities, or in some cases from
the proceeds of a special excise tax or other specific revenue source.
RISK: The possibility that you may lose all or part of your investment, that the
value of your investment will decrease, or that you will receive little or no
return on your investment. There are many kinds of risks in investing. See also
ECONOMIC RISK, FINANCIAL RISK, INFLATION RISK, and MARKET RISK.
ROLLOVER IRA: An IRA that receives its funding through a distribution made from
another retirement plan, often because of the employee's termination of
employment from the retirement plan's sponsoring employer.
SARSEP-IRA: A retirement plan that permits the employees to make contributions
through salary reduction agreements.
SEC: The U.S. Securities and Exchange Commission.
SEP-IRA: A retirement plan that permits employers to make contributions to their
employees' IRAs. If the employer permits the employees to make contributions
through salary reduction agreements, it is often called a SARSEP-IRA.
SECURITIES: Financial instruments, usually stocks, bonds, money market
instruments, or mutual fund shares that are issued by corporations;
municipalities; state, local, or national governments; or investment companies
to raise or borrow money or give the public an opportunity to participate in the
growth of a company.
SIMPLIFIED EMPLOYEE PENSION (SEP): A retirement plan that permits employers to
make contributions to their employees' IRAs. If the employer permits the
employees to
<PAGE>
make contributions through salary reduction agreements, it is often called a
SARSEP- IRA.
STANDARD & POOR'S INDEX: Also known as the STANDARD & POOR'S 500; Standard &
Poor's Corporation is a subsidiary of McGraw-Hill, Inc. that provides a number
of investor services. The S&P 500 is a measure of the changes in stock market
conditions based on the average performance of 500 widely held common stocks.
This index is considered the benchmark for large stock investors.
S&P SMALL CAP 600 INDEX (S&P SMALL CAP): Introduced in October 1994 to track
small cap stocks. It contains companies chosen by a committee at Standard &
Poor's for their size, industry characteristics, and liquidity. None of the
companies in the S&P Small Cap overlap with the S&P 500 or S&P Mid Cap. However,
some companies in the S&P Small Cap are larger than the S&P Mid Cap or S&P 500.
S&P MID CAP 400 INDEX (S&P MID CAP): Contains companies chosen by a committee at
Standard & Poor's for their mid cap size and industry characteristics. None of
the companies in the S&P Mid Cap overlap with the S&P 500 or S&P Small Cap. Some
companies in the S&P Mid Cap, however, are larger than those in the S&P 500 and
smaller than those in the S&P Small Cap. This is a function of the normal drift
that takes place in any index as some companies' stock prices appreciate and
those of others depreciate.
TOTAL RETURN: The combination of the change in price of an investment plus any
income (or other distributions), it is expressed as a percentage gain or loss in
the investment's value.
TRANSFER AGENT: An agent appointed by a mutual fund to maintain records of
shareholders, and issue share certificates.
TRUST: An arrangement that permits one party, the Trustee, to hold legal title
and control property for the benefit of another party, the beneficiary.
TURNOVER: Also called the PORTFOLIO TURNOVER RATE; the percentage change in
the assets held by the Fund due to its purchases and sales. A portfolio turn-
over rate of 100% means that the Fund has purchased and sold securities equal to
100% of the Fund's total net asset value for the year.
12B-1 DISTRIBUTION FEE: The fee a mutual fund charges shareholders to cover the
expenses the fund has for advertising, promoting, and selling shares in the
fund, also called distribution fee.
VARIABLE RATE MASTER NOTES: unsecured obligations, redeemable on notice, that
permit investment of varying amounts at varying interest rates according to an
agreement with the issuer.
<PAGE>
VOLATILITY: The measure of the rise and fall of the price of a security over a
stated period of time.
YIELD: The annual return on an investment (from dividends or interest)
expressed as a percentage of either cost or current price.
<PAGE>
[AAL LOGO APPEARS HERE]
The AAL Mutual Funds
----------------------------------------------------------------
222 West College Avenue, Appleton, WI 54919-0007
800-553-6319
Board of Trustees
- -------------------------------------------------------------------------------
John H. Pender D. W. Russler
Chairman of the Board F. Gregory Campbell
Richard L. Gady Richard L. Gunderson
Lawrence M. Woods
Officers
- -------------------------------------------------------------------------------
John H. Pender Robert G. Same
President Secretary
H. Michael Spence Terrance P. Gallagher
Vice President Treasurer
Investment Adviser & Distributor
- -------------------------------------------------------------------------------
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
Custodian, Transfer Agent & Disbursing Agent
- -------------------------------------------------------------------------------
Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
Independent Accountants
- -------------------------------------------------------------------------------
Price Waterhouse LLP
Suite 1500
100 East Wisconsin Avenue
Milwaukee, WI 53202
Legal Counsel
- -------------------------------------------------------------------------------
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE>
THE AAL MUTUAL FUNDS
222 West College Avenue
Appleton, WI 54919-0007
Telephone (414) 734-5721
STATEMENT OF ADDITIONAL INFORMATION
Dated, July 1, 1996
The AAL Small Cap Stock Fund: A Long-Term Capital Growth Investment in Small
Companies
The AAL Mid Cap Stock Fund: A Long-Term Capital Growth Investment in Mid-Sized
Companies (f/k/a The AAL Smaller Company Stock Fund)
The AAL Capital Growth Fund: A Conservative Stock Investment
The AAL Utilities Fund: A Public Utilities Investment
The AAL Bond Fund: A Quality Bond Investment
The AAL Municipal Bond Fund: A Tax-Exempt Investment
The AAL Money Market Fund: A Money Market Investment
This Statement of Additional Information is not a prospectus, but provides
additional information which should be read in conjunction with the Prospectus
of The AAL Mutual Funds dated , July 1, 1996 and any supplements thereto. The
Funds' Prospectus may be obtained at no charge by writing or telephoning your
AAL Capital Management Corporation Registered Representative or the Funds at the
address and telephone number above. Three additional series, The AAL
International Fund, The AAL U.S. Government Zero Coupon Bond Fund, Series 2001
and The AAL U.S. Government Zero Coupon Bond Fund, Series 2006, are described in
separate Prospectuses and Statements of Additional Information.
In this Statement of Additional Information, The AAL Mutual Funds may be
referred to as the "Trust," and The AAL Small Cap Stock Fund, The AAL Mid Cap
Stock Fund, The AAL Capital Growth Fund, The AAL Utilities Fund, The AAL Bond
Fund, The AAL Municipal Bond Fund and The AAL Money Market Fund may be referred
to collectively as the "Funds" or individually as a "Fund." Terms not otherwise
defined have the same meaning as in the Prospectus.
<PAGE>
TABLE OF CONTENTS
PAGE PROSPECTUS PAGE
Investment Objectives
and Policies...................................
Investment Techniques ...........................
Options and Futures..............................
Investment Restrictions..........................
Purchases & Redemptions;
Pricing Considerations.........................
Investment Advisory Services.....................
Compensation of Trustees.........................
Distributor......................................
Distribution Plan................................
Portfolio Transactions...........................
Dividends, Distributions
and Taxes......................................
Calculation of Yield and
Total Return...................................
General..........................................
Shareholder Maintenance Agreement................
Independent Accountants..........................
Appendix: Security Ratings.......................
Financial Statements.............................
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds' respective
investment objectives and policies described in the Prospectus. In pursuing
their respective objectives, each Fund invests as described below and employs
the investment techniques described in the Prospectus and elsewhere in this
Statement of Additional Information. Each Fund's investment objective is a
fundamental policy, which may not be changed without the approval of a "majority
of the outstanding voting securities" of that Fund. A "majority of the
outstanding voting securities" means the approval of the lesser of: (i) 67% or
more of the voting securities at a meeting if the holders of more than 50% of
the outstanding voting securities of a Fund are present or represented by proxy;
or (ii) more than 50% of the outstanding voting securities of a Fund.
THE AAL SMALL CAP STOCK FUND: A LONG-TERM CAPITAL GROWTH INVESTMENT IN SMALL
COMPANIES
This Fund seeks capital growth by investing primarily in a diversified portfolio
of common stocks, and securities convertible into common stocks, of small-sized
companies with a market capitalization of less than $1 billion.
The Fund is designed for long-term investors who are able to accept the risks
associated with seeking capital growth by investing in small companies.
THE AAL MID CAP STOCK FUND: A LONG-TERM CAPITAL GROWTH INVESTMENT IN MID-SIZED
COMPANIES
This Fund seeks capital growth by investing primarily in a diversified portfolio
of common stocks, and securities convertible into common stocks, of mid-sized
companies with a market capitalization of between $100 million and $5 billion,
focusing on those with a market capitalization of between $400 million and $3.5
billion. Prior to July 1, 1996, the AAL Midcap Stock Fund was known as The AAL
Smaller Company Stock Fund.
The Fund is designed for long-term investors who are able to accept the risks
associated with seeking capital appreciation by investing in mid-sized
companies.
THE AAL CAPITAL GROWTH FUND: A CONSERVATIVE STOCK INVESTMENT
This Fund seeks long-term capital growth by investing in a diversified portfolio
of equity securities, primarily common stocks and securities convertible into
common stocks. Although income is not an objective of the Fund, it is expected
that capital growth will be accompanied by growth in income.
<PAGE>
THE AAL UTILITIES FUND: A PUBLIC UTILITIES INVESTMENT
This Fund seeks current income, long-term growth of income and capital
appreciation, by investing primarily in a diversified portfolio of equity and
debt securities of companies in the public utilities industry.
THE AAL BOND FUND: A QUALITY BOND INVESTMENT
This Fund seeks a high level of current income, consistent with preservation of
capital, by investing primarily in a diversified portfolio of investment grade
bonds and other debt securities. Prior to July 1, 1992, The AAL Bond Fund was
known as The AAL Income Fund.
THE AAL MUNICIPAL BOND FUND: A TAX-EXEMPT INVESTMENT
This Fund seeks a high level of current income that is exempt from federal
income taxes, consistent with preservation of capital, by investing primarily in
a diversified portfolio of municipal securities.
THE AAL MONEY MARKET FUND: A MONEY MARKET INVESTMENT
This Fund seeks a high level of current income consistent with preservation of
capital and liquidity by investing in a diversified portfolio of high-quality,
short-term money market instruments.
INVESTMENT TECHNIQUES
Each of the Funds may use the techniques described in the Prospectus and in the
Statement of Additional Information in pursuit of its investment objective.
LENDING PORTFOLIO SECURITIES
Subject to restriction (4) under "Investment Restrictions," below, a Fund may
lend its portfolio securities to broker-dealers and financial institutions, such
as banks and trust companies. The Adviser will monitor the creditworthiness of
firms with which the Funds engage in securities lending transactions. Any such
loan must be continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the market value of
the securities loaned by the Fund. The Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return which may be in the form of
a fixed fee or a percentage of the collateral. The Fund would have the right to
call the loan and obtain the securities loaned at any time on notice of not more
than five business days. The Fund would not have the right to vote the
securities during the existence of the loan, but would call the loan to permit
voting of securities during the existence of the loan if, in the Adviser's
judgment, a material event requiring a shareholder vote would otherwise occur
before the loan was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses including: (a)
<PAGE>
possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
REPURCHASE AGREEMENTS
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, there may be delays and expenses in liquidating the securities,
decline in their value and loss of interest. The Funds maintain procedures for
evaluating and monitoring the creditworthiness of firms with which they enter
into repurchase agreements. No Fund may invest more than 10% of its total assets
in repurchase agreements maturing in more than seven days or in securities
subject to legal or contractual restrictions on resale.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
A Fund may purchase securities on a when-issued or delayed-delivery basis, as
described in the Prospectus. A Fund makes such commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for investment reasons.
At the time a Fund enters into a binding obligation to purchase securities on a
when-issued basis, liquid assets of the Fund having a value at least as great as
the purchase price of the securities to be purchased are identified on the books
of the Fund and held by the Funds' custodian throughout the period of the
obligation. The use of these investment strategies may increase net asset value
fluctuation.
RATED SECURITIES
For a description of the ratings applied by certain Nationally Recognized
Statistical Rating Organizations to debt securities, please refer to the
Appendix. The rated debt securities described under "Investment Objectives and
Policies" in the Prospectus for each Fund include securities given a rating
conditionally by Moody's or provisionally by Standard & Poor's or Duff & Phelps.
If the rating of a security held by a Fund is lost or reduced, the Fund is not
required to sell the security, but the Adviser will consider such fact in
determining whether that Fund should continue to hold the security. With respect
to The AAL Money Market Fund, however, the Fund will sell downgraded commercial
paper to the extent required to comply with Rule 2a-7 under the Investment
Company Act of 1940 (the "Act"). To the extent that the ratings accorded by
Nationally Recognized Statistical Rating Organizations for debt securities may
change as a result of changes in such organization, or changes in their rating
systems, a Fund will attempt to use comparable ratings as standards for its
investments in debt securities in accord with its investment policies.
<PAGE>
OPTIONS AND FUTURES
The Funds, except for The AAL Money Market Fund, may engage in options, futures
and options on futures transactions that constitute bona fide hedging or other
permissible risk management transactions. As the writer of a covered call
option, a Fund may forego, during the option's life, the opportunity to profit
from increases in the market value of the security covering the call option
above the sum of the premium and the exercise price of the call option. However,
if the market value of the security declines, writing a call option would reduce
the amount of any decline sustained to the extent of the premium income received
from the sale of the covered call option. Additionally, in periods when the
market is neutral or declining, additional incremental income can be achieved by
writing options and receiving the premiums. In addition, through the writing and
purchase of options and the purchase and sale of futures contracts and related
options, a Fund may at times seek to enhance current returns or to hedge against
a decline in the value of securities owned by it or an increase in the price of
securities which it plans to purchase.
If additional types of options, futures contracts, or futures options are traded
in the future, a Fund may also use those investment vehicles provided that the
Board of Trustees determines that their use is consistent with a Fund's
investment objective.
OPTIONS ON SECURITIES AND INDEXES
Options and futures may be purchased and sold on debt or other securities or
indexes in standardized contracts traded on national securities exchanges,
boards of trade, or similar entities, or quoted on NASDAQ. In addition,
agreements sometimes called cash puts may accompany the purchase of a new issue
of bonds from a dealer. Currently there are no publicly traded options on
tax-exempt securities.
An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (call) or sell to (put)
the writer of the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the term of the
option. The writer of an option on a security has the obligation upon exercise
of the option to deliver the underlying security upon payment of the exercise
price or to pay the exercise price upon delivery of the underlying security.
Upon exercise, the writer of an option on an index is obligated to pay the
difference between the cash value of the index and the exercise price multiplied
by the specified multiplier for the index option. (An index is designed to
reflect specified facets of a particular financial or securities market, a
specific group of financial instruments or securities, or certain economic
indicators.)
A Fund, except for The AAL Money Market Fund, will write call options and put
options only if they are "covered." In the case of a call option on a security,
the option is covered if a Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. For a
call option on an
<PAGE>
index, the option is covered if a Fund maintains with their custodian cash or
cash equivalents equal to the contract value. A call option also is covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call purchased is: (i) equal to or less than the exercise
price of the call; or (ii) greater than the exercise price of the call written
provided the difference is maintained by a Fund in cash or cash equivalents in
a segregated account with its custodian. A put option on a security or an index
is covered if a Fund maintains a cash or cash equivalents equal to the
exercise price in a segregated account with their custodian. A put option also
is covered if a Fund holds a put on the same security or index as the put
written where the exercise price of the put held is: (i) equal to or greater
than the exercise price of the put written; or (ii) less than the exercise
price of the put written, provided the difference is maintained by a Fund
in cash or cash equivalents in a segregated account with its custodian.
If an option written by a Fund expires, a Fund realizes a capital gain equal to
the premium received at the time the option was written. If an option purchased
by The Fund expires unexercised, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying security or index, exercise price, and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be effected
when a Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if the
cost of the closing option is less than the premium received from writing the
option, or, if it is more, a Fund will realize a capital loss. If the premium
received from a closing sale transaction is more than the premium paid to
purchase the option, a Fund will realize a capital gain or, if it is less, a
Fund will realize a capital loss. The principal factors affecting the market
value of a put or call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or index
and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset of a
Fund. The premium received for an option written by a Fund is recorded as a
deferred liability. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES
There are several risks associated with transactions in options on securities
and on indexes. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use
<PAGE>
options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. If a Fund were unable to close out an option that
it had purchased on a security, it would have to exercise the option in order to
realize any profit or the option may expire worthless. If a Fund were unable to
close out a covered call option that it had written on security, it would not be
able to sell the underlying security unless the option expires without exercise.
As the writer of a covered call option, a Fund forgoes, during the option's
life, the opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and the exercise
price of the call.
If trading were suspended in an option purchased by a Fund, a Fund would not be
able to close out the option. If restrictions on exercise were imposed, a Fund
might be unable to exercise an option it has purchased. Except to the extent
that a call option on an index written by a Fund is covered by an option on the
same index purchased by a Fund, movements in the index may result in a loss to a
Fund; however, such losses may be mitigated by changes in the value of a Fund's
portfolio securities during the period the option was outstanding.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A Fund may use interest rate and index futures contracts. An interest rate or
index futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index contract
was originally written. Although the value of an index might be a function of
the value of certain specified securities, no physical delivery of those
securities is made.
A public market exists in futures contracts covering a number of indexes as well
as the following financial instruments: U.S. Treasury bonds; U.S. Treasury
notes; GNMA certificates; three-month U.S. Treasury bills; 90 day commercial
paper; bank certificates of deposit; and Eurodollar certificates of deposit. It
is expected that other futures contracts will be developed and traded. A Fund
may engage in transactions involving new futures contracts (or options thereon)
if, in the opinion of the Board of Trustees, they are appropriate hedging
instruments for a Fund.
A Fund may purchase (and, if the Commodity Futures Trading Commission grants
certain regulatory relief, write) call and put futures options. Futures options
possess many of the same characteristics as options on securities and indexes. A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the
<PAGE>
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true.
As long as it is required by regulatory authorities having jurisdiction over a
Fund, it will limit its use of futures contracts and futures options to hedging
transactions. For example, a Fund might use futures contracts to hedge against
anticipated changes in interest rates that might adversely affect either the
value of a Fund's securities or the price of the securities which a Fund intends
to purchase. A Fund's hedging may include sales of futures contracts, as an
offset against the effect of expecteinincreases in interest rates, and purchases
of futures contracts as an offset against the effect of expected declines in
interest rates. Although other techniques could be used to reduce a Fund's
exposure to interest rate fluctuations, a Fund may be able to hedge its exposure
more effectively and perhaps at a lower cost by using futures contracts and
futures options.
The success of any hedging technique depends on the Adviser correctly predicting
changes in the level and direction of interest rates and other factors. Should
those predictions be incorrect, the Fund's return might have been better had
hedging not been attempted; however, in the absence of the ability to hedge, the
Adviser might have taken portfolio actions in anticipation of the same market
movements with similar investment results, but, presumably, at greater
transaction costs.
A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by a Fund, a Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to a Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. A Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day a Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Fund, but is instead a settlement between a
Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, a Fund will mark to market
its open futures positions.
A Fund also is required to deposit and maintain margin with respect to put and
call options on futures contracts written by it. Such margin deposits will vary
depending on the nature of
<PAGE>
the underlying futures contract (and the related initial margin requirements),
the current market value of the option, and other futures positions held by a
Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, a Fund realizes a capital
gain, or if it is more, a Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, a Fund realizes
a capital gain, or if it is less, a Fund realizes a capital loss. The
transaction costs must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures contracts and futures
options as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the portfolio securities being hedged. In addition,
there are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets, causing a
given hedge not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and debt securities, including technical
influences in futures and futures options trading and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures or futures options position and a Fund would
continue to be required to
<PAGE>
meet margin requirements until the position is closed. In addition, some of the
contracts discussed above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an active secondary
market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
A Fund will not enter into a futures contract or purchase an option thereon if,
immediately after, the initial margin deposits for futures contracts held by a
Fund plus premiums paid by it for open futures options positions, less the
amount by which any such positions are "in the money," would exceed 5% of a
Fund's total net assets. A call option is "in the money" if the value of the
futures contract that is the subject of the option exceeds the exercise price. A
put option is "in the money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
When purchasing a futures contract or writing a put on a futures contract, a
Fund must maintain with its custodian (or broker, if legally permitted) cash or
cash equivalents (including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, a Fund similarly
will maintain with its custodian cash or cash equivalents (including any margin)
equal to the amount such option is in the money until the option expires or is
closed out by a Fund.
A Fund may not maintain open short positions in futures contracts, call options
written on futures contracts or call options written on indexes if, in the
aggregate, the market value of all such open positions exceeds the current value
of the securities in its portfolio, plus or minus unrealized gains and losses on
the open positions, adjusted for the historical relative volatility of the
relationship between the portfolio and the positions. For this purpose, to the
extent a Fund has written call options on specific securities in its portfolio,
the value of those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission Rules and thereby
avoid being deemed a "commodity pool operator," the "underlying commodity
value," of each long position in a commodity contract in which a Fund invests
will not at any time exceed the sum of:
(l) The value of short-term U.S. debt obligations or other U.S. dollar-
denominated high-quality short-term money market instruments and
cash set aside in an identifiable manner, plus any funds deposited
as margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
(3) Cash proceeds from existing investments due in not more than 30
days.
<PAGE>
"Underlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.
As long as the Fund continues to sell its shares in certain states, the Fund's
options transactions will also be subject to some of the non-fundamental
restrictions set forth in this Statement of Additional Information.
TAXATION OF OPTIONS AND FUTURES
If a Fund exercises a call or put option it owns, the premium paid for the
option is added to the cost of the security purchased (call) or deducted from
the proceeds of the sale (put). For cash settlement options and futures options,
the difference between the cash received at exercise and the premium paid is a
capital gain or loss.
If a call or put option written by a Fund is exercised, the premium is included
in the proceeds of the sale of the underlying security (call) or reduces the
cost of the security purchased (put). For cash settlement options and futures
options, the difference between the cash paid at exercise and the premium
received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or loss.
If an option was "in the money" at the time it was written and the security
covering the option was held for more than one year prior to the writing of the
option, any loss realized as a result of a closing purchase transaction will be
long-term for federal tax purposes. The holding period of the securities
covering an "in the money" option will not include the period of time the option
is outstanding.
A futures contract held until delivery results in capital gain or loss equal to
the difference between the price at which the futures contract was entered into
and the settlement price on the earlier of delivery notice date or expiration
date. If a Fund delivers securities under a futures contract, a Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required to recognize as
income for each taxable year its net unrealized gains and losses as of the end
of the year on options, futures and futures options positions ("year-end mark to
market"). Generally, any gain or loss recognized with respect to such positions
(either by year-end mark to market or by actual closing of the positions) is
considered to be 60% long term and 40% short term, without regard to the holding
periods of the contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain positions (including
options, futures and futures options positions, the related securities and
certain successor positions thereto) may be deferred to a later taxable year.
Sale of futures contracts or writing of call options (or futures call options)
or buying put options (or futures put options) which are intended to hedge
against a change in the value of securities held by a Fund may affect the
holding period of the hedged securities.
<PAGE>
A Fund distributes to shareholders annually any net capital gains which have
been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on a Fund's other
investments and shareholders are advised of the nature of the payments.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND FORWARD FOREIGN EXCHANGE
CONTRACTS
A Fund may enter into certain option, futures, and forward foreign exchange
contracts which will be treated as Section 1256 contracts or straddles under the
Internal Revenue Code.
Transactions which are considered Section 1256 contracts will be considered to
have been closed at the end of a Fund's fiscal year and any gains or losses will
be recognized for tax purposes at that time. Such gains or losses and gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. A Fund will be
required to distribute net gains on such transactions to shareholders even
though it may not have closed the transaction and received cash to pay such
distribution.
Options, futures and forward foreign exchange contracts which offset a foreign
dollar denominated bond or currency position may be considered straddles for tax
purposes in which case a loss on any position in a straddle will be subject to
deferral to the extent of unrealized gain in an offsetting position.
In order for a Fund to continue to qualify for federal income tax treatment as a
regulated investment company, at least 90% of its gross income for a taxable
year must be derived from qualifying income (i.e., dividends, interest, income
derived from loans of securities, and gains from the sale of securities or
currencies). Pending tax regulations could limit the extent that net gains
realized from options, futures or foreign forward exchange contracts on
currencies are qualifying income for purposes of 90% requirement. In addition,
gains realized on the sale of other disposition of securities, including
options, futures or foreign forward exchange contracts on securities or
securities indices and, in some cases, currencies, held for less than three
months, must be limited to less than 30% of a Fund's annual gross income. In
order to avoid realizing excessive gains on securities or currencies held less
than three months, a Fund may be required to defer the closing out option,
futures or foreign forward exchange contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that the unrealized gains
on Section 1256 options, future and foreign forward exchange contracts, which
had been open for less than three months, as of the end of a Fund's fiscal year
and which are recognized for tax purposes, will be considered gains on
securities or currencies held for three months or more for purposes of the 30%
test.
<PAGE>
FOREIGN SECURITIES - THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL GROWTH AND
BOND FUNDS
The AAL Small Cap Stock Fund, The AAL Mid Cap Stock Fund and The AAL Capital
Growth Fund may invest in foreign securities, but only if such securities are
listed and traded on a U.S. national securities exchange. The AAL Bond Fund may
invest in debt securities of foreign issuers that are payable in U.S. dollars.
Foreign securities may represent a greater degree of risk (including risks
relating to tax provisions or expropriation of assets) than do securities of
domestic issuers. None of these Funds intends to invest more than 5% of its
total net assets in foreign securities.
FOREIGN SECURITIES - THE AAL UTILITIES FUND
The AAL Utilities Fund may invest up to 15% of its total net assets in foreign
securities. The Fund may also invest in foreign securities in domestic markets
through depository receipts and securities of foreign issuers that are traded on
a registered American stock exchange or the NASDAQ National Market System
without regard to those limitations. Foreign investments may involve risks that
are in addition to the risks inherent in U.S. securities. In many countries
there is less public information available about issuers and foreign companies
may not be subject to uniform accounting, auditing and financial reporting
standards. The value of foreign investments may rise or fall because of changes
in currency exchange rates, and the Fund may incur costs in converting
securities denominated in foreign currencies into U.S. dollars. Dividends and
interest on foreign securities may be subject to foreign withholding taxes,
which would reduce the Fund's income without providing a tax credit to
shareholders. Obtaining and enforcing judgments, when necessary, in foreign
countries may be more difficult and expensive than in the United States.
Although the Fund intends to invest in securities of issuers of stable and
developed countries, there is the possibility of expropriation, confiscatory
taxation, nationalization, currency blockage or political or social instability
that could affect investments in such countries.
FOREIGN CURRENCY TRANSACTIONS - THE AAL UTILITIES FUND
Forward Foreign Currency Contracts. To manage the currency risk accompanying
investments in foreign securities and to facilitate the purchase and sale of
foreign securities, The AAL Utilities Fund may engage in foreign currency
transactions on a spot (cash) basis at the spot rate prevailing in the foreign
currency exchange market or through entering into contracts to purchase or sell
foreign currencies at a future date ("forward foreign currency" contracts or
"forward" contracts).
A forward foreign currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the inter-bank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally
<PAGE>
has no deposit requirement and no commissions are charged at any stage for
trades. When The AAL Utilities Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying security transaction, the Fund will
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which the payment is made or received.
When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell for a fixed amount of the foreign currency
approximating the value of some or all of The AAL Utilities Fund's portfolio
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult and the successful execution of a short-term hedging
strategy is highly uncertain. The Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate The AAL Utilities Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other
asset's denominated in that currency. Under normal circumstances, consideration
of the prospect for currency parties will be incorporated into the long term
investment decisions made with regard to overall diversification strategies.
However, the Adviser believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interests of
The AAL Utilities Fund will be served.
At the maturity of a forward contract, The AAL Utilities Fund may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of foreign currency.
If The AAL Utilities Fund retains the portfolio security and engages in an
offsetting transaction, The AAL Utilities Fund will incur a gain or a loss to
the extent that there has been movement in forward contract prices. If The AAL
Utilities Fund engages in an offsetting transaction, it may subsequently enter
into a forward contract to sell the foreign currency. Should forward prices
decline during the period between The AAL Utilities Fund's entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, The AAL
Utilities Fund will realize a gain to the extent the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, The AAL Utilities Fund
<PAGE>
will suffer a loss to the extent that the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of securities at
the expiration of a forward contract. Accordingly, it may be necessary for The
AAL Utilities Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency The AAL Utilities Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency The AAL Utilities Fund
is obligated to deliver.
The AAL Utilities Fund's dealings in forward foreign currency exchange contracts
will be limited to the transactions described above. The AAL Utilities Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities.
Although The AAL Utilities Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to The AAL Utilities Fund at one rate, while offering a lesser rate of exchange
should The AAL Utilities Fund desire to resell that currency to the dealer.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES - THE AAL UTILITIES FUND
Currency futures contracts are similar to forward foreign currency contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.
The uses and risks of currency options and futures are similar to options and
futures relating to securities or indices, as discussed above. The AAL Utilities
Fund may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The AAL Utilities Fund may also purchase and write currency options in
conjunction with the currency futures or forward contracts of another series of
the Funds. Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of the
respective Fund's investments. A currency hedge, for example, should protect a
Yen-denominated
<PAGE>
security from a decline in the Yen, but will not protect The AAL Utilities Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of The AAL Utilities Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of The AAL Utilities Fund's investments exactly over
time.
PRIVATELY ISSUED SECURITIES: THE AAL MONEY MARKET FUND
Securities in which The AAL Money Market Fund may invest include securities
issued by major corporations without registration under the Securities Act of
1933 in reliance on certain exemptions, including the "private placement"
exemption afforded by Section 4(2) of that Act. Section 4(2) paper is restricted
as to disposition under the federal securities laws in that any resale must be
made in an exempt transaction. This paper normally is resold to other
institutional investors through or with the assistance of investment dealers who
make a market in it, thus providing liquidity. In the opinion of the Adviser,
Section 4(2) paper is no less liquid or salable than commercial paper issued
without legal restrictions on disposition. However, regulatory interpretations
currently in effect require that the Fund will not purchase Section 4(2) paper
if more than 10% of its total assets would consist of such paper and illiquid
(including restricted) securities. In addition, this Fund will comply with Rule
2a-7 as it may apply to privately issued securities.
VARIABLE RATE DEMAND NOTES--THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL
GROWTH, BOND AND MONEY MARKET FUNDS
The AAL Small Cap Stock, Mid Cap Stock, Capital Growth, Bond and Money Market
Funds (subject to Rule 2a-7) may purchase variable rate master demand notes,
which are unsecured instruments that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate. Although the notes
are not normally traded and there may be no secondary market in the notes, the
Funds may demand payment of principal at any time. The notes purchased by the
Funds must be rated in one of the two highest rating categories by a Nationally
Recognized Statistical Rating Organization or that have been issued by an issuer
that has received a rating from the requisite Nationally Recognized Statistical
Rating Organizations, in the top categories with respect to a class of
short-term debt obligations that is now comparable in priority and security with
the instrument. If an issuer of a variable rate master demand note defaulted on
its payment obligation, the Funds might be unable to dispose of the note because
of the absence of a secondary market and might, for this or other reasons,
suffer a loss to the extent of the default. The Funds invest in variable rate
master demand notes only when the investment adviser deems the investment to
involve minimal credit risk.
PRIVATE MORTGAGE-BACKED SECURITIES -- THE AAL BOND FUND
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other private issuers also create pass-through
pools of conventional
<PAGE>
residential mortgage loans. Timely payment of principal and interest of these
pools is supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. There can be no assurance
that private insurers or guarantors can meet their obligations under these
policies.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
An investment by a Fund in other investment companies, which is limited by
fundamental investment restriction 14 below, may cause the Fund to increase
payments of administration and distribution expenses.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment restrictions. A Fund may not:
(1) invest more than 5% of its total net assets (taken at value at the
time of each investment) in the securities (including repurchase
agreements) of any one issuer (for this purpose, the issuer(s) of a debt
security being deemed to be only the entity or entities whose assets or
revenues are subject to the principal and interest obligations of the
security), except that up to 25% of its net assets may be invested
without regard to this limitation and provided that such restrictions
shall not apply to obligations issued or guaranteed by the U.S.
Government or a Federal agency;
(2) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities,
but a Fund may make margin deposits in connection with transactions in
options, futures and options on futures;
(3) make short sales of securities or maintain a short position, or
write, purchase, or sell puts, calls, straddles, spreads, or
combinations thereof, except for the described transactions in options,
futures and options on futures;
(4) make loans to other persons, except that the Fund reserves freedom
of action, consistent with its other investment policies and
restrictions and as described in the Prospectus and this Statement, to:
(a) invest in debt obligations, including those which are either
publicly offered or of a type customarily purchased by institutional
investors, even though the purchase of such debt obligations may be
deemed the making of loans; (b) enter into repurchase agreements; and
(c) lend portfolio securities, provided that the Fund may not loan
securities if, as a result, the aggregate value of all securities loaned
would exceed 33% of its total assets (taken at market value at the time
of such loan);
(5) issue senior securities or borrow, except that the Fund may borrow
in amounts not in excess of 10% of its total net assets, taken at
current value, and then only from banks as a temporary measure for
extraordinary or emergency purposes (the Funds will
<PAGE>
not borrow to increase income, but only to meet redemption requests
which otherwise might require untimely dispositions of portfolio
securities; interest paid on any such borrowings will reduce net
income);
(6) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by a Fund except as may
be necessary in connection with and subject to the limits in
restriction;
(7) underwrite any issue of securities, except to the extent that the
purchase of securities directly from an issuer thereof in accord with a
Fund's investment objectives and policies may be deemed to be
underwriting or to the extent that in connection with the disposition of
portfolio securities a Fund may be deemed an underwriter under federal
securities laws;
(8) purchase or sell real estate, or real estate limited partnership
interests provided that a Fund may invest in securities secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein;
(9) purchase or sell commodities or commodity contracts except that a
Fund may purchase or sell futures and options thereon for hedging
purposes as described in this Statement;
(10) invest more than 25% of its total net assets (taken at current
value at the time of each investment) in securities of non-governmental
issuers whose principal business activities are in the same industry,
except for The AAL Utilities Fund;
(11) invest in oil, gas or mineral related programs or leases; except as
may be included in the definition of public utility;
(12) invest in repurchase agreements maturing in more than seven days or
in other securities with legal or contractual restrictions on resale if,
as a result thereof, more than 10% of a Fund's total net assets (taken
at current value at the time of such investment) would be invested in
such securities;
(13) invest in any security if as a result a Fund would have more than
5% of its total net assets invested in securities of companies which,
together with any predecessors have been in continuous operation for
less than three years;
(14) purchase securities of other investment companies, if the purchase
would cause more than 10% of the value of a Fund's total net assets to
be invested in investment company securities provided that: (a) no
investment will be made in the securities of any one investment company
if immediately after such investment more than 3% of the outstanding
voting securities of such company would be owned by a Fund or more than
5% of the value of a Fund's total net assets would be invested in such
company; and
<PAGE>
(b) no restrictions shall apply to a purchase of investment company
securities in connection with a merger, consolidation acquisition or
reorganization; or
(15) purchase more than 10% of the outstanding voting securities of an
issuer or invest for the purpose of exercising control or management.
Each of the above restrictions (1) through (15), as well as each Fund's
investment objective, is a fundamental policy. In addition, each Fund may not,
so long as it publicly offers its shares for sale in certain states: (a) buy or
sell a call option unless (i) the option is issued by the Options Clearing
Corporation, an exchange, NASDAQ or similar entity and (ii) the security
underlying the option is listed on an exchange or similar entity or is a U.S.
Government or Federal agency obligation; (b) invest more than 5% of its net
assets (valued at the time of investment) in warrants, nor more than 2% of its
net assets in warrants which are not listed on the New York or American stock
exchange; (c) write a put option except as a closing transaction or purchase a
put option if the aggregate premiums paid for all such options exceed 2% of its
net assets (less the amount by which any such positions are in the money),
excluding puts purchased as closing transactions; (d) purchase or retain
securities of any issuer if 5% of the securities of such issuer are owned by
those officers and directors of the Fund or by partners of its Adviser who own
individually more than 1/2 of 1% of its securities; (e) invest more than 5% of
its total net assets in securities restricted from selling to the public without
registration under the Securities Act of 1933; or (f) with regard to The AAL
Money Market Fund, invest in warrants or other mutual fund shares not in
connection with a merger, consolidation or reorganization.
PURCHASES AND REDEMPTIONS; PRICING CONSIDERATIONS
Purchases and redemptions are discussed in the Prospectus under the headings
"How to Buy Shares," "How to Sell (Redeem) Shares," and "Net Asset Value," and
that information is incorporated herein by reference.
The Funds' net asset value is determined only on the days on which the New York
Stock Exchange is open for trading. That Exchange is regularly closed on
Saturdays and Sundays and on New Years' Day, the third Monday in February, Good
Friday, the last Monday in May, 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.
Reliable market quotations are not considered to be readily available for many
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
<PAGE>
Generally, trading in U.S. Government Securities and other fixed income
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
determining the net asset value of a Fund's shares are computed as of such
times. Occasionally, events affecting the value of such securities may occur
between such times and the close of the New York Stock Exchange, which events
will not be reflected in the computation of a Fund's net asset value. If events
materially affecting the value of the Trust's securities occur during such a
period, then these securities will be valued at their fair value as determined
in good faith by the Trustees.
The Funds intend to pay all redemptions in cash and are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur brokerage fees in selling the securities
received in the redemptions.
Each Fund reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that the Exchange is
closed for other than customary weekend and holiday closings; (b) the Securities
and Exchange Commission has by order permitted such suspension; or (c) an
emergency, as determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable.
THE AAL MONEY MARKET FUND-AMORTIZED COST VALUATION
The AAL Money Market Fund values its portfolio securities on the basis of their
amortized cost. Amortized cost is an approximation of market value, whereby the
difference between acquisition cost and value at maturity is amortized on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account and thus the amortized cost method of valuation
may result in the value of a security being higher or lower than its actual
market value. In addition, if a large number of redemptions take place at a time
when interest rates have increased, the Fund may have to sell portfolio
securities prior to maturity and at a price which might not be as desirable.
Although there is no assurance that it will be able to do so, the Fund will use
its best efforts to maintain a constant net asset value of $1.00 per share for
purchases and redemptions. The Board of Trustees has established procedures for
this purpose, which procedures include a review of the extent of any deviation
of net asset value per share, based on available market quotations, from the
$1.00 amortized cost per share. Should that deviation exceed 1/2 of 1% for the
Fund, the Board of Trustees will promptly consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio
<PAGE>
securities prior to maturity, reducing or withholding dividends, and utilizing a
net asset value per share as determined by using available market quotations.
The Fund will maintain a dollar-weighted average portfolio maturity of 90 days
or less and will not purchase any instrument deemed to have a remaining maturity
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those dollar denominated instruments that the Board of Trustees
determines present minimal credit risks as advised by the Adviser, and will
comply with the requirements as to the quality of certain portfolio securities
specified by the SEC for money market funds using the amortized cost method of
valuation and with certain reporting and record keeping procedures. There is no
assurance that constant net asset value can be maintained at all times. In the
event amortized cost ceases to represent fair value, the Board will take
appropriate action.
LETTER OF INTENT
Under a Letter of Intent, as described in the Prospectus, shares totaling 5% of
the dollar amount indicated in the letter will be held in escrow by the Transfer
Agent in the name of the purchaser. The Letter of Intent does not obligate the
investor to purchase, nor a Fund to sell, the indicated amount. In the event the
Letter of Intent goal is not achieved within the 13- month period, the Purchaser
is required to pay the difference between the sales commission otherwise
applicable to the purchases made during this period and sales charges actually
paid. The Distributor will liquidate sufficient escrowed shares to obtain such
difference after expiration of the Letter of Intent.
<PAGE>
INVESTMENT ADVISORY SERVICES
Please refer to the description of the Adviser, Advisory Agreement and
Fees under "Management of the Trust" in the Prospectus, which is
incorporated herein by reference.
The following Executive Officers of the Trust also serve as officers or
directors of the Adviser as shown below:
John H. Pender President and Trustee; Director of AAL
4321 N. Ballard Road Capital Management Corporation since
Appleton, Wisconsin 54919-0001 1986; Prior to January 1, 1996, Senior
Vice President and Chief Investment
Officer, Aid Association for Lutherans
(fraternal benefit society), and prior
to 1992, Treasurer
H. Michael Spence Vice President; President of AAL Capital
222 West College Avenue Management Corporation since 1994, Vice
Appleton, WI 54919-0007 President 1991 to 1994, and Director
from 1988 to 1991
Robert G. Same Secretary; Director, Senior Vice Presi-
222 West College Avenue dent and Secretary of AAL Capital
Appleton, WI 54919-0007 Management Corporation since 1987
Terrance P. Gallagher Treasurer; Chief Financial Officer of
222 West College Avenue AAL Capital Management Corporation since
Appleton, WI 54919 1994, Senior Vice President since 1987
and Comptroller since 1992
<PAGE>
COMPENSATION OF THE BOARD OF TRUSTEES
The Fund makes no payments to any of its officers for services. However, any of
the Trustees who are not officers or employees of the adviser or its parent are
paid, by The AAL Mutual Funds, an annual fee of $10,000 and a fee of $1,000 per
meeting. These fees are assessed ratably to each series of The AAL Mutual Funds,
including The AAL International Fund. Trustees are reimbursed by The AAL Mutual
Funds for any expenses they may incur by reason of attending such meetings or in
connection with services they may perform for The AAL Mutual Funds. For the
fiscal year ended April 30, 1996, The AAL Mutual Funds paid an aggregate of
$_______ in Trustees' fees and expenses.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Pension or
Retirement Total
Benefits Compensation
Received Accrued Estimated from
Capacities in During Annual Registrant
Which Registrant's Benefits and Fund
Name of Remuneration Aggregate Last Fiscal Upon Complex paid
Person Received Remuneration Year Retirement to Trustees (1)
------ -------- ------------ ---- ---------- ---------------
<S> <C> <C> <C> <C> <C>
John H. Trustee - - - -
Pender, DOB
5/25/30
Richard L. Trustee - - - -
Gunderson,
DOB 6/14/33
F. Gregory Trustee $______ - - $______
Campbell,
DOB
12/16/39
Richard L. Trustee $______ - - $______
Gady, DOB
2/28/43
D. W. Trustee $______ - - $______
Russler, DOB
10/28/28
Lawrence M. Trustee $______ - - $______
Woods, DOB
4/14/32
<FN>
(1) The Fund complex includes the AAL Variable Product Series Fund, Inc.
</FN>
</TABLE>
<PAGE>
The Adviser furnishes the Fund, at the Adviser's expense, with all office space
and facilities, equipment and clerical personnel necessary for carrying out its
duties under the Advisory Agreement. The Adviser also will pay all compensation
of Trustees, officers and employees of the Trust who are affiliated persons of
the Adviser. All costs and expenses not expressly assumed by the Adviser under
the Advisory Agreement are paid by the Fund, including, but not limited to: (a)
interest and taxes; (b) brokerage commissions; (c) insurance premiums; (d)
compensation and expenses of its Trustees other than those affiliated with the
Adviser; (e) legal and audit expenses; (f) fees and expenses of the Trust's
custodian and transfer agent; (g) expenses incident to the issuance of the
Trust's shares, including stock certificates and issuance of shares on the
payment of, or reinvestment of, dividends; (h) fees and expenses incident to the
registration under Federal or state securities laws of the Trust or its shares;
(i) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust; (j) all other expenses incidental to
holding meetings of the Trust's shareholders; (k) dues or assessments of or
contributions to the Investment Company Institute or its successor, or other
industry organizations; (l) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust may
have to indemnify its officers and Trustees with respect thereto; and (m) all
expenses which the Trust agrees to bear in any distribution agreement or in any
plan adopted by the Trust pursuant to Rule 12b-1 under the Act.
The Adviser has agreed to reimburse each of the Funds monthly to the extent that
total annual expenses (excluding taxes, interest and brokers' commissions and
other normal charges incident to the purchase and sale of portfolio securities,
but including fees paid to the Adviser) that exceed the applicable limits
prescribed by any state in which the shares of such Fund are being offered for
sale. The Funds believe that currently the most restrictive state limits on
annual expenses during any fiscal year are 2-1/2% of a Fund's average daily net
assets up to $30 million, 2% of the next $70 million and 1-1/2% thereafter. The
Adviser reimbursed annual expenses in excess of 1.6% for The AAL Utilities Fund
through April 30, 1994. In addition, the Adviser voluntarily assumed annual
expenses of The AAL Bond Fund in excess of 0.70 of 1% of average daily net
assets of the Fund for the period September 19, 1987 through March 31, 1988,
0.80 of 1% of average daily net assets for the period April 1, 1988, through
January 31, 1989, 0.90 of 1% of average daily net assets from February 1, 1989,
through July 31, 1989, and 1.0% of average daily net assets from August 1, 1989
through December 31, 1991. The Adviser reimbursed The AAL Money Market Fund for
all expenses of that Fund in excess of the following percentages of average
daily net assets, for the dates indicated: all expenses, March 1988; .10 of 1%,
April 1988; .20 of 1%, May 1 through July 31, 1988; .30 of 1%, August 1, 1988;
.50 of 1%, September 1 through October 3, 1988; .60 of 1%, October 4 through 16,
1988; .70 of 1%, October 17, 1988, through January 31, 1989; .80 of 1%, February
1 through 14, 1989; .90 of 1%, February 15 through 28, 1989; and 1.0%, March 1,
through May 30, 1989. The Adviser reimbursed The Money Market Fund by waiving
.10 of its Advisory fee (to .30 of 1%), from August 19, 1992 and waiving the
entire advisory fee from November 1, 1995. These waivers are voluntary and may
be discontinued at any time. The Adviser reimbursed The AAL Municipal Bond Fund
for all expenses of that Fund in excess of .80 of 1% of average daily net assets
for the period
<PAGE>
August 1, 1988 through January 31, 1989, and in excess of .90 of 1% of average
daily net assets from February 1, 1989 through December 31, 1991. The assumption
of expenses may be initiated, modified or discontinued by the Adviser, for any
Fund, at any time. The Funds have paid advisory fees to the Adviser for the past
three fiscal years ended April 30, 1996 as follows:
<TABLE>
<CAPTION>
The AAL The AAL The AAL The AAL The AAL
For the Small Cap Mid Cap Capital The AAL The AAL Municipal Money
Year Stock Stock Growth Utilites Bond Bond Market
Ended Fund Fund Fund Fund Fund Fund Fund
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, N/A $456.993 $5,418,238 $3,374 $2,430,869 $1,924,353 $363,583
1994
April 30, N/A $1,443,406 $5,910,666 $260,436 $2,448,730 $2,134,525 $335.173
1995
April 30, N/A $_____ $_____ $_____ $_____ $_____ $_____
1996
</TABLE>
Prior to November 1, 1995, the Adviser paid sub-advisory fees from the Advisory
fees received.
The Advisory Agreement provides that subject to Section 36 of the Act, the
Adviser shall not be liable to the Trust for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Trust and the performance of its duties under the
Agreement except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreements.
The Trust has agreed to use its best efforts to change its name if the Adviser
ceases to act as such with respect to the Fund and the continued use of the
Trust's present name would create confusion in the context of the Adviser or its
parent's business.
The Investment Advisory Agreement was approved by the Board of Trustees,
including a majority of the Trustees who were not interested persons (as defined
in the Act) of any party to the agreement on August 21, 1990, and was approved
by the shareholders of The AAL Municipal Bond Fund on November 27, 1990, and The
AAL Capital Growth, Bond and Money Market Funds on December 20, 1990. The
Agreement was approved for The AAL Utilities Fund by the Board of Trustees on
February 24, 1994, and the sole shareholder on March 18, 1994. The Advisory
Agreement for The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock
Fund) was approved by the Board of Trustees, including a majority of the
Trustees who were not interested persons (as defined in the Act) of any party to
the Agreement on May 18, 1993, and was approved by the sole shareholder on June
30, 1993. On October 16, 1995, the Board of Trustees approved the assumption of
the duties of the sub-advisers, Duff & Phelps Investment Management Co., and
Pilgrim Baxter & Associates Ltd., by the Adviser and approved reductions in the
advisory fees. The Agreement will
<PAGE>
continue in effect from year to year only so long as such continuances are
specifically approved at least annually by the Board of Trustees including a
majority of the Trustees who are not interested persons (as defined in the Act).
The Advisory Agreement is terminable upon assignment or at any time without
penalty by the Board of Trustees or by vote of the holders of a majority of the
outstanding voting securities of the Trust, with respect to any Fund by the vote
of a majority of the outstanding shares of such Fund, or by the Adviser on 60
days' written notice to the Trust.
DISTRIBUTOR
AAL Capital Management Corporation is the exclusive underwriter for the Funds
under a written Distribution Agreement with the Funds. The underwriter offers
the shares of the Funds for sale on a continuous basis through its field sales
force. The aggregate underwriting commissions received and the amount of
commissions retained by the underwriterfor the past three years ended April 30,
1996 were as follows:
For Fiscal Year Ended Aggregate Commissions Retained Commissions
April 30, 1994 $25,776,162 $4,846,750
April 30, 1995 $13,705,723 $837,983
April 30, 1996
The underwriter received no compensation in connection with redemptions and
repurchases and no brokerage commissions. AAL Capital Management Corporation
also acts as exclusive underwriter for three additional series of The AAL Mutual
Funds: The AAL U.S. Government Zero Coupon Target Fund, Series 2001; The AAL
U.S. Government Zero Coupon Target Fund, Series 2006; and The AAL International
Fund.
DISTRIBUTION PLAN
The Trust's Distribution Plan (the "Plan") is a written plan contemplated by
Rule 12b-1 (the "Rule") under the Act.
The Plan authorizes the distributor to make certain payments to any qualified
recipient, as defined in the Plan, that has rendered assistance in the
distribution of the Fund's shares (such as sale or placement of the Fund's
shares, or administrative assistance, such as maintenance of sub-accounting or
other records). The Plan also authorizes the Distributor to purchase advertising
for shares of the Funds, to pay for sales literature and other promotional
material, and to make payments to its sales personnel. Any such payments to
qualified recipients or expenses will be reimbursed or paid by the Funds, up to
a limit of 0.25 of 1% of the average net assets (0.125 of 1% for The AAL Money
Market Fund) in a given
<PAGE>
fiscal year. Since August 19, 1992 and October 1, 1992, the Distributor has
reimbursed The AAL Money Market Fund .025 and the entire .125, respectively, of
the 12b-1 fees. This continuing reimbursement is voluntary and may be modified
or discontinued at any time. No reimbursement or payment may be made for
expenses of past fiscal years or in contemplation of expenses for future fiscal
years.
The Plan states that if and to the extent that any of the payments by a Fund are
considered to be "primarily intended to result in the sale of shares" issued by
a Fund within the meaning of the Rule, such payments by a Fund are authorized
without limit under the Plan and shall not be included in the limitations
contained in the Plan: (a) the costs of the preparation, printing and mailing of
all required reports and notices to shareholders, irrespective of whether such
reports or notices contain or are accompanied by material intended to result in
the sale of shares of the Fund or other funds or other investments; (b) the
costs of preparing, printing and mailing of all prospectuses to shareholders;
(c) the costs of preparing, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement includes any item
relating to, or directed toward, the sale of the Fund's shares; (d) all legal
and accounting fees relating to the preparation of any such reports,
prospectuses, proxies and proxy statements; (e) all fees and expenses relating
to the qualification of the Funds and or their shares under the securities or
"Blue Sky" laws of any jurisdiction; (f) all fees under the Act and the
Securities Act of 1933, including fees in connection with any application for
exemption relating to or directed toward the sale of the Fund's shares; (g) all
fees and assessments of the Investment Company Institute or any successor
organization or industry association irrespective of whether some of its
activities are designed to provide sales assistance; (h) all costs of preparing
and mailing confirmations of shares sold or redeemed or share certificates and
reports of share balances; and (i) all costs of responding to telephone or mail
inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution of the
Trust's shares are expected to exceed the sum of permitted payments, permitted
expenses, and the portion of the sales charge retained by the Distributor, and
that the profits, if any, of the Adviser are dependent primarily on the advisory
fees paid by the Fund to the Adviser. If and to the extent that any investment
advisory fees paid by the Funds might, in view of any excess distribution costs
and the common ownership of the Adviser and Distributor, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by the Funds, the payment of such fees is authorized under
the Plan. The Plan states that in taking any action contemplated by Section 15
of the Act as to any investment advisory contract to which the Trust is a party,
the Board of Trustees, including its Trustees who are not "interested persons"
as defined in the Act, and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan ("Qualified
Trustees"), shall, in acting on the terms of any such contract, apply the
"fiduciary duty" standard contained in Sections 36(a) and (b) of the Act.
The Plan requires that while it is in effect the Distributor shall report in
writing at least quarterly to the Trustees, and the Trustees shall review, the
following: (a) the amounts of all
<PAGE>
payments, the identity of recipients of each such payment, the basis on which
each such recipient was chosen and the basis on which the amount of the payment
was made; (b) the amounts of expenses and the purpose of each such expense; and
(c) all costs of the other payments specified in the Plan (making estimates of
such costs where necessary or desirable) in each case during the preceding
calendar or fiscal quarter. The aggregate amount paid by the Funds to the
Distributor under the Plan for the fiscal year ended April 30, 1996, and the
manner in which this amount was spent is as follows:
Gross 12b-1 fees paid by the Funds
Expenditures
Compensation to Registered
Representatives
Other
Management and the Board of Trustees believe that the Distribution Plan and
12b-1 fees have a positive impact on sales of the Funds, and the retention of
Fund assets, both of which are beneficial to the Funds and the Funds'
shareholders.
The Plan was approved by shareholders of the Trust at the Trust's first meeting
of shareholders held on September 13, 1988. The Plan will continue in effect
from year-to-year only so long as such continuance is specifically approved at
least annually by the Board of Trustees and the Qualified Trustees (as defined
in the Plan) cast in person at a meeting called for the purpose of voting on
such continuance. The Plan was most recently approved on February 28, 1996, by a
vote of the Board of Trustees and of the Qualified Trustees, at a meeting
called for the purpose of voting on the Plan. The Plan may be terminated
at any time without penalty by a vote of a majority of the Qualified Trustees or
by the vote of the holders of a majority of the outstanding voting securities
of the Trust, with respect to any Fund by the vote of a majority of the out-
standing shares of such Fund. The Plan may not be amended to increase
materially the amount of payments to be made without shareholder approval.
While the Plan is in effect, the selection and nomination of those Trustees who
are not interested persons of the Trust is committed to the discretion of such
disinterested Trustees. Nothing in the Plan will prevent the involvement of
others in such selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such disinterested
Trustees.
PORTFOLIO TRANSACTIONS
The Adviser directs the placement of orders for the purchase and sale of the
Funds' portfolio securities.
The costs of securities transactions for each Fund will consist primarily of
brokerage commissions or dealer or underwriter spreads. Bonds and money market
instruments are
<PAGE>
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the sellers who make
a market in the securities will be dealt with directly unless better prices and
execution are available elsewhere. Such dealers usually act as principals for
their own account. In placing portfolio transactions, the Adviser seeks the best
combination of price and execution.
In determining which brokers provide best execution, the Adviser looks primarily
to the stock price quoted by the broker, and normally places orders with the
broker through which the most favorable price can be obtained. It is expected
that securities will ordinarily be purchased in the primary markets, and that in
assessing the best net price and execution available to a Fund, the Adviser will
consider all factors it deems relevant, including the breadth or the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis). Although it is
expected that sales of shares of the Funds will be made only by the Distributor,
the Adviser may in the future consider the willingness of particular brokers to
sell shares of the Funds as a factor in the selection of brokers for the Funds'
portfolio transactions, subject to the overall best price and execution
standard.
Assuming equal execution capabilities, other factors may be taken into account
in selecting brokers or dealers to execute particular transactions and in
evaluating the best net price and execution available. The Adviser may consider
"brokerage and research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934), statistical quotations, specifically
the quotations necessary to determine the Funds' net asset values, and other
information provided to the Funds, to the Adviser (or their affiliates). The
Adviser may also cause a Fund to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. The Adviser must
determine, in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular transaction or in terms of all the accounts over which
the Adviser exercises investment discretion. It is possible that certain of the
services received by the Adviser attributable to a particular transaction will
benefit one or more other accounts for which investment discretion is exercised
by the Adviser. The Funds' paid, $155,000, $1,108,673 and $_______ in brokerage
commissions in each of the past 3 years.
DIVIDENDS, DISTRIBUTIONS AND TAXES
THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL GROWTH, UTILITIES, BOND AND
MONEY MARKET FUNDS
<PAGE>
Each of these Fund's dividends from net investment income together with
distribution of short-term capital gains (collectively "income dividends") are
taxable as ordinary income to shareholders whether paid in additional shares or
in cash. Any long-term capital gains ("capital gains distributions") distributed
to shareholders are treated as such by the shareholders, whether received in
cash or in additional shares, regardless of the length of time a shareholder has
owned the shares. These five Funds intend to distribute substantially all their
net investment income and net realized long- term capital gains in order to
avoid imposition of federal income and excise tax liability. The AAL Small Cap
Stock Fund and The AAL Mid Cap Stock Fund expects to pay any dividends annually;
The AAL Capital Growth Fund expects to pay any dividends semi-annually and The
AAL Utilities Fund expects to pay any dividends quarterly. The AAL Bond and The
AAL Money Market Funds will accrue income dividends daily and expect to pay
these dividends monthly. These Funds expect to distribute long-term capital
gains, if any, at least annually.
THE AAL MUNICIPAL BOND FUND
This Fund expects to accrue income dividends daily and to distribute to
shareholders all of its net investment income in monthly dividends and net
realized capital gains, if any, at least annually. Dividends derived from the
interest earned on municipal securities constitute "exempt-interest dividends"
and are generally not subject to federal income tax. Distributions of net
realized long-term capital gain (whether from tax-exempt or taxable securities)
are taxable to shareholders at ordinary income rates. The federal income tax
status of all distributions will be reported to shareholders annually. Such
report will allocate income dividends between tax-exempt and taxable income (if
any) in approximately the same proportions as the Fund's total income during the
year. Accordingly, income derived from each of these sources by the Fund may
vary substantially in any particular distribution period from the allocation
reported to shareholders annually.
Interest on borrowings a shareholder incurs to purchase or carry shares of this
Fund is not deductible for federal income tax purposes. Shareholders may be
subject to state and local taxes on dividends from this Fund, including those
which are exempt from federal income tax.
Entities or persons who are "substantial users" (or persons who are related to
"substantial users") of facilities financed by industrial revenue bonds should
consult their tax advisors before purchasing shares of The AAL Municipal Bond
Fund. For these purposes, the term "substantial user" is defined generally to
include a "non-exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of industrial development revenue bonds.
The 1986 Tax Reform Act subjects tax-exempt interest attributable to certain
"private activity bonds" (including, in the case of a regulated investment
company receiving interest on such bonds, a proportionate part of the
exempt-interest dividends paid by that company) to the individual and corporate
alternative minimum tax and possibly subjects exempt-interest
<PAGE>
dividends received by a corporate shareholder of such company to the alternative
minimum tax without regard to whether the investment company's tax-exempt
interest was attributable to such bonds. However, the Fund will not invest more
than 20% of its assets in such private activity bonds. Moreover, certain
corporate shareholders may be subject to a federal "environmental" tax with
respect to their receipt of dividends and distributions. The Omnibus Budget
Reconciliation Act of 1993 provides that market discount on tax-exempt bonds
purchased after April 30, 1993 is to be classified as ordinary upon sale or
other disposition of the bond; thereby creating the possibility that the Fund
may distribute taxable income to shareholders.
Because capital gain distributions paid by any of the Funds reduce net asset
value, if a shareholder purchases shares shortly before a record date he will,
in effect, receive a portion of his investment in such distribution. The
distribution nonetheless would be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income tax purposes the
shareholder's original cost would continue as his tax basis.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders. Investors are urged to consult their
tax advisors with specific reference to their own tax situations, including
state and local tax liability.
CALCULATION OF YIELD AND TOTAL RETURN
From time to time the Funds may advertise yield and total return for various
periods of investment. Such information will always include uniform performance
calculations based on standardized methods established by The Securities and
Exchange Commission, and may also include other total return information. Yield
is based on historical earnings and total return is based on historical
calculated earnings; neither is intended to indicate future performance.
Performance information should be considered in light of the particular Fund's
investment objectives and policies, characteristics and quality of its portfolio
securities and the market conditions during the applicable period and should not
be considered as a representation of what may be achieved in the future.
Investors should consider these factors, in addition to differences in the
methods used in calculating performance information and the impact of taxes on
alternative investments when comparing a particular Fund's performance to the
performance data published for alternative investments.
STANDARDIZED PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. For each of the Funds, except The AAL Money Market
Fund, standardized average annual total return is computed by finding the
average annual compounded rates of return over the 1, 5 and 10 year periods (or
the portion thereof during which the Fund has been in existence) THAT WOULD
EQUATE THE INITIAL AMOUNT INVESTED TO THE ENDING REDEEMABLE VALUE ACCORDING TO
THE FOLLOWING FORMULA:
<PAGE>
T = [((ERV)/P)^(1/n)] - 1
Where:
T = average annual total return;
n = number of years and portion of a year;
ERV = ending redeemable value (of the
hypothetical $1,000 payment) at
the end of the 1, 5 and 10 year
periods, or fractional portion
thereof, after deduction of all
non-recurring charges to be
deducted, assuming redemption at
the end of the period; and
P = $1,000 (the hypothetical
initial payment before deduction
of the maximum sales load).
^(1/n) = to the nth root
<TABLE>
<CAPTION>
RETURN THE AAL THE AAL
PERIOD THE AAL THE AAL CAPITAL THE AAL MUNICIPAL
ENDING SMALL CAP MID CAP GROWTH UTILITIES THE AAL BOND
4/30/96 STOCK FUND STOCK FUND FUND FUND BOND FUND FUND
------- ---------- ---------- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
5 Year N/A N/A % N/A % %
Average
Annual
Return
1 Year total N/A % % % % %
Return
Average N/A % % % % %
Annual Total
Return from
Inception
</TABLE>
CURRENT YIELD. Current yield quotations for the Funds, except The AAL Money
Market Fund, are based on a 30-day (or one-month) period, and are computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
Yield = 2[((a-b)/(cd) + 1)^6] - 1
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
<PAGE>
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
^ = to the power of
For purposes of this calculation, income earned on debt obligations is
determined by applying a calculated yield-to-maturity percentage to the
obligations held during the period. Interest earned on mortgage backed
securities will be calculated using the coupon rate and principal amount after
adjustment for a monthly pay down. Income earned on equity securities is
determined by using the stated annual dividend rate applied over the performance
period. The yields for The AAL Mid Cap Stock, Capital Growth, Utilities, Bond
and Municipal Bond Funds for the 30-day period ended April 30, 1996 were __%,
__%, __%, __%, and __%, respectively. When advertising yield, a Fund will not
advertise a one-month or a 30-day period which ends more than 45 days before the
date on which the advertisement is published. From time to time, The AAL Small
Cap Stock Fund may advertise its yield. No historic yield is provided here be-
cause the Fund just commenced operation on the date of this Statement of
Additional Information.
TAX EQUIVALENT YIELD. The AAL Municipal Bond Fund will calculate a tax
equivalent yield based on a 30-day (or one-month) period, computed by dividing
that portion of the yield of the Fund (computed as described above) which is
tax-exempt by one minus a stated income tax rate and adding the quotient to that
portion if any, of the yield of that Fund that is not tax-exempt. The formula
for computation of the tax equivalent yield is:
X = (N/(1-F)) + T
Where:
N = % of yield derived from tax-exempt income;
F = federal income tax rate; and
T = % of yield derived from taxable income.
The tax equivalent yield at 31% tax rate for the 30-day period ended April 30,
1996, for The AAL Municipal Bond Fund was ___%.
CURRENT AND EFFECTIVE YIELD - THE AAL MONEY MARKET FUND.
The AAL Money Market Fund may quote a current yield or effective yield from
time-to-time. The current yield is an annualized yield based on the net change
in account value for a seven-day period. The effective yield is an annualized
yield based on a daily compounding of the current yield. These yields are each
computed by first determining the "Net Change in Account Value" for a
hypothetical account having a share balance of one share at the
<PAGE>
beginning of a seven-day period ("Beginning Account Value"), excluding capital
changes. The Net Change in Account Value will always equal the total dividends
declared with respect to the account. The yields then are computed as follows:
Current Yield = Net Change in Account Value 365
--------------------------- x ---
Beginning Account Value 7
Effective Yield = [1 + Net Change in Account Value]^(365/7) - 1
For the seven-day period ended April 30, 1996, the current and effective yields
of The AAL Money Market Fund were ____% and ____% respectively.
In addition to fluctuations reflecting changes in net income of the Fund
resulting from changes in income earned on its portfolio securities and in its
expenses, the Fund's yield also would be affected if the Fund were to restrict
or supplement its dividends in order to maintain its net asset value at $1.00.
(See "Net Asset Value" in the Prospectus and in this Statement.) Portfolio
changes resulting from net purchase or net redemptions of Fund shares may affect
yield. Accordingly, the Fund's yield may vary from day to day and the yield
stated for a particular past period is not a representation as to its future
yield. The Fund's yield is not guaranteed nor is its principal insured. Although
there is no assurance that it will be able to do so, the Fund will use its best
efforts to maintain its net asset value per share at $1.00.
OTHER PERFORMANCE INFORMATION
All of The AAL Mutual Funds may, from time to time, include in their
advertisements total return quotations computed for a time period, or by a
method which differs from the computations described in the foregoing section.
Calculations of the growth of an investment (or series of investments), at
various assumed interest rates and compounding, may be used to show the effect
of the length of time, interest rate and/or tax deferral on an investment. The
Fund may, from time to time, illustrate the concepts of asset allocation by use
of hypothetical case studies using various risk levels and life cycles, as well
as illustrating the effect of various tax brackets and tax deferrals on
hypothetical systematic investing. The Fund may also advertise performance
relative to the performance of other investments such as stocks, bonds, closed
end funds, certificates of deposit, as well as various indices such as the
Consumer Price Index and indices generated by Ibbotson & Associates and Chase
Global Data and Research Products. Advertisements may depict such performance
graphically.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN. All Funds, except The AAL Money Market Fund, may
advertise an average annual total return calculation for any appropriate time
period, based upon the value of a net investment in the Fund, AFTER DEDUCTION
OF THE MAXIMUM SALES CHARGE ACCORDING TO THE FOLLOWING FORMULA:
T = ((ERV)/P)^(1/n) - 1
T = average annual total return;
n = number of years and portion of a year;
ERV = ending redeemable value
(of the hypothetical $1,000
investment) at the end of
any period after deduction
of all non-recurring
charges to be deducted
assuming redemption at the
end of the period; and
P = $1,000 (the hypothetical
initial net investment
after deduction of the
sales load).
^(1/n) = to the nth root
<TABLE>
<CAPTION>
THE AAL
AVERAGE THE AAL THE AAL CAPITAL THE AAL THE AAL
ANNUAL SMALL CAP MID CAP GROWTH UTILITIES THE ALL MUNICIPAL
TOTAL RETURN STOCK FUND STOCK FUND FUND FUND BOND FUND BOND FUND
ENDED APRIL INCEPTION INCEPTION INCEPTION INCEPTION INCEPTION INCEPTION
30, 1996 (7/1/96) (3/30/93) (7/16/87) (3/18/94) (7/16/87) (7/16/98)
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year N/A % % % % %
5 year N/A N/A % N/A % %
Since N/A % % % % %
Inception
</TABLE>
Performance information for these Funds may be compared to various un-managed
indices, such as the Dow Jones Industrial and Utility Averages, the S&P 500, the
S&P Utilities, the S&P MidCap 400, the S&P Small Cap or the Shearson/Lehman Bond
Index, as well as indices of similar mutual funds. The AAL Small Cap Stock Fund
and The AAL Mid Cap Stock Fund may use indices such as the Russell or Wilshire
as is appropriate. These Funds may also include in their advertising rankings
published by recognized statistical services or publishers such as Morningstar,
Lipper Analytical Services, Inc., Weisenberger Investment Companies Services or
rankings published by other comparable national services which rank mutual
funds.
<PAGE>
GENERAL
The Trust's Declaration of Trust permits its Trustees to issue an unlimited
number of full and fractional shares of beneficial interest and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in a Fund. Each share represents
an interest in a Fund proportionately equal to the interest of each other share.
If the Trust were to liquidate, all shareholders of a Fund would share pro rata
in its net assets available for distribution to shareholders. If they deem it
advisable and in the best interests of shareholders, the Board may create
additional classes of shares which may differ from each other only as to
dividends or, as is the case with the Funds, each of which has separate assets
and liabilities (in which case any such class would have a designation including
the word "Series"). Shares of each series are entitled to vote as a series only
to the extent required by the '40 Act or as permitted by the Trustees. Income
and operating expenses are allocated fairly among the series by the Trustees.
As of April 30, 1996 the officers and Trustees of the Trust owned less than 1%
of the shares of any Funds.
Except for the election of Trustees and ratification of the selection of
accountants, any matter required to be submitted to shareholder vote is not
deemed to have been effectively acted upon unless approved by the holders of a
"majority" (as defined in the Rule) of the voting securities of each Series
affected by the matter.
The Fund's custodian, Firstar Trust Company, is responsible for holding the
Funds' assets.
AAL Capital Management Corporation (the "Adviser") provides certain
administrative, accounting and pricing services to the Funds, including
calculating the daily net asset value per share; maintaining original entry
documents and books of record and general ledgers; posting cash receipts and
disbursements; reconciling bank account balance monthly; recording purchases and
sales; and preparing monthly and annual summaries to assist in the preparation
of financial statements of, and regulatory reports for, the Funds. These
services were formerly provided by the Funds' Custodian. An Administrative
Services Agreement with the Adviser was approved by a majority of the Trustees
of the Funds, including a majority of the Trustees who are not interested
persons of the Funds or of the Adviser and was approved by the shareholders of
The AAL Municipal Bond Fund on November 27, 1990 and of The AAL Capital Growth,
Bond and Money Market Funds on December 20, 1990 , The Board of Trustees
approved the addition of The AAL Mid Cap Stock Fund (f/k/a as The AAL Smaller
Company Stock Fund) to this agreement on May 18, 1993 and the addition of The
AAL Utilities Fund on February 24, 1994. The principal motivation for having the
Adviser provide these services was cost. The Adviser has agreed to provide these
services at rates which would not exceed the rates charged by unaffiliated
vendors for similar services. The initial rate of payment for these services was
$25,000 per Fund per year, plus the cost of outside pricing services but only to
the extent the Adviser is not voluntarily absorbing any
<PAGE>
expenses of that Fund. The annual rates of payment approved by the Trustees
presently are:
The AAL Small Cap Stock Fund -
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund) - $30,000
The AAL Capital Growth Fund - $30,000
The AAL Utilities Fund - $30,000
The AAL Bond Fund - $30,000
The AAL Municipal Bond Fund - $30,000
The AAL Money Market Fund - $30,000
The AAL U. S. Government Zero Coupon Target Fund Series 2001 - $5,000
The AAL U. S. Government Zero Coupon Target Fund Series 2006 - $5,000
The AAL International Fund - $40,000 (effective August 1, 1995)
The Agreement will continue in effect from year to year, as long as it is
approved at least annually by the Funds' Board of Trustees or by a vote of the
outstanding voting securities of the Funds and in either case by a majority of
the Trustees who are not parties to the Agreement or interested persons of any
such party. The Agreement terminates automatically if assigned and may be
terminated without penalty by either party on 60-days' notice. The Agreement
provides that neither the Adviser nor its personnel shall be liable for any
error of judgment or mistake of law or for any loss arising out of any act or
omission in the execution and the discharge of its obligations under the
Agreement, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the Agreement.
SHAREHOLDER MAINTENANCE AGREEMENT
The Board of Trustees authorized The Funds to contract with AAL Capital
Management Corporation for certain shareholder maintenance services, effective
April 1, 1995. These shareholder services include answering customer inquiries
regarding account status, explaining and assisting customers with the exercise
of their account options and facilitating shareholder telephone transaction
requests.
The annual fee payable to AAL Capital Management Corporation for providing such
services is based upon, and limited by, the difference between the current
account fees actually charged by Firstar Trust Company, as transfer and dividend
disbursing agent, and the normal full-service fee schedule published by Firstar
Trust Company, as well as reimbursement for certain actual out-of-pocket costs
including postage and telephone charges. This account differential, excluding
reimbursement for expenses, is estimated to be at an annualized rate of $3.58
per account for 1995. The Agreement will continue in effect from year to year,
as long as it is approved at least annually by The Funds' Board of Trustees or
by a vote of the outstanding voting securities of The Funds and in either case
by a majority of the Trustees who are not parties to the Agreement or interested
persons of any such party. The Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60-days' notice. The
Agreement provides that neither the Adviser
<PAGE>
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any act or omission in the execution and the
discharge of its obligations under the Agreement, except for willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties under the
Agreement. These fees are not currently assessed against The Fund but may be in
the future.
INDEPENDENT ACCOUNTANTS
The Trust's independent accountants, Price Waterhouse LLP, examine the Funds'
annual financial statements, assist in the preparation of certain reports to the
Securities and Exchange Commission and prepare the Trust's state and Funds'
federal tax returns.
FINANCIAL STATEMENTS
The financial statements and notes to financial statements for the Funds
included in the Annual Report to Shareholders of the Trust, for the year ended
April 30, 1996 are hereby incorporated by reference, except for The AAL Small
Cap Stock Fund. Financial information for The AAL Small Cap Stock Fund is not
yet available as its shares are being offered for the first time by the
Prospectus and this Statement of Additional Information.
APPENDIX: SECURITY RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards as to the creditworthiness of an issuer. Consequently,
the Adviser believes that the quality of debt securities in which The Fund
invests should be continuously reviewed and that individual analysts give
different weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security, because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
The following is a description of the characteristics of ratings used by Duff &
Phelps Credit Rating Co., Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc. four major nationally recognized
statistical rating organizations.
<PAGE>
DUFF &
PHELPS DEFINITION
RATING SCALE
AAA Highest credit quality. The risk factors are negligible,
being only slightly more than for risk free U.S.
Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However
A risk factors are more variable and greater in periods of
A- economic stress.
BBB+ Below average protection factors but still con-
BBB sidered sufficient for prudent investment. Consider-
BBB- able variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obli-
BB gations when due. Present or prospective financial pro-
BB- tection factors fluctuate according to industry cond-
itions or company fortunes. Overall quality may move up
or down frequently within this category.
B+ Below investment grade but deemed likely to meet obli-
B gations when due. Present or prospective financial pro-
B- tection factors fluctuate according to industry condi-
tions or company fortunes. Overall quality may move up
or down frequently within this category.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are
narrow and risk can be substantial with unfavorable
economic/industry conditions and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and or interest payments.
DP Preferred stock with dividend arrearage.
<PAGE>
MOODY'S RATING
SCALE DEFINITIONS
Aaa Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of
investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and
principal is secure. While the various protective
elements are likely to change, such changes as can
be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are general known as high
grade bonds. They are rated lower than the best
bonds because margins of protection may not be as
large as Aaa securities or fluctuations of
protective elements may be of greater amplitude or
there may be other elements present which make
long-term risk appear somewhat larger than the Aaa
securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium grade obligations. Factors giving
security to principal and interest are considered
adequate but elements may be present which suggest
susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as
medium-grade obligations (i.e. they are neither
highly protected nor poorly secured). Interest
payments and principal security appear adequate for
the present but certain protective elements may be
lacking or may be characteristically unreliable over
any great length of time. Such bonds lack
outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well-assured. Often the protection of
interest and principal payments may be very moderate
and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack
characteristics of the desirable investment.
Assurance of interest and principal payments or of
maintenance of other terms of the contract over a
long period of time may be small.
<PAGE>
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present
elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rate C are the lowest rated class of
bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category ; the modifier 2 indicates a
mid-range raking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category
<PAGE>
STANDARD & DEFINITIONS
POOR'S RATING
SCALE
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA Debt rated "AA" has very strong capacity to pay
interest and repay principal and differs from the
higher rated issues only in small degrees.
A Debt rated "A" has strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for
debt in this category than in higher rated
categories.
BB, B, CC,CC,C Debt rated "BB", "B", "CCC", "CC" and "C" is re-
garded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay
principal in accordance with the terms of the ob-
ligation. "BB" indicates the lowest degree of spec-
ulation and "C" the highest degree of speculation.
While such debt will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk exposures to ad-
verse conditions.
BB Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it
faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions
which could lead to inadequate capacity to meet
timely interest and principal payments. The "BBB"
rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied
"BBB-" rating.
<PAGE>
B Debt rated "B" has a greater vulnerability to
default but currently has the capacity to meet
interest payments and principal repayments. Averse
business, financial or economic conditions will
likely impair capacity or willingness to pay
interest and repay principal. The "B" rating is also
used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vul-
nerability to default and is dependent upon favor-
able business, financial and economic conditions to
meet timely payment of interest and repayment of
principal. In the event of adverse business, finan-
cial or economic conditions, it is not likely to
have the capacity to pay interest and repay prin-
cipal. The "CCC" rating category is also used for
debt subordinated to senior debt that is assigned an
actual or implied "B" or "B-" rating.
CC The rating "CC" is typically applied to debt
subordinated to senior debt that is assigned an
actual or implied "CCC" rating.
C The rating "C" is typically applied to debt
subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation in which a
bankruptcy petition has been filed, but debt service
payments are continued.
CI The rating "CI" is reserved for income bonds on
which no interest is paid.
D Debt rated "D" is in payment default. The "D"
rating category is used when interest payments or
principal payments are not made on the date due even
if the applicable grace period has not expired, un-
less S & P believes such payments will be made
during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
NR NR indicates that no public rating has been re-
quested, that there is insufficient information on
which to base a rating, or that S & P does not rate
a particular type of obligation as a matter of pol-
icy.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
category.
<PAGE>
FITCH INVESTMENT DEFINITIONS
GRADE BOND
RATINGS:
AAA Bonds considered to be investment grade and of the
highest credit quality. The obligor has an
exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay
interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA".
Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foreseeable
future developments, short-term debt of these
issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay
interest and repay principal is considered to be
strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances
than bonds with higher ratings.
BBB Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability
to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have
an adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the
ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
NR NR indicates that Fitch does not rate the specific
issue.
Plus (+) or Minus (-): Plus or Minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
<PAGE>
COMMERCIAL PAPER RATINGS
RATINGS BY DUFF & PHELPS
Category 1: Top Grade
Duff 1 plus Highest certainty of timely payment. Short-term liquidity, in-
cluding internal operating factors and/or ready access to al-
ternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1 minus High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Category 2: Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Category 3: Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless timely payment is
expected.
RATINGS BY MOODY'S
Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory obligations. Moody's employs the following three category
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1 --highest quality; Prime 2--higher
quality; Prime 3--high quality.
RATINGS BY STANDARD & POOR'S
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating category, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
<PAGE>
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation A-3 have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
MUNICIPAL NOTE RATINGS
RATINGS BY MOODY'S
MIG 1. This designation category denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation category denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation category denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
RATINGS BY S & P
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
<PAGE>
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment.
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note.)
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES
S & P assigns dual ratings to all long-term debt issues that have as part of
their provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) options (for example, AAA/A-1+.)
Normally demand notes receive note rating symbols combined with commercial paper
symbols (for example SP-1+/A-1+.)
<PAGE>
THE AAL MUTUAL FUNDS
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The AAL Mutual Funds ("Trust") will submit Financial Statements for the year
ending April 30, 1996, as soon as they are available.
The audited financial statements of the Trust for the following series: The AAL
Mid Cap Stock (f/k/a/ The AAL Smaller Company Stock Fund), Capital Growth,
Utilities, Bond, Municipal Bond, Money Market Funds are included or incorporated
by reference into this Post-Effective Amendment to this Registration Statement.
The AAL International Fund and The AAL U.S. Government Zero Coupon Target Funds,
Series 2001 and 2006, will be filed in separate Post-Effective Amendments.
PART A
The Trust will submit selected Per Share Data for the year ending April 30,
1996, as soon as they are available.
PART B
The Trust will submit the following Financial Information for the year ending
April 30, 1996, as soon as it is available:
SCHEDULE OF INVESTMENTS as of April 30, 1996;
STATEMENT OF ASSETS AND LIABILITIES at April 30, 1996;
STATEMENT OF OPERATIONS for the period of a year from May 1, 1995
through April 30, 1996, for The AAL Mid Cap Stock (f/k/a The AAL
Smaller Company Stock Fund), Capital Growth, Utilities, Bond, Municipal
Bond and Money Market Funds. (The Trust will file N-1A Registration
Statements for The AAL International Fund and The U.S. Government Zero
Coupon Target Funds, Series 2001 and 2006 as separate Post-Effective
Amendments);
STATEMENT OF CHANGES IN NET ASSETS for the years ended April 30, 1995
and 1996, for The AAL Mid Cap Stock (f/k/a The AAL Smaller Company
Stock Fund), Capital Growth, Utilities, Bond, Municipal Bond and Money
Market Funds. (The Trust will file N-1A Registration Statements for
The AAL International Fund and The U.S. Government Zero Coupon Target
Funds, Series 2001 and 2006 as separate Post-Effective Amendments);
<PAGE>
NOTES TO FINANCIAL STATEMENTS; and
SELECTED PER SHARE DATA AND RATIOS.
(b) Exhibits:
Except as noted below, all required exhibits have been previously filed and are
incorporated by reference from the Registrant's Registration Statement on Form
N-1A (File No. 33-12911), as amended:
(4) Specimen stock certificates for The AAL Small Cap Stock Fund and
The AAL Mid Cap Stock Fund;
(5)(a) The AAL Small Cap Stock Fund Amendment to Advisory Agreement;
(6) The AAL Small Cap Stock Fund Amendment to Distribution Agreement;
(8) The AAL Small Cap Stock Fund Amendment to Custodian Agreement;
(9)(a) The AAL Small Cap Stock Fund Amendment to the Transfer and Dividend
Disbursing Agent Agreement;
(9)(b) The AAL Small Cap Stock Fund Amendment to the Administrative
Services Agreement;
(9)(c) The AAL Small Cap Stock Fund Amendment to the Shareholder
Maintenance Agreement;
(11) Independent Accountants' Consent (to be filed supplementally);
(15) The AAL Small Cap Stock Fund Amendment to Distribution Plan.
(17) The Financial Data Schedule (included as Exhibit 27)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
See "General" in the Statement of Additional Information.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
On March 31, 1996, the following indicates the number of record holders of
each series of the Registrant:
The AAL International Fund - 11,509;
The AAL Mid Cap Stock Fund
(f/k/a The AAL Smaller Company Stock Fund) - 62,334;
<PAGE>
The AAL Capital Growth Fund - 143.601;
The AAL Utilities Fund - 16,267;
The AAL Bond Fund - 34,772;
The AAL Municipal Bond Fund - 17,759;
The AAL Money Market Fund - 18,080;
The AAL U.S. Government Zero Coupon Target Funds, Series 2001- 251; and
The AAL U.S. Government Zero Coupon Target Funds, Series 2006 - 251.
ITEM 27. INDEMNIFICATION
Under Section 12 of Article Seven of the Registrant's Declaration of Trust, the
Trust may not indemnify any trustee, officer or employee for expenses (e.g.,
attorney's fees, judgments, fines and settlement amounts) incurred in any
threatened, pending or completed action, if there has been an adjudication of
liability against such person based on a finding of willful misfeasance, bad
faith, gross negligence or reckless disregard of such person's duties of office
("disability conduct").
The Trust shall indemnify its trustees, officers or employees for such expenses
whether or not there is an adjudication of liability, if, pursuant to Investment
Company Act Release 11330, a determination is made that such person was not
liable by reason of disabling conduct by: (I) final decision of the court before
which the proceeding was brought; or (ii) in the absence of such a decision, a
reasonable determination, based on factual review, that the person was not
liable for reasons of such conduct is made by: (a) a majority vote of
disinterested, non-party Trustees; or (b) independent legal counsel in a written
opinion.
Advancement of expenses incurred in defending such actions may be made pursuant
to Release 11330, provided that the person undertakes to repay the advance
unless it is ultimately determined that such person is entitled to
indemnification and one or more of the following conditions is met: (1) the
person provides security for the undertaking; (2) the registrant is insured
against losses arising by reason of any lawful advances; or (3) a majority of
disinterested non-party Trustees or independent legal counsel in a written
opinion determines, based on review of readily available facts, that there is
reason to believe the person ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provision, 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 that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustees,
<PAGE>
officer or controlling person in connection with the securities being
registered, Registrant 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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
AAL Capital Management Corporation (the "Adviser") is the investment adviser of
the Registrant. Societe Generale Asset Management Corp is the Sub-Adviser for
The AAL International Fund. For information as to the business, profession,
vocation or employment of a substantial nature of the Adviser, reference is made
to Parts A and B of this Registration Statement and to Form ADV filed under the
Investment Advisers Act of 1940 by the Adviser.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None
(b)
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND POSITIONS AND OFFICES
OFFICES WITH WITH REGISTRANT
UNDERWRITER
- --------------------------------------------------------------------------------
John H. Pender Director President
222 West College Ave.
Appleton, WI 54919
H. Michael Spence President and Vice President
222 West College Ave. Director
Appleton, WI 54919
Robert G. Same Senior Vice Secretary
222 West College Ave. President,
Appleton, WI 54919 Secretary and
Director
Terrance P. Gallagher Senior Vice Treasurer
222 West College Ave. President, CFO
Appleton, WI 54919 and Treasurer
James H. Abitz Director None
222 West College Ave.
Appleton, WI 54915
<PAGE>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND POSITIONS AND OFFICES
OFFICES WITH WITH REGISTRANT
UNDERWRITER
- --------------------------------------------------------------------------------
John Gilbert Director None
222 West College Ave.
Appleton, WI 54915
Joseph H. Thomas Vice President None
222 West College Ave.
Appleton, WI 54919
Robert Roth Vice President None
222 West College Ave.
Appleton, WI 54919
Anthony De Angelis Vice President None
222 West College Ave.
Appleton, WI 54919
Kenneth E. Podell Assistant None
222 West College Ave. Secretary
Appleton, WI 54919
Paul Stadler Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Stanley H. Herman Vice President None
1427 Hidden Oaks Cir.
Corinth, TX 76205
Lori Richardson Vice President None
222 West College Ave.
Appleton, WI 54919
Murray Ruffell Vice President None
1193 Salt Marsh
Ponte Vedra Beach, FL 32082
Charles Gariboldi Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Byron Vielehr Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
<PAGE>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND POSITIONS AND OFFICES
OFFICES WITH WITH REGISTRANT
UNDERWRITER
- --------------------------------------------------------------------------------
Charles Friedman Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Joseph Wreschnig Assistant Vice None
222 West College Ave. President and
Appleton, WI 54919 Assistant
Secretary
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of The Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Registrant and Registrant's
Custodian as follows: all documents required to be maintained by Rule 31a-1(b)
will be maintained by Registrant, except that records required to be maintained
by paragraph (2)(iv) of Rule 31a-1(b) will be maintained by the Custodian.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
1. Registrant undertakes to file within four to six months
following the effective date of Post Effective Amendment No.
18 to this Registration Statement, 1933 Act File No. 33-12911,
another Post-Effective Amendment and include in this
Registration Statement financial statements for The AAL Small
Cap Stock Fund as of and for a time period reasonably close to
the date of said amendment. Such financial statements need not
be certified.
2. The Registrant undertakes that, at the request of the share-
holders holding 10% or more of the outstanding shares of the
Registrant, the Registrant will hold a special meeting for the
purpose of considering the removal of a trustee from office,
and the Registrant will cooperate with and assist shareholders
of record who notify the Registrant that they wish to communi-
cate with the other shareholders for the purpose of obtaining
signatures to request such a meeting, all pursuant to and in
accordance with Section 16(c) of the Investment Company Act,
as amended.
<PAGE>
3. Registrant undertakes to furnish a copy of the Registrant's
latest annual report to shareholders, upon request and without
charge, to each person to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Appleton and State of Wisconsin, on the 10th day
of April, 1996
THE AAL MUTUAL FUNDS
By /s/ John H. Pender
-------------------------
John H. Pender, President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ John H. Pender
- --------------------- Trustee April 10, 1996
John H. Pender
/s/ Richard L. Gunderson* Trustee April 10,1996
- ------------------------
Richard L. Gunderson
/s/ Richard L. Gady * Trustee April 10, 1996
- ----------------------
Richard L. Gady
/s/ D. W. Russler * Trustee April 10, 1996
- ------------------------
D. W. Russler
/s/ Lawrence M. Woods* Trustee April 10, 1996
- ------------------------
Lawrence M. Woods
/s/ F. Gregory Campbell* Trustee April 10, 1996
- ------------------------
F. Gregory Campbell
<PAGE>
/s/ Terrance P. Gallagher April 10, 1996
- ----------------------- Principal
Terrance P. Gallagher Financial and
Accounting
Officer
/s/ John H. Pender
- -----------------------
John H. Pender, President
*Pursuant to Powers of Attorney
<PAGE>
POWER OF ATTORNEY
NOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes John H. Pender to act as lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ Richard L. Gunderson
Richard L. Gunderson,
as Trustee, but not
individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes Richard L. Gunderson, to act as lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in such person's name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to the Registration
Statement on Form N-1A of The AAL Mutual Funds, and to the file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ John H. Pender
John H. Pender
as Trustee, but not
individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes John H. Pender to act as lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ D.W. Russler
D.W. Russler,
as Trustee, but not
individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes John H. Pender to act as lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ F. Gregory Campbell
F. Gregory Campbell,
as Trustee, but not
individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes John H. Pender to act as lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ Richard L. Gady
Richard L. Gady,
as Trustee, but not
individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes John H. Pender to act as lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ Lawrence M. Woods
Lawrence M. Woods,
as Trustee, but not
individually
<PAGE>
EXHIBIT INDEX
ITEM 24
EXHIBIT NUMBER PAGE
24(b)(4) Specimen Stock Certificates
24(b)(5)(a) Amendment No. 7 to Investment Advisory Agreement
24(b)(6) Amendment No. 6 to Distribution Agreement
24(b)(8) Amendment No. 10 to Custodian Contract
24(b)(9)(a) Amendment No. 10 to Transfer and Dividend Disbursing
Agent Agreement
24(b)(9)(b) Amendment No. 6 to Administrative Services Agreement
24(b)(9)(c) Amendment No. 2 to Shareholder Maintenance Agreement
24(b)(15) Amendment No. 6 to Distribution Plan
27 Financial Data Schedule
<PAGE>
EXHIBIT 24 (b) (4)
THE AAL MUTUAL FUNDS
The AAL Small Cap Stock Fund
(specimen stock certificate)
<PAGE>
EXHIBIT 24 (b) (4)
THE AAL MUTUAL FUNDS
The AAL Mid Cap Stock Fund
(specimen stock certificate)
<PAGE>
EXHIBIT 24(B)(5)(A)
AMENDMENT NO. 7
TO
INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement between The AAL Mutual Funds and AAL Capital
Management Corporation (f/k/a AAL Advisors, Inc.), effective November 28, 1990,
is hereby amended, effective July 1, 1996, as follows:
1. Schedule A attached to the Investment Advisory Agreement is modified to
add The AAL Small Cap Stock Fund. An amended Schedule A, effective as
of July 1, 1996, is attached hereto.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
signed by the respective Officers effective as of July 1, 1996.
ATTEST: THE AAL MUTUAL FUNDS
By________________________ By________________________
Robert G. Same, Secretary John H. Pender, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
By________________________ By________________________
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
EXHIBIT A
TO
THE AAL MUTUAL FUNDS INVESTMENT ADVISORY AGREEMENT
DATED NOVEMBER 28, 1990
1. THE AAL CAPITAL GROWTH FUND (EFFECTIVE NOVEMBER 1, 1995)
The Management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.70 of 1% on the first $250 million of average daily net assets, 0.65 of 1%
on average daily net assets on the next $250 million of average daily net
assets, 0.575 of 1% on the next $500 million of average daily net assets and
0.50 of 1% on the average daily net assets over $1 billion.
2. THE AAL BOND FUND (F/K/A THE AAL INCOME FUND) (EFFECTIVE NOVEMBER 1,
1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.55 of 1% on the first $250 million of average daily net assets, 0.50 of 1%
of the next $250 million of net assets and 0.45 of 1% on average daily net
assets over $500 million.
3. THE AAL MUNICIPAL BOND FUND (EFFECTIVE NOVEMBER 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.55 of 1% of the first $250 million of average daily net assets, 0.50 of 1%
on the next $250 million of net assets and 0.45 of 1% on average daily assets
over $500 million.
4. THE AAL MONEY MARKET FUND (EFFECTIVE DECEMBER 21, 1990)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on the first $500 million of average daily net assets and 0.45 of
1% on average daily net assets over $500 million.
5. THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND, SERIES 2001
(EFFECTIVE NOVEMBER 13, 1991)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% of average daily net assets.
<PAGE>
6. THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND, SERIES 2006
(EFFECTIVE NOVEMBER 13, 1991)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% of average daily net assets.
7. THE AAL MID CAP STOCK FUND (F/K/A THE AAL SMALLER COMPANY STOCK FUND)
(EFFECTIVE NOVEMBER 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.75 of 1% on the first $200 million of average daily net assets and 0.65 of
1% on average daily net assets over $200 million.
8. THE UTILITIES FUND (EFFECTIVE NOVEMBER 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on the first $250 million and 0.45 of 1% of average daily net
assets over $250 million.
9. THE AAL INTERNATIONAL FUND (EFFECTIVE AUGUST 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 1% of average daily net assets.
10. THE AAL SMALL CAP STOCK FUND (EFFECTIVE JULY 1, 1996)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.75 of 1% on the first $200 million of average daily net assets and 0.65 of
1% on average daily net assets over $200 million.
<PAGE>
EXHIBIT 24(B)(6)
AMENDMENT NO. 6
TO
THE AAL MUTUAL FUNDS DISTRIBUTION AGREEMENT
Effective July 1, 1996, The AAL Mutual Funds Distribution Agreement ("the
Agreement") dated June 15, 1987, as amended between The AAL Mutual Funds and AAL
Capital Management Corporation (f/k/a AAL Distributors, Inc.), is further
amended as follows:
1. Exhibit A to the Agreement is amended by the addition of the following:
7. The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company
Stock Fund)
10. The AAL Small Cap Stock Fund
A revised Exhibit A, effective as of the date of this Amendment No. 6 is
attached and incorporated herein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 6
to be executed by their duly authorized officers.
ATTEST: THE AAL MUTUAL FUNDS
- --------------------------- -------------------------------
By Robert G. Same, Secretary John H. Pender, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
- --------------------------- -------------------------------
By Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
EXHIBIT A
TO
THE AAL MUTUAL FUNDS DISTRIBUTION AGREEMENT
(Effective July 1, 1996)
1. The AAL Capital Growth Fund
2. The AAL Bond Fund
3. The AAL Municipal Bond Fund
4. The AAL Money Market Fund
5. The AAL U.S. Government Zero Coupon Target Fund, Series 2001
6. The AAL U.S. Government Zero Coupon Target Fund, Series 2006
7. The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
8. The AAL Utilities Fund
9. The AAL International Fund
10. The AAL Small Cap Stock Fund
<PAGE>
EXHIBIT 24(B)(8)
AMENDMENT No. 10
to
THE FIRST AMENDED CUSTODIAN CONTRACT BETWEEN
THE AAL MUTUAL FUNDS AND
FIRSTAR TRUST COMPANY
(F/K/A FIRST WISCONSIN TRUST COMPANY)
Effective July 1, 1996, Schedule A of the First Amended Custodian Contract
("Contract"), dated October 29, 1987, between The AAL Mutual Funds and Firstar
Trust Company, is amended to reflect the addition of The AAL Small Cap Stock
Fund, as follows:
(asset fees)
The AAL Small Cap Stock Fund
$.__ per $1,000 on the first $10,000,000
$.__ per $1,000 on the balance over $10,000,000
All other provisions of the Contract, as amended, shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 10 to
the Contract to be signed by their duly authorized officers.
ATTEST: FIRSTAR TRUST COMPANY
By_________________________ By___________________________
ATTEST: THE AAL MUTUAL FUNDS
By_________________________ By___________________________
Robert G. Same, Secretary John H. Pender, President
<PAGE>
SCHEDULE A
TO
THE OCTOBER 29, 1987, FIRST AMENDED CUSTODIAN
CONTRACT BETWEEN THE AAL MUTUAL FUNDS AND
FIRSTAR TRUST COMPANY, AS AMENDED
FIRSTAR TRUST COMPANY
MUTUAL FUND CUSTODIAL AGENT
Fee Schedule
effective April 1, 1994
I. ANNUAL FEE BASED ON AGGREGATE MARKET VALUE OF ALL AAL MUTUAL FUNDS
.00015 (1.5 basis points) on the first $2 billion
.00010 (1.0 basis points) on the balance
Aggregate fee shall be allocated to each fund in proportion to market
value.
II. FEES FOR TRANSACTIONS (PURCHASE, SALE, EXCHANGE, TENDER, REDEMPTION,
MATURITY, RECEIPT, DELIVERY)
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical) $75.00 per Euroclear $ 8.00
per principal reduction on pass-through certificates $35.00 per
option/futures contract $12.00 per variation margin transaction $ 7.50
per Fed wire deposit or withdrawal
III. OTHER FEES
Variable Rate Notes: Used as a short-term investment, variable rate
notes offer safety and prevailing high interest rates. Firstar charge,
which is 1/4 of 1%, is deducted from the variable rate note income at
the time it is credited to a Fund's account.
Extraordinary expenses: Based on time and complexity involved.
Out-of-pocket expenses: Charged to the account.
Fees are billed quarterly, based on market value at the beginning of
the quarter. Firstar reserves the right to bill monthly based on prior
month-end market values and prior month's transactions.
<PAGE>
EXHIBIT 24(B)(9)(A)
AMENDMENT NO. 10
TO
THE TRANSFER AND DIVIDEND DISBURSING AGENT AGREEMENT
BETWEEN
THE AAL MUTUAL FUNDS
AND
FIRSTAR TRUST COMPANY
Effective July 1, 1996, the Transfer and Dividend Disbursing Agent Agreement
("Agreement"), dated June 15, 1987, between The AAL Mutual Funds and Firstar
Trust Company (f/k/a First Wisconsin Trust Company) is amended as follow:
Schedule A (Mutual Fund Shareholder Service Fee Schedule) effective as of April
1, 1994, is amended to add The AAL Small Cap Stock Fund. An amended Schedule A,
effective as of July 1, 1996, is attached hereto.
All other provisions of this Agreement, as amended, shall be in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 10 to be
signed by their duly authorized officers.
ATTEST: FIRSTAR TRUST COMPANY
By_________________________ By___________________________
ATTEST: THE AAL MUTUAL FUNDS
By_________________________ By___________________________
Robert G. Same, Secretary John H. Pender, President
<PAGE>
SCHEDULE A
TO
THE AAL MUTUAL FUNDS TRANSFER AND DIVIDEND DISBURSING AGENT
AGREEMENT BETWEEN THE AAL MUTUAL FUNDS AND
FIRSTAR TRUST COMPANY, AS AMENDED
FIRSTAR TRUST COMPANY
MUTUAL FUND SHAREHOLDER SERVICES
Fee and Schedule Effective April 1, 1994
(amended July 1, 1996 to add The AAL Small Cap Stock Fund)
I. ANNUAL MAINTENANCE FEES
A. THE AAL CAPITAL GROWTH; BOND; MUNICIPAL BOND; MID CAP STOCK
(F/K/A THE AAL SMALLER COMPANY STOCK FUND); UTILITIES,
INTERNATIONAL AND SMALL CAP STOCK (ADDED JULY 1, 1996) FUNDS
$12.50 per account, first 50,000 open accounts $12.25 per account, next
100,000 open accounts $12.00 per account, balance of open accounts $
6.00 per closed account
B. THE AAL TARGET FUNDS
$ 6.00 per open/closed account
C. THE AAL MONEY MARKET FUND
$15.00 per open account
$ 6.00 per closed account
II. MONEY MARKET FUND DRAFTS
$1.50 each
III. ACH (AUTOMATIC CLEARING HOUSE)
$125.00 per cycle $ 0.50 account set-up/change $ 0.35 per item (EFT to
account) $ 3.25 per correction/reversal/return
<PAGE>
IV. IRA/403(B) MAINTENANCE
$12.50 per IRA or 403(b) account
$25.00 cap for multiple IRA or 403(b) accounts with same social
security number (Firstar will charge $12.50 per IRA or 403(b) account,
with a $25.00 cap for multiple IRA or 403(b) accounts with the same
social security number. Firstar will, subject to necessary programming
changes and/or limitations, charge shareholders at a
yet-to-be-finalized alternate rate(s) and will bill AAL Capital
Management Corporation for any difference between the $12.50/$25.00
rate and the fees actually collected from shareholder accounts).
V. IRA/403(B) MISCELLANEOUS
Systematic Withdrawals - no charge Direct Stock Rollovers - no charge
Transfers Out - no charge Total Liquidations - no charge Partial
Liquidations - no charge Transfers In - no charge
VI. OTHER
All fees not paid by shareholders are billed monthly.
Out-of-pocket expenses are billed monthly
Firstar agrees to negotiate in good faith:
a. Incentive or performance based adjustments to the
transfer agent fees based on yet-to-be-finalized
standards of performance; and
b. Credits for new accounts opened via electronic appli-
cation.
<PAGE>
EXHIBIT 24(B)(9)(B)
AMENDMENT NO.6
TO
ADMINISTRATIVE SERVICES AGREEMENT
The Administrative Services Agreement between The AAL Mutual Funds and AAL
Advisors Inc. (n/k/a AAL Capital Management Corporation), effective July 1,
1990, as amended, is hereby further amended, effective July 1, 1996, as follows:
1. Pursuant to Section 2.1 of the Administrative Services Agreement, the annual
rate of payment for The AAL Small Cap Stock Fund will be at the annual rate of
$25,000, plus the actual costs of the pricing services from unaffiliated
parties.
2. Schedule B attached to the Administrative Services Agreement is amended to
add The AAL Small Cap Stock Fund. Schedule B, Effective as of July 1, 1996, is
attached hereto.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
signed by the respective officers effective as of July 1, 1996.
ATTEST: THE AAL MUTUAL FUNDS
- ----------------------------- ------------------------------
By Robert G. Same, Secretary By John H. Pender, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
- ----------------------------- ------------------------------
By Robert G. Same By H. Michael Spence, President
<PAGE>
SCHEDULE B
(Effective July 1, 1996)
The AAL Capital Growth Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
The AAL U.S. Government Zero Coupon Target Fund, Series 2001
The AAL U.S. Government Zero Coupon Target Fund, Series 2006
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
The AAL Utilities Fund
The AAL International Fund
The AAL Small Cap Stock Fund
<PAGE>
EXHIBIT 24(B)(9)(C)
AMENDMENT NO. 2
TO
SHAREHOLDER MAINTENANCE AGREEMENT
The Shareholder Maintenance Agreement between The AAL Mutual Funds and AAL
Capital Management Corporation, effective April 1, 1995, is hereby amended,
effective July 1, 1996, as follows:
Schedule A, attached to the Shareholder Maintenance Agreement, is amended to add
The AAL Small Cap Stock Fund. Schedule A, effective as of July 1, 1996, is
attached hereto.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
signed by the respective officers effective as of July 1, 1996.
ATTEST: THE AAL MUTUAL FUNDS
- ------------------------- --------------------------
Robert G. Same, Secretary John H. Pender, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
- ------------------------- ----------------------------
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
SHAREHOLDER MAINTENANCE AGREEMENT
SCHEDULE A
(effective July 1, 1996)
The AAL Capital Growth Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
The AAL U.S. Government Zero Coupon Target Fund, Series 2001
The AAL U.S. Government Zero Coupon Target Fund, Series 2006
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
The AAL Utilities Fund
The AAL International Fund
The AAL Small Cap Stock Fund
<PAGE>
EXHIBIT 24(B)(15)
AMENDMENT NO.6
TO
THE AAL MUTUAL FUNDS DISTRIBUTION PLAN
The AAL Mutual Funds Distribution Plan (the "Plan"") as adopted by a vote of
the Board of Trustees and that of the Qualified Trustees of the Trust on June 9,
1987, as amended, is hereby further amended, effective July 1, 1996, as follows:
1. Exhibit A to The AAL Mutual Funds Distribution Plan is amended to add
The AAL Small Cap Stock Fund. An amended Exhibit A, effective as of
July 1, 1996, is attached hereto.
<PAGE>
EXHIBIT A
TO THE AAL MUTUAL FUNDS DISTRIBUTION PLAN
(Effective July 1, 1996)
1. The AAL Capital Growth Fund
.25 of 1% of the average net assets
2. The AAL Bond Fund
.25 of 1% of the average net assets
3. The AAL Municipal Bond Fund
.25 of 1% of the average net assets
4. The AAL Money Market Fund
.125 of 1% of the average net assets
5. The AAL U.S. Government Zero Coupon Target Fund, Series 2001
.10 of 1% of the average net assets
6. The AAL U.S. Government Zero Coupon Target Fund, Series 2006
.10 of 1% of the average net assets
7. The AAL Mid Cap Stock Fund (f/k/a/ The AAL Smaller Company Stock Fund)
.25 of 1% of the average net assets
8. The AAL Utilities Fund
.25 of 1% of the average net assets
9. The AAL International Fund
.25 of 1% of the average net assets
10. The AAL Small Cap Stock Fund
.25 of 1% of the average net assets
