Registration No. 33-12911
As filed on April 26, 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. 19
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
/ /ACT OF 1940
/X/Amendment No. 21
(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)
/ / on August 1, 1995, pursuant to paragraph (b)
/X/ on July 1,1996, pursuant to paragraph (a)(i) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii)
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, 1996.
<PAGE>
CROSS REFERENCE SHEET FOR
The AAL International 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 Cover Page; General Inform-
Registrant ation; Investment Objectives
and Policies
Item 5 Management of the Fund Board of Trustees; Management of
the Trust, Portfolio Manager, Sub-
Adviser
Item 5A Management's Decussion of Annual Report
Fund Performance
Item 6 Capital Stock and Other Organization and Description of
Securities Shares
Item 7 Purchase of Securities Buying Shares of the Funds;
Being Offered Dividends, Distributions and
Taxes; Organization & Description
of Shares
Item 8 Redemption or Repurchase Selling (Redeeming) Your 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 Investment Objectives & Policies;
Policies Investment Techniques; Investment
Restrictions
Item 14 Management of the Fund Investment Advisory Services;
Distribution Plan
Item 15 Control Persons and Principal Investment Advisory Services
Holders of Securities
Item 16 Investment Advisory and Other Investment Advisory Services;
Services Distributor; Distribution 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 Yield 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>
PROSPECTUS
The AAL International Fund
222 West College Ave.
P.O. Box 8004
Appleton, WI 54919-0007
1-800-553-6319 or 414-734-7633
TDD 1-800-684-3416
The AAL International Fund (the "Fund") is one of a series of separate mutual
fund portfolios within a single Trust, The AAL Mutual Fund Trust. The Fund is
designed for investors seeking long-term growth of capital through investing in
a diversified portfolio of non-U.S. securities.
AAL Capital Management Corporation acts as Investment Adviser to The Fund.
Societe Generale Asset Management Corp. acts as the Sub-Adviser to The Fund. The
Fund is sold at the Public Offering Price, which includes a maximum sales charge
of 4.75% (4.99% of the net amount invested). The maximum sales charge is reduced
for certain qualifying purchases. See "How to Buy Shares". The Adviser receives
a management fee from The Fund and pays a sub-advisory fee to the Sub-Adviser.
AAL Capital Management Corporation, the Distributor, receives a distribution fee
on assets of The Fund. See "Management of the Trust" and "Distribution
Expenses," respectively.
This prospectus provides you with the basic information you should know before
investing in The Fund. You should read it carefully and keep it for future
reference. A Statement of Additional Information dated August 1, 1996 containing
additional information about The Fund has been filed with the Securities and
Exchange Commission, and (together with any supplements thereto) is incorporated
by reference in this prospectus in its entirety. You may obtain a copy of the
Statement of Additional Information as well as the Annual Report, without
charge, by writing or calling The Fund at the address or telephone numbers set
forth above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Information and Financial Highlights
General Information
Investment Objectives and Policies of The AAL International Fund
Investment Restrictions
Other Investment Factors And The Risks That Are Involved
Board Of Trustees
Management Of The Trust
Portfolio Manager
Buying Shares in The Funds
Accounts for Retirement Savings
Selling (Redeeming) Your Shares
Exchange Privilege
Telephone Transactions
Net Asset Value
Dividends, Distributions and Taxes
Distribution Expenses
Yield and Performance Information
Custodian, Transfer Agent and Independent Accountants
Organization and Description of Shares
Appendix - Security Ratings
<PAGE>
EXPENSE INFORMATION AND FINANCIAL HIGHLIGHTS
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, respectively, while the percentages shown for
"Other expenses" are based on management's estimates for the current fiscal
year. This information also reflects the Adviser's contractual obligation to
reimburse The Fund for expenses in excess of any applicable maximum state
expense limitation.
SHAREHOLDER TRANSACTION EXPENSES
The AAL International
Fund
----
Maximum sales charge imposed on purchases (as a 4.75%
percentage of offering price) (1)
Maximum sales charge imposed on reinvested dividends NONE
Deferred sales charges NONE
Redemption fee (2) NONE
Exchange Fee (per exchange) NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
The AAL International
Fund
----
Management Fee 1.00%
Rule 12b-1 Distribution Plan .25%
Other expenses (3) %
Total Fund operating expenses (before voluntary %
reimbursement by the Adviser) (4)
(1) Because Rule 12b-1 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.
(2) A $ 10.00 fee will be charged for each wire redemption.
(3) The Adviser has a contractual obligation to reimburse The Fund for
expenses in excess of any applicable state maximum expense limitation.
"Other expenses" are based on management's estimate for the current fiscal
year.
(4) "Total Fund operating expenses" for The AAL International Fund, have been
estimated, and have been calculated before possible additional voluntary
reimbursements by the Adviser. Voluntary reimbursements may be initiated,
modified or discontinued by the Adviser at any time.
<PAGE>
Based on the expense information provided above (assuming no exchanges), the
following hypothetical example illustrates the expenses you would pay on a
$1,000 investment in The Fund for the periods indicated. The example assumes a
five percent (5%) compounded annual return and redemption at the end of each
time period.
THE AAL INTERNATIONAL FUND
--------------------------
1 Year $
3 Years $
5 Years $
10 Years $
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 ESTIMATED 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. THIS FUND BEGAN OPERATION ON AUGUST 1, 1995.
<PAGE>
THE AAL INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
The following table provides you with financial information on The AAL
International Fund for the period from its inception on August 1, 1995, through
April 30, 1996. The information is based on a share of beneficial interest out-
standing 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 INTERNATIONAL FUND AUGUST 1, 1995 THROUGH APRIL 30, 1996
- -------------------------- -------------------------------------
Net Asset Value: Beginning of Period $10.00
Net Investment Income
Net Realized and Unrealized Gain (Loss)
on Investments
Total from Investment Operations
Dividends from Net Investment Income
Distributions from Net Realized
Gain (Loss) on Investments
Total Dividends and Distributions
Net Asset Value at the End of the
Period
Total Return (1)
Net Assets, End of Period
Ratio of Net Operating Expenses to
Average Net Assets (2)
Ratio of Net Investment Income (Loss)
to Average Net Assets (2)
Portfolio Turnover Rate
(1) Total return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charges. The aggregate (not annualized)
total return is shown for periods less than one year.
(2) Because this period is less than one year, both the ratio of net operating
expenses to average net assets and the ratio of net investment income (loss)
to average net assets are calculated on an annualized basis.
<PAGE>
GENERAL INFORMATION
The AAL International Fund (the "Fund") is one portfolio of The AAL Mutual Funds
(the "Trust"), a group of mutual funds that offer investment opportunities to
eligible Lutherans (including their families and their enterprises) and to AAL
members and employees. In addition, AAL branches, Lutheran congregations and
trusts, employee benefit plans and organizations sponsored by or affiliated with
Lutheran congregations are eligible to purchase shares of The Fund. Persons who
are eligible for full membership in Aid Association for Lutherans ("AAL"), can
become associate members by investing in The AAL Mutual Funds. This entitles
them to become a part of one of over 9,100 local AAL branches throughout the
U.S. Through these branches and AAL, members help each other, assist
Lutheran congregations and their institutions and reach out to their communities
through charitable, educational, social, benevolent, fraternal and patriotic
programs.
The AAL Mutual Funds is organized as a Massachusetts business trust (the
"Trust") with different series of shares, each of which is referred to as a
"Fund." Only The AAL International Fund is described in this prospectus.
Seven additional series of The AAL Mutual Funds (The AAL Small Cap Stock, 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) are
described in a separate prospectus. Two other series the Trust (The AAL U.S.
Government Zero Coupon Bond Fund, Series 2001 and 2006) are closed to additional
purchases.
The investment objective of The AAL International Fund is described in the next
section and is a fundamental policy which cannot be changed without the vote of
a majority of the outstanding shares of The Fund. You should only invest in
this Fund if its investment objective is consistent with your objectives.
When you invest in shares of The Fund, the money you invest is combined with
that of many other investors. The Fund provides you with diversification by
investing your money in the securities of different entities, and The Fund
furnishes experienced management to select and monitor your investments. You
have an interest in each of the securities held by The Fund.
Because The Fund invests in both stocks and bonds, the yields and values of
which fluctuate with market conditions, the value of your shares in The Fund
will rise and fall according to interest rates, general economic conditions and
investor behavior and, over time, may be more or less than your original cost.
AAL Capital Management Corporation, the "Adviser", and Societe Generale Asset
Management Corp., the "Sub-Adviser",(the Adviser and Sub-Adviser sometimes are
referred to together as "Advisers") are responsible for evaluating and selecting
the securities held by The Fund. Although there can be no assurance that they
will be successful, the Adviser and Sub-Adviser will use their professional
expertise and experience to try to ensure that The Fund's objectives will be
met. See "Management of the Trust".
The following sections of the prospectus include a description of the investment
objectives and policies of The AAL International Fund, additional information
regarding certain investment techniques used by The Fund, management of The
Fund, distribution arrangements for The Fund, including fees, information on how
to purchase and redeem shares, yield and performance information, the tax
treatment of investments in The Fund, and other matters.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES OF THE AAL INTERNATIONAL FUND
INVESTMENT OBJECTIVE
The Fund's primary investment objective is long-term growth of capital through
investing in a diversified portfolio of non-U.S. securities.
INVESTMENT POLICIES
Although there is no assurance that this objective will be met, the Adviser and
Sub-Adviser will use their best efforts to achieve the objective. Under normal
circumstances, The Fund will invest its total assets in foreign securities with
at least 65% of such assets invested in equity securities primarily traded in at
least three countries, not including the United States. In addition, issues of
any one country will represent no more than 25% of The Fund's assets, under
normal circumstances. If, for temporary defensive purposes, the Advisers believe
The Fund should invest entirely in U.S. securities or in securities primarily
traded in one or more foreign countries, or in debt securities to a greater
extent than 20%, then the Advisers may not follow the normal guidelines and may
invest up to 100% of The Fund's assets without regard to the above guidelines.
In addition, pending investment of proceeds from new sales of shares or to meet
ordinary daily cash needs, The Fund may temporarily hold cash (U.S. dollars,
foreign currencies or multinational foreign currency units) and may invest any
portion of its assets in money market instruments.
The Fund intends to invest its assets in equity securities that are primarily
traded in The United Kingdom, Western Europe, Australia, The Far East, Latin
America and Canada. Some of these markets are mature (for example Japan, Canada
and The United Kingdom) while others are emerging (for example Indonesia and
Argentina). A more detailed list of countries and their classification as mature
or emerging is included in the Statement of Additional Information. Investments
may also be made, from time-to-time, in securities that are traded in other
countries that may not be listed. Except for the policies, previously noted,
there are no other limitations as to how much of The Fund's assets can be
invested in securities primarily traded in any one country.
For investment purposes, an issuer is typically considered as domiciled in a
particular country if it is incorporated under the laws of that country, at
least 50% of the value of its assets are located in that country and it normally
derives at least 50% of its income from operations or sales in that country. For
issuers that do not meet this criterion, domicile will be determined, in good
faith by the Advisers, taking into account such factors such as location of
assets, personnel, sales and earnings.
Under normal circumstances The Fund may invest up to 20% of its total assets in
debt securities. Such debt securities may include lower-rated securities
commonly referred to as "junk bonds" (i.e. securities rated BB or lower by
Standard & Poor's Corporation or Ba or lower by Moody's Investors Services,
Inc.) and securities that are not rated. There are no restrictions as to the
ratings of debt securities acquired by The Fund or the portion of The Fund's
assets that may be within a particular rating category. A description of the
ratings assigned by D&P, Moody's and S&P is contained in the Appendix.
<PAGE>
DEPOSITORY RECEIPTS
The Fund may hold securities of foreign issuers in the form of American
Depository Receipts (ADRs), American Depository Shares (ADSs), Global Depository
Receipts (GDRs) and European Depository Receipts (EDRs), or other securities
convertible into securities of foreign issuers. These securities may not be
denominated in the same currency as the securities for which they might be
exchanged. ADRs and ADSs are generally issued by a U.S. bank or trust company
and they evidence ownership of underlying foreign securities. GDRs are global
offerings where two securities are issued simultaneously in two markets, usually
publicly in non-U.S. markets and privately in the U.S. market. EDRs (sometimes
called Continental Depository Receipts [CDRs]) are receipts issued in Europe,
generally by a foreign bank or trust company and they evidence ownership of
foreign securities. ADRs and ADSs in registered form are generally used in U.S.
securities markets, GDRs in the U.S. and European markets and EDRs and CDRs in
bearer form are generally used in European securities markets. The Fund will
consider ADRs, ADSs, GDRs, EDRs and CDRs as investments in the underlying equity
securities for purposes of diversification.
STRUCTURED SECURITIES
The Fund may invest in structured notes and/or preferred stock, the value of
which is linked to the price of an underlying instrument. Structured securities
have different characteristics and risks than other types of securities in which
The Fund may invest. For example, the coupon, dividend and/or redemption amounts
may be increased or decreased depending upon the change in value of an
underlying instrument. More information concerning structured securities is
contained in the Statement of Additional Information.
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, The Fund 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), or it may engage in transactions in options on foreign currencies,
currency futures contracts, or options on currency futures contracts. Although
foreign currency transactions will be used to protect The Fund from adverse
currency movements, they involve the risk that anticipated currency movements
will not be accurately predicted and The Fund's total return could be adversely
affected as a result. Further information on foreign securities and currency
transactions are set forth in the Statement of Additional Information
REPURCHASE AGREEMENTS AND BORROWING
The Fund may from time to time enter into repurchase agreements. Repurchase
agreements involve the purchase of securities by The Fund with the concurrent
agreement of the seller (a bank or securities dealer) to repurchase the
securities at the same price plus an amount equal to an agreed upon interest
rate within a specified time, usually less than one week, but on occasion for a
<PAGE>
longer period. The Fund requires continual maintenance of collateral (in cash or
U.S. Government securities) held by The Fund's custodian in an amount equal to,
or in excess of, the market value of the securities that are the subject of the
repurchase agreement. More information regarding repurchase agreements is
included in The Fund's Statement of Additional Information.
The Fund may borrow money, but only from banks, for temporary or emergency
purposes in amounts not exceeding 10% of a Fund's total assets. Any borrowings
will be repaid before any purchase of securities is made.
WHEN-ISSUED PURCHASES
The Fund may purchase securities on a when-issued or delayed delivery basis.
Although the payment and interest terms of these securities are established at
the time the purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase when their
value may have changed. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if it is deemed advisable for investment reasons.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its total assets in illiquid securities,
including securities acquired in private placements. Because an active market
for such securities may not exist, the sale of such securities may be subject to
delay and additional costs. Time deposits and repurchase agreements maturing in
more than seven days are considered to be illiquid. The Fund, subject to the
limitations for illiquid investments stated above, may purchase securities that
have been privately placed but that are not eligible for purchase and sale under
Rule 144A under the Securities Act of 1933. That rule permits certain qualified
institutional buyers, such as The Fund, to trade in privately placed securities
that have not been registered for sale under that Act. Rule 144A securities may
or may not be liquid depending upon the guidelines established by the Board of
Trustees.
OTHER GOVERNMENT AUTHORIZED INVESTMENT COMPANIES
Certain markets may be closed in whole or in part to equity investments made by
foreigners. The Fund may be able to invest in such markets solely or primarily
through government authorized investment companies. The Fund may generally
invest up to 10% of its assets in shares of government authorized investment
companies and up to 5% of its assets in any one investment company (in both
cases determined at the time of investment), as long as no investment represents
more than 3% of the outstanding voting stock of the acquired investment company
at the time of investment. Investment in another investment company may involve
the payment of a premium above the value of the issuer's portfolio securities
and is subject to market availability. In the case of a purchase of shares of
such company in a public offering, the purchase price may include an
underwriting spread. The Fund does not intend to invest in such investment
companies unless, in the judgment of the adviser and sub-adviser, the potential
benefits of such investment justify the payment of any applicable premium or
sales charge. As a shareholder in an investment company, The Fund would bear its
ratable share of that investment company's expenses, including its advisory and
<PAGE>
administration fees. At the same time, The Fund would continue to pay its own
management fees and other expenses.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, The Fund may from time to time lend
securities from its portfolio 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 Fund's Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The policies discussed above relating to Foreign Currency Transactions,
Repurchase Agreements, When Issued Purchases, Lending Portfolio Securities,
Government Authorized Investment Companies and Options and Futures Contracts may
be changed by the Board of Trustees without shareholder approval. In addition,
The Fund is subject to other investment restrictions, which, like The Fund's
investment objectives, may not be changed without the vote of a majority of its
outstanding shares. Among other things, these restrictions generally prohibit
The Fund from purchasing securities of an issuer if as a result more than 5% of
The Fund's total assets would be invested in that issuer, except that up to 25%
of its assets may be invested without regard to this limitation and provided
that this limitation does not apply to securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. A description of all of the
investment restrictions applicable to The Fund is included in the Statement of
Additional Information.
OTHER INVESTMENT FACTORS AND THE RISKS THAT ARE INVOLVED
Investment in The Fund requires consideration of a number of factors that are
usually not important when investing in domestic securities. Some or all of the
described risks may affect securities held by The Fund. In addition, The Fund
may invest from 0% to 100% of its net assets in emerging growth countries.
Investments in emerging growth countries may be subject to more risk than
investments in mature countries. These risks, described in the paragraphs
following, include currency, liquidity, political, economic and market risks, as
well as risks associated with governmental regulation and nonuniform corporate
disclosure standards. The greater the percentage of the Fund's net assets that
are invested in emerging countries, the greater the investment risks.
CURRENCY RISK - The Funds securities may be denominated or traded in foreign
currencies. Changes in the value of a foreign currency relative to the dollar
may change the dollar value of The Fund's holding(s). This means that the Net
Asset Value of a share of The Fund may go up or down as the value of a dollar
rises or falls compared to a foreign currency. Fund performance is measured in
U. S. dollars.
LIQUIDITY RISK - Trading volume on foreign exchanges may be less than that on
the New York or other domestic stock exchange. The lack of liquidity can affect
The Fund's ability to purchase or sell blocks of securities and obtain the best
price. Spreads between bid and asked prices may be greater and trading
interruptions or suspensions may be more common in foreign markets than on
<PAGE>
domestic exchanges. Brokerage and other transaction costs may be higher in
foreign markets. Settlement practices may vary from country to country and
settlement periods for foreign securities may be longer than for domestic
securities. These differing practices may cause the loss of opportunities for
favorable purchases and the loss of interest income. Foreign securities may also
be traded on days that The Fund does not value its portfolio. This means that
The Fund's Net Asset Value can change on days in which a shareholder cannot
access his or her account. The Fund may incur costs associated with currency
hedging and the conversion of a foreign currency into U.S. dollars may be
adversely affected by restrictions on such conversion.
POLITICAL, ECONOMIC AND MARKET RISKS - The degree of political and economic
stability varies from country to country. Expropriation and/or nationalization
may cause The Fund to lose some or all of any particular investment. Individual
foreign economies may vary favorably or unfavorably from the U.S. economy in
such areas as growth of gross national product, rate of inflation, savings,
balance of payments and capital investment, all of which may affect the value of
The Fund's investment in any foreign country.
GOVERNMENTAL REGULATION - Foreign securities markets are not subject to the same
degree and type of laws and regulations that cover the U.S. markets. These
foreign markets may be more volatile and less liquid than the major U.S.
markets. Foreign governments may also impose restrictions on investments in
their capital markets as well as impose taxes or other restrictions on
repatriation of investment income.
NONUNIFORM CORPORATE DISCLOSURE STANDARDS - Information on publicly-traded com-
panies, banks and governments may be incomplete or unavailable in foreign
countries. The lack of uniform accounting standards and practices among
countries impairs the validity of direct comparisons of common valuation
measures, such as price/earnings ratios, as applied to securities of different
countries.
EXPENSES
The cost of investing in foreign securities is higher than the cost of investing
in U.S. securities. Investing in The Fund is an efficient way for an investor
to participate in foreign markets but its expenses, including advisory and
custodial fees, are higher than the expenses of a typical domestic fund, al-
though not necessarily higher than for other funds with similar investment
policies.
TURNOVER
It is not anticipated that The Fund will have a portfolio turnover in excess of
100%.
<PAGE>
BOARD OF TRUSTEES
The Fund's Board of Trustees decides matters of general policy and reviews the
activities of The Fund's Adviser and Sub-Adviser, and The Fund's officers'
conduct and supervision of the daily business operations of The Fund.
The Trustees, their business addresses and principal occupations during the past
five years are:
POSITION WITH THE FUNDS**
NAME AND ADDRESS AND PRINCIPAL OCCUPATION
- ---------------- ------------------------
John H. Pender* Chairman of the Board of Trustees and
222 West College Ave. President; Senior Vice President, Member
Appleton, WI 54919 Investment Services, Aid Association
for Lutherans (fraternal benefit
society) prior to 1996 and prior to
1992, Treasurer
F. Gregory Campbell Trustee; President of Carthage College,
2001 Alford Pard Drive Kenosha, WI; Director, Kenosha Hospital
Kenosha, WI 53140 and Medical Center
Richard L. Gady Trustee; Vice President, Public Affairs
One Central Park Plaza and Chief Economist, ConAgra, Inc.
Omaha, NE 68102 (agribusiness)
D. W. Russler Trustee; Former Senior Vice President,
24 Turnbridge Dr. Finance and Administration, NCR Cor-
Hilton Head Island, SC 29928 poration 1984-1988; Director, Haas
Publishing Company; Member, Advisory
Board-Saratoga Partners II (corporate-
buyout Limited Partnership)
Lawrence M. Woods Trustee; Former Executive Vice President
P.O. Box 1860 and Director, Mobil Oil Corp.; Director,
Worland, WY 82401 Mobil Corp. (international oil company
and holding company), 1976-1985;
Richard L. Gunderson* Director, and Chief Executive Officer
4321 North Ballard Road since 1986 (and President prior to
Appleton, WI 54919-0001 1996), Aid Association for Lutherans,
(fraternal benefit society); Trustee,
Lawrence University, and Director, Banta
Corp.
* Denotes an "interested person" of The Fund as defined in the Investment
Company Act of 1940.
** All of the Trustees are Directors for the AAL Variable Product Series Fund,
Inc.
<PAGE>
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, listed in the Fortune 500, and
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, and ranks 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 manages assets in excess of $15.7 billion for
its insurance portfolios. AAL Capital Management Corporation has served as
Adviser to The Fund from the commencement of operations and managed in excess
of $2.5 billion for The Fund. The above information is as of January 1, 1996.
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.
Pursuant to an Investment Advisory Agreement with the Trust, the Adviser manages
the investment and reinvestment of The Fund's assets, provides The Fund with
personnel, facilities and administrative services, and supervises The Fund's
daily business affairs, all subject to the supervision of The Fund's Board of
Trustees. Together with the Sub-Adviser, the Adviser formulates and implements a
continuous investment program for The Fund consistent with its investment
objectives, policies and restrictions.
The Adviser provides office space and, together with the Sub-Adviser, provides
executive and other personnel to The Fund. In addition to the investment
advisory (including sub-advisory) fees, The 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
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.
The Adviser receives an investment advisory fee computed separately and paid
monthly for the Fund at an annual rate of 1% of The Fund's average daily net
assets. From its advisory fee, the Adviser pays the Sub-Adviser's fee discussed
below.
The Fund pays a maximum distribution fee of 0.25 of 1% of average daily net
assets annually.
<PAGE>
THE SUB-ADVISER
Societe Generale Asset Management Corp., 1221 Avenue of the Americas, New York,
New York 10020 has been engaged to act as the Sub-Adviser to The Fund. The
Sub-Adviser is a registered investment adviser that is indirectly owned by
Societe Generale, one of France's largest banks. Under the Sub-Advisory
Agreement, the Sub-Adviser, subject to the direction and control of the Adviser
and the Board of Trustees, determines the securities that will be purchased or
sold by The Fund, arranges for their purchase and sale, and renders other
<PAGE>
assistance to the Adviser in formulating and implementing the investment program
for The Fund. For its services, the Sub-Adviser receives a fee from the fees
paid to the Adviser described above, at an annual rate of .75 of 1% of The
Fund's average daily net assets.
PORTFOLIO TRANSACTIONS
The Sub-Adviser and Adviser direct the placement of orders for the purchase and
sale of The Fund's portfolio securities. In doing so, the best combination of
price and execution is sought, which involves a number of judgmental factors.
When the Adviser and Sub-Adviser believe that more than one broker or dealer is
capable of providing the best combination of price and execution in a particular
portfolio transaction, normally a broker or dealer is selected that has
furnished research services. It is likely that, from time-to-time, the
Sub-Adviser may make similar investment decisions for The Fund and its other
clients. In some cases, the simultaneous purchase or sale of the same security
by The Fund and another client of the Sub-Adviser could have a detrimental
effect on the price or volume of the security to be purchased or sold, as far as
The Fund is concerned. In other cases, coordination with transactions for other
clients and the ability to participate in volume transactions could benefit The
Fund. The Sub-Adviser may, subject to the above limitations as well as SEC rules
and regulations, use an affiliate for portfolio transactions.
PORTFOLIO MANAGER
Jean-Marie Eveillard, President and Director of the Sub-Adviser, is primarily
responsible for the day-to-day management of The Fund's investment portfolio.
Mr. Eveillard has been President and Director since April, 1990. Before that he
was senior Vice President of Societe Generale Securities Corporation, the Sub-
Adviser's principal underwriter.
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 Fund. The sales
charge is expressed as a percentage of the public offering price, and the net
amount invested, in the following table:
<PAGE>
SALES CHARGE AS A % SALES CHARGE AS A %
AMOUNT OF PURCHASE OF PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
- ------------------ ------------------------ ----------------------
Less than $25,000 4.75% 4.99%
$25,000 or more, but
less than $100,000 4.50% 4.71%
$100,000 or more, but
less than $250,000 3.50% 3.63%
$250,000 or more, but
less than $500,000 2.00% 2.04%
$500,000 or more, but less
than $1,000,000 0.50% 0.50%
$1,000,000 or more 0.00% 0.00%*
* 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 and Sub-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:
oThe minimum amount for a Letter of Intent is $25,000.
<PAGE>
oYOU 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.
oYou 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.
oDuring 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.
oBefore the 13-month period ends, you must have the full amount of
your Letter of Intent invested, valued at your purchase cost.
oThe 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.
oYou 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 Fund at the public offering price, which is the
net asset value plus 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
Fund 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 Initial Additional
Per Account Per Transaction Purchase Purchase
- --------------------------- -------- --------
Regular Account $1,000 $50
IRA $ 250 $50
Automatic Investment Plan $ 0 $25
We may waive the minimum investment amount needed to open or add to an
account for certain employer-sponsored accounts.
<PAGE>
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
International Fund and an IRA invested in The AAL
International Fund. If you don't complete the application
properly, your purchase may be delayed or rejected;
2. Make your check payable to The AAL International 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;
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.
<PAGE>
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:
oRegular IRA (Individual Retirement Account);
o"Rollover" IRA; and
oSEP-IRA (Simplified Employee Pension Plan);
oSARSEP (Salary Reduction Simplified Employee Pension Plan);
o403(b)(7) Retirement Plan Account (Legal restrictions apply to
your ability to withdraw funds from this account); and
oQualified Retirement Plans.
<PAGE>
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 Fund, 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 International 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
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.
<PAGE>
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
International Fund directly from your checking, NOW, or savings
account. The following rules and/or guidelines apply:
oYou can select up to two transaction dates per month
(at least 10 days apart). If you don't select the date(s), the
money will automatically be withdrawn from your bank account
on the 5th of the month;
oTo 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;
oTo 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 International Fund.
The following rules and/or guidelines apply:
oYou 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;
oTo 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
oTo 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 International Fund
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 International Fund 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
<PAGE>
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.
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.
CONFIRMATION
We will generally mail written confirmation of your purchases in The
Fund within two business days following the date of your purchase. We will mail
confirmation of your automatic investment plan purchases and dividend
reinvestments at least quarterly.
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.
<PAGE>
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;
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
<PAGE>
BY TELEPHONE
In order to make investing in The AAL International Fund 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:
oIf 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);
oTHE AAL MUTUAL FUNDS, AAL CAPITAL MANAGEMENT
CORPORATION, THE CUSTODIAN, THE TRANSFER AGENT OR ANY OF THEIR
EMPLOYEES WILL NOT BE LIABLE FOR LOSSES SUFFERED BY YOU THAT
RESULT FROM FOLLOWING TELEPHONE INSTRUCTIONS REASONABLY
BELIEVED TO BE AUTHENTIC AFTER VERIFICATION PURSUANT TO THESE
PROCEDURES; AND
oONCE 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
telephone 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:
oYou must call the Mutual Fund Service Center at 800-553-6319;
oYou must provide a form of personal identification to confirm
your identity;
oYou can sell up to $25,000 worth of shares;
oWe will mail a check only to the person(s) named on the
account registration, and only to the address on the account;
oRetirement plan accounts are not eligible;
oYou cannot sell shares in certificate form by telephone;
oYou can do only one telephone redemption within any 30-day
period for each authorized account;
oTelephone redemptions are not available if the address on the
account has been changed in the preceding 60 days; and
<PAGE>
oIf 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:
oYou must give us written authorization, including
the signatures of all the owners of the account, on The AAL
Mutual Funds Application or Change Form;
oYou can make a wire redemption for any amount;
oYou pay a $10.00 fee for each wire redemption;
oWe 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
oWire 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:
oYou need a minimum of $5,000 in your account to start the
plan;
oYou 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;
oTo start the plan or change the payee(s), you must
notify us in writing at least 13 business days prior to the
first withdrawal. You must have all account owner(s) sign the
appropriate form;
oTo stop or change your plan, you must notify us at least 5
business days prior to the next withdrawal; and
oBecause of sales charges, you must consider
carefully the costs of frequent investments in and withdrawals
from your account.
<PAGE>
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 or accounts with an
active Automatic Investment Plan. 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
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 International Fund for shares in another AAL Mutual Fund without
paying any additional sales charge. The following rules and/or guidelines apply:
oMinimum investment rules may apply when you open a new
account by exchanging shares, and you may have to submit a
new application;
oYou may only exchange into funds that are legally available
for sale in your state;
oYou may have a taxable gain or loss as a result of an
exchange;
<PAGE>
oWe reserve the right to end this privilege if you make more
than 12 exchanges in a year;
oWe 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
oIf 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;
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.
CONFIRMATION
We will generally mail written confirmation of your sales of Fund
shares within two business days following the date of your sale. We will mail a
summary of your transactions at least quarterly.
NET ASSET VALUE
The net asset value per share of The Fund is determined once daily at the close
of trading on the New York Stock Exchange ("Exchange"), generally 4:00 p.m. New
York time. Net asset value will not be determined on holidays observed by the
Exchange. The net asset value of shares is computed by adding the sum of the
value of the securities held by The Fund plus any cash or other assets it holds,
less all of The Fund's liabilities, and dividing the result by the total number
<PAGE>
of outstanding shares of The Fund at such time. Securities are generally valued
at market value. A security listed or traded on an exchange is valued at its
last sale price on the exchange where it is principally traded. Securities owned
by The Fund for which market quotations are readily available are valued at
current market value. When market quotations are not readily available, or when
restricted securities or other assets are in The Fund, these securities are
valued at fair value, as determined in good faith by management under the
direction of the Board of Trustees. Trading in securities on other exchanges,
such as European or Far Eastern exchanges is normally completed well before the
close of the business day in New York. However, debt securities may be valued on
the basis of valuations furnished through pricing services approved by the Board
of Trustees.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate, or alternatively, at
the mean of the current bid and asked prices of such currencies against the
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board of
Trustees, in good faith, will establish a conversion rate for such currency.
European or Far Eastern securities trading may not take place on all days that
the Exchange is open. Further, trading may take place on those foreign exchanges
on Saturdays and other days in which the Exchange is not open. and The Fund's
net asset value is not calculated. The calculation of net asset value may then
be done at the same time as the determination of the prices of the portfolio
securities. Events affecting the valuation of Fund securities that occur between
the time its net asset value is determined and the close of the Exchange will
not be reflected in such asset value, unless management, under the supervision
of the Board of Trustees, determines that a particular event would materially
affect net asset value. As a result, The Fund's net asset value may be
significantly affected by such trading on days when The Fund is not accepting
purchases or redemptions.
The Fund intends that all money market instruments with a remaining maturity of
60 days or less will be valued on an amortized cost basis, and The Funds intend
to comply with the SEC's requirements for the use of such valuation method.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (the "Code") and to take all other action required so
that no federal income tax will be payable by The Fund itself, although foreign
source income received by The Fund may be subjected to foreign taxes.
Shareholders are provided annually with full information on dividends and
capital gains distributions for tax purposes. Shareholders should consult their
tax advisers regarding the applicability of state and local taxes to dividends
and distributions.
All income, dividends and capital gains distributions are reinvested in full and
fractional shares of The Fund at net asset value, without sales charges, on a
payment date unless a shareholder has requested payment in cash on the
shareholder application or by separate written request.
<PAGE>
Dividends paid by The Fund derived from net investment income and distributions
from net realized short-term securities gains will be taxable to the shareholder
as ordinary income whether received in cash or reinvested in additional shares.
Depending on the composition of the income, all or a portion of the dividends
derived from net investment income may qualify for the dividends received
deduction allowed certain corporations. Distributions from net realized
long-term securities gains of The Fund will be taxable to shareholders as
long-term gains for federal income tax purposes, regardless of how long
shareholders have held their shares and whether such distributions are received
in cash or reinvested in additional shares. The Code provides that the net
capital gain of an individual will not be subject to Federal income tax at a
rate in excess of 28%. Dividends and distributions may be subject to state and
local taxes.
The Fund intends to distribute substantially all its net investment income and
any net realized capital gains. The Fund expects to distribute dividend and
capital gains, if any, at least annually.
On the record date for a distribution by The Fund, its share price is reduced by
the amount of the distribution. If you buy shares just before the ex-dividend
date ("buying a dividend"), you will pay the full price for the shares, and then
receive a portion of the price back as a taxable distribution.
OTHER TAX INFORMATION
The Fund is required by federal law to withhold 31% of reportable payments
(which include dividends, capital gain distributions and redemption proceeds)
paid to certain shareholders who have not properly certified that the Social
Security or other taxpayer identification number provided by the shareholder is
correct and that he or she is not otherwise subject to backup withholding. The
Fund's shareholder application includes the required certification. The
shareholder may also be subject to penalties if he or she does not provide
correct taxpayer information. No attempt is made herein to provide information
as to state and local tax consequences of ownership of shares of The Fund.
Investors should consult their personal tax adviser to determine the
consequences of state and local taxes.
DISTRIBUTION EXPENSES
In addition to the sales charge deducted at the time of purchase, The Fund is
authorized under a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under
the Act to use a portion of its assets to finance certain activities relating to
the distribution of its shares to investors. The Plan permits payments to be
made by The Fund to the Distributor to reimburse it for expenditures incurred by
it in connection with the distribution of The Fund's shares to investors. These
payments include, but are not limited to, the payment of compensation to selling
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 Fund. Plan payments may also be made
to reimburse the Distributor for its overhead expenses related to distribution
of The Fund's 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 The Fund may not be used to finance distribution of
shares of another AAL Mutual Fund.
<PAGE>
Under the Plan, the payments may not exceed an amount computed at an annual rate
of 0.25 of 1% of the average daily net assets of The AAL International Fund.
The Plan is subject to annual review and approval by the Board of Trustees.
YIELD AND PERFORMANCE INFORMATION
The Fund will calculate and advertise performance information from time-to-time,
and for different historical periods of time, by quoting yields or total returns
designed to inform investors of the performance of The Fund. Such information
will always include uniform performance information in accordance with
standardized methods established by the Securities and Exchange Commission, and
may also include other total return calculations, if deemed appropriate to
permit investors to evaluate the investment performance of The Fund. Yields and
total returns are based on historical performance and are not intended to
indicate future performance. Investment return and the principal value of an
investment will fluctuate, and the value of the investment, if redeemed, may be
worth more or less than the original cost.
STANDARDIZED YIELD AND TOTAL RETURNS
Whenever The Fund advertises its performance, the advertisement will include
standardized yield and total return quotations calculated in accordance with
rules of the Securities and Exchange Commission, in the following manner:
The Fund may advertise a standardized current yield which is based on the income
generated by an investment in The Fund over a 30-day period, which period will
be stated in the advertisement. Income earned on debt obligations is determined
by applying a calculated yield-to-maturity percentage to the obligations held
during the period. Income earned from equity securities is determined by using
the stated annual dividend rate applied over the performance period. This
income, less expenses, is then annualized. 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. The return is
then shown as a percentage of the maximum offering price per share on the last
day of the period.
The Fund may advertise a standardized average annual total rate of return for
one, five and ten year periods, or so much thereof as it has been in existence.
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
Because there are many ways to evaluate investment performance, The Fund may
advertise total returns, other than those described above, if such information
is deemed informative to investors for use in evaluating The Fund. The Fund may
advertise total returns calculated on the basis of net investment in The Fund.
Some of these calculations will give investment performance based on dollars
invested without giving effect to the maximum applicable sales charge, which
will result in performance figures which are higher than those calculated by the
standardized methods.
Additional information regarding yield and performance information is contained
in the Statement of Additional Information.
<PAGE>
CUSTODIAN, TRANSFER AGENT AND INDEPENDENT ACCOUNTANTS
Firstar Trust Company, 615 E. Michigan Street, P.O. Box 2981, Milwaukee,
Wisconsin 53201-2981, serves as Transfer Agent for The Fund. The Chase
Manhattan Bank, N.A. serves as Custodian for The Fund. Price Waterhouse LLP,
100 East Wisconsin Avenue, Suite 1500, Milwaukee, Wisconsin 53202, serves as The
Fund's independent accountants.
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment company registered
under the Act. The Fund 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 the terms
thereof. The Declaration of Trust may be amended by a vote of either the share-
holders of its various series or its Board of Trustees. The Trust may issue
an unlimited number of shares, in one or more series as the Board of Trustees
may authorize. In addition to The Fund, the Board has authorized nine other
series which bear the AAL name.
Each share of The Fund is entitled to participate pro rata in any dividends or
other distributions declared by the Board with respect to The Fund, and all
shares of The Fund have equal rights in the event of liquidation of The Fund.
Each share of The Fund is entitled to one vote on each matter presented to
shareholders of The Fund. As a business trust, the Trust is not required to hold
annual shareholder meetings. However, special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental policies,
or approving an investment advisory contract. On matters affecting The Fund
(such as approval of advisory and sub-advisory contracts and changes in
fundamental policies of The Fund) a separate vote of the shares of The Fund is
required. Shares of The Fund are not entitled to vote on any matter not
affecting The Fund. All shares of the various series 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, which
are binding only on the assets and property of the Trust. Notice of such
disclaimer is given 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 because it is limited to circumstances where the Trust
itself is unable to meet its obligations.
SHAREHOLDER INQUIRIES
All inquiries from shareholders regarding The Fund should be directed to The
Fund at the address and telephone number shown on the back cover of this
prospectus.
<PAGE>
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 and Sub-Adviser believe 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.
DUFF & PHELPS
RATING SCALE DEFINITION
- ------------ ----------
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 considered
BBB sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet ob-
BB ligations when due. Present or prospective financial
BB- protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may
move up or down frequently within this category.
B+ Below investment grade but deemed likely to meet ob-
B ligations when due. Present or prospective financial
B- protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may
move up or down frequently within this category.
<PAGE>
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 arrearages.
<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 requested,
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 policy.
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>
[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
Sub-Adviser
- -------------------------------------------------------------------------------
Societe Generale Asset Management Corp.
1221 Avenue of the Americas
New York, NY 10020
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 Ave.
Appleton, WI 54919-0007
Telephone (414) 734-5721 1-800-553-5319 TDD 1-800-684-3416
STATEMENT OF ADDITIONAL INFORMATION
The AAL International Fund
Dated July 1, 1996
The AAL International Fund: A investment for long-term growth of capital
through investing in a diversified portfolio of securities.
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 International Fund dated July 1, 1996 and any supplements thereto.
The Fund's Prospectus and most recent Annual/Semi-Annual Report 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. Nine additional series, The AAL Small Cap Stock, The AAL Mid Cap Stock,
Capital Growth, Utilities, Bond, Municipal Bond, Money Market, 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," or "The Funds" and The AAL International Fund may be
referred to as "The 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
Investment Restrictions
Purchases & Redemptions;
Pricing Considerations
Investment Advisory Services
Compensation of Officers and
The Board of Trustees
Distributor
Distribution Plan
Portfolio Transactions
Tax Status Dividends, Distributions
and Taxes
Calculation of Yield and
Total Return
General
Financial Statements
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of The Fund's investment
objectives and policies described in the Prospectus. In pursuing its objectives,
The Fund invests as described below and employs the investment techniques
described in the Prospectus and elsewhere in this Statement of Additional
Information. The 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 The 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
The Fund are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of The Fund.
THE AAL INTERNATIONAL FUND
The Fund seeks long-term growth of capital through investing in a diversified
portfolio of foreign securities.
INVESTMENT TECHNIQUES
The Fund may use the techniques described in the Prospectus and in this
Statement of Additional Information in pursuit of its investment objective.
FOREIGN SECURITIES
The Fund will normally invest at least 65% of its portfolio in at least 3
different countries, not including the United States. Foreign investments may
involve risks which 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.
The Fund intends to invest in securities of issuers of stable and developed
countries and in emerging countries. Even within 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 sub-custodial arrangements may not
have the same legal, operational and financial safeguards for The Fund's
portfolio securities that exist in the U.S. For emerging countries, these risks
are higher.
<PAGE>
The Fund may invest in ADRs. ADR facilities may be either "sponsored" or
"unsponsored." While similar, distinctions exist relating to the rights and
duties of ADR holders and market practices. A depository may establish an
unsponsored facility without participation by or the consent of the issuer of
the deposited securities, although a letter of non-objection from the issuer is
often requested. Holders of unsponsored ADRs generally bear all the costs of
such facility, which can include deposit and withdrawal fees, currency
conversion fees and other service fees. The depository of an unsponsored
facility may be under no duty to distribute shareholder communications from the
issuer or to pass through voting rights. Issuers of unsponsored ADRs are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the ADR. Sponsored facilities enter into an agreement with the issuer that sets
out the rights and duties of the issuer, the depository and the ADR holder. The
agreement also allocates fees among the parties. Most sponsored agreements also
provide that the depository will distribute shareholder notices, voting
instructions and other communications.
The Fund may invest in sponsored and unsponsored ADRs.
CLASSIFICATION OF FOREIGN MARKETS
Foreign markets are often classified as mature or emerging. The countries in
which The Fund may invest are classified below. The Fund may also invest in
other countries as well when such investments are consistent with The Fund's
objective and policies.
Mature Emerging
- ------ --------
Australia Argentina Nigeria
Austria Brazil Pakistan
Belgium Chile People's Republic of China
Canada Czech Republic Peru
Denmark Ecuador Phillipines
Finland Greece Poland
France Hungary Portugal
Germany India South Africa
Hong Kong Indonesia South Korea
Ireland Jamaica Sri Lanka
Italy Kenya Taiwan
Japan Israel Thailand
Luxembourg Jordan Turkey
Netherlands Malaysia Uruguay
New Zealand Mexico Venezuela
Norway Morocco Vietnam
Singapore
Spain
Sweden
Switzerland
United Kingdom
United States
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
The Fund may, but is under no obligation to engage in foreign currency
transactions for hedging purposes. Hedging against the decline in value of a
currency does not eliminate fluctuations in the prices of portfolio securities,
or prevent losses if the prices of such securities decline. Such transactions
also preclude the opportunity for gain if the value of the hedged currency
should rise. Moreover, it may not be possible for The Fund to hedge against a
devaluation that is so generally anticipated that The Fund may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates.
FOREIGN CURRENCY CONTRACTS. To manage the currency risk accompanying investments
in foreign securities and to facilitate the purchase and sale of foreign
securities, The 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 has no deposit requirement and no
commissions are charged at any stage for trades.
When The 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 and Sub-Adviser believe that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, they
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 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
<PAGE>
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 Fund
to deliver an amount of foreign currency in excess of the value of The Fund's
securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospects for a particular currency will be
incorporated into the long term investment decisions made with regard to overall
diversification strategies. However, the Adviser and Sub-Adviser believes that
it is important to have the flexibility to enter into such forward contracts
when they determine that the best interests of The Fund will be served.
At the maturity of a forward contract, The 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 Fund retains the portfolio security and engages in an offsetting
transaction, The Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If The 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
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 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 Fund 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 a
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 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 Fund is obligated to deliver.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, The Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities and will not do so unless against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of loss due to a decline in the value
of the hedged currency, at the same time, they tend to limit any potential gain
which might result should the value of such currency increase.
<PAGE>
Although The Fund value 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 Fund at
one rate, while offering a lesser rate of exchange should The Fund desire to
resell that currency to the dealer.
STRUCTURED SECURITIES
The Fund may invest in structured notes and/or preferred stock, the value of
which is linked to currencies, interest rates, other commodities, indices or
other financial indicators. The securities differ from other securities in
which The Fund may invest in several ways. For example, the coupon, dividend
and/or redemption amount at maturity may be increased or decreased depending on
changes in the value of the underlying instrument.
Investment in structured securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of changes in interest
rates, the redemption amount may increase or decrease as a result of price
changes in the underlying instrument. Further, in the case of certain structured
securities, the coupon and/or dividend may be reduced to zero, and any further
declines in the value of the underlying instrument may then reduce the
redemption amount payable at maturity. Finally, structured securities may be
more volatile than the price of the underlying instrument.
LENDING PORTFOLIO SECURITIES
Subject to restriction (4) under "Investment Restrictions," below, The Fund may
lend its portfolio securities to broker-dealers and financial institutions, such
as banks and trust companies. The Adviser and Sub-Adviser will monitor the
creditworthiness of firms with which The Fund engages 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 or Sub-Adviser's judgment, a material event requiring a shareholder
<PAGE>
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) 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.
The Fund has no present intention to lend portfolio securities.
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 Fund maintains procedures for
evaluating and monitoring the creditworthiness of firms with which it enters
into repurchase agreements. The Fund may not invest more than 15% 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
The Fund may purchase securities on a when-issued or delayed-delivery basis, as
described in the Prospectus. The Fund makes such commitments only with the in-
tention of actually acquiring the securities, but may sell the securities before
settlement date if the Adviser or Sub-Adviser deem it advisable for investment
reasons.
At the time The 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 Fund's custodian throughout the period of the
obligation. The use of these investment strategies may increase net asset value
fluctuation.
RATED SECURITIES
The Fund may invest in debt securities, including lower-rated securities (i.e.
rated BB or lower by Standard & Poor's or Ba or lower by Moody's and commonly
called "junk bonds") and securities that are not rated. There are no
restrictions as to the ratings of debt securities acquired by The Fund or the
portion of The Fund's assets that may be invested in securities in a particular
category, except that The Fund won't invest more than 20% of its assets in
securities rated below investment grade or equivalent unrated securities.
Securities rated BBB by Standard & Poor's or Baa by Moody's (the lowest
investment grade rankings) are considered to be of medium grade and to have
speculative characteristics. Debt securities rated below investment grade are
predominately speculative with respect to the issuers capacity to pay interest
and repay principal. Although lower-rated debt and comparably unrated debt
securities may offer higher yields than do higher rated securities, they
<PAGE>
generally involve greater volatility of price and risk of principal and income,
including the possibility of default by, or bankruptcy of, the issuers of the
higher rated securities. In addition, the markets in which lower-rated and
unrated debt securities are traded are more limited than those in which higher
rated securities are trade. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the liquidity and the
values of lower-rated-debt securities, especially in thin traded markets. During
periods of thin trading, the spread between bid and asked prices is likely to
increase significantly., and The Fund may have greater difficulty selling its
portfolio securities. Analysis of creditworthiness of issuers of lower-rated
debt may be more complicated and uncertain than for issuers of higher rated
securities., and the ability of The Fund to achieve its investment objective
may, to the extent of investment in lower-rated securities, be more dependent
upon creditworthiness analyses than would be the case if The Fund were to be
invested in higher rated securities.
Lower-rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of lower-rated debt securities have been found to be less sensitive
to interest rate changes than higher rated investments but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in lower-rated debt securities' prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt. If the issuer of a lower-rated
security defaults, The Fund may incur additional expenses seeking recovery.
For a description of the ratings applied by certain nationally recognized
statistical rating organizations to debt and fixed-income securities, please
refer to the Appendix. The rated debt securities described in the Prospectus for
The Fund include securities given a rating conditionally by Moody's or
provisionally by Standard & Poor's or Duff & Phelps Credit Rating Co. If the
rating of a security held by The Fund is lost or reduced, The Fund is not
required to sell the security, but the Adviser and Sub-Adviser will consider
such fact in determining whether The Fund should continue to hold the security.
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, The Fund will attempt to
use comparable ratings as standards for its investments in debt securities in
accord with its investment policies.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its total net assets in illiquid securities,
including certain securities that are subject to legal or contractual
restrictions on resale ("restricted securities"). Generally restricted
securities may be sold only in privately negotiated transactions or in a public
offering with respect to which a registration statement is in effect under the
Securities Act of 1933 ("33 Act"). Where registration is required, The Fund may
<PAGE>
be obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time The Fund
may be permitted to sell a security under an effective registration statement.
If, during such period, adverse market conditions were to develop, The Fund
might obtain a less favorable price than that which prevailed at the time when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith by The Board of Trustees. If, through the appreciation
of illiquid securities or the depreciation of liquid securities, The Fund should
be in a position where more than 10% of the value of its net assets is invested
in illiquid securities, including restricted securities, The Fund will take
steps to protect liquidity. Notwithstanding the above, The Fund may purchase
securities that have been privately placed but that are eligible for purchase
and sale under Rule 144A under the 33 Act. That rule permits certain
institutional buyers, such as The Fund, to trade in privately placed securities
that have not been registered for sale under the 33 Act. The Adviser and
Sub-adviser, under the supervision of the Board of Trustees, will consider
whether securities purchased under Rule 144A are illiquid and subject to The
Fund's restriction on investing in illiquid securities. A determination as to
whether a Rule 144A security is liquid or not is a question of fact. In making
this determination, the Adviser and Sub-adviser will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser and Sub-adviser could
consider: 1) the frequency of trades and quotes; 2) the number of dealers and
potential purchasers; 3) the dealer undertakings to make a market; and 4) the
nature of the security and of marketplace trades (e.g. the time needed to
dispose of the security, the method of soliciting offers and mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, The Fund's holdings of illiquid securities would be reviewed to
determine what steps, if any, are required to assure that The Fund does not
invest more than the maximum percentage of its assets in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the amount
of The Fund's illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
VARIABLE RATE DEMAND NOTES
The Fund 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 Fund may demand
payment of principal at any time. The notes purchased by The Fund must be rated
in one of the two highest rating categories by a nationally recognized
statistical rating organization or must 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 Fund 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 Fund invest in variable rate master notes
only when the Advisers deem the investment to involve minimal credit risk.
<PAGE>
INVESTMENTS IN OTHER INVESTMENT COMPANIES
An investment by The 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
The Fund operates under the following investment restrictions. The Fund may not:
(1) invest more than 5% of its total 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 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 The Fund may make margin deposits in connection with transactions
in options, futures and options on futures to the extent such
transactions may be permissible;
(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 this
Statement of Additional Information and The Fund's Prospectus;
(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 assets, taken at current
value, and then only from banks as a temporary measure for
extraordinary or emergency purposes (The Funds will 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 The Fund
except as may be necessary in connection with and subject to the
limits in restriction (5);
<PAGE>
(7) underwrite any issue of securities, except to the extent that the
purchase of securities directly from an issuer thereof in accord with
The 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 The Fund may be deemed an underwriter under
federal securities laws;
(8) purchase or sell real estate, or real estate limited partnership
interests provided that The 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 The
Fund may purchase or sell futures and options thereon for hedging
purposes if otherwise permitted; the Fund has no present intention
of making any such investments;
(10) invest 25% or more 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;
(11) invest in oil, gas or mineral related programs or leases except as
may be included in the definition of public utility, although it may
invest in securities of enterprises engaged in oil, gas or mineral
exploration;
(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 15% of The Fund's total 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 The Fund would have more
than 5% of its total 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 The Fund's total 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 The Fund or more
than 5% of the value of The Fund's total assets would be invested in
such company; and (b) no restrictions shall apply to a purchase of
investment company securities in connection with a merger,
consolidation acquisition or reorganization;
(15) purchase more than 10% of the outstanding voting securities of an
issuer or invest for the purpose of exercising control or management.
<PAGE>
Each of the above restrictions (1) through (15), as well as The Fund's
investment objective, is a fundamental policy. In addition, The 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.
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 ("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.
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 The 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 Exchange, which events will not be
reflected in the computation of The 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. See discussion of pricing of foreign securities in the
prospectus.
<PAGE>
The Fund intends to pay all redemptions in cash and is 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.
The 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 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.
LETTER OF INTENT
Under a Letter of Intent, as described in the Prospectus, shares totalling 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 The 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 and Sub-Adviser, Advisory and
Sub-Advisory Agreements 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
4321 N. Ballard Rd. AAL Capital Management Corporation
Appleton, WI 54919-0001 since 1986; Prior to 1996, Senior
Vice President, Member Investment
Services, Aid Association for
Lutherans (fraternal benefit society),
and prior to 1992, Treasurer
H. Michael Spence Vice President; President of AAL
222 West College Ave. Capital Management Corporation
Appleton, WI 54919 since 1994 and Sr. Vice President
from 1991 to 1994 and Director since
1988
Robert G. Same Secretary; Director, Senior Vice
222 West College Ave. President and Secretary of
Appleton, WI 54919 AAL Capital Management Corporation
since 1987.
Terrance P. Gallagher Treasurer; Sr. Vice President,
222 West College Ave. Treasurer of AAL Capital
Appleton, WI 54919 Management Corporation since
1987 and Controller since 1992.
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
<PAGE>
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 and Sub-Adviser) exceed the applicable
limits prescribed by any state in which the shares of such Fund are being
offered for sale. The Fund believes that currently the most restrictive state
limits on annual expenses during any fiscal year are 2-1/2% of The Fund's
average daily net assets up to $30 million, 2% of the next $70 million and
1-1/2% thereafter. The assumption of expenses may be initiated, modified or
discontinued by the Adviser, for The Fund, at any time.
From those fees, the Adviser pays sub-advisory fees in accordance with the
formula set forth in the Prospectus.
The Advisory and Sub-Advisory agreements provide that subject to Section 36 of
the Act, neither the Adviser nor Sub-Adviser shall 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 Agreements 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 current Investment Advisory Agreement and the Sub-Advisory Agreement were
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 23, 1995. The Agreements will 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).
<PAGE>
The Advisory and Sub-Advisory Agreements are 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 or Sub-Adviser on 60 days' written notice to the Trust.
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)
Name of Person Capacities in Aggregate Remuneration. Pension or Retirement Estimated Annual Total Compensation
Which Not Expenses - Trustee Benefits Accrued During Benefits Upon from Registrant and
Remuneration Fees Registrant's Last Retirement Fund Complex paid
Received Fiscal Year to Trustees (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John H. Pender
DOB 5/25/30
Richard L. Gunderson
DOB 6/14/33
F. Gregory Campbell
DOB 12/16/39
Richard L. Gady
DOB 2/28/43
D. W. Russler
DOB 10/28/28
Lawrence M. Woods
DOB 4/14/32
<FN>
1. The Trustees are also Directors for The AAL Variable Product Series Fund, Inc.
</FN>
</TABLE>
<PAGE>
DISTRIBUTOR
AAL Capital Management Corporation is the exclusive underwriter for The Fund
under a written Distribution Agreement with The Fund. The underwriter offers
the shares of The Fund for sale on a continuous basis through its field sales
force.
AAL Capital Management Corporation also acts as exclusive underwriter for nine
additional series of The AAL Mutual Funds, The AAL Small Cap Stock, The AAL Mid
Cap Stock, Capital Growth, Utilities, Bond, Municipal Bond and Money Market
Funds, as well as The AAL U.S. Government Zero Coupon Target Fund, Series 2001
and The AAL U.S. Government Zero Coupon Target Fund, Series 2006 which are
closed to new investors.
DISTRIBUTION PLAN
The Trust's Distribution Plan (the "Plan") is its 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 Fund, 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 in a given fiscal year. 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 The Fund
listed below are considered to be "primarily intended to result in the sale of
shares" issued by The Fund within the meaning of the Rule, such payments by The
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 its shares under the
securities or "Blue Sky" laws of any jurisdiction; (f) all fees under the Act
and the 33 Act, including fees in connection with any application for exemption
<PAGE>
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 Fund 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 Fund, 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 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 other series 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
<PAGE>
Management and the Board of Trustees believe that the Distribution Plan and
12b-1 fees have a positive impact on sales of The Fund, and the retention of
Fund assets, both of which are beneficial to The Fund and The Fund's
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 29, 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, including The Fund, by the vote of a
majority of the outstanding 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 Sub-Adviser and the Adviser direct the placement or orders for the purchase
and sale of The Fund's portfolio securities.
The costs of securities transactions for The Fund will consist primarily of
brokerage commissions or dealer or underwriter spreads. Bonds and money market
instruments are 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 secur-
ities 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 Sub-Adviser and the
Adviser seek the best combination of price and execution.
In determining which brokers provide best execution, the Adviser and Sub-Adviser
look primarily to the stock price quoted by the broker, and normally place
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 The
<PAGE>
Fund, the Adviser and Sub-Adviser will consider all factors they deem relevant,
including the breadth of 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 Fund will
be made only by the Distributor, the Adviser and Sub-Adviser may in the future
consider the willingness of particular brokers to sell shares of The Fund as a
factor in the selection of brokers for The Fund's 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 and
Sub-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 Fund's net
asset values, and other information provided to The Fund, to the Adviser or the
Sub-Adviser (or their affiliates). The Adviser and Sub- Adviser may also cause
The 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 and Sub-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 or
Sub-Adviser exercise investment discretion. It is possible that certain of the
services received by the Adviser or Sub-Adviser attributable to a particular
transaction will benefit one or more other accounts for which investment
discretion is exercised by the Adviser or Sub-Adviser.
While there is no commitment or understanding to do so, subject to the policy of
obtaining best execution, The Fund may use an affiliate of the sub-adviser as a
broker in the purchase and sales of securities, subject, of course, to receiving
the best price and execution as discussed herein. No affiliate of the adviser
or sub-adviser may act as a principal in any purchase or sale of securities
involving The Fund unless such transaction may be permitted by the SEC.
TAX STATUS, DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify annually as a "regulated investment company" under
the Code. In order to qualify The Fund must, among other things: a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from sale or other disposition of stock, securities or
foreign currencies; b) derive less than 30% of its gross income from the sale or
<PAGE>
other disposition of stock or securities and options, futures, forward contracts
and foreign currencies held less than 3 months (excluding gains from certain
hedging transactions and from foreign currencies [and options, futures and
forward contracts on such currencies] that are directly related to The Fund's
principal business of investing in such stocks or securities or options
thereon); c) diversify its holdings so that, at the end of each fiscal quarter;
(i) at least 50% of the market value of its assets is represented by cash, cash
items, U.S. government securities, securities of other regulated investment
companies and other securities, with such other securities of any one issuers
qualifying only if The Fund's investment is limited to an amount not greater
than 5% of The Fund's assets or 10% of the voting securities of the issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. government or securities of other regulated
investment companies); and d) distribute at least 90% of its investment company
taxable income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) for the
year.
As a regulated investment company, The Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains, if any, that it distributes to shareholders. The Fund intends to
distribute to shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a non-deductible excise tax. To prevent imposition of this tax,
The Fund must distribute during each calendar year an amount equal to the sum
of: 1) at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year, 2) at least 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses) for the
period ending on October 31, and 3) any ordinary income and capital gains for
the previous years that were not distributed during those years. A distribution
will be treated as paid on December 31 of the current year if declared by The
Fund in October, November or December with a record date in such month and paid
in January of the following year. Such distributions will be taxable to
shareholders in the year declared.
Different tax treatment and penalties may apply to distributions from
tax-deferred accounts.
Dividends paid out of The Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. To the extent that a portion
of The Fund's income consists of dividends paid by U.S. corporations, a portion
of the dividends paid by The Fund may be eligible for the corporate
dividends-received deduction. It is expected that a small portion of the
dividends paid by The Fund will so qualify. Distributions of net capital gains,
if any designated as capital gains distributions are taxable as long-term
capital gains, regardless of how long the shareholder has held The Fund's
shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each share equal to the net asset value of
the share on the reinvestment date. Shareholders will be notified annually as to
the U.S. federal tax status of distributions, and shareholders receiving
distributions in the form of additional shares will receive a report as to the
net asset value of those shares.
<PAGE>
Investments by The Fund in zero coupon securities will result in income to The
Fund equal to a portion of the excess of the face value of the securities over
their issue price (the "original discount") each year that the securities are
held, even though The Fund receives no interest payment. This income is included
in determining the amount of income that The Fund must distribute to maintain
its tax status as a regulated investment company and to avoid payment of income
and excise taxes. If The Fund invests in certain high yield original discount
obligations issued by U.S. corporations, a portion of the original discount
accruing on such an obligation may be eligible for the dividend-received
deduction. In such event, a portion of the dividends of investment company
taxable income received by corporate shareholders may be eligible for this
corporate dividends-received deduction, if so designated by The Fund in a
written notice to shareholders.
Certain foreign currency contracts are section 1256 contracts. Gains and losses
on 1256 contracts generally are considered 60% long-term and 40% short-term
capital gains or losses; however foreign currency gains or losses (as discussed
below) arising from certain 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by The Fund at the end of each taxable
year (and generally for purposes of the excise tax, on October of each year)
are "marked-to-market," that is, treated as sold at fair market value,
resulting in unrealized gains or losses being treated as though they were
realized.
Generally, the hedging transactions undertaken by The Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of the gains (or losses) realized by The Fund. In addition, losses
realized by The Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than taken into account in calculating the
taxable income for the taxable year in which the losses are realized. Because
only a few regulations implementing the straddle rules have been promulgated,
the tax consequences of a Fund transaction may not been entirely certain.
Hedging transactions may increase the amount of short-term capital gains
realized by The Fund that is taxed as ordinary income when distributed by
shareholders.
The Fund may make one or more elections available under the Code that apply to
straddles. If The Fund makes any election, the amount, character and timing of
the recognition of gains or losses from the affected straddle positions will be
determined under rules that vary according to the election made. The rules
applicable to some elections may operate to accelerate the recognition of gains
or losses from the affected straddle positions.
Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
positions, the amount distributed to shareholders and taxed to them as dividend
or long-term capital gains, may be increased or decreased as compared to a fund
that did not engage in such hedging transactions.
<PAGE>
The 30% limitation and the diversification requirements applicable to the Fund's
assets may limit the extent that The Fund can engage in foreign currency
transactions.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time The Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain foreign currency contracts, gains
or losses attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of The Fund's investment company taxable income.
Upon the sale or other disposition of shares, a shareholder may realize a
capital gain or loss that may be long-term or short-term, generally depending
upon the shareholder's holding period for the shares. Any loss realized on a
disposition of Fund shares held for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Under certain circumstances the sales charge incurred in acquiring shares of The
Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies if shares of The Fund are
exchanged within 90 days after the date they were purchased and the new shares
were acquired without sales charge or at a reduced sales charge. In that case,
the gain or loss recognized on the exchange will be determined by excluding from
the tax basis of the shares exchanged, all or a portion of the amount of sales
charge that was imposed on the acquisition of those shares. This exclusion
applies to the extent that the otherwise applicable sales charge with respect to
the newly acquired shares is reduced as a result of having incurred the initial
sales charge. The portion of the initial sales charge that is excluded from the
basis of the exchanged shares is instead treated as an amount paid for new
shares.
The Fund may be subject to foreign withholding taxes on income and gains derived
from their investments outside the United States. Such taxes would reduce the
yield on The Fund's investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. If more than 50% of the value
of The Fund's total assets at the close of any taxable year consists of stocks
or securities of foreign corporations, the fund may elect, for U.S. federal
income tax purposes, to treat any foreign country income or withholding taxes
paid by The Fund that can be treated as income taxes under U.S. income tax
principles, as paid by its shareholders. For any year that The Fund makes such
an election, each of its shareholders will be required to include in his income
(in addition to taxable dividends actually received) his allocable share of such
taxes paid by The Fund, and will be entitled, subject to certain limitations, to
credit his portion of these foreign taxes against his U.S. federal income tax
due, if any , or to deduct it (as an itemized deduction) from his U.S. taxable
income, if any.
<PAGE>
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his foreign source taxable
income. If the pass through election described above is made, the source of The
Fund's income flows through to its shareholders. Certain gains from the sale of
securities and certain currency fluctuation gains will not be treated as foreign
source taxable income. In addition, this foreign tax credit limitation must be
applied separately to certain categories of foreign source income, one of which
is foreign source "passive income." For this purpose, foreign "passive
income" includes dividends, interest, capital gains and certain foreign
currency gains. As a consequence, certain shareholders may not be able to
claim a foreign tax credit for the full amount of their proportionate share of
foreign taxes paid by The Fund. The foreign tax credit can be used to offset
only 90% of the alternative minimum tax (as computed under the Code for
purposes of this limitation) imposed on corporations and individuals. If The
Fund is not eligible to make the pass through election described above, the
foreign taxes it pays will reduce its income, and distributions by The
Fund will be treated as U.S. source income. Each shareholder will be
notified within 60 days after the close of The Fund's taxable year whether,
pursuant to the election described above, the foreign taxes paid by The Fund
will be treated as paid by its shareholders for that year and, if so, such
notification will designate: (i) such shareholder's portion of the foreign
taxes paid to such country; and (ii) the portion of The Fund's dividends and
distributions that represent income derived from sources within such country.
Investments by The Fund in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), are subject to special tax rules designed to prevent
deferral of U.S. taxation of The Fund's share of the PFIC's earnings. In the
absence of certain elections to report these earnings on a current basis,
regardless of whether The Fund actually receives any distributions from the
PFIC, a Fund would be required to report certain "excess distributions" from,
and any gain from the disposition of stock of the PFIC, as ordinary income. This
ordinary income would be allocated ratably to The Fund's holding period for the
stock. Any amounts allocated to prior taxable years would be taxable to The Fund
at the highest rate of tax applicable in that year, increased by an interest
charge determined as though the amounts were underpayments of tax. Amounts
allocated to the year of the distribution or disposition would be included in
The Fund's net investment income for that year and, to the extent distributed as
a dividend to The Fund's shareholders, would not be taxable to The Fund.
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide The
Fund with their correct taxpayer identification number or to make required
<PAGE>
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate shareholders and certain shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the U.S.
federal income tax liability.
Because, at the time of an investor's purchase of The Fund's shares, a portion
of the per share net asset value by which the purchase price is determined may
be represented by realized or unrealized appreciation in The Fund's portfolios
or undistributed income of The Fund, subsequent distributions (or a portion
thereof) on such shares may in reality represent a return of his capital.
However, such a subsequent distribution would be taxable to such investor even
if the net asset value of his shares is, as a result of the distribution,
reduced below his costs for such shares. Prior to purchasing shares of The Fund,
an investor should carefully consider such tax liability that he might incur by
reason of any subsequent distributions of net investment income and capital
gains. Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions and redemptions for Fund shares. Also, the tax
consequences to a foreign shareholder of an investment in The Fund may be
different from those described above.
The 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. The Fund intends to distribute substantially all its net
investment income and net realized long- term capital gains in order to avoid
imposition of federal income and excise tax liability. The Fund expects to pay
dividends annually. The Fund expects to distribute long-term capital gains, if
any, at least annually.
The foregoing is only a summary of certain tax considerations generally
affecting The Fund and its shareholders. Investors are urged to consult their
tax advisers 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 Fund 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 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
<PAGE>
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 The Fund's performance to the performance data
published for alternative investments.
<PAGE>
STANDARDIZED PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund's 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:
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;
P = $1,000 (the hypothetical initial payment before deduction
of the maximum sales load);and
^ = raised to the power of.
CURRENT YIELD. Current yield quotations for The 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);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends;
d = the maximum offering price per share on the last day of
the period; and
^ = to the power of.
<PAGE>
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 paydown. Income earned on equity securities is
determined by using the stated annual dividend rate applied over the performance
period. When advertising yield, The 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.
OTHER PERFORMANCE INFORMATION
The Fund may, from time to time, include in its 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, at various assumed interest rates and compounding, and using
various periodic investments 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.
AVERAGE ANNUAL TOTAL RETURN. The 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 = n(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;
P = $1,000 (the hypothetical initial net investment
after deduction of the sales load); and
^ = raised to the power of.
<PAGE>
From time to time The Fund may discuss in sales literature and advertising
performance ratings and/or rankings or other information. Performance
information for The Fund may be compared to various unmanaged indices, such as
the Morgan Stanley EAFE and World, Dow Jones Industrial Average, the S&P 500,
Shearson/Lehman Bond Indices, and various foreign country and currency indices
as well as indices of similar mutual funds. The Fund may also include in its
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. The Fund may also provide information from publications
such as BARRON'S, BUSINESS WEEK, THE ECONOMIST, FINANCIAL WORLD, FORBES,
FORTUNE, KIPLINGER'S PERSONAL FINANCE, MONEY, SMART MONEY, THE WALL STREET
JOURNAL or WORTH, and from videotapes of television shows and interviews
involving investment experts including employees of the adviser and sub-adviser.
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 The Fund. Each share
represents an interest in The Fund proportionately equal to the interest of each
other share. If the Trust were to liquidate, all shareholders of The 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 Act or as permitted by the Trustees. Income and
operating expenses are allocated fairly among the series by the Trustees.
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, The Chase Manhattan Bank, N.A., is responsible for holding
The Fund's assets.
AAL Capital Management Corporation (the "Adviser") provides certain
administrative, accounting and pricing services to The Fund, including
calculating the daily net asset value per share; maintaining original entry
<PAGE>
documents and books of record and general ledgers; posting cash receipts and
disbursements; reconciling bank account balances monthly; recording purchases
and sales based on Sub-Adviser communications; and preparing monthly and annual
summaries to assist in the preparation of financial statements of, and
regulatory reports for, The Fund. 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 on May 23, 1995 and was later approved by the sole shareholder of The
Fund. 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 is $40,000 for The Fund per year,
plus the cost of outside pricing services but only to the extent the Adviser is
not voluntarily absorbing any expenses of that Fund. This rate initially was
$25,000 for the other Funds but this rate was reduced to $5,000 for The AAL U.S.
Government Zero Coupon Target Fund, Series 2001 and Series 2006 because of the
decision to suspend sales. The Fund's higher rate reflects the increased duties
involved with pricing foreign securities and, the Trustees believe, will result
in lower costs to shareholders of The Fund. 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.
EXPENSE 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, including
reimbursement for expensesis currently $3.58 per account. The Agreement will
continue in effect from year to year, as long as it is approved at least
<PAGE>
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. These fees are not currently assessed against The Fund but may be
in the future.
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 Fund,
included in the annual report for the year ended April 30, 1996 will be
incorporated by reference when available at the end of the fiscal year.
<PAGE>
THE AAL MUTUAL FUNDS
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The audited financial statements of
the Trust, including the Smaller Company Stock, Capital
Growth, Utilities, Bond, Municipal Bond, Money Market and U.S.
Government Zero Coupon Target Funds, Series 2001 and 2006
Funds are unavailable until after the close of the April 30
fiscal year and will be filed supplementally. (Effective July
1, 1996 The AAL Smaller Company Stock Fund is renamed The AAL
Mid Cap Stock Fund).
(b) Exhibits: Except for the following, 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.
(11) Consent of the Independent Accountants
(17) Financial Data Schedule
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 Smaller Company Stock Fund - 62,334
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
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").
<PAGE>
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, 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 Registrant. For information as to the business, profession,
vocation or employment of a substantial nature of the Adviser and Sub-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 and
Sub-Adviser.
<PAGE>
Item 29. Principal Underwriters
(a) None
(b)
POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
- ---------------- ----------- ----------
John H. Pender Director President
222 West College Ave.
Appleton, WI 54914
H. Michael Spence President and Director Vice President
222 West College Ave.
Appleton, WI 54919
Robert G. Same Senior Vice President Secretary
222 West College Ave. Secretary and
Appleton, WI 54919 Director
Terrance P. Gallagher Senior Vice President, Treasurer
222 West College Ave. CFO, Controller,
Appleton, WI 54919 Treasurer
James H. Abitz Director None
222 West College Ave.
Appleton, WI 54915
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
<PAGE>
Kenneth E. Podell Assistant Secretary None
222 West College Ave.
Appleton, WI 54919
Paul Stadler Assistant Vice President None
222 West College Ave.
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,
Florida, 32082
Charles Gariboldi Jr. Assistant Vice President None
222 West College Ave.
Appleton, WI 54919
Byron Vielehr Assistant Vice President None
222 West College Ave.
Appleton, WI 54919
Charles Friedman Assistant Vice President None
222 West College Ave.
Appleton, WI 54919
Joseph Wreschnig Assistant Vice President None
222 West College Ave and Assistant Secretary
Appleton, WI 54919
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
<PAGE>
Item 32. Undertakings
The Registrant undertakes that, at the request of the shareholders
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 communicate
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.
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
