Registration No. 33-12911
As filed on June 26, 1997 Registration No. 811-5075
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 22
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 24
(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)
o immediately upon filing pursuant to paragraph (b) of Rule 485
XX on June 30, 1997, pursuant to paragraph (b) of Rule 485
o 60 days after filing pursuant to paragraph (a)(1) of Rule 485
o on ____________, pursuant to paragraph (a)(1) of Rule 485
o 75 days after filing pursuant to paragraph (a)(2) of Rule 485
o on ____________, pursuant to paragraph (a)(2) of Rule 485
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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 has filed a notice under Rule 24f-2 on June 24, 1997.
=======================================
Page 1 of pages.
Exhibit index is located at Page
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CROSS REFERENCE SHEET FOR
The AAL U.S. Government Zero Coupon Target Funds
Series 2001 and 2006
N-1A ITEM NO. LOCATION
PART A
Item 1 Cover Page Cover Page
Item 2 Synopsis General Information
Item 3 Financial Highlights Financial Highlights
Item 4 General Description of Registrant Cover Page; General
Information; Investment
Objectives and Policies
Item 5 Management of the Fund Board of Trustees
and Management of the
Trust
Item 5A Management's Discussion of
Funds' Performance Not Applicable, See
Annual Report
Item 6 Capital Stock and Other Securities Organization and Descrip-
tion of Shares
Item 7 Purchase of Securities Being Offered How to Buy Shares Divi-
dends, Distributions and
Taxes; Organization & De-
scription of Shares
Item 8 Redemption or Repurchase How to Sell (Redeem)
Shares
Item 9 Pending Legal Proceedings Not Applicable
PART B
Item 10 Cover Page Cover Page
Item 11 Table of Contents Table of Contents
Item 12 General Information and History Not Applicable
Item 13 Investment Objectives and Policies Investment Objectives &
Policies; Investment Tech-
niques; Investment Re-
strictions
Item 14 Management of the Fund Investment Advisory Ser-
vices; Distribution Plan
Item 15 Control Persons and Principal Investment Advisory Ser-
Holders of Securities vices
Item 16 Investment Advisory and Other Investment Advisory Ser-
Services vices; Distributor; Dis-
tribution Plan
Item 17 Brokerage Allocation Portfolio Transactions
Item 18 Capital Stock and Other Securities General
Item 19 Purchase, Redemption and Pricing Purchases & Redemptions;
of Securities Being Offered Pricing Considerations
Item 20 Tax Status Dividends, Distributions
and Taxes
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 June 30, 1997
THE AAL MUTUAL FUNDS
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
Series 2001 and Series 2006
222 West College Ave.
Appleton, WI 54919-0007
800-553-6319 or 414-734-7633 TDD 800-684-3416
The AAL U.S. Government Zero Coupon Target Funds (the "Funds") are two of a
series of separate mutual fund portfolios within a single Trust, The AAL Mutual
Funds. The Funds are designed for investors seeking high future return from U.S.
government securities with a reasonable assurance that they will receive a
targeted dollar amount, predictable at the time of investment, on a specific
maturity date.
PLEASE TAKE NOTICE
SALES OF THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS, SERIES 2001 AND 2006
WERE CLOSED TO NEW SHAREHOLDERS AND TO ADDITIONAL PURCHASES OF SHARES BY
EXISTING SHAREHOLDERS EFFECTIVE MAY 31, 1993. PURCHASES OF SHARES BY
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, IF ANY, IN EXISTING SHAREHOLDER
ACCOUNTS WILL CONTINUE TO BE ALLOWED AND WILL BE AT NET ASSET VALUE. ALTHOUGH
THERE IS NO INTENT TO DO SO, SALES OF THE FUNDS COULD BE REOPENED IN THE FUTURE.
THE DISCUSSION ELSEWHERE HEREIN AS TO THE PURCHASE OF SHARES OF THE FUNDS IS
QUALIFIED BY THE FOREGOING LIMITATIONS.
Because the Funds invest primarily in zero coupon securities, the net asset
value per share may fluctuate substantially prior to the maturity date. Although
investors may redeem shares on any business day at net asset value, a
shareholder who redeems prior to maturity may experience a significantly
different investment return than was anticipated at the time of purchase.
Redemptions prior to maturity may result in capital gains or losses which may be
substantial. See "Price Variability." Because up to 20% of a portfolio may be
invested in interest paying U.S. government securities, the total return for
investors in the Funds cannot be guaranteed even if all shares are held until
maturity and all dividends and distributions are reinvested.
The Funds invest primarily in U.S. government zero coupon securities ("zero
coupon securities" or "zeros"). Each series matures on a specified target date.
Presently, two series of Funds are offered, Series 2001, maturing on November
15, 2001, and Series 2006, maturing on November 15, 2006.
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 ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
AAL Capital Management Corporation acts as Investment Adviser to and Distributor
for the Funds. The Funds are 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--Reducing Your Sales Charge." As the Adviser, AAL Capital Management
Corporation receives management and advisory fees from the Funds. As the
Distributor, AAL Capital Management Corporation, receives a distribution fee on
assets of the Funds. See "Management of the Trust" and "Distribution Expenses."
This prospectus provides you with the basic information you should know before
investing in the Funds. Please read it and keep it for future reference. A
Statement of Additional Information dated June 30, 1997, containing additional
information about the Funds 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 Annual
Report and/or Statement of Additional Information without charge by writing or
calling the Funds at the address or telephone numbers set forth above.
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
INVESTMENT OBJECTIVE
High investment returns from U.S. government securities over selected periods of
time
INVESTMENT CHARACTERISTICS
Two portfolios - maturing in 2001 and 2006
Professionally managed portfolios of U.S. government securities, primarily
consisting of zero coupon securities
Relatively predictable return at maturity date if dividends and distributions
are reinvested
<PAGE>
TABLE OF CONTENTS
Page
Summary of Fund Expenses
Financial Highlights
General Information
Zero Coupon Securities
Investment Objective
Investment Policies
Other Investment Factors Regarding the Funds
Investment Restrictions
Board of Trustees
Management of the Trust
Adviser and Distributor - General
Portfolio Manager
How to Buy Shares
How to Redeem (Sell) Shares
Exchange Privilege
Telephone Transactions
Retirement Plans
Net Asset Value
Dividends, Distributions and Taxes
Distribution Expenses
Yield and Performance Information
Custodian, Transfer Agent and Independent Accountants
Organization and Description of Shares
<PAGE>
EXPENSE INFORMATION
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 the amounts incurred in the prior fiscal year, and
prior to voluntary reimbursements by the Adviser. This information also reflects
the Adviser's current voluntary undertaking to pay all expenses of the Funds in
excess of 1%.
Shareholder Transaction Target Fund Target Fund
Expenses Series 2001 Series 2006
Maximum sales charge imposed 4.75% 4.75%
on purchases (as a percentage of
offering price)
Maximum sales charge imposed None None
on reinvested dividends (as a
percentage of offering price)
Deferred 12b-1 sales charges None None
Redemption Fee None None
Exchange Fee (per exchange)(1) None None
Annual Fund Operating Target Fund Target Fund
Expenses (giving effect to Series 2001 Series 2006
expense undertaking as a
percentage of average net assets)
Management Fee(2) 0.50% 0.50%
Rule 12b-1 Distribution Plan 0.10% 0.10%
Fee(2)
Other Expenses (after contractual 0.40% 0.40%
and voluntary reimbursement by
the Adviser)(3)
Total Fund Operating Expenses 1.00% 1.00%
(giving effect to voluntary
reimbursement by the Adviser)(3)
(1) A $12.00 fee will be charged for each wire redemption.
(2) Since June 1, 1993, the Adviser has voluntarily waived its management
fee. Since July 1, 1993, The Distributor has waived receipt of the Rule
12b-1 Distribution Plan fee. Although these waivers are voluntary, there
is no present intention to reinstate these fees in the future. 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 (NASD).
<PAGE>
(3) The Adviser has a contractual obligation to reimburse the Funds for
expenses in excess of any applicable state maximum expense limitation.
In addition, the Adviser is currently paying all expenses of the Funds
in excess of 1%. "Other Expenses" and "Total Fund Operating Expenses"
reflect these contractual and voluntary expense reimbursements. Without
the voluntary expense undertaking by the Adviser, the total operating
expenses would have been .99% and 1.17% for Series 2001 and 2006,
respectively, for the year ended April 30, 1997.
Expense Example
Based on the expense information provided (assuming no exchanges and with the
waiver of expenses over 1% for the first year), the following hypothetical
example illustrates the expenses you would pay on a $1,000 investment in each of
the Funds for the periods indicated. The example assumes a five percent (5%)
compounded annual return and redemption at the end of each time period.
Time Period Target Fund Target Fund
Series 2001 Series 2006
1-year $57 $57
3-years $78 $79
5-years $101 $102
10-years $169 $172
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 or
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.
Without the Adviser's voluntary undertaking, it is estimated that these expenses
would be approximately $57, $78, $101 and $169, respectively, for Series 2001
and approximately $59, $84, $110 and $185, respectively, for Series 2006.
<PAGE>
Financial Highlights
The audited Financial Highlights Table covers The AAL U.S. Government Zero
Coupon Target Funds, Series 2001 and 2006, for the period from November 14, 1990
(commencement of operations) through April 30, 1991, and for the years ended
April 30, 1992, 1993, 1994, 1995, 1996 and 1997 respectively. You should read
the Table in conjunction with the Funds' financial statements and related notes,
all of which have been audited by Price Waterhouse LLP, independent accountants.
The Funds' financial statements and related notes, including Price Waterhouse
LLP's report thereon, are contained in the Funds' April 30, 1997 Annual Report,
copies of which are available from the Distributor at no charge.
<TABLE>
<CAPTION>
Target 2001 Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96 4/30/97
NAV Start of Period $ 10.00 $ 10.25 $ 10.61 $ 12.25 $ 10.54 $ 10.37 $ 10.55
Net Investment Income(loss) 0.444 0.772 0.741 0.700 0.663 0.647 0.639
Net Realized and Unrealized
Gain(loss) on Invesments 0.250 0.360 1.679 (0.623) 0.000 0.335 (0.068)
Total from Investment
Operations 0.694 1.132 2.420 0.077 0.663 0.982 .571
Dividends from Net Investment
Income (0.444) (0.772) (0.741) (0.700) (0.663) (0.761) (0.639)
Distribution from Net Realized
Gain on Investments(d) 0.000 0.000 (0.039) (1.087) (0.170) (0.041) (0.102)
Total Dividends and Distributions (0.444) (0.772) (0.780) (1.787) (0.833) (0.802) (0.741)
Net Increase\ Decrease in Net
Asset Value 0.250 0.360 1.640 (1.710) (0.170) 0.180 (0.170)
NAV: End of Period $ 10.25 $ 10.61 $ 12.25 $ 10.54 $ 10.37 $ 10.55 10.38
Total Return for Period(e) 6.97% 10.76% 23.27% (0.34%) 6.82% 9.23% 5.42%
Net Assets at End of Period $ 668,211 $ 1,494,818 $ 2,760,499 $ 1,824,482 $ 1,754,517 $ 1,811,034 $1,710,814
Ratio of Net Operating Expenses
to Average Net Assets(a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% .97%
Ratio of Net Investment income
(loss)to Average Net
Assets(a)(c) 10.21% 7.19% 6.38% 5.74% 6.50% 5.84% 6.08%
Portfolio Turnover 0.00% 2.93% 2.79% 1.65% 0.00% 0.00% 0.00%
</TABLE>
(a) Calculated on an annualized basis.
(b) Computed after giving effect to Adviser's expense limitation undertaking. If
the Funds had paid all of their expenses, the ratios would have been 13.27%,
7.32%. 4.60%, 2.33%, 2.00%, 1.74% and .99% for Series 2001, and 17.44%, 10.36%,
6.19%, 6.19%, 2.49%, 2.07% and 1.17% for Series 2006.
(c) If the Funds had paid all of their expenses the ratio would have been
(2.06%), 0.87%, 2.78%, 4.41%, 5.51%, 5.10% and 6.07% for Series 2001, and
(5.75%), (1.68%), 1.60%, 3.72%, 5.46%, 4.76% and 6.04% for Series 2006
(d) 100% of distributions from net realized capital gains during the fiscal year
ended April 30, 1997, were long term.
(e) Total returns are based on net amount invested.
<TABLE>
<CAPTION>
Target 2006 Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96 4/30/97
NAV Start of Period $ 10.00 $ 10.31 $ 10.42 $ 12.52 $ 10.96 $ 10.93 $11.33
Net Investment Income(loss) 0.473 0.824 0.795 0.740 0.734 0.711 0.708
Net Realized and Unrealized
Gain(loss) on Invesments 0.310 0.116 2.114 (0.567) 0.184 0.648 0.075
Total from Investment
Operations 0.783 0.940 2.909 0.173 0.918 1.359 0.783
Dividends from Net Investment
Income (0.473) (0.824) (0.795) (0.740) (0.734) (0.865) (0.708)
Distribution from Net Realized
Gain on Investments(d) 0.000 (0.006) (0.014) (0.993) (0.214) (0.094) (0.165)
Total Dividends and Distributions (0.473) (0.830) (0.809) (1.733) (0.948) (0.959) (0.873)
Net Increase\ Decrease in Net
Asset Value 0.310 0.110 2.100 (1.560) (0.030) 0.400 (0.090)
NAV: End of Period $ 10.31 $ 10.42 $ 12.52 $ 10.96 $ 10.93 $ 11.33 $11.24
Total Return for Period(e) 7.86% 8.73% 28.44% 0.18% 9.05% 11.80% 6.84%
Net Assets at End of Period $ 451,758 $ 1,066,226 $ 1,951,566 $ 1,364,890 $ 1,400,161 $ 1,479,703 $1,452,870
Ratio of Net Operating Expenses
to Average Net Assets(a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment income
(loss)to Average Net
Assets(a)(c) 10.70% 7.68% 6.79% 5.86% 6.95% 5.83% 6.22%
Portfolio Turnover 2.78% 2.31% 5.44% 1.05% 0.00% 0.00% 0.00%
</TABLE>
(a) Calculated on an annualized basis.
(b) Computed after giving effect to Adviser's expense limitation
undertaking. If the Funds had paid all of their expenses, the ratios would have
been 13.27%, 7.32%. 4.60%, 2.33%, 2.00%, 1.74% and 0.99% for Series 2001, and
17.44%, 10.36%, 6.19%, 6.19%, 2.49%, 2.07% and 1.17% for Series 2006.
(c) If the Funds had paid all of their expenses the ratio would have been
(2.06%), 0.87%, 2.78%, 4.41%, 5.51%, 5.10% and 6.07% for Series 2001, and
(5.75%), (1.68%), 1.60%, 3.72%, 5.46%, 4.76% and 6.04% for Series 2006
(d) 100% of distributions from net realized capital gains during the fiscal year
ended April 30, 1997, were long term.
(e) Total returns are based on net amount invested.
<PAGE>
GENERAL INFORMATION
The AAL U.S. Government Zero Coupon Target Funds (the "Funds") are part 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 Funds. Lutheran investors in The AAL Mutual Funds are eligible for
associate membership in Aid Association for Lutherans ("AAL"), which entitles
them to become a part of one of approximately 9,500 local AAL branches
throughout the U.S. Through these branches and AAL, members help each other, aid
Lutheran congregations and their institutions and reach out to their communities
through charitable, educational, social, benevolent, fraternal and patriotic
programs.
The Trust is a Massachusetts Business Trust, which was organized on June 9,
1987, with different series of shares, each of which is referred to as a "Fund."
In addition to The AAL U.S. Government Zero Coupon Target Funds, nine other AAL
Mutual Funds exist (available in both Class A and B shares) and are described in
a separate prospectus: The AAL Small Cap Stock Fund, The AAL Mid Cap Stock Fund,
The AAL Capital Growth Fund , The AAL Utilities Fund, The AAL Bond Fund , The
AAL Municipal Bond Fund, The AAL High Yield Bond Fund, The AAL Money Market Fund
and The AAL International Fund. The AAL U.S. Government Zero Coupon Target Funds
described in this prospectus seek to provide a high investment return over
selected periods, consistent with investment in U. S. Government securities,
with minimum reinvestment risk. (See "Reinvestment Risk"). Presently two series
exist: Series 2001 and Series 2006. The investment objective of each of the
Funds is a fundamental policy which cannot be changed without the vote of a
majority of the outstanding shares of a Fund.
When you invest in shares of a Fund, the money you invest is combined with that
of many other investors. The Funds provide you with diversification by investing
your money primarily in a variety of U.S. government securities, and furnish
professional management to select and monitor your investments. You have an
interest in each of the securities held by the Fund in which you invest.
Because the Funds invest in bonds, the yields and values of which fluctuate with
market conditions, the value of your shares in the Funds will rise and fall
according to prevailing interest rates and over time may be more or less than
your cost. AAL Capital Management Corporation, the "Adviser" is responsible for
evaluating and selecting the securities held by the Funds. Although there can be
no assurance that it will be the
<PAGE>
case, the Adviser will use its professional expertise to try to ensure that
the Funds' 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 Funds, additional information regarding zero
coupon securities, certain investment techniques used by the Funds, management
of the Funds, distribution arrangements for the Funds, including fees,
information on how to purchase and redeem shares, yield and performance
information, the tax treatment of investments in the Funds, and other matters.
ZERO COUPON SECURITIES
What are Zero Coupon Securities?
Unlike Treasury securities with coupons attached which generate periodic
interest payments to the holders, zero coupon securities pay no cash income
until their maturity date. Zero coupon securities are purchased at a substantial
discount from their value at their maturity date. The discount is amortized over
the life of the zero. When a zero is held to maturity, the entire return comes
from the difference between the purchase price and the maturity value. Because
this difference is known at the time of purchase, investors holding zero coupon
securities until maturity know the amount of their investment return at the time
of their investment. See "Reinvestment Risk" for a further explanation of how
zero coupon securities differ from traditional interest-paying bonds.
Why Invest in Zero Coupon Securities?
Because the return on zero coupon securities held to maturity is predictable, an
investment in zeros enables you to plan to meet future financial goals. However,
because there are no periodic interest payments on a zero coupon security, their
market value will decline more dramatically when interest rates rise than a bond
which pays interest on a current basis and will rise more dramatically than
other bonds as interest rates fall.
In order to obtain the predicted return and reduce their exposure to the price
volatility caused by changing interest rates, investors should plan to hold
shares of the Funds until maturity and elect automatic reinvestment of dividends
and distributions. Since each Fund will be primarily invested in zero coupon
securities, investors who hold shares to maturity and reinvest dividends and
distributions will experience a return consisting primarily of the accretion of
discount on the underlying securities in the Fund. Because up to 20% of a Fund's
portfolio may be invested in interest paying U.S. government securities, the
total return for investors in the Funds cannot be guaranteed, even if all shares
are held until maturity and all dividends and distributions are reinvested. As
with all funds distributing taxable income, tax-paying investors in the Funds
will be subject to income taxes on all dividends and distributions, whether they
<PAGE>
elect to take them in cash or have them reinvested.
Generally, investors may redeem their shares on any business day at the daily
net asset value. However, the net asset value of a Fund's shares increases and
decreases with changes in the market value of that Fund's investments, and that
market value tends to vary inversely with changes in prevailing interest rates.
Zero coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. Therefore, an investor who redeems prior to maturity
may experience a significantly different return than was expected at the time of
purchase, as these shares will have substantially more price volatility than
shares of funds investing in traditional fixed income investments.
INVESTMENT OBJECTIVE
The objective of each of the Funds is to provide a high investment return over
selected periods of time, consistent with investment in U.S. government
securities. Presently, two Funds are offered, Series 2001 and Series 2006, each
of which matures on a specified target date in each of those years. On a Fund's
target date, its assets will be converted to cash and distributed to
shareholders or reinvested, without a sales charge, in another series of The AAL
Mutual Funds, which are described in a separate prospectus.
By pursuing this objective, the Funds seek to return to investors a reasonably
assured targeted dollar amount, predictable at the time of investment, on a
specific target date in the future. In order to realize this return, investors
should plan to hold a Fund's shares until maturity and reinvest all dividends
and distributions. However, as with any investment, there can be no assurance
that the Funds' investment objective will be met.
The Funds may be an appropriate investment for IRAs, 403(b)(7) custodial
accounts, pension and profit sharing plans, 401(k) plans and other retirement
plans where investors can match their retirement planning needs with a specific
Fund target date. The Funds also may be appropriate for investors planning for
future anticipated expenses, such as college education of children or
grandchildren or the purchase of a home. The Funds may also be appropriate for a
Uniform Gift to Minors account or any other investment account where
predictability of return over a specific time period is important.
INVESTMENT POLICIES
Investments
At least 80% of each Fund will be invested in U.S. government zero coupon
securities. These include U.S. Treasury notes and bonds which have no coupons
and
<PAGE>
are not entitled to income, U.S. Treasury bills, individual interest coupons
which trade separately and evidences of receipt of such securities. At least 50%
of each Fund will be invested in zero coupon U.S. government securities maturing
within two years of the Fund's target date, although it is expected that under
normal circumstances the percentage of a Fund's assets so invested will be
greater. Up to 20% may be invested in interest-paying U.S. Treasury notes and
bonds, and in repurchase agreements with respect to such securities. These
interest-paying securities provide income for expenses, redemption payments and
cash dividends of each Fund.
QUALITY
All Treasury obligations in each Fund are backed by the full faith and credit of
the U.S. government. In addition, each Fund may enter into repurchase agreements
with member banks of the Federal Reserve System with respect to such securities.
REINVESTMENT RISK
A portion of the total realized return from traditional interest-paying bonds
comes from the reinvestment of periodic interest. Since the rate to be earned on
these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the investment's
total return is uncertain even for investors holding the security until
maturity. This uncertainty is commonly referred to as reinvestment risk, and can
have a significant impact on total realized investment return. With zero coupon
securities, however, there are no cash distributions to reinvest, so investors
bear no reinvestment risk if they hold the zero coupon security to maturity.
Because each Fund will not be invested entirely in zero coupon securities
maturing on the target date and may invest up to 20% of its assets in
interest-paying U.S. government securities and repurchase agreements with
respect to such securities, there will be some reinvestment risk. To reduce this
risk, each Fund will invest at least half the market value of its net assets in
zero coupon securities maturing within two years of the Fund's target date.
ANTICIPATED GROWTH RATE
Due to the nature of zero coupon securities, a targeted dollar amount per share
to be received at the target date can be estimated daily for each Fund. The
difference between this amount and the net asset value per share at the time of
investment is the projected return and is called anticipated growth. Anticipated
growth will consist primarily of the estimated accretion of discount on the zero
coupon securities in a Fund, and to a much lesser degree, of projected cash flow
in income-producing securities in excess of estimated expenses.
On each business day, each Fund will calculate its anticipated growth rate,
which is the annualized rate of growth investors may expect from the time they
purchase a
<PAGE>
Fund's share until that Fund's target date. The anticipated growth rate cannot
be guaranteed, as it involves certain assumptions about variable factors such as
reinvestment of dividends and distributions, the expense ratio and composition
of the Fund's portfolio. The rate will vary from day to day due to changes in
interest rates and other market factors affecting the value of a Fund's
investments. Furthermore, differences in the price changes of securities with
different maturities can affect investment return, as can the skill of the
Adviser in managing the Fund. Under certain circumstances, shareholder
redemptions could also affect anticipated growth rate.
Owning shares of a Fund holding zero coupon and other securities differs from a
direct investment in zero coupon securities in various ways, including the
factors affecting predictability of return described above and the varying
maturity dates of the securities held by a Fund. The Adviser believes, however,
that investors buying and holding a Fund's shares to maturity and reinvesting
all dividends and distributions should be able to realize an investment return
substantially equal to the anticipated growth rate calculated on the day the
Fund's shares were purchased.
Each Fund will be liquidated in its target maturity year. All shareholders will
be notified of their Fund's pending liquidation prior to the target date and
asked how they wish to receive their liquidation proceeds. If no instructions
are received, proceeds will be invested automatically in The AAL Money Market
Fund, in an account established on behalf of the shareholder.
OTHER INVESTMENT FACTORS REGARDING THE FUNDS
Price Variability
With respect to interest-paying securities, it can be expected that a decline in
prevailing levels of interest rates generally will increase the value of
securities held in the portfolio and an increase in rates generally will reduce
the value of these securities. Because they do not pay interest, zero coupon
securities tend to be subject to greater fluctuation of market value in response
to changes in interest rates than interest-paying securities of similar
maturities. Investors can expect more appreciation from a Fund during periods of
declining interest rates than from interest-paying securities of similar
maturity. Conversely, when interest rates rise, a Fund will normally decline
more in price than interest-paying securities of similar maturity. The degree of
price fluctuations are expected to vary directly with the length of time to a
Fund's maturity date.
Interest rates can change suddenly and unpredictably. The Funds may not be
appropriate for investors who do not plan to hold their shares until maturity.
Redemptions prior to maturity may result in capital gains or losses which may be
substantial.
<PAGE>
Portfolio Turnover
It is not anticipated that any of the Funds will have a portfolio turnover rate
in excess of 100%.
Repurchase Agreements and Borrowing
The Funds may from time to time enter into repurchase agreements. Repurchase
agreements involve the sale of securities to a 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
longer period. The Funds require continual maintenance of collateral (in cash or
U.S. government securities) held by the Funds' custodian in an amount equal to,
or in excess of, the market value of the securities which are the subject of the
agreement. Additional information regarding Repurchase Agreements is contained
in the Statement of Additional Information.
Each Fund may borrow money, but only from banks, for temporary or emergency
purposes in amounts not exceeding 10% of a Fund's total assets. Borrowings at
any time outstanding will be repaid before any purchase of securities is made.
When-Issued Purchases
The Funds 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 Funds 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.
INVESTMENT RESTRICTIONS
The policies discussed above with respect to specific investments, (other than
the policy on borrowing) may be changed by the Board of Trustees without
shareholder approval. In addition, the Funds are subject to other investment
restrictions which, like the Funds' investment objectives, may not be changed
without the vote of a majority of their outstanding shares. Among other things,
these restrictions generally prohibit the Funds from concentrating investments
in a single industry or 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. Because the Funds
expect to invest solely in U.S. government securities, the 5% limitation
referred to above will not apply to these portfolios. A description of all of
the investment restrictions applicable to the Funds is included in the Statement
of Additional Information.
<PAGE>
Board of Trustees
The Funds' Board of Trustees decides matters of general policy and reviews the
activities of The Funds' Adviser. The Funds' officers conduct and supervise the
daily business operations of the Funds.
The Trustees, their business addresses and principal occupations during the past
five years are:
<TABLE>
<CAPTION>
Name and Address Position with the Funds
and Principal Occupation
<S> <C>
John H. Pender** Chairman of the Board of Trustees; and from 1987 through May 1996, President
P.O. Box 250 of the Funds; Prior to 1996, Senior Vice President and
Dunbar, WV 25064 Chief Investment Officer, Aid Association for
DOB 5/25/30 Lutherans (fraternal benefit society) and prior to 1992, Treasurer
F. Gregory Campbell Trustee; President of Carthage College, Kenosha, WI;
2001 Alford Park Drive Director, Kenosha Hospital and Medical Center;
Kenosha, WI 53140 Chairman, WI Assoc. of Independent Colleges and
DOB 12/16/39 Universities; Board Member, Kenosha Area
Development; and Board Member, Prairie High School
Richard L. Gady Trustee; and Vice President, Public Affairs and Chief
One Central Park Plaza Economist, ConAgra, Inc. (a food and agricultural
Omaha, NE 68102 corporation)
DOB 2/28/43
D. W. Russler Trustee; from 1984 through 1988, Senior Vice President, Finance and
P.O. Box 84 Administration, NCR Corporation;
Minocqua, WI 54548 Director, Capital Markets Assurance Corporation
DOB 10/28/28 (reinsurance); and Member, Advisory Board --
Saratoga Partners II and III (corporate buy-out limited
partnership)
Lawrence M. Woods Trustee; Former Executive Vice President and
P.O. Box 1860 Director, Mobil Oil Corp. (international oil company)
Worland, WY 82401
DOB 4/14/32
Richard L. Gunderson** Trustee; Chairman of the Board of Directors and from 1985 through 1996
10801 E Happy Valley Road #67 Chief Executive Officer and from 1985 through 1995,
Scottsdale, AZ 85255 President, Aid Association for Lutherans (fraternal benefit
DOB 6/14/33 society); Trustee, Lawrence University; and
Director, Banta Corp. (diversified printer and publisher)
Ronald G. Anderson Trustee and President; Senior Vice President and CFO, Aid Association
4321 N. Ballard Road for Lutherans; President, AAL Capital Management Corporation; Director,
Appleton, WI 54919 General Re-CKAG Reinsurance and Investment S.ar.L. (Luxembourg reinsurance
DOB 10/2/48 corporation); and from 1991 through 1996, Chairman, General Re Financial
Products and from 1995 through 1996, Vice President Corporate Development
General Re (both reinsurance)
- -------------------------------------------------------------- --------------------------------------------------------------
* All of the Trustees except Mr. Pender and Mr. Gunderson are Directors for the
AAL Variable Product Series Fund,Inc.
** Denotes an "interested person" of the Funds as defined in the Investment
Company Act of 1940.
</TABLE>
<PAGE>
MANAGEMENT OF THE TRUST
Adviser and Distributor--General
Through March 31, 1991, AAL Advisors Inc. ("Advisors") and AAL Distributors Inc.
("Distributors"), Delaware corporations, acted as investment adviser and
distributor for The AAL Mutual Funds. Effective April 1, 1991, Advisors was
merged into Distributors and Distributors changed its name to AAL Capital
Management Corporation. The ownership, officers and directors of AAL Capital
Management Corporation are the same as Advisors and Distributors. References to
AAL Capital Management Corporation in this prospectus include, where applicable,
references to the two former corporations.
The Adviser
AAL Capital Management Corporation (the "Adviser") was organized in 1986 as
a Delaware corporation all of the shares of which are owned by AAL Holdings
Inc., a wholly-owned subsidiary of Aid Association for Lutherans ("AAL"). AAL is
a non-profit, non-stock, membership organization licensed to do business as a
fraternal benefit society in all states. AAL has approximately 1.7 million
members and is the world's largest fraternal benefit society in terms of assets
and life insurance in force, ranking it in the top two percent of all life
insurers in the U.S. in terms of ordinary life insurance in force. Membership is
open to Lutherans and their families. AAL offers life, health, and disability
income insurance and fixed annuities to its members and all members are part of
approximately 9,500 local AAL branches throughout the U.S. AAL Capital
Management Corporation has served as Adviser to the Funds from the commencement
of operations. As of April 30, 1997, AAL Capital Management managed about $3.6
billion for the Funds. The principal address of the Adviser is 222 West College
Avenue, Appleton, Wisconsin 54919-0007 and of AAL is 4321 North Ballard Road,
Appleton, Wisconsin 54919-0001.
Pursuant to an Investment Advisory Agreement with the Trust, the Adviser manages
the investment and reinvestment of the Funds' assets, provides the Funds with
personnel, facilities and administrative services, and supervises the Funds'
daily business affairs, all subject to the supervision of the Funds' Board of
Trustees. The Adviser formulates and implements a continuous investment program
for the Funds consistent with each Fund's investment objectives, policies and
restrictions.
The Adviser provides office space, executive and other personnel to the Funds.
In addition to the investment advisory fees, each Fund incurs the following
expenses: legal, auditing and accounting expenses; Trustees' fees and expenses;
insurance premiums; brokers' commissions; taxes and governmental fees; expenses
of issuing and redeeming shares; organizational expenses; expenses of
registering or 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
<PAGE>
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 each Fund at the annual rate of 0.50 of 1% of the Fund's average
daily net assets. The Funds also pay a Distribution Fee of a maximum of 0.10 of
1% of average daily net assets annually. See "Distribution Expenses."
Portfolio Manager
Michael R. Hilt, CFA, has managed the day-to-day investments for the Funds since
November 1, 1995. From April 1994 through August 1995, Mr. Hilt served as
portfolio manager and quantitative analyst for Conseco Capital Management, Inc.
From August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc.
Portfolio Transactions
The Adviser directs the placement of orders for the purchase and sale of the
Funds' portfolio securities. Since it is anticipated that most purchases made by
the Funds will be principal transactions at net prices, the Funds will incur
little or no brokerage costs. The Funds will deal directly with the selling or
purchasing principal or market maker without incurring charges for the services
of a broker on its behalf unless it is determined that a better price or
execution may be obtained by utilizing the services of a broker. Purchase of
portfolio securities from the dealers of zero coupon Treasury securities, in
particular, may include a commission which may be included in a spread between
the bid and asked price. The Funds will seek to obtain prompt execution of
orders at the most favorable net price. Securities may also be purchased
directly from the issuer.
PLEASE TAKE NOTICE
SALES OF THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS, SERIES 2001 AND 2006
WERE CLOSED TO NEW SHAREHOLDERS AND TO ADDITIONAL PURCHASES OF SHARES BY
EXISTING SHAREHOLDERS EFFECTIVE MAY 31, 1993. PURCHASES OF SHARES BY
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, IF ANY, IN EXISTING SHAREHOLDER
ACCOUNTS WILL CONTINUE TO BE ALLOWED AND WILL BE AT NET ASSETS VALUE. ALTHOUGH
THERE IS NO INTENT TO DO SO, SALES OF THE FUNDS COULD BE REOPENED IN THE FUTURE.
THE DISCUSSION ELSEWHERE HEREIN AS TO THE PURCHASE OF SHARES OF THE FUNDS IS
QUALIFIED BY THE FOREGOING LIMITATIONS.
How to Buy Shares
<PAGE>
Initial Purchases in New Accounts
Shares of the Funds are offered continuously for sale through AAL Capital
Management Corporation (the "Distributor") and your AAL Capital Management
Corporation Registered Representative. Initial purchases of shares of the Funds
may be made by mail (including private mail delivery services) or by wire.
A separate account registration is required for each individual account, joint
account, fiduciary account, custodial accounts for minors and tax-deferred
accounts (for example, IRA, 403(b)(7) custodial accounts, and pension and profit
sharing plans). Additional documentation will be required for some of these
accounts. You should consult your legal adviser if you have questions regarding
the type of registration best suited for your needs. All accounts, but
especially fiduciary accounts, custodial accounts for minors, and tax-deferred
accounts, may impose legal requirements, and result in income, gift and estate
tax consequences which are the sole responsibility of shareholders and their
professional advisers. Neither the Funds nor AAL Capital Management Corporation
and its Registered Representatives provide legal or tax advice to shareholders.
Further information on the documents required to open your account can be
obtained from your Registered Representative or AAL Capital Management
Corporation through the Mutual Fund Service Center at 800-553-6319.
Initial Purchases by Mail
Initial purchases by mail may be made by sending a check, made payable to The
AAL Target Fund Series 2001 or The AAL Target Fund Series 2006, along with a
completed shareholder application and new account form to:
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
Attention: New Accounts
A separate application and new account form must be completed for each different
account registration in the Funds. A separate check should accompany each
application. Your check should be made payable to the name of the Fund invested
in, or if more than one Fund is being purchased using a single application, you
may send one check payable to "The AAL Mutual Funds" for the total amount
invested.
Initial Purchase by Wire
Initial purchases of shares of the Funds by wire transfer may be made by taking
the following three steps:
(1) Telephone the Distributor through the Mutual Fund Service Center at
800-553-6319 or 414-734-7633 and provide your account registration,
<PAGE>
address, social security or tax identification number, the amount
being wired, the name of the wiring bank and the name and telephone
number of the person to be contacted at your bank in connection with
the purchase; and
(2) Instruct your bank (which must be a member of, or have a corresponding
relationship with a member of the Federal Reserve System) to wire
federal funds as follows:
Firstar National Bank
ABA No. 0750-00022
For Credit to Firstar Trust Co.
Acct. No 112-950-027
For Further Credit to The AAL U.S. Government Zero Coupon
Target Fund (specify target year)
Account Registration (name(s) of shareholder); and
(3) Complete the application form and mail it immediately to:
AAL Capital Management Corporation
222 West College Ave.
Appleton, WI 54919-0007.
Additional Purchases in Existing Accounts
After you have opened an account with The AAL Mutual Funds, you may purchase
additional shares in your account by mail or wire.
Additional Purchase by Mail
Payment for additional purchases in existing Fund accounts should be sent
directly to the Funds' Transfer Agent at the following address:
The AAL Mutual Funds
c/o Firstar Trust Co.
615 E. Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
Please indicate your AAL Mutual Fund account number on the face of all
subsequent investment checks and make your check payable to the specific fund in
which you are investing. If you have more than one account,
<PAGE>
always verify that you are investing in the proper account. This will help to
ensure the proper handling of the transaction.
Additional Purchase by Wire
You may make additional wire purchases in an existing Fund account by following
Step (2) of the wire transfer instructions shown for "Initial Purchase by Wire"
above, and in addition, by providing your existing Fund account number.
Wire order funds must be received in the office of the Funds' Transfer Agent
prior to the close of the New York Stock Exchange ("NYSE") (normally 3:00 p.m.
Central Time), in order to purchase shares on that day. Funds received after the
close of the NYSE will purchase shares on the following day.
Purchase Price
Purchases of shares of the Funds are made at the public offering price, which is
net asset value plus a sales charge. See "Sales Charges." Purchases of all Funds
are based on the net asset value (NAV) next determined after receipt of payment
by the Funds' Transfer Agent. All shares begin earning income on the business
day following the date the shares are purchased.
Minimum Purchase Amounts
The following minimum amounts apply to purchases of shares of each Fund:
Minimum Purchase Amount
per Account per Transaction
Account Initial Purchase Additional Purchase
Regular Account $1,000 $50
IRA or other Retirement Plan $250 $50
Account
Automatic Investment Plan $0 $25
* Minimums may be waived for qualified group retirement plans and payroll
deduction plans with prior approval or when required by law.
Other Purchase Information
Shareholders begin earning income on the business day following the date that
payment for the purchase is received by the Funds' Transfer Agent. All purchases
must be made in U.S. dollars and checks must be drawn on U.S. banks. Cash and
travelers checks will not be accepted. If your check does not clear, your
purchase will be canceled and you will be liable for any losses or fees
incurred. When you purchase
<PAGE>
shares by check, the Funds will not honor redemption requests for the shares
purchased for 12 days or until your check has cleared, if later. A written
confirmation of purchase will be mailed to you, usually within two business days
following your purchase date.
Share certificates are only issued upon written request and then only for full,
not fractional shares. A new written request for a share certificate is required
for each subsequent purchase. There is no charge for the issuance of share
certificates. If share certificates have been requested or issued, certificates
must be delivered to the Transfer Agent in negotiable form prior to redemptions,
transfers or exchanges.
The Funds, the Distributor and the Funds' Transfer Agent do not consider the
U.S. Postal Service or other private delivery services to be their agents. The
deposit in the mail or with such delivery services, or receipt at a Post Office
Box, of purchase applications or redemption requests, do not constitute receipt
by the Funds, the Distributor or the Transfer Agent. The legal effect of posting
for other purposes, such as the April 15th IRA deadline, shall be determined by
the applicable laws then in effect.
The Funds reserve the right to suspend the offering of shares for a period of
time. They also reserve the right to reject any specific purchase of shares.
Sales Charges
The public offering price of the shares of the Funds is the net asset value per
share next computed after receipt of an order in proper form by the Funds'
transfer agent plus a sales charge received by the Distributor. The sales charge
is expressed as a percentage of the public offering price, and the net amount
invested, in the table below:
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as a % of Sales Charge as a % of
Public Offering Price Net Amount Invested
<S> <C> <C>
Less than $25,000 4.75% 4.99%
$25,000 or more, but less than 4.50% 4.71%
$100,000
$100,000 or more, but less than 3.50% 3.63%
$250,000
$250,000 or more, but less than 2.00% 2.04%
$500,000
$500,000 or more, but less than 0.50% 0.50%
$1,000,000
$1,000,000 or more* No-Load No-Load
* Registered Representatives may receive, from the distributor, compensation not exceeding
0.25 of 1% of amounts invested at this purchase level.
</TABLE>
<PAGE>
Trustees, directors, and employees of the Funds and the Adviser, as well as
persons licensed to receive commissions for sales of The AAL Mutual Funds, may
not pay a sales charge on their purchases or on the 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.
Reduced Sales Charges
Investors may benefit from a reduction of the sales charges shown in the above
table through several purchase plans which are described below. To receive the
benefit of a reduced sales charge, a shareholder must inform the Funds' Transfer
Agent in writing at the time of the new purchase that the purchase qualifies for
a reduced sales charge and provide substantiating information. Reduced sales
charge provisions may be modified or terminated at any time on notice to
shareholders. You may obtain further information on reduced sales charges from
your Registered Representative or by calling the Mutual Fund Service Center at
800-553- 6319.
Reduced Sales Charges for AAL Branches, Lutheran Congregations, Lutheran
Charitable Remainder Unitrusts and Related Charitable Non-Profit Organizations.
AAL branches, Lutheran congregations, Lutheran charitable organizations,
charitable remainder unitrusts and other charitable organizations sponsored by
or affiliated with Lutheran congregations, which qualify for tax exemption under
Section 501(c)(3) or (13) of the Internal Revenue Code, will be charged one-half
of the standard sales charge for purchase of the Funds, except that no reduction
will be given in connection with 403(b)(7) custodial accounts, which are
individual custodial accounts. Qualifying charitable non-profit organizations
will generally include churches, schools, colleges, seminaries, cemetery funds,
and foundations organized for charitable purposes. Lutheran organizations
qualified to receive the reduced sales charge must include substantiating
information at the time of purchase. The reduced sales charges, expressed as a
percentage of the public offering price and the net amount invested, for this
exception to the standard sales charges are as follows:
Amount of Purchase Sales Charge Sales Charge 50% Sales Charge
as a % of Public as a % of Net as a % of Public
Offering Price Amount Invested Offering Price
Less than $25,000 2.375% 2.430% 1.187%
$25,000 or more, 2.250% 2.302% 1.125%
but less than $100,000
<PAGE>
$100,000 or more, 1.75% 1.781% .875%
but less than $250,000
$250,000 or more, 1.000% 1.010% .500%
but less than $500,000
$500,000 or more, 0.250% 0.250% .125
but less than$1,000,000
$1,000,000 or more* No-Load No-Load No Load
Right of Accumulation. An investor with multiple accounts and investors who are
related and living within the same household may "link" their accounts in the
Funds and in the other AAL Mutual Funds so they are eligible for a reduced sales
charge based on the current value of shares owned, computed at the public
offering price, plus the amount of the new investment. The AAL Money Market Fund
shares may be included if they were acquired in a simultaneous transaction (i.e.
exchange) in which shares of another AAL Mutual Fund on which a sales charge was
paid are redeemed and the proceeds of sale were used to purchase Money Market
Fund shares. SEPs, SARSEPs and 403(b)(7) custodial accounts (except individual
IRAs) are linked with all other accounts in the plan and therefore may not be
linked with individual accounts. Accounts of institutional trustees will not be
linked, except within individual trusts. Please refer to the table on page __
for the sales charges, expressed as a percentage of the public offering price
and the net amount invested, at the different breakpoint levels.
Letter of Intent. Investors who establish a total investment goal in shares of
any of The AAL Mutual Funds (except The AAL Money Market Fund) of $25,000 or
more to be made over a 13-month period may purchase shares during this period at
the reduced sales charge applicable to the goal amount. To meet the Letter of
Intent goal, the investment amount must be fully invested at some point in time
during the 13-month period. The effective date of a Letter of Intent may be
back-dated up to 90 days, in order that any investment made during this 90-day
period, valued at the purchaser's cost, can be applied to the fulfillment of the
Letter of Intent goal. Sales charges on prior purchases will not be recalculated
or refunded. All shares of the Funds with the same registration, and shares in
accounts which have been "linked" under the Right of Accumulation, which are
purchased during the 13-month period, and still owned, will be included at the
purchaser's cost in determining the applicable sales charge, provided, however,
that AAL Money Market Fund shares may be included only to the extent they were
acquired in a simultaneous transaction (i.e. exchange) in which shares of
another AAL Mutual Fund, on which a sales charge was paid, are redeemed and the
proceeds of sale were used to purchase the Money Market Fund shares. The Letter
of Intent option is not available on 403(b)(7) custodial accounts, SEP-IRAs or
SARSEP- IRAs. Please refer to the table on page __ for the sales charges,
expressed as a percentage of the public offering price and the net amount
invested, at the different breakpoint levels above $25,000.
<PAGE>
A Letter of Intent does not obligate the investor to buy any Fund shares.
However, if the goal amount is not purchased during the term of the Letter of
Intent, the sales charge will be recalculated and charged at the rate applicable
to the shares actually purchased, and the difference between the sales charge
paid and the sales charge due will be charged against the account. During the
term of the Letter of Intent, the Transfer Agent will escrow shares totaling 5%
of the investment goal indicated in the Letter of Intent to cover any additional
sales charge which may become due, and will redeem the number of shares
necessary to pay the additional sales charge after expiration of a Letter of
Intent if the goal amount is not met. A Letter of Intent will be considered in
default and the additional sales charges will be recovered if redemptions reduce
the account value below 5% of the investment goal during the 13-month period.
Automatic Investment Plans
The AAL Mutual Funds offer several Automatic Investment Plans available to make
periodic investing more convenient. These Plans do not need an initial
investment. It takes 12 days from the time you invest for the transfer agent to
validate any electronic transfer. This will cause some delay in your ability to
write checks on an AAL Money Market Fund Account or to redeem or transfer from
your account.
The Bank Draft Plan. Investors who wish to make regular additional investments
in an existing Fund Account may do so through the Funds' Bank Draft Plan. Under
this Plan the Funds will draft an investor's bank checking or savings account in
the amount specified -- which may not be less than $25 per account -- on
specified dates, up to two transactions per month (at least 10 days apart), and
have the proceeds invested in shares of the specified Fund at the applicable
offering price determined on the date of the draft. To use this Plan you must
authorize the Plan on your application form, or subsequently in writing, and
submit additional documents. Your instructions to establish a Bank Draft Plan or
to change the Bank on an existing Plan, must be received by the Funds' Transfer
Agent at least 13 business days prior to the transaction date. Your instructions
for stopping a Bank Draft Plan or changing the dollar amount on an existing Plan
must be received by the Funds' Transfer Agent at least 5 business days prior to
the transaction date. For further information contact AAL Capital Management
Corporation (Mutual Fund Service Center -- 800-553-6319) or your Registered
Representative. Instructions for changes, additions or termination of a Bank
Draft Plan must be in writing and signed by all bank account owners.
The Capital Builder Plan. The Capital Builder Plan also allows investors to
make regular automatic investments in an existing account in The AAL Small Cap
Stock, Mid Cap Stock, Capital Growth, Bond, Municipal Bond, High Yield Bond,
Utilities, International or U.S. Government Zero Coupon Target Funds, Series
2001 and 2006 by redemption of shares from their AAL Money Market Fund. The
<PAGE>
Capital Builder Plan Allows investors to select the transaction date. If you do
not select the date, it will automatically be drawn from their account on the
15th of the month. All such investments will be subject to the applicable sales
charge . These transactions must meet the minimum purchase amounts described
above. To start, stop or change the plan, you must notify The Funds at least 24
hours prior to the transaction date.
Payroll Deduction Savings and Investment Plan. 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
Funds through direct deduction from their paychecks or commission checks.
Prestige Account
Investors who maintain a significant share balance will be provided
with additional benefits, including personal attention from Prestige Account
Representatives, an exclusive toll-free telephone number, personalized
investment analysis, complimentary financial information, a Prestige Account
organizer and more. Your AAL Capital Management Corporation Registered
Representative can provide more detailed information.
Changes to Your Account
After opening your AAL Mutual Fund account, you may wish to make changes to your
account. Certain types of changes, such as moving to a new address or getting a
new telephone number, do not have any other effect on an account. Any feature
such as telephone exchange or participation in an automatic investment plan
would continue uninterrupted. Other changes, such as exchanging from one Fund to
another or transferring shares from a regular account to an IRA or adding a
joint owner, will affect your account options because a new account is actually
created. Account options such as an automatic investment plan are discontinued
unless additional action is taken. These changes may require additional
instructions and specific forms. If you are not sure whether a change affects
your account, please contact your local Registered Representative or the Mutual
Fund Service Center at 800-553-6319. When making these types of changes, please
use The AAL Mutual Funds Account Change Request, which is available from your
local Registered Representative or from the Mutual Fund Service Center.
<PAGE>
How to Redeem (Sell) Shares
Because the Funds invest primarily in zero coupon securities, the net asset
value per share may fluctuate substantially prior to the maturity date. Although
investors may redeem shares on any business day at net asset value, a
shareholder who redeems prior to maturity may experience a significantly
different investment return than was anticipated at the time of purchase.
Redemption by Mail
Shareholders of any of the Funds may have their shares redeemed at any time at
the net asset value per share next determined after a written request and all
additional documents, if required, are received in proper form by the Funds'
Transfer Agent.
Payment for shares presented for redemption will be based on a Fund's net asset
value next computed after a request is received in proper form by the Transfer
Agent. Shareholders earn income and receive dividends paid on funds through the
date of redemption. Payment proceeds will be mailed within seven days following
receipt of all required documents. However, payment may be postponed or the
right of redemption suspended in unusual circumstances. Shares purchased by
check will not be redeemed for 12 days or until your check has cleared, if
later.
You may redeem shares of any of the Funds by mail, by sending a written request
for redemption to:
The AAL Mutual Funds
c/o Firstar Trust Co.
615 East Michigan Street
P.O. Box 2981
Milwaukee, Wisconsin 53201-2981
The redemption request must include your shareholder account number, specify the
dollar or share amount you wish to redeem and be signed by you and any other
persons registered as shareholders on the account, exactly as the account is
registered. If you wish to redeem shares with a value in excess of $25,000, your
signature(s) must be guaranteed. The transfer agent will accept signature
guarantees from all institutions that are eligible to provide signature
guarantees under federal or state law, provided that the individual giving the
signature guarantee is authorized to do so. Institutions that usually are
eligible to provide signature guarantees include commercial banks, trust
companies, brokers, dealers, national securities exchanges, savings and loan
institutions and credit unions. Please note that a signature guarantee is not
the same as a notarized signature. If shares are held in the name of a
corporation, trust, estate, custodianship, guardianship, partnership or pension
and profit sharing plan, or if you have requested and received share
certificates, additional
<PAGE>
documentation may be necessary. If you wish to redeem an IRA or other retirement
plan you must indicate on the redemption request whether or not Federal income
tax should be withheld. Redemption requests that fail to indicate an election
not to have Federal tax withheld will be subject to withholding.
Telephone Redemptions
The privilege to redeem shares by telephone is automatically extended to all
accounts, unless the option is specifically declined. If you do not want the
telephone redemption option, please call the AAL Mutual Fund Service Center at
800-553-6319. By accepting this privilege, you assume some risks for
unauthorized transaction. See Important Information on Transacting Business by
Telephone at page__. AAL Capital Management Corporation has implemented
procedures designed to reasonably ensure that telephone instructions are
genuine. These procedures include recording telephone conversations, requesting
verification of certain personal information, restricting transmittal of
redemption proceeds to pre-authorized designations and supplying transaction
verification information.
Telephone Redemptions and Checks Mailed
The following conditions apply to telephone redemptions described above:
a. Telephone redemption checks will be issued to the same payee(s) as the
account registration and sent only to the address of record;
b. There has been no change of address in the preceding 60 days;
c. The request is for $25,000 or less;
d. Retirement plan accounts are not eligible;
e. Shares to be redeemed cannot be in certificate form; and
f. Only one telephone redemption is permitted within any 30 day period for
each authorized account.
Telephone Redemptions by Bank Wire
a. Existing shareholders must send The AAL Mutual Funds Application or
Change Form with the appropriate section completed prior to exercising
the privilege of wire redemption to:
Firstar Trust Company
615 E. Michigan Street,
P.O. Box 2981, Milwaukee, WI 53201-2981.
<PAGE>
b. Wire redemptions can be made for any amount.
c. A $12.00 fee is assessed for redemptions by wire.
d. Requests received in good order before the close of the NYSE (usually
3:00 p.m. Central Time) receive that day's price.
If an account has multiple owners, AAL Capital Management Corporation may rely
on the instructions of any one account owner. This privilege may not be
available on all retirement plan accounts.
Reinstatement Privilege
So long as sales of the Funds are closed, the following reinstatement privilege
does not apply.
A shareholder who redeems shares in a Fund on which a commission has been paid
may, within 60 days after the date of redemption, reinstate any portion or all
of a redemption in shares of a Fund (in the same Fund and with the same
registration) without sales charges at net asset value next determined after
receipt by the Transfer Agent of a written request for reinstatement together
with a check for the amount to be reinstated. This reinstatement privilege is
available only once with respect to any one shareholder account. Reinvested
funds must be provided by a single check. In order to receive the reinvestment
privilege, shareholders must clearly state in writing at the time of purchase
that they qualify for the privilege.
Any gain recognized on a redemption is taxable despite the reinstatement in a
Fund. Any loss realized as a result of a redemption may not be allowed as a
deduction for federal income tax purposes, but may be applied, depending on the
amount reinstated, to adjust the cost basis of the shares acquired on
reinstatement.
Involuntary Redemption
Because all account owners share the high cost of maintaining accounts with low
balances, the Funds reserve the right to involuntarily redeem a shareholder's
account, other than a retirement plan account, at any time the value of the
account falls below $250. Shareholders will be notified in writing of any
planned involuntary redemption and will be allowed 30 days to increase the
account balance above the stated minimum before the redemption is processed.
EXCHANGE PRIVILEGE
Exchange by Mail
<PAGE>
Shares of the Funds held for at least 12 days may be exchanged for shares
of any other AAL Mutual Fund (Class A shares only)with the same registration,
without additional sales charge, at the net asset value per share next computed
after receipt of a written exchange request in proper form by the Transfer
Agent.
An exchange constitutes a redemption of the shares of one mutual fund and the
purchase of shares of another. Because the Funds invest primarily in zero coupon
securities, the net asset value per share may fluctuate substantially prior to
the maturity date. Therefore, a shareholder who exchanges shares of a Fund prior
to maturity may experience a significantly different investment return than was
anticipated at the time of purchase.
In addition to the two series of The AAL U.S. Government Zero Coupon Target
Funds, nine other AAL Mutual Funds currently are offered. They are: (1) The AAL
Small Cap Stock Fund;(2) The AAL Mid Cap Stock Fund; (3) The AAL Capital Growth
Fund; (4) The AAL Bond Fund ; (5) The AAL Municipal Bond Fund; (6) The AAL Money
Market Fund; (7) The AAL Utilities Fund; (8) The AAL International Fund and (9)
The AAL High Yield Bond Fund. Shareholders interested in exchanging into any of
these Funds should contact the The Mutual Fund Service Center at 800-553-6319,
or their AAL Capital Management Corporation Registered Representative for a
current prospectus prior to making an exchange.
Shareholders of a Fund may only exchange into such other Funds as are legally
available for sale in any state. If shares are held in the name of a
corporation, trust, estate, custodianship, guardianship, partnership or pension
and profit sharing plan, or if you have requested and received share
certificates, additional documentation may be necessary.
Exchanges are sales for tax purposes and could result in a gain or loss,
depending on the original cost of shares exchanged.
An excessive number of exchanges may be disadvantageous to the Funds. Therefore,
the Funds reserve the right to terminate the exchange privilege of any
shareholder who makes more than twelve exchanges in a year. Further, the Funds
reserve the right to modify or terminate the exchange privilege at any time with
respect to any Fund, if the Funds' Trustees determine that continuing the
privilege may be detrimental to shareholders.
TELEPHONE TRANSACTIONS
You can sell or exchange shares by phone. By doing so, you assume some risks for
unauthorized transactions. AAL Capital Management Corporation has
<PAGE>
implemented procedures designed to reasonably assure that telephone instructions
are genuine. These procedures include recording telephone conversations,
requesting verification of various pieces of personal information, restricting
transmittal of redemption proceeds to pre-authorized designations, and supplying
transaction/taping identification numbers and/or symbols. Please note, however,
that The 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 a shareholder that result from following telephone instructions
reasonably believed to be authentic after verification pursuant to these
procedures.
Exchange by Telephone
Telephone exchanges (transactions in which the registration does not change) are
subject to the requirements described above, and additional requirements as
follows.
Shareholders may exchange shares for which certificates have not been issued by
telephoning the Mutual Fund Service Center at 800-553-6319 or 414-734- 7633.
Telephone exchange requests received prior to the close of the NYSE (usually
3:00 p.m. Central Time) will be made at the net asset value per share next
determined that day.
Telephone exchanges will be permitted only if the shareholder elects the
telephone exchange option on his initial purchase application, or requests the
telephone exchange privilege in a subsequent written request, signed by all
registered owners, with all signatures guaranteed.
During periods of extreme volume caused by dramatic economic or stock market
changes, shareholders may have difficulty reaching the Mutual Fund Service
Center by phone, and a telephone exchange may be difficult to implement at those
times. The Funds reserve the right to temporarily discontinue the telephone
exchange privilege during such periods of extreme volume.
RETIREMENT PLANS
AAL members and their enterprises and Lutheran organizations may establish their
own individual or business retirement plans, with assets invested in The AAL
Mutual Funds, by choosing among a variety of plans which may be made available
and which are designed to meet most long-term retirement planning needs.
Available plans may include:
<PAGE>
o IRA (Individual Retirement Account)
o 403(b)(7) Custodial Account (for employees of public schools and
certain non-profit organizations)
o SEP-IRA (Simplified Employee Pension Plan)
o SARSEP-IRA (Salary Reduction Simplified Employee Pension Plan)
o Money Purchase Pension Plan
o Profit Sharing Plan
o 401(k) Plan
Retirement Plans involve commitments covering future years and require long-term
planning. Because all of the plans available through AAL Capital Management
Corporation invest their plan assets in one or more of the Funds, it is
important that the investment objectives of the Fund(s) in which a plan invests
are consistent with the retirement plan objectives. It is the investor's
responsibility to determine which plan and investment best meets the retirement
objectives desired, and to understand the tax consequences of establishing a
retirement plan. Each investor should consult with a professional tax adviser
prior to establishing a retirement plan.
Your AAL Capital Management Corporation Registered Representative will provide
you with descriptive materials, plan documents, adoption agreements and other
related forms describing the plans available and the requirements to establish a
plan. Firstar Trust Company acts as Custodian for all AAL Mutual Fund Retirement
Plans. Administrative services for retirement plans may be arranged through AAL
Capital Management Corporation or may be provided by the employer. Fees are
charged for custodial and plan administration services. Information regarding
those services and fees are available from your AAL Capital Management
Corporation Registered Representative.
NET ASSET VALUE
The net asset value per share of each Fund is determined once daily at the close
of trading on the NYSE (normally 3:00 p.m. Central Time). Net asset value will
not be determined on holidays observed by NYSE. The net asset value of shares is
computed by adding the sum of the value of the securities held by each Fund plus
any cash or other assets it holds, less all of that Fund's liabilities, and
dividing the result by the total number of outstanding shares of that Fund at
such time. Securities owned by the Funds for which market quotations are readily
available are valued at current market value; all other securities and assets
are valued at fair value as determined in good faith by or under the direction
of the Board of Trustees. The Funds may make use of a
<PAGE>
pricing service in the determination of their net asset value as approved by the
Board of Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to distribute in December and, if necessary, at such other
times as the Fund may determine, its net investment income and any net realized
capital gains resulting from investment activity. Any dividend (including a
capital gains dividend) declared in October, November or December with a record
date in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. Cumulative statements showing all activity in the
account for the prior year will be mailed annually to all shareholders.
All income and capital gains distributions are reinvested in full and fractional
shares of a 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.
A shareholder's projected return at maturity assumes the reinvestment of all
income and capital gains distributions. If a shareholder elects to receive these
distributions in cash, the return at maturity will be substantially less than
was anticipated at the time of purchase.
Each 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 Funds themselves. Each Fund will be
treated as a separate regulated investment company under the Code. Shareholders
are provided annually with full information on income 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.
Under federal income tax laws, a portion of the difference between the purchase
price of zero coupon securities and their face value is considered to be income
to a Fund each year, even though the Fund will not in each year receive cash
interest payments from these securities.
The Funds must distribute substantially all their net investment income each
year, including the imputed income from their zero coupon investments. Because
of its imputed income, each Fund may be required to pay out as an income
distribution each year an amount greater than the total amount of cash interest
a Fund actually received. Such distributions may come from cash assets or from
liquidating some portfolio securities. If securities are liquidated, a Fund may
realize a gain or loss from the sale. As with all funds distributing taxable
income, tax-paying investors in the Fund will be subject to income taxes on
income and capital gain distributions whether they elect to
<PAGE>
take them in cash or have them reinvested.
Other Tax Information
The Funds are 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
Funds' shareholder application includes the required certification.
No attempt is made herein to provide information as to state and local tax
consequences of ownership of shares of the Funds. Investors should consult their
personal tax adviser to determine the consequences of state and local taxes.
DISTRIBUTION EXPENSES
Because the Funds are no longer being sold, the 12b-1 fees under the
Distribution Plan are being waived by the Distributor and they will not be
reinstated as long as the Funds make no new sales. The following description
applies to the plan when such fees were paid.
In addition to the sales charge deducted at the time of purchase, each of the
Funds is authorized under a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940 (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 each of the Funds
to the Distributor to reimburse it for expenditures incurred by it in connection
with the distribution of each 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
advertising activities on behalf of each of the Funds. Plan payments may also be
made to reimburse the Distributor for its overhead expenses related to
distribution of the Funds' shares. No reimbursement may be made under the Plan
for expenses of past fiscal years or in contemplation of expenses for future
fiscal years. Distribution fees paid by one Fund may not be used to finance
distribution of shares of another Fund.
Under the Plan, the payments may not exceed an amount computed at an annual rate
of 0.10 of 1% of the average daily net assets of each Fund. The Plan is subject
to review and annual approval by the Board of Trustees.
YIELD AND PERFORMANCE INFORMATION
The Funds will calculate and advertise performance information from time to
<PAGE>
time, and for different historical periods of time, by quoting yields or total
returns designed to inform investors of the performance of the Funds. 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 Funds. 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 Return
The Funds may advertise a standardized current yield which is based on the
income generated by an investment in the particular Fund over a 30-day period,
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. 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 Funds may also advertise a standardized average annual total rate of return
for one, five and ten year periods, or so much thereof as a Fund has been in
existence. 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 Funds may
advertise total returns, other than those described above, if such information
is deemed informative to investors for use in evaluating the Funds. The Funds
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.
CUSTODIAN, TRANSFER AGENT AND INDEPENDENT ACCOUNTANTS
Firstar Trust Company, P.O. Box 2981, 615 E. Michigan Street, Milwaukee,
<PAGE>
Wisconsin 53201-2981, serves as Custodian and Transfer Agent for the Funds.
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500, Milwaukee,
Wisconsin 53202, serves as the Funds' independent accountants.
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment company
registered under the Act. Each of the Funds is a separate series of a
Massachusetts Business Trust organized under a Declaration of Trust dated March
13, 1987, which provides that each shareholder shall be deemed to have agreed to
be bound by the terms thereof. The Declaration of Trust may be amended by a vote
of either its shareholders 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. Currently, the Board has authorized eleven series which bear the name
of the Fund.
Each share of a Fund is entitled to participate pro rata in any dividends or
other distributions declared by the Board with respect to that Fund, and all
shares of a Fund have equal rights in the event of liquidation of that Fund.
Each share of each Fund is entitled to one vote on each matter presented to
shareholders of that 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 an individual
Fund (such as approval of advisory and sub-advisory contracts and changes in
fundamental policies of a Fund) a separate vote of the shares of that Fund is
required. Shares of a Fund are not entitled to vote on any matter not affecting
that Fund. All shares of each Fund vote together in the election of Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders, the
Trustees, or officers of the Trust for acts or obligations of the Trust, 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 Funds should be directed to the
Funds at the address and telephone number shown on the back cover of the
prospectus.
<PAGE>
Board of Trustees
John H. Pender
Richard L. Gunderson
D. W. Russler
F. Gregory Campbell
Richard L. Gady
Lawrence M. Woods
Ronald G. Anderson
Officers
Ronald G. Anderson
President
Robert G. Same
Vice President and Secretary
Terrance P. Gallagher
Treasurer
Joseph F. Wreschnig
Assistant Secretary
Charles D. Gariboldi, Jr.
Assistant Treasurer
Investment Adviser and Distributor
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
Custodian, Transfer Agent, and Disbursing Agent
Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
Independent Accountants
Price Waterhouse LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
Legal Counsel
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE>
THE AAL MUTUAL FUNDS
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
Series 2001 and Series 2006
222 West College Ave.
Appleton, WI 54919-0007
Telephone (414) 734-5721
STATEMENT OF ADDITIONAL INFORMATION
June 30, 1997
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 U.S. Government Zero Coupon Target Funds Series 2001 and Series 2006
dated June 30, 1997, and any supplements thereto. The Funds' Prospectus may be
obtained at no charge by writing or telephoning your AAL Capital Management
Corporation Registered Representative or the Funds at the address and telephone
number above.
In this Statement of Additional Information, The AAL Mutual Funds may be
referred to as the "Trust," and The AAL U.S. Government Zero Coupon Target Funds
may be referred to collectively as the "Funds" or individually as a "Fund."
Terms not otherwise defined have the same meaning as in the Prospectus.
PLEASE TAKE NOTICE
Sales of The AAL U.S. Government Zero Coupon Target Funds, Series 2001 and 2006
were closed to new shareholders and to additional purchases of shares by
existing shareholders effective May 31, 1993, except for automatic investment
plan purchases which were allowed to continue through June 30, 1993. Purchases
of shares by reinvestment of dividends and capital gains, if any, in existing
shareholder accounts will continue to be allowed and will be at net assets
value. Although there is no intent to do so, sales of the Funds could be
reopened in the future. The discussion elsewhere herein as to the purchase of
shares of the Funds is qualified by the foregoing limitations.
<PAGE>
Table of Contents Page Prospectus Page
Investment Objective............................................
and Policies
Investment Techniques ..........................................
Investment Restrictions ........................................
Purchases & Redemptions;
Pricing Considerations .......................................
Investment Advisory Services . . . . . . . . . . . .. . . .
Distributor.....................................................
Distribution Plan..............................................
Portfolio Transactions.........................................
Dividends, Distributions
and Taxes ...................................................
Calculation of Yield
and Total Return...............................................
General........................................................
Financial Statements...........................................
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Funds' respective
investment objectives and policies described in the Prospectus. In pursuing
their respective objective, each Fund invests as described below and employs the
investment techniques described in the Prospectus and elsewhere in this
Statement of Additional Information. Each Fund's investment objective is a
fundamental policy, which may not be changed without the approval of a "majority
of the outstanding voting securities" of that Fund. A "majority of the
outstanding voting securities" means the approval of the lesser of: (i) 67% or
more of the voting securities at a meeting if the holders of more than 50% of
the outstanding voting securities of a Fund are present or represented by proxy;
or (ii) more than 50% of the outstanding voting securities of a Fund.
The objective of each of the Funds is to provide as high an investment return
over selected periods of time as is consistent with an investment in U.S.
government securities.
Zero Coupon Securities
At least 80% of a Fund's net assets will be invested in U.S. Government zero
coupon securities. Zero coupon securities are non-interest (non-cash) paying
debt obligations which are payable in full at maturity. These securities include
U.S. Treasury notes and bonds that do not have coupons and do not pay cash
income, U.S. Treasury bills, individual interest coupons that trade separately
and evidences of receipt of such securities. At least 50% of each Fund's net
assets will be invested in U.S. Government zero coupon securities maturing
within two years of the Fund's target date.
Up to 20% of each Fund's net assets may be invested in interest-paying U.S.
Treasury notes and bonds, and repurchase agreements with respect to such
securities. These interest-paying securities produce income which may be an
efficient way to provide for expenses and redemptions, among other things.
Zero coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities that make current
distributions of interest (cash). As a result, the net asset value of shares of
a Fund prior to its target date may fluctuate over a greater range than shares
of other mutual funds investing in U.S. Treasury securities, making current
distributions of interest and having similar maturities. The current net asset
value of a Fund generally will vary inversely with changes in current interest
rates and the degree of fluctuations will vary directly with the length of time
to the maturity date of the Fund.
Zero coupon securities include U.S. Treasury bills issued directly by the U.S.
<PAGE>
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
which have been separated by their holder, typically a custodian bank or
investment brokerage firm. A holder will separate the interest coupons from the
underlying principal (the "corpus") of the U.S. Treasury security. A number of
securities firms and banks have stripped the interest coupons and resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer
securities, (i.e., unregistered securities that are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof. The staff
of the Securities and Exchange Commission no longer considers "TIGRS" and "CATS"
government securities.
The Treasury has facilitated transfers of ownership of zero coupon securities by
accounting separately for the beneficial ownership of particular interest coupon
and corpus payments on Treasury securities through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program as established by
the Treasury Department is known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities." Under the STRIPS program, a Fund will be
able to have its beneficial ownership of zero coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic interest (cash) payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
bundled form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero coupon securities that
the Treasury sells itself.
Trading Opportunities
Although there is no present intention to do so, the Funds, consistent with
their investment policies, may engage in short-term trading (selling securities
for brief periods of time, usually less than three months) if the Adviser
believes that such transactions, net of costs, would further the attainment of
their investment objectives. The needs of different classes of lenders and
borrowers and their changing preferences and circumstances have in the past
caused market dislocations unrelated to fundamental creditworthiness and trends
in interest rates which have presented market trading opportunities. Such market
dislocations might result from a broker needing to cover a substantial short
position in a security or an abnormal demand for a security created by an
unusually large purchase or sale by an institutional portfolio manager.
<PAGE>
There can be no assurance that such dislocations will occur in the future or
that a Fund will be able to take advantage of them. The Funds will limit their
voluntary short-term trading, if any, to the extent necessary to qualify as a
"regulated investment company" under the Internal Revenue Code.
INVESTMENT TECHNIQUES
Each of the Funds may use the following techniques described in the prospectus
and in the Statement of Additional Information in pursuit of its investment
objective.
Lending Portfolio Securities
Although there is no present intention to do so, the Funds may from time to time
lend securities from their portfolios to brokers, dealers and financial
institutions such as banks and trust companies. The Adviser will monitor the
creditworthiness of firms with which the Funds engage in securities lending
transactions. In doing so, a 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. A 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 Adviser will monitor the creditworthiness of firms with which the Funds
engage in securities lending transactions. Collateral values are continuously
maintained at 100% and marked to market daily. However, in the event of
bankruptcy or other default of the borrower, a Fund could experience both delays
in liquidating the loan collateral or recovering the loaned securities,
including possible decline in value of the collateral or loaned securities,
possible lack of access to income during this period, and expenses of enforcing
its rights.
When-Issued and Delayed Delivery Securities
A Fund may purchase securities on a when-issued or delayed-delivery basis, as
described in the Prospectus. A Fund makes such commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for investment reasons.
At the time a Fund enters into a binding obligation to purchase securities on a
when-issued basis, liquid assets of the Fund having a value at least as great as
the purchase price of the securities to be purchased are identified on the books
of the Fund and held by the Fund`s custodian throughout the period of the
obligation. The use of these investment strategies may increase net asset value
fluctuation.
Repurchase Agreements
<PAGE>
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,
declines in their value, and losses of interest. The Adviser maintains
procedures for evaluating and monitoring the creditworthiness of firms with
which they enter into repurchase agreements. No Fund may invest more than 10% of
its total assets in repurchase agreements maturing in more than seven days or in
securities subject to legal or contractual restrictions on resale.
INVESTMENT RESTRICTIONS
Each of the AAL Mutual Funds operates under the following investment
restrictions. The AAL U.S. Government Zero Coupon Target Funds do not engage in
the options and futures transactions and real estate transactions referred to in
(2), (3), (8) and (9) below. A 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 or evidences of receipt of such securities;
(2) purchase securities on margin, except for use of short-term credit necessary
for clearance of purchases and sales of portfolio securities, but a Fund may
make margin deposits in connection with transactions in options, futures and
options on futures;
(3) make short sales of securities or maintain a short position, or write,
purchase, or sell puts, calls, straddles, spreads, or combinations thereof,
except for the described transactions in options, futures and options on
futures;
(4) make loans to other persons, except that the Fund reserves freedom of
action, consistent with its other investment policies and restrictions and as
described in the Prospectus and this Statement, to: (a) invest in debt
obligations, including those that 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
<PAGE>
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
that otherwise might require untimely dispositions of portfolio securities;
interest paid on any such borrowings will reduce net income);
(6) mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by a Fund except as may be necessary
in connection with and subject to the limits in restriction (5);
(7) underwrite any issue of securities, except to the extent that the purchase
of securities directly from an issuer thereof in accord with a Fund's investment
objectives and policies may be deemed to be underwriting or to the extent that
in connection with the disposition of portfolio securities a Fund may be deemed
an underwriter under federal securities laws;
(8) purchase or sell real estate, or real estate limited partnership interests,
provided that a Fund may invest in securities secured by real estate or
interests therein or issued by companies that invest in real estate or interests
therein;
(9) purchase or sell commodities or commodity contracts except that a Fund may
purchase or sell futures and options thereon for hedging purposes;
(10) invest more than 25% of its total 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;
(12) invest in repurchase agreements maturing in more than seven days or in
other securities with legal or contractual restrictions on resale if, as a
result thereof, more than 10% of a Fund's total assets (taken at current value
at the time of such investment) would be invested in such securities;
(13) invest in any security if as a result a Fund would have more than 5% of its
total assets invested in securities of companies which, together with any
predecessors have been in continuous operation for less than three years;
(14) purchase securities of other investment companies, if the purchase would
cause more than 10% of the value of a Fund's total assets to be invested in
investment company securities provided that: (a) no investment will be made in
the securities of any one investment company if immediately after such
investment more than 3% of the outstanding voting securities of such company
would be owned by a Fund or more than 5% of the value of a Fund`s total 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;
<PAGE>
(15) purchase more than 10% of the outstanding voting securities of an issuer or
invest for the purpose of exercising control or management.
Each of the above restrictions (1) through (15), as well as each Fund's
investment objective, is a fundamental policy. In addition, each Fund may not,
so long as it publicly offers its shares for sale in certain states: (a) buy or
sell a call option unless (i) the option is issued by the Options Clearing
Corporation, an exchange, NASDAQ or similar entity, and (ii) the security
underlying the option is listed on an exchange or similar entity or is a U.S.
Government or Federal agency obligation; (b) invest more than 5% of its net
assets (valued at the time of investment at the lower of cost or market) in
warrants. Included within that amount, but not to exceed 2% of the value of a
Fund's net assets, may be warrants that 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; and (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 Redeem (Sell) Shares," and "Net Asset Value," and
that information is incorporated herein by reference.
The Funds' net asset value is determined only on the days on which the New York
Stock Exchange is open for trading. That Exchange is regularly closed on
Saturdays and Sundays and on New Years' Day, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the Exchange
will be closed on the preceding Friday or the following Monday, respectively.
Net asset value is determined by dividing the total assets of the particular
Fund, less all its liabilities, by the total number of shares of that Fund
outstanding. The Funds' portfolio securities may be valued through the use of
pricing services approved by the Trustees, which utilize information with
respect to bond and note transactions, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities. Money market instruments with remaining maturities of 60 days or
less are valued by the amortized cost method, which the Trustees believe
approximates fair value. Because of the large number of zero coupon securities
available, many may not trade each day; therefore, bid and asked prices
frequently are not available. In valuing such securities, then, the pricing
services generally take into account institutional size, trading in similar
groups of securities and any developments related to specific securities. Other
securities and assets are valued in good faith at fair
<PAGE>
value using methods (including pricing services) determined by the Trustees and
applied on a consistent basis. The Trustees review the valuation of each Fund's
portfolio securities through receipt of regular reports from the Adviser.
Generally, trading in U.S. Government Securities and other fixed income
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
determining the net asset value of a Fund's shares are computed as of such
times. Occasionally, events affecting the value of such securities may occur
between such times and the close of the New York Stock Exchange, which events
will not be reflected in the computation of a Fund's net asset value. If events
materially affecting the value of the Trust's securities occur during such a
period, then these securities will be valued at their fair value as determined
in good faith by the Trustees.
The Funds intend to pay all redemptions in cash and are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur brokerage fees in selling the securities
received in the redemptions.
Each Fund reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that 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.
Confirmation of Fund Transactions
Shareholders of The AAL U.S. Government Zero Coupon Target Funds will receive
immediate written confirmations of all account transactions and annual
statements summarizing all transactions for the prior period.
Shareholders may always obtain current account information by calling,
toll-free, AAL Capital Management Corporation's Mutual Fund Service
Center at 800-553-6319.
INVESTMENT ADVISORY SERVICES
Please refer to the description of the Adviser and Advisory Agreement and fees
under "Management of the Trust" in the Prospectus, which is incorporated herein
by reference.
<PAGE>
The following Executive Officers of the Trust also serve as directors and/or
officers of the Adviser as shown below:
Ronald G. Anderson President; Director, President of AAL Capital
222 West College Avenue Management Corporation since 1996
Appleton, WI 54919-0007
DOB 10/2/48
Robert G. Same Secretary; Director, Executive
222 West College Avenue Vice President and Chief Operating Officer since
Appleton, WI 54919-0007 1996, Senior Vice President and Secretary of AAL
DOB 7/28/45 Capital Management Corporation from 1987 to 1997
Terrance P. Gallagher Treasurer; Director, Chief Financial Officer of AAL
222 West College Avenue Capital Management Corporation since 1994, Senior
Appleton, WI 54919 Vice President since 1987 and Comptroller since
DOB 9/20/58 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: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Trustees other than those affiliated with the
Adviser; (v) legal and audit expenses; (vi) fees and expenses of the Trust's
custodian and transfer agent; (vii) 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; (viii) fees and expenses incident to
the registration under Federal or state securities laws of the Trust or its
shares; (ix) expenses of preparing, printing and mailing reports and notices and
proxy material to shareholders of the Trust; (x) all other expenses incidental
to holding meetings of the Trust's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or its successor, or other
industry organizations; (xii) 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
<PAGE>
thereto; and (xiii) 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 Investment Company Act of 1940 (the "Act").
The Adviser has agreed to reimburse each of the Funds monthly to the extent that
total annual expenses (excluding taxes, interest and brokers' commissions and
other normal charges incident to the purchase and sale of portfolio securities,
but including fees paid to the Adviser) that exceed the applicable limits
prescribed by any state in which the shares of such Fund are being offered for
sale. The Funds believe that currently the most restrictive state limits are 2
1/2% of a Fund's average daily net assets up to $30 million, 2% of the next $70
million and 1 1/2% thereafter. In addition, the Adviser has voluntarily
undertaken to pay all expenses of the Funds in excess of 1% until further
notice.
The Funds have paid the following advisory fees to the Adviser since
commencement of operations:
<TABLE>
<CAPTION>
Period Ended The AAL U.S. Government The AAL U.S. Government
Zero Coupon Target Fund Zero Coupon Target Fund
Series 2001 Series 2006
<S> <C> <C>
April 30, 1991* $920 $692
April 30, 1992 $5,559 $ 3,815
April 30, 1993 $10,418 $7,430
April 30, 1994 $1,175 $833
April 30, 1995 $0 $0
April 30, 1996 $0 $0
April 30, 1997 $0 $0
</TABLE>
The Advisory Agreement provides that subject to Section 36 of the Act, the
Adviser shall not be liable to the Trust for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Trust and the performance of its duties under the
Agreement except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the Agreements.
The Trust has agreed to use its best efforts to change its name if the Adviser
ceases to act as such with respect to the Fund and the continued use of the
Trust's present name would create confusion in the context of the Adviser or its
parent's business.
As to the Funds, the Advisory Agreement was approved by the Board of Trustees on
February 27, 1990 and were approved by shareholders on November 12,
<PAGE>
1991. The Agreement will continue from year to year only so long as such
continuance is specifically approved at least annually by the Board of Trustees,
including a majority of the Trustees who are not Interested Persons (as defined
in the Act.)
The Advisory Agreement is terminable upon assignment or at any time without
penalty by the Board of Trustees or by vote of the holders of a majority of the
outstanding voting securities of the Trust, with respect to any Fund by the vote
of a majority of the outstanding shares of such Fund, or by the Adviser on 60
days' written notice to the Trust.
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, 1997, The AAL Mutual Funds paid an aggregate of
$60,280.54 in Trustees' fees and expenses.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)Total
Name of Capacities in Aggregate Pension or Estimated Compensation
Person Which Remuneration Retirement Annual from Registrant
Remuneration Benefits Benefits and Fund
Received Accrued During Upon Complex paid to
Registrant's Retirement Trustees (1)
Last Fiscal Year
<C> <C> <C> <C> <C> <C>
John H. Pender Trustee - - - $4,500
DOB 5/25/30
Richard L. Trustee - - - -
Gunderson,
DOB 6/14/33
F. Gregory Trustee $14,000 - - $20,000
Campbell
DOB 12/16/39
Richard L. Gady Trustee $14,000 - - $20,000
DOB 2/28/43
D. W. Russler Trustee $14,000 - - $20,000
DOB 10/28/28
Lawrence M. Trustee $14,000 - - $20,000
Woods
DOB 4/14/32
Ronald G. Anderson Trustee - - - -
DOB 10/2/48
(1) The Fund complex includes the AAL Variable Product Series Fund, Inc.
</TABLE>
<PAGE>
DISTRIBUTOR
AAL Capital Management Corporation is the exclusive underwriter for the Funds
under a written Distribution Agreement with the Funds. Until May 31, 1993, the
underwriter offered the shares of the Funds for sale on a continuous basis
through its field sales force. The aggregate underwriting commissions received
and the amount of commissions retained by the underwriter for the last three
years were as follows:
Time Period Aggregate Commissions Retained Commissions
For the fiscal year ended $0 $0
4/30/95
For the fiscal year ended $0 $0
4/30/96
For the fiscal year ended $0 $0
4/30/97
With respect to all commissions and other compensation, AAL Capital Management
Corporation, the sole distributor for the Funds, does not receive any
compensation in connection with redemptions and repurchases, brokerage
commissions or other compensation.
AAL Capital Management Corporation also acts as exclusive underwriter for
the nine additional series of The AAL Mutual Funds: The AAL Small Cap Stock
Fund; The AAL Mid Cap Stock Fund ; The AAL Capital Growth Fund; The AAL
Utilities Fund; The AAL Bond Fund; The AAL Municipal Bond Fund; The AAL Money
Market Fund; The AAL International Fund and The AAL High Yield Bond Fund.
DISTRIBUTION PLAN
Because the Funds are no longer being sold, the 12b-1 fees under the
Distribution Plan are being waived by the Distributor and they will not be
reinstated as long as the Funds make no new sales. The following description
applies to the plan when such fees were paid.
The Trust's Distribution Plan (the "Plan" ) is written in contemplation of 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 a Fund's shares (such as sale or placement of a Fund's shares,
or administrative assistance, such as maintenance of sub-accounting or other
records). The Plan also authorizes the Distributor to purchase advertising for
shares of the Funds, to pay for sales literature and other promotional material,
and to make payments to its sales
<PAGE>
personnel. Any such payments to qualified recipients or expenses will be
reimbursed or paid by the Funds, up to a limit of 0.10 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 following payments by
the Funds are considered to be "primarily intended to result in the sale of
shares" issued by a Fund within the meaning of the Rule, such payments by a Fund
are authorized without limit under the Plan and shall not be included in the
limitations contained in the Plan. Such costs include: (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 a 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 Funds' shares; (d) all legal and accounting fees
relating to the preparation of any such reports, prospectuses, proxies and proxy
statements; (e) all fees and expenses relating to the qualification of the Funds
and or their shares under the securities or "Blue Sky" laws of any jurisdiction;
(f) all fees under the Act and the Securities Act of 1933, including fees in
connection with any application for exemption relating to or directed toward the
sale of the Funds' 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 it has 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 Funds to the Adviser. If and to the extent that any investment
advisory fees paid by the Funds might, in view of any excess distribution costs
and the common ownership of the Adviser and Distributor, be considered as
indirectly financing any activity that is primarily intended to result in the
sale of shares issued by the Funds, the payment of such fees is authorized under
the Plan. The Plan states that in taking any action contemplated by Section 15
of the Act as to any investment advisory contract to which the Trust is a party,
the Board of Trustees, including its Trustees who are not "interested persons"
as defined in the Act, and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan ("Qualified
Trustees"), shall, in acting on the terms of any such contract, apply the
"fiduciary duty" standard contained in Sections 36(a) and (b) of the Act.
The Plan requires that while it is in effect the Distributor shall report in
writing at
<PAGE>
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.
Currently, the Distributor is waiving the 12b-1 fees for the AAL U.S. Government
Zero Coupon Target Funds, Series 2001 and 2006. Therefore, the aggregate amount
paid by the Funds to the Distributor under the Plan for the fiscal year ended
April 30, 1997, and the manner in which this amount was spent is as follows:
Gross 12b-1 fees paid by the Funds $0
Expenditures
Compensation to Registered Representatives $0
Other $0
The Plan was approved by shareholders of the Funds on November 12, 1991. The
Plan continues 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 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, and with respect to any 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 Adviser directs the placement or orders for the purchase and sale of the
Funds' portfolio securities.
The Funds' purchases and sales of portfolio securities are generally placed by
the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Funds. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
portfolio securities from the dealers of zero coupon securities, in particular,
may include a mark-up which may
<PAGE>
be included in a spread between the bid and asked price. Purchases of
underwritten issues may be made which will include an underwriting fee paid to
the underwriter.
In placing portfolio transactions, the Adviser seeks the best combination of
price and execution. In determining which dealers provide best execution, the
Adviser looks primarily to the price quoted and normally place orders with the
dealer through which the most favorable price can be obtained. It is expected
that securities will ordinarily be purchased in the primary markets, and that in
assessing the best net price and execution available to a Fund, the Adviser will
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the dealer and the reasonableness of the commission, if any (for
the specific transaction and on a continuing basis). Although it is expected
that sales of shares of the Funds will be made only by the Distributor, the
Adviser may in the future consider the willingness of particular dealers to sell
shares of the Funds as a factor in the selection of dealers for the Funds'
portfolio transactions, subject to the overall best price and execution
standard.
Assuming equal execution capabilities, other factors may be taken into
account in selecting brokers or dealers to execute particular transactions and
in evaluating the best net price and execution available. The Adviser may
consider "brokerage and research services" (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934), statistical quotations,
specifically the quotations necessary to determine the Funds' net asset values,
and other information provided to the Funds, to the Adviser or its affiliates.
The Adviser may also cause a Fund to pay to a broker or dealer who provides such
brokerage or research services a commission for executing a portfolio
transaction that is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. The Adviser must
determine, in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular transaction or in terms of all the accounts over which
the Adviser exercises investment discretion. It is possible that certain of the
services received by the Adviser attributable to a particular transaction will
benefit one or more other accounts for which investment discretion is exercised
by the Adviser. The Trust paid, $1,108,673, $1,697,844 and $4,205,263 in
brokerage commissions in each of the past 3 years.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Funds has elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income (including net short-term capital gains) and is not
subject to federal income tax to the extent that it distributes annually its
investment company taxable income and net realized capital gains in the manner
required under the Code.
<PAGE>
Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
distributed, but not actually distributed under a prescribed formula. The
formula requires each Fund to distribute to shareholders during a calendar year
an amount equal to at least 98% of a Fund's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses as prescribed in the Code) realized during
the one-year period ending October 31 during such year, and all ordinary income
and capital gains for prior years that were not previously distributed.
Investment company taxable income includes dividends, interest (including
original issue discount amortization) and net short-term capital gains in excess
of net long-term capital losses, less expenses. Net realized capital gains of a
Fund for a fiscal year are computed by taking into account any capital loss
carry forward of such Fund to the extent allowed by the Internal Revenue Code.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are not distributed by a Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result,
shareholders will report such capital gains as long-term capital gains, will be
able to claim their share of federal income taxes paid by the Fund on such gains
as a credit against their own federal income tax liability, and will be entitled
to increase the adjusted tax basis of their shares by the difference between
their pro rata share of such gains and their tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income. Under the federal income tax law, a portion of the
difference between the purchase price and the face amount of zero coupon
securities ("original issue discount") will be treated as income to any Fund
holding securities with original issue discount each year, although no current
payments will be received by such Fund with respect to such income. This
original issue discount amortization will comprise a part of that investment
company taxable income of such Fund that must be distributed to shareholders in
order to maintain its qualification as a regulated investment company and to
avoid federal income tax at the Fund level. Taxable shareholders of such a Fund
will be subject to income tax on such original issue discount amortization,
whether or not they elect to receive their distributions in cash. In the event
that a Fund acquires a debt instrument at a market discount, it is possible that
a portion of any gain recognized on the disposition of such instrument may be
treated as ordinary income.
Since the Funds invest primarily in zero coupon securities upon which they will
not receive cash payments of interest, to the extent shareholders of the Funds
elect to take their distributions in cash, these Funds may have to generate the
required cash from interest earned on non-zero coupon securities from the
disposition of such securities, or possibly from the disposition of some of
their zero coupon securities.
Distributions of the excess of net long-term capital gain over net short-term
<PAGE>
capital loss are taxable to shareholders as long-term capital gain, regardless
of the length of time the shares of the relevant Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable whether received in shares or in cash.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders. Investors are urged to consult their
tax advisors with specific reference to their own tax situations, including
state and local tax liability.
CALCULATION OF YIELD AND TOTAL RETURN
From time to time, the Funds may advertise yield and total return for various
periods of investment. Such information will always include uniform performance
calculations based on standardized methods established by the Securities and
Exchange Commission, and may also include other total return information. Yield
is based on historical earnings and total return is based on historical
calculated earnings; neither is intended to indicate future performance.
Performance information should be considered in light of the Funds' investment
objectives and policies, characteristics and quality of their portfolio
securities and the market conditions during the applicable period and should not
be considered as a representation of what may be achieved in the future.
Investors should consider these factors in addition to differences in the
methods used in calculating performance information, and the impact of taxes on
alternative investments when comparing a particular Fund's performance to the
performance data published for alternative investments.
Standardized Performance Information
Average Annual Total Return. For each of the Funds, 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;
<PAGE>
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.
Average Annual Total Return Series 2001 Series 2006
for the Period Ended 4/30/97
1-Year (total return) 2.28% 1.59%
5-year 7.88% 9.66%
From Inception 8.40% 9.57%
Current Yield. Current yield quotations for the Funds 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; and
d = the maximum offering price per share on the last day of the period
^ = to the power of.
For purposes of this calculation, income earned on debt obligations is
determined by applying a calculated yield-to-maturity percentage to the
obligations held during the period. The yields for The Funds, Series 2001 and
2006, for the 30-day period ended April 30, 1997 were 5.69% and 5.89%,
respectively. When advertising yield, a Fund will not advertise a one-month or a
30-day period which ends more than 45 days before the date on which the
advertisement is published.
Other Performance Information
<PAGE>
The Funds may, from time to time, include in their advertisements quotations
computed for a time period, or by a method which differs from the computations
described in the foregoing section.
Average Annual Total Return. The Funds 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
where:
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).
^ = raised to the power of.
Average Annual Total Return Series 2001 Series 2006
ended April 30, 1997
1-year (total return) 6.54% 5.81%
5-year 8.76% 10.55%
From Inception 9.09% 10.27%
Anticipated Growth Rate. The anticipated growth rate is a calculation of
predicted return. Anticipated growth will consist primarily of the estimated
amortization of discount on the zero coupon securities in a Fund and, to a much
lesser degree, of projected cash flow on income-producing securities in excess
of estimated expenses. The anticipated growth rate is the rate which, when
compounded on a semi-annual basis, equates the current market value of a Zero
Coupon Fund to the sum of the present values of the payments to be received from
securities held in the Fund. It is calculated net of expenses on a
bond-equivalent basis in order to facilitate comparison with returns obtainable
from U.S. Treasury notes, bonds and stripped (zero coupon) securities, if held
directly. The calculation is based on certain assumptions (See "Investment
Objectives and Policies"). A shareholder who redeems prior to maturity of
<PAGE>
a Fund may experience a significantly different investment return than was
anticipated at time of purchase.
Performance information for the Funds may be compared to various un-managed
indices, such as the Dow Jones Industrial Average, the S&P 500 or the Lehman
Brothers Aggregate Index, as well as indices of similar mutual funds. The Funds
may also include in their advertising rankings published by recognized
statistical services or publishers such as Lipper Analytical Services, Inc.,
Wiesenberger Investment Companies Services or rankings published by other
comparable national services which rank mutual funds.
GENERAL
The Trust's Declaration of Trust permits its Trustees to issue an unlimited
number of full and fractional shares of beneficial interest and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in a Fund. Each share represents
an interest in a Fund proportionately equal to the interest of each other share.
If the Trust were to liquidate, all shareholders of a Fund would share pro rata
in its net assets available for distribution to shareholders. If they deem it
advisable and in the best interests of shareholders, the Board may create
additional classes of shares which may differ from each other only as to
dividends or, as is the case with the Funds, each of which has separate assets
and liabilities (in which case any such class would have a designation including
the word "Series"). Shares of each series are entitled to vote as a series only
to the extent required by the '40 Act or as permitted by the Trustees. Income
and operating expenses are allocated fairly among the series by the Trustees.
As of June 10, 1997, the officers and Trustees of the Trust owned less than 1%
of the shares of any Funds. As of June 10, 1997, the following account holders
held in excess of 5% of the Funds: B. Mc Phearson, 605 W Grant Avenue,
Charleston, IL 61920-3262, owned 5.71% of the outstanding shares of Series 2001;
G. J. McPhearson, as custodian under a Uniform Transfer to Minors Act, 361
Bunker Hill, Belleville, IL 62221-5765, controlled 9.13% of the outstanding
shares of Series 2001; S.W. Heriot, guardian, 9118 Little Sweden Road, Cook, MN
55723-8814, owned 5.40% of Series 2001; and J. May and N. May, 35 Interlachen
Place, Tonka Bay, MN 55331-9522, jointly owned 10.76% of the outstanding shares
of Series 2006.
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 Trust's custodian, Firstar Trust Company, formerly known as First Wisconsin
Trust Company, is responsible for holding the Funds' assets.
<PAGE>
Pursuant to an Administrative Services Agreement (the "Agreement"), AAL Capital
Management Corporation (the "Adviser") provides certain administrative,
accounting and pricing services to the Funds, including: calculating the daily
net asset value per share; maintaining original entry documents and books of
record and general ledgers; posting cash receipts and disbursements; reconciling
bank account balance monthly; recording purchases and sales; and preparing
monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, the Funds. The Agreement 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. 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 $25,000 per Fund per year, plus the cost of
outside pricing services but only to the extent the Adviser is not voluntarily
absorbing any expenses of that Fund. The present agreement provides that the
annual rates of payment are:
The AAL U. S. Government Zero Coupon Target Fund Series 2001 - $2,500
The AAL U. S. Government Zero Coupon Target Fund Series 2006 - $2,500
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.
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, notes to financial statements and report of
independent accountants for the Funds included in the Annual Report to
Shareholders of the Trust, for the year ended April 30, 1997, are hereby
incorporated by reference.
<PAGE>
THE AAL MUTUAL FUNDS
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The audited financial statement of the Trust for The AAL U.S. Government Zero
Coupon Target Funds, Series 2001 and 2006, for the fiscal year ended April 30,
1997, which have been filed electronically, are included and/or incorporated by
reference into this Post-Effective Amendment to this Registration Statement.
Such report contains the information required in parts (a) and (b) of this item.
(b) Exhibits
Except as noted below, all required exhibits have been previously filed and are
incorporated by reference from the Registrant's Registration Statement on Form
N-1A (File No. 33-12911), as amended:
(10) Opinion and Consent of Counsel
(11) Consent of Independent Accountants;
(27) Financial Data Schedule
Item 25. Persons Controlled by or under Common Control with
Registrant
AAL Capital Management Corporation (the "Adviser" and "Distributor" for The AAL
Mutual Funds ("Trust")) was organized in 1986 as a Delaware corporation, all of
the
<PAGE>
shares of which are owned by AAL Holdings Inc., a wholly-owned subsidiary of the
Aid Association for Lutherans ("AAL"). AAL is a non-profit, non-stock membership
organization, licensed to do business as a fraternal benefit society in all
states. Under an Investment Advisory Agreement and a Distribution Agreement with
the Trust, and subject to the supervision of the Funds' Board of Trustees, AAL
Capital Management Corporation provides the investment advisory, administrative,
shareholder, distribution and other services for the Funds.
Item 26. Number of Holders of Securities
On May 30, 1997, the following were the numbers of record holders of the series
of the Registrant covered by this filing:
The AAL U.S. Government Zero Coupon Target Funds, Series 2001 - 224
The AAL U.S. Government Zero Coupon Target Funds, Series 2006 - 230
Item 27. Indemnification
Under Section 12 of Article Seventh of the Registrant's Declaration of Trust,
the Trust may not indemnify any trustee, officer or employee for expenses (e.g.,
attorney's fees, judgments, fines and settlement amounts) incurred in any
threatened, pending or completed action, if there has been an adjudication of
liability against such person based on a finding of willful misfeasance, bad
faith, gross negligence or reckless disregard of such person's duties of office
("disability conduct").
The Trust shall indemnify its trustees, officers or employees for such expenses
whether or not there is an adjudication of liability, if, pursuant to Investment
Company Act Release 11330, a determination is made that such person was not
liable by reason of disabling conduct by: (i) final decision of the court before
which the proceeding was brought; or (ii) in the absence of such a decision, a
reasonable determination, based on factual review, that the person was not
liable for reasons of such conduct is made by (a) a majority vote of
disinterested, non-party Trustees, or (b) independent legal counsel in a written
opinion.
Advancements 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
<PAGE>
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. For information as to the business, profession, vocation or
employment of a substantial nature of the Adviser, refer to Parts A and B of
this Registration Statement and to Form ADV filed under the Investment Advisers
Act of 1940 by the Adviser.
Item 29. Principal Underwriters
(a) None
(b)
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Positions and Offices with
Offices with Registrant
Underwriter
<C> <C> <C>
Ronald G. Anderson Chairman of the Trustee
222 W. College Ave. Board of Directors
Appleton, WI 54919 President, Director
Robert G. Same Executive Vice Secretary and
222 W. College Ave. President, COO Vice President
Appleton, WI 54919 Secretary and
Director
Terrance P. Gallagher Senior Vice Treasurer
222 W. College Ave. President, CFO,
Appleton, WI 54919 Treasurer and
Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Positions and Offices with
Offices with Registrant
Underwriter
<C> <C> <C>
Robert Roth Senior Vice None
222 W. College Ave. President
Appleton, WI 54919
James H. Abitz Director None
222 W. College Ave.
Appleton, WI 54915
Woody Eno Director None
222 W. College Avenue
Appleton, WI 54914
Jerome Laubenstein Director None
4321 N. Ballard Rd.
Appleton, WI 54919
Steven Weber Director None
4321 N. Ballard Rd.
Appleton, WI 54919
Anthony De Angelis Vice President None
222 West College Ave.
Appleton, WI 54919
Kenneth E. Podell Assistant None
222 West College Ave. Secretary
Appleton, WI 54919
Paul Stadler Vice None
222 West College Ave. President
Appleton, WI 54919
Lori Richardson Vice President None
222 West College Ave.
Appleton, WI 54919
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Positions and Offices with
Offices with Registrant
Underwriter
<C> <C> <C>
Charles Gariboldi, Jr Assistant Vice Assistant Treasurer
222 West College Ave. President
Appleton, WI 54919
Wendy Schmidt Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Charles Friedman Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Joseph Wreschnig Assistant Vice Assistant Secretary
222 West College Ave. President and
Appleton, WI 54919 Assistant
Secretary
Roger Johnson Director None
4321 N Ballard Road
Appleton, WI 54919
</TABLE>
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of The Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Registrant and Registrant's
Custodian as follows: all documents required to be maintained by Rule 31a-1(b)
will be maintained by Registrant, except that records required to be maintained
by paragraph (2)(iv) of Rule 31a-1(b) will be maintained by the Custodian.
Item 31. Management Services
Not applicable
Item 32. Undertakings
The Registrant further 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 certifies that this filing meets
the requirements of Rule 485(b) and 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 24th day
of June, 1997.
THE AAL MUTUAL FUNDS
/s/Ronald G. Anderson *
- -----------------------------
Ronald G. Anderson, 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 June 24, 1997
John H. Pender
/s/ Richard L. Gady* Trustee June 24, 1997
- ---------------------------------
Richard L. Gady
/s/ D. W. Russler* Trustee June 24, 1997
- -----------------------------------
D. W. Russler
/s/ Lawrence M. Woods* Trustee June 24, 1997
- ----------------------------
Lawrence M. Woods
/s/ F. Gregory Campbell* Trustee June 24, 1997
- ------------------------------
F. Gregory Campbell
/s/ Richard L. Gunderson* Trustee June 24, 1997
- -----------------------------
Richard L. Gunderson
/s/ Terrance P. Gallagher Principal June 24, 1997
- ------------------------------ Financial and
Terrance P. Gallagher Accounting
Officer
/s/ Ronald G. Anderson
- ------------------------------
Ronald G. Anderson, Trustee
Pursuant to Powers of Attorney
<PAGE>
POWER OF ATTORNEY
NOW ALL MEN BY THESE PRESENTS that the person whose signature appears below
constitutes Ron Anderson 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 Ron Anderson, 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 Ron Anderson 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 Ron Anderson 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 Ron Anderson 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 Ron Anderson to act as lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
/s/ Lawrence M. Woods
Lawrence M. Woods,
as Trustee, but not
individually
<PAGE>
EXHIBIT INDEX
24(b)(10) Opinion and Consent of Counsel
(11) Consent of Independent Accountants
(27) Financial Data Schedule
June 20, 1997
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The AAL Mutual Funds (the "Fund")
1933 Act Registration No. 33-12911
1940 Act File No. 811-5075
CIK #0000811869
Post-Effective Amendment No. 22 to Form N-1A
Filed in Accordance with Rule 485(b)
Ladies and Gentlemen:
This letter relates to the Fund's filing, pursuant to Rule 485(b) under the
Securities Act of 1933 (the "1933 Act"), of Post-Effective Amendment No. 22
under the 1933 Act and Amendment No. 24 under the Investment Company Act of 1940
(the "Amendment") to its Registration Statement on Form N-1A (the "Registration
Statement"). The Amendment reflects changes made to the AAL U.S. Government Zero
Coupon Target Funds, Series 2001 and 2006 (the "Target Funds"). As legal counsel
to the Fund, we assisted in the preparation of the Amendment and we certify that
the Amendment does not contain any disclosures that would render it ineligible
to become effective automatically on June 30, 1997 pursuant to Rule 485(b) under
the 1933 Act.
The Fund, an open-end management investment company, is organized as a
Massachusetts Business Trust with different series of shares, each of which is
referred to as a fund. The Target Funds are two such series.
Please direct any questions or comments regarding this filing to the undersigned
at (414)277-5309.
Sincerely yours,
QUARLES & BRADY
/s/ Fredrick G. Lautz
Fredrick G. Lautz
Exhibit 24(b) (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting part of this Post-Effective
Amendment No. 22 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 22, 1997, relating to the financial
statements and financial highlights appearing in the April 30, 1997 Annual
Report to Shareholders of The AAL U.S. Government Zero Coupon Target Fund,
Series 2001 and The AAL U.S. Government Zero Coupon Target Fund, Series 2006
(two of the portfolios constituting The AAL Mutual Funds), which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Custodian,
Transfer Agent and Independent Accountants" in the Prospectus and under the
heading "General" in the Statement of Additonal Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Milwaukee, Wisconsin
June 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811869
<NAME> THE AAL MUTUAL FUNDS
<SERIES>
<NUMBER> 5
<NAME> THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND SERIES 2001
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 1708177
<INVESTMENTS-AT-VALUE> 1751033
<RECEIVABLES> 3510
<ASSETS-OTHER> 5203
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1759746
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48932
<TOTAL-LIABILITIES> 48932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1663493
<SHARES-COMMON-STOCK> 164753
<SHARES-COMMON-PRIOR> 171709
<ACCUMULATED-NII-CURRENT> 309
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4156
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42856
<NET-ASSETS> 1710814
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 122349
<OTHER-INCOME> 0
<EXPENSES-NET> 16832
<NET-INVESTMENT-INCOME> 105517
<REALIZED-GAINS-CURRENT> 12745
<APPREC-INCREASE-CURRENT> (24902)
<NET-CHANGE-FROM-OPS> 93360
<EQUALIZATION> 0
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